Last month (March 26), China’s Ministry of Commerce officially announced that import duties between 116.2% and 218.4% will be imposed on Australian wines. The ministry concluded that domestic wine industry had been hurt by the dumping of cheap Aussie wine. To make matters worse, Beijing decided that the anti-dumping punishment will last for 5 years.

Among the major wine exporters, Treasury Wine Estates – owner of the popular Penfolds label – has been slapped with an anti-dumping duty of 175.6%. Yellow Tail, an Australian brand of wine produced by Casella Family Brands will pay a 170.9% tariff. Accolade Wines, which can be traced its beginning to Thomas Hardy and Sons, a company founded in 1853, have to pay the 167.1% import duty.

Other Australian wine exporters will pay up to 218.4% duties. But the damage was already made known as early as November 2020. Australian wine exporters watched in horror as stockpiles of wine stuck in warehouses thanks to “unofficial” boycott from its biggest customer. They had been warned by Chinese importers that shipments of Australian wine will not clear customs.

Now, the damage has been announced. Australian wine exports to China crashed to just US$9 million (12 million Australian dollars) in the December quarter (ended March 31). That’s a huge plunge from 325 million Australian dollars a year earlier. The 96% drop confirms that hefty tariffs imposed by the Chinese government have wiped out Aussie’s biggest export market.

Despite the 96% plunge in export in the quarter, China still remained the largest export market for Australian wine for the full 12-month period because of the large volumes sold in the first few months prior to the tariffs. Overall, total sales to mainland China for the 12 months ended March 31, 2021 were down 24% to A$869 million. That shows how critical the Chinese market is to Australia.

To reduce its losses, the land Down Under had managed to redirect its wine to some other countries. Exports to the United Kingdom were up 33% to A$461 million, while sales to the United States were up 4% to A$432 million. Still, obviously the combined market of the U.S. and U.K. were not big enough to absorb 100% of the losses from mainland China.

However, the impact of the wine tariffs is much broader. Chief executive Craig Garvin of ASX-listed wine group Australian Vintage revealed that red wine grape prices in the high-volume, irrigated wine regions like the Riverland in South Australia had already fallen to about A$530 per tonne from A$770 per tonne due to the punishing tariffs.

It means the pressure on some 800 Australian wine producers could have forced them to dump wines cheaply in the American and British markets as a result of the Chinese’s action to boycott Aussie’s wine. It’s not hard to see how the lucrative Chinese wine market, worth a staggering A$1.2 billion a year, could be wiped out entirely in the current financial year.

Even with an increase shipments from Australia to the U.K., the U.S., Germany, New Zealand and Canada, the value of Australia’s total wine exports fell 4% to A$2.77 billion in the year ended March. And that was only the loss of 1-quarter from the Chinese market. The collapse in mainland China, the largest market to Australia before the diplomatic hostility started, is simply too steep to compensate.

Exports reached a total value of A$2.99 billion (US$2.33 billion) in 2019. If its wine export to Beijing drops to near zero, it means other countries need to absorb nearly half – a jaw-dropping 43% – of Australian wine. But there’s no market huge enough to do that. The only way to do that is for all the countries currently buying from Australia to double their import, which is not possible.

Like it or not, the Australian wine is screwed. Their wine export can never recover – permanently or completely. Unlike China, its premium customer, it’s a cruel market elsewhere. As demonstrated by Treasury Wine Estates, the aggressive “discount war” in the U.S. market saw oversupply of cheap wine that forced it to sell off some of its U.S. brands and assets.

Treasury Wine Estates is the world’s largest listed winemaker with total revenue of A$2.88 billion in 2019. The Australian company, with a market value of US$7.32 billion, operates in Australia and New Zealand, the Americas, Asia, Europe, Middle East and Africa. But thanks to the tariffs, its net profits from mainland China has plunged 37.1% recently. It will be even worse without its premium customer.

It’s not hard to replace Australia as winemakers from Europe and South America have already rushed in to China to fill the market gap. Wine traders in China have already shifted to wine from France, Italy, Spain, New Zealand, Bulgaria, Georgia and Chile last November. It appears all countries have benefited from Australia’s misfortunes.

Chilean wine, which enjoys zero tariffs, is one of the most favourite among wine traders. As of early 2021, there were 201 Chilean wineries exporting their vintages to China, and 20 of them had offices in China. According to Chile’s Ministry of Agriculture, China has been the top destination for bottled wine exports from Chile for three consecutive years.

Even South Africa’s wine saw its wine exports to China skyrockets by 50% after Beijing slapped a 212% tariff on Australian wine in November 2020. The Australian industry may have no choice but to suck it up and adapt. How they plan to adapt is itself a question mark. They have to establish new markets for sure and may not be able to find a premium market as lucrative as China.

For a start, they could offload all their products – 130 million bottles of wine – intended to China in neighbouring Asian countries – cheaply. But even to do that, as admitted by Treasury Wine Estates, it could take two to three years. Then, the Australian wine producers can crawl back to the U.S., its top export market before China’s sudden thirst for wine pushed it as the top export destination since 2016.

Again, America is a different kettle of fish, a place for cheap wines rather than boutique or premium wines. Not only Australian wines have to compete with strong domestic production in California, but also other wine producing nations. According to Wine Australia, the value of wine exports to the U.S. in 2019 was A$432 million – just one third of the value of wine exported to China.

In reality, the impact is more than just A$1.3 billion in export value to China. According to Wine Australia, the wine industry contributes up to US$35 billion (45 billion Australian dollars) to the country’s economy annually. If only Prime Minister Scott Morrison hadn’t flashed his badge and proclaimed himself as the deputy sheriff of Donald Trump back in April 2020.

Other Articles That May Interest You …

• Australia’s Beef Export Worth A$3 Billion To China May Not Recover – Permanently & Completely
• Australia’s $1 Billion Wine Industry In Trouble – China Officially Slaps 218.4% Import Duties For 5 Years Effective Sunday
• Australia’s Treasury Wine Forced To Sell Brands & Assets – Profit Suffers 43% Drop After China’s Tariffs Punishment
• China Will Import Coal From Any Country, Except Australia – PM Morrison Upset Over Impact On The A$14 Billion Industry
• Australia Hopes RCEP Will Fix Problems With China – But It Gets Worse As Beijing Reveals Three Issues With Canberra
• Australia’s Economy Being Hit Again – China Bans Wheat, Lobster, Barley, Sugar, Wine, Timber, Coal, Copper
• China Punish Australia Again – Recession-Hit Aussie Saw Its A$2 Billion Cotton Industry Targeted
• Australia Upset! – China Now Uses “Asian Discrimination” To Target Aussie’s A$38 Billion Education Industry
• Coronavirus Inquiry Backfired On Aussie – China Slaps Tariffs, Warns It Has The Power To Hurt Australia Economy
• Lawsuits For Trillions Of Dollars Against China Over Spread Of Coronavirus – Here’s Why It’s A Waste Of Time
• 3 Coronavirus Variants Discovered – Surprisingly, “Type-A” Found In Americans, Wuhan’s Type-B And Type-C In Europe