Australia’s largest wine company, Treasury Wine Estates, says its imports into China have been slugged with a massive 169.3 per cent tariff, and it will implement emergency measures to minimise the damage.
Trade relations between Australia and China deteriorated even further late last week after Beijing imposed crippling import taxes, ranging from 107 to 200 per cent, on all Australian wine.
The move followed the preliminary findings of a Chinese anti-dumping investigation, which claimed Australian winemakers were selling wine below the cost of production, and causing China’s winemakers “substantial harm”.
Treasury Wine Estates said it expected demand for its wine in China to be “extremely limited” from now on.
The tariffs, or so-called “anti-dumping security deposits”, will be charged to Chinese importers who order Treasury’s wines in bottles of two litres or less.
A panic sell-off led to Treasury’s share price tanking (-11.3 per cent) on Friday, forcing the company put its shares in a trading halt.
Its shares are now trading again and by 11.45am AEDT, on Monday, had plunged by a further 5.9 per cent to $8.69.
In the wider context, the coronavirus sell-off and worsening Australia-China relations have caused Treasury’s share price to fall by more than half since late January (when its shares were worth $17.80).
Desperate times, desperate measures
The winemaker, known for its brands Penfolds, Wolf Blass, Lindeman’s and many others, said the Chinese market accounted for 30 per cent of its earnings in the past financial year, and two-thirds of its sales to Asia.
Within that total, Treasury’s luxury and “masstige” (mass prestige) wine make up 91 per cent of that revenue, and 63 per cent of volume.
“We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position,” chief executive Tim Ford said in a statement to the ASX.
“We will continue to engage with MOFCOM [the Chinese Ministry of Commerce] as the investigation proceeds to ensure our position is understood.
“We call for strong leadership from governments to find a pathway forward.”
However, there is no doubt this will have a significant impact on many across the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector.’’
Under Treasury’s contingency measures, it will “reallocate” its Penfolds Bin and Icons ranges from China to other luxury growth markets with “unsatisfied demand”.
That includes Asian countries outside of China, Europe, the United States and domestically in Australia.
The winemaker will also spend more on sales and marketing to drive demand in those regions, and expand its distribution footprint there.
Treasury will also engage in cost-cutting, while reallocating its luxury grapes to its other brands like Wynns, Wolf Blass, Seppelt and Pepperjack, which it says have been “significantly supply-constrained over recent years”.
Under China’s anti-dumping regulations, initial tariffs will last for up to four months (until March 28, 2021), and under “special circumstances”, may be extended to nine months (August 28, 2021).
‘Devastating blow’ to the wine industry
The wine tariffs came after China’s Commerce Ministry gave informal instructions to importers to suspend orders of wine and six other types of Australian exports earlier this month.
Australia’s wine production industry earned $7 billion worth of revenue in the past financial year, according to market research firm IBISWorld.
“Of that amount, $2.9 billion was generated from exports,” said IBISWorld’s senior industry analyst Matthew Reeves.
“China is the dominant market for Australian wines, accounting for 36.7 per cent of export revenue last year.”
With tariffs of up to 200 per cent on some winemakers, he expects China’s demand for Australian wine to “almost entirely collapse”, given Australia will effectively be locked out of the Chinese market.
Mr Reeves expects wine prices to fall, and the big players which sell “premium wine” to adapt better – when it comes to finding new buyers outside of China.
“Producers will attempt to divert supply towards other export markets, but the amount of product that will need to be redirected is anticipated to exert significant downward pressure on wine prices,” he said.