The Australian wine industry, which faced a severe blow from the tariffs imposed by the Chinese government during 2020-21, may find respite as signs emerge indicating the potential lifting of these tariffs. Industry analysts at IWSR have examined the evolving landscape of the Chinese wine market and its implications for Australian wine producers.
Last week, hopes for tariff relief soared following an interim recommendation from the Chinese government suggesting that duties on Australian wine might no longer be necessary. This development comes as China undertakes a review of its tariff policies, as part of an agreement that saw Australia halt its dispute with the World Trade Organization. The agreement is set to remain in effect until March 31, fueling expectations for a prompt announcement from China and the potential removal of tariffs on Australian wine.
Despite this positive outlook, Australian wine may not immediately reclaim its previous stronghold in the Chinese market, which generated sales worth $1.2 billion. The absence of Australian wine over the past three years has allowed competitors like Chile and South Africa to fill the void. Moreover, IWSR highlights shifts in the Chinese wine market, with overall volumes contracting in recent years.
Shirley Zhu, Research Director for Greater China at IWSR, remarked, “2022 posed significant challenges for China’s alcohol industry, with rolling lockdowns and social restrictions limiting consumption, and consumer spending experiencing a downturn. Challenges persist with overstocks, as the Chinese market’s recovery post-Covid has been slower than anticipated.”
According to IWSR data, total wine sales in China witnessed a volume decline of 26% from 2021 to 2022, marking a compounded annual growth rate (CAGR) of -16% from 2018 to 2022. While 2024 is expected to present ongoing challenges, forecasts suggest less pronounced declines, with a volume CAGR of approximately minus-two percent anticipated through 2027.
Despite these hurdles, consumer recall data from IWSR indicates that Australian wine remains among the top three recalled purchased countries of origin, suggesting a positive sentiment towards Australian wine among Chinese consumers. This sentiment could potentially fuel a swift rebound in sales once the supply chain has recuperated.
Another notable shift in China’s wine landscape is the rising awareness and appreciation of locally-produced wine, particularly from regions such as Ningxia, Shandong, Shanxi, and Xinjiang.
Acknowledging the need for a structural overhaul, many industry stakeholders believe that the rebound for Australian wine necessitates addressing the industry’s oversupply issue. This surplus, dating back to 2017 when Chinese wine consumption began declining significantly, has been exacerbated by continuous production of cheaper wine despite market shifts. With Australian wine stocks currently at an all-time high, wineries face challenges of oversupply, further compounded by anticipated upcoming vintages.
Drawing parallels with France’s response to addressing surplus in Bordeaux, Australian wineries may need to consider measures such as vine uprooting, compensation for growers, and distillation campaigns to alleviate overstocks.
While re-entry into the Chinese market may not serve as a panacea for Australian wine, producers remain hopeful that it will contribute to improving the industry’s outlook.
