China and Australia have endured a chequered diplomatic history. In Tim Marshall’s book The Power of Geography: Ten Maps that Reveal the Future of Our World, he points out that while we see China and Australia as geographical neighbours, Warsaw is the same distance from Beijing as Canberra, and we rarely discuss China and Poland in the same conversation.
“When it comes to China, Australia must walk a difficult line between economic interest, defence strategy and diplomacy. China is by far its biggest trading partner, although levels of investment fluctuate, sometimes aligned with those of diplomatic warmth.” It’s no surprise then, that during “diplomatic warmth” China was a big spender in the Australian wine market. In fact, by 2019 China had become one of Australia’s biggest wine customers, buying more Aussie wines than French and equating to a third of its total exports. Yet the following year Beijing imposed taxes of more than 200% on various Australian exports, including coal, barley, timber, lobsters and wine. This depleted exports, with representatives of Australian wine declaring losses of around £1bn that year according to a BBC report.
But then, just like that, four years later China has reversed these tariffs, once again opening the door to the Australian wine trade. According to Australia’s labour prime minister Anthony Albanese, it’s his new government which has rekindled the countries’ relationship. “This outcome affirms the calm and consistent approach taken by the Albanese Labour government and follows the success of the similar approach taken to remove duties on Australian barley,” said Albanese in a statement.
Regardless of the political chess game unfolding at the top, this is unquestionably good news for Australian wine. Tim Ford, chief executive of Treasury Wine Estates, owner of Penfolds, says: “In response, the company will begin to expand its premium and luxury Australian wine distribution in China as well as increasing investment in local sales and marketing resources.
“The removal of tariffs on Australian wine exports to China is terrific news and is cause for celebration across the Australian wine industry and with our partners and consumers in China. It’s testament to the continued stabilising of relations between both countries by the respective governments and the ongoing partnerships maintained between Australian businesses and our Chinese counterparts.
“Treasury Wine Estates has remained committed to China as demonstrated by our continued investment in the market through our local presence with more than 120 team members and partnerships contributing to Penfolds’ continued strong brand awareness in China.
“This announcement signals the start of our ramp-up to re-establish our Australian luxury and premium wine distribution in China and it shouldn’t be too long before local Chinese consumers have more access to our great wines.”
Positive news
Prior to the tariffs, China was Australia’s largest wine export market valued at around $1.2bn and, while it will take time to rebuild given the changing environment and consumer preferences, it’s still positive news for the Australian wine industry.
“We’re excited to bring more of our Australian luxury and premium wines back to the China market, but we’re mindful it will take time to sustainably regrow both supply and demand. We’ll also maintain the strong momentum of growth in key global markets where Penfolds has successfully grown its business in recent years.”
Penfolds makes wine all over the world including in France, the US and Australia. But in 2022 the brand released its first Chinese wines for the domestic market and opened a local ‘production hub’ in order to re-capture the sales lost by the tariffs.
Just last year TWE also launched its first Chinese wines available for exports as part of its 2023 Penfolds Collection, suggesting the company sees quality in its China-made wines, making them viable for sales beyond the domestic market.
Ford continues: “The recent Penfolds China wine releases have received great consumer feedback and praise from wine critics, and we’re continuing to explore increased winemaking opportunities in China as well as broadening our global luxury wine portfolio.
“We’re thankful to the governments in Australia and China for working tirelessly to stabilise relations between both countries, with this work ongoing as we continue to foster our local winemaking ties in China.”
This latest development is great for Australian wine in general, but given how quickly China has imposed and retracted these tariffs, producers need to be proactive by either reducing their dependence on exports to China, or follow Penfolds’ tactic of producing Chinese wines in order to be immune to spontaneous trade disputes.
As a nation, Australia is heavily reliant on Chinese trade, including wine, and therefore Australia’s diplomatic tactics need to be simultaneously cunning and firm in order to ensure a fruitful future. In Marshall’s chapter on Australia/China relations, he concludes: “With the Indian Ocean to the west, the Pacific to its east and to the north, China. For now, Canberra will attempt to forge a constructive dialogue with Beijing with one eye on the economy, and maintain defence with the USA – and it’ll play it tough all the way.”
