After China imposed high tariffs on Australian wine imports and that market has been ruled unviable, local winemakers remain optimistic about moving to promising growing markets such as Thailand and Vietnam.
Image from: Australian Financial Insight
Bruce Tyrrell, a fourth-generation vintner from Hunter Valley and managing director of Tyrrells Wines, said the high tariffs mean that the price of an average bottle of wine sold in China can soar to unreasonable levels.
The price of our wine in Beijing will go up four times. If a bottle sold for A$20 before, it will now go up to A$80, he says.
Therefore, in this case, it is not a viable market for Australia.
There was nothing we could do about it, and we had to go find some new markets.
In the 12 months to the end of September, Australia exported more than A$1.2 billion worth of wine to China, accounting for about 35 per cent of total wine exports.
In recent years, China"s growing middle class and their preference for premium Australian wines has boosted demand for this product.
Tariffs imposed by China's Ministry of Commerce following the preliminary results of an anti-dumping investigation forced winemakers to shift their strategies almost overnight, with major players such as Treasury Wines, maker of Penfolds wines, looking to the growing markets of Taiwan, Vietnam and Thailand.
According to global statistics firm Euromonitor, wine consumption in these markets has been growing steadily over the past five years.
Since 2014, total wine consumption in Thailand has increased by 74% to $1.35 billion (A$1.8 billion).
Similarly, the markets in Vietnam and Taiwan have grown to a value of over A$500 million.
Terrell is optimistic that some of these markets will be able to make up for the 10% of sales he lost due to Chinese import restrictions.
He noted that there is still plenty of room for growth and that there is still demand for Australian wine.
In these countries, we will also face less competition from Europe, he said.
The Europeans now believe that the Chinese government is the best government in the world because it has allowed them to take back some of the market from Australia.
However, while sales growth in these Asian regions may be comparable to the revenue lost in China, Tyrrell does not expect profits in these regions to be as high as in China.
Euromonitor analyst Alejandra Cornelio agrees, saying that many drinkers in these markets will opt for cheaper wines and may need to be convinced to buy Australian wines.
She said some Asian countries have a certain patriotic spirit and support local brands, (and) consumers are more influenced by price than Australian wine drinkers.
Christina Tulloch, CEO of Tulloch Wines, notes that only 5% of her business' sales come from exports, so she is now better off than others.
But she acknowledged that the tariffs would have a huge negative impact on local industries.
She believes that doing business in new Asian markets will be slow.
It's going to take a while for it to become a viable option, and I don't know if there's as much demand for Australian wine in those economies as we're seeing in China, she said.
There is also a huge demand for fine wine in China, and I think there are other markets that need a lot of development before we can see that happen.
Tim Ford, CEO of Treasury Wines, previously warned that China's punitive measures would have a ripple effect in the Australian wine-making industry, but the company remains optimistic it can weather the storm.
We see this as an opportunity to be forced to retool, but we are not starting from scratch, and we will weather the storm with a stronger, more diverse business.