Is Australia likely to recover from the devastating loss of the China wine market?

I come from Australia, where in the 2000s the wine industry literally rode upon the camel’s back of the Chinese wine consumption market. Sadly, this market collapsed in late 2020, when the Chinese government retaliated in response to one of Australia’s senior politicians suggesting publicly that China should be officially investigated about the origin of the SARS-CoV2 virus (and the ensuing Covid19 global pandemic). The Chinese were never investigated, but Australian wine was slapped with an onerous import tariff (as high as 218%), making the wine uncompetitive in China.

This went on for several years, during which the Australian wine industry suffered badly from the loss of one of its biggest export markets (How China is devastating Australia’s billion-dollar wine industry). The Chinese tax was removed in March this year (China lifts penalties on Australian wine after more than three years), and it is therefore of interest to see how things are faring now.

Back in 2019, before all of this occurred, I innocently asked in a blog post: Will the slowdown in the Chinese wine market catch up with Australia and Chile? China had, at that time, been the world’s fastest-growing wine market, being then ranked as the number 2 still-wine consumer by value and number 5 by volume. Given the small size of Chinese wine production, this made China a significant import market, worldwide.

Australia had had considerable success at targeting this market, as I showed in that blog post. Therefore, the effective loss of this market was a devastating blow to the Australian wine industry.

However, in a later (2021) post I noted that there had already been a decrease in wine consumption in China dating from 2016 (So, why has China gone off the boil?), and a decrease in production that had started in 2012. China thus downgraded from been the second largest wine market in the world; and so Australia was already losing a large market anyway.

Furthermore, earlier this year, in another blog post (The demise of the Australian wine industry? Part 2), I noted that there has been a downturn in the global wine industry, with an over-supply of wine; and Australia’s situation with China is at least simply a part of this broader issue. So, the anticipated return of the Chinese market as a destination for Australian wine may not be the hoped-for panacea.

Indeed, the changed China wine market was analyzed in 2023 by Kym Anderson (What’s happened to the wine market in China? Journal of Wine Economics 18:173-183). He produced the graph below, and commented:

Coinciding with COVID has been the imposition of punitive tariffs on China’s wine imports from Australia since the end of 2020. While that has had a large impact on Australian producers, on its own it is estimated to have reduced China’s total wine imports by less than 1%, because China was able to, and did, source more wine from other wine-exporting countries. So if Australia were to be able to claw back its 2018–2020 share of China's wine imports (one-quarter by volume, a little over one-third by value), that would amount to an export increase of not 130 ML or U.S.$750 million per year but perhaps only half those amounts.

So, things have changed in China, with a smaller market, established players, and emerging trends. For Australia, we now seem to have (What are Chinese wine importers seeking in Australian wines in post-tariff era?):

The most notable difference from three years ago is wineries’ current emphasis on securing reliable, long-term partnerships over merely chasing volume. This marks a more rational approach in today’s dealings. When asked about the support they anticipate from Australian wineries, wine merchants expressed a desire for marketing assistance, including winery tours, tasting events, and exhibitions. Recently, the South Australian government has launched a AU$1.85 million support scheme to help wineries to re-enter China. AU$600,000 of the grant was earmarked for two-way market activations and support.

So, the current 2024 situation (Australian wine pours back into China as tariff-free shipments surge to over US$10 million in April) appears to be:

China imported over US$10 million of wine from Australia in April, up from US$126,000 a year earlier, after it lifted punitive imports tariffs at the end of March. This represents a roughly eighty-fold increase, according to Chinese customs data. Imports by volume, meanwhile, increased more than seven-fold year on year to 462,518 litres (813,918 pints). As a result, Australia’s share of China’s wine imports rose from 1.45 per cent in March to 10.52 per cent last month, making it the third largest wine supplier after France and Chile.

This is certainly good news. However, at the same time, Jeremy Oliver, the Aussie wine critic most active in China, explains the post-tariff market:

“So the tariffs came in when Australia was selling (depending on which numbers you read) something like between $1.4 and $1.5 billion of wine to China per annum, and our next biggest export market at the time would have been the US at about $3.33 million, so [it was] nearly four times the size of our next biggest export market” said Jeremy Oliver, one of Australia’s leading wine critics. “My guesstimate based on a whole series of rational assumptions: we might be able to get that market back to about $250/$300 million or thereabouts; nothing like the $1.4/$1.5 billion,” he said.

Indeed, if we look at the new market in China (Here are China’s 50 top wine importers), in terms of companies, we have:

In the first five months of the year, the total number of bottled wine importers had contracted to 4,175. Among them, only a handful are identified as large wine importers with import value exceeding US$10 million. The bulk of China’s wine imports is driven by medium- and small-sized companies. Wine companies importing less than US$10 million per year represent more than 82.3% of the country’s total imports. Furthermore, small companies importing between US$1 million and US$5 million, account for more than half of the total imports — 52.4% to be exact, according to the association.

So, the current practical response to the global wine situation is still that Australian farmers rip out millions of vines amid wine glut:

Millions of vines are being destroyed in Australia and tens of millions more must be pulled up to rein in overproduction that has crushed grape prices and threatens the livelihoods of growers and wine makers. Falling consumption of wine worldwide has hit Australia particularly hard as demand shrinks fastest for the cheaper reds that are its biggest product, and in China, the market it has relied on for growth until recent years. Red wine has suffered the most. In regions like Griffith, prices of the grapes going into it fell to an average of A$304 ($200) a ton last year, the lowest in decades and down from A$659 in 2020, data from industry body Wine Australia show. “It feels like an era is ending”, said Andrew Calabria, a third-generation vineyard owner and wine maker at Calabria Wines.

Sadly, the Australian government does not fund growers to exit an industry (Inland wine grape growers seek government support to exit industry with dignity amid wine glut), as opposed to the support package they have announced (described below). *

That is, the Good Old Days are definitely gone. Indeed, just for irony: China threatens retaliatory tariffs on EU wine amid trade disputes. What goes around comes around again.

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* The Australian government has announced a new support package for the Australian wine industry; and it has been claimed that 350 Australian wine producers and businesses have re-established exports to China since the tariffs were removed (Exports to China surge $86 million as government reveals support package). This is the optimistic point of view, which I am suggesting here may not be too realistic in the long term.