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Uncorking opportunities: Australian wine finds its way back to China

Post-tariffs, Australian wineries navigate the peaks and valleys to win back their foothold in the China market.
Post-tariffs, Australian wineries navigate the peaks and valleys to win back their foothold in the China market.
16 May 2024 •

Before the onset of the Covid-19 pandemic, Australian wine was flourishing, propelled by its significant exports to China. As the world’s largest consumer market, China was also the largest importer of Australian wine, fueling the industry’s expansion in the 2010s. However, the landscape shifted drastically in 2021, when China’s imposition of tariffs halted the industry’s success.

“There was a complete collapse in terms of Australian wine shipments to China, to the extent that 97 percent of the volume was gone. Wineries were only able to ship 3 percent of what they previously shipped to China,” said Olivier Daull, CEO, Hillebrand Gori Asia Pacific.

Now, as the industry paves new ways to recovery, Australian wine producers have embarked on a journey to reclaim lost ground in the Chinese market, while diversifying to new markets, uncovering opportunities for Australian wineries.

Australia - the land of liquid gold

Australia's sprawling landscapes, blessed with abundant sunshine and diverse climates, create the perfect canvas for winemaking. Along sun-kissed valleys and breezy coastal regions rested some of the major wineries of the country, setting the stage for the world-class wines renowned for their depth and complexity.

Australia’s wide range of climates make it suitable for grape cultivation, allowing it to produce a variety of wine styles, from crisp cool-climate whites to full-bodied reds.
Australia’s wide range of climates make it suitable for grape cultivation, allowing it to produce a variety of wine styles, from crisp cool-climate whites to full-bodied reds.

With these optimal conditions, it is no surprise that Australia earned its place as the sixth-largest wine producer globally. With 60 percent of wine production earmarked for export, the country plays a significant role in the international wine trade.

Among these exports, China stood as the largest market before the pandemic, presenting 40 percent of the country’s total wine exports. The quality and diversity of Australian wine appealed to the vast population of China, allowing them to even surpass French wines in terms of volume and value of importation in 2019.

Sailing through trade turbulences

When the Covid-19 pandemic hit, it swept through the global economy, disrupted supply chains, and created unprecedented challenges. The Australian alcoholic beverage industry, which was already suffering from the drop in consumption patterns, faced another looming challenge.

Trade tensions between Australia and China built up on the backbone of existing political disputes eventually led to China imposing tariffs of up to 218 percent on Australian wine – a move that would drastically impact local wineries.

Given the significance of the China market, Australia struggled to adjust to the huge market gap left behind. The immediate response from many wineries was to yield their grape production, or to switch production to other crops. Those who stuck to wine production started exploring alternative markets to redirect their stocks.

Furthermore, when the tariffs were imposed, some wineries had stocks already in transit from Australia to China. In anticipation of tariff removal, many made the swift decision to divert their stock to Singapore or Hong Kong for storage. The proximity to China would ensure that their wine is readily available in the region to be shipped if and when the tariffs were suspended.

While most of the wine was safely preserved in storage facilities or returned to Australia, some had to be disposed of as they were no longer fit for consumption after the three-year suspension.

Singapore and Hong Kong are abundant in advanced warehouse facilities, and strong logistics networks, making them suitable locations for wine storage.
Singapore and Hong Kong are abundant in advanced warehouse facilities, and strong logistics networks, making them suitable locations for wine storage.

As more time passed, Australian wine producers started new ways to bring those wines stuck in Singapore and Hong Kong out to the market. Some decided to distribute them in the local market, while others re-exported them to neighboring countries. This, however, meant having to adjust to a new series of regulations for each of the respective markets.

“A few Australian wineries did face some regulatory constraints,” Daull explained. “If you have a back label in Chinese for the China market, you cannot easily distribute this wine in other countries. Labels typically need to either be in English, or the local language used by the market. At Hillebrand Gori, we provided re-labeling services in Singapore and Hong Kong, so that the wine could be distributed to a local market in Asia if the wineries wanted to.”

Australian wineries were able to leverage on the expertise of wine logistics companies to ensure smooth market transition for their products.
Australian wineries were able to leverage on the expertise of wine logistics companies to ensure smooth market transition for their products..

Over the following years, Australia wineries worked to re-establish the position and recognition of their wines in major markets such as the United Kingdom (U.K.), the United States (U.S.), Canada, and New Zealand. Wineries also paid closer attention to domestic consumption, leveraging local pride to break away from their reliance on foreign markets.

The resurgence of Australian wine post-tariffs

After three years, long-awaited relief finally descended upon Australian wineries. In March 2024, China announced the removal of anti-dumping and anti-subsidy tariffs on Australian wine.

With the tariffs being lifted, Chinese retailers are eager to reignite their pre-Covid business ties with Australia. Meanwhile, across the Pacific Ocean, Australian wineries are also busy preparing their stocks for the upcoming influx of orders.

“We are seeing a large number of requests for quotes, orders, or shipments. We have already shipped many containers since the tariffs were lifted just a few weeks ago,” said Daull. “There is a boom in demand.”

With the tariffs now removed, there has been a surge in Australian wine shipments to China.

Despite the re-opening of their once-largest export market for wine, Australian wineries are still adjusting their market priorities with caution. As Australia’s Assistant Minister for Trade, Tim Ayres puts it, “It’s never good to put all of your eggs in one basket in business terms.”

While the Chinese market presented significant sales opportunities, wine producers are wary that diplomatic tensions between the two countries could drastically impact Australian wine exports and are warily anticipating potential challenges in re-entering the Chinese market.

For starters, the three-year absence of Australian wine from China allowed Chinese consumers to discover more wines outside of Australia. Consumers have grown accustomed to New World wines from California, South Africa, or Chile, as opposed to traditional wine producers like Australia.

Australian wine now faces tough competition from other wine-producing countries in the China market.Australian wine now faces tough competition from other wine-producing countries in the China market.
Australian wine now faces tough competition from other wine-producing countries in the China market.Australian wine now faces tough competition from other wine-producing countries in the China market.

Additionally, China has expanded its vineyards, becoming one of the largest players in the wine production market. This intensified competition in the local market and presented a major marketing challenge for Australian wines to regain their foothold in China.

However, the persistent efforts of Australian wine producers to explore new markets have paid off. Australian wine now enjoys a stronger presence not only in established markets but also in emerging Asian countries. Despite a significant downscale in production, Australia remained the sixth largest global wine producer in 2023.

“Time will tell if the Australian wineries will be able to pick up where they left off with the China market. While it is unlikely that 40 percent of Australia’s wine export will be for China as before, there is clearly a will to bring Australian wine back into China”, said Daull.

Uncorking the future of wine consumption

With the drastic changes in the dynamics of the global wine trade, wine producers are now striving to ensure their products remain competitive and relevant.

Australian wineries are now stepping back to reassess the shift in their customer demographic and preferences.

Particularly, the rise of Generation Z has brought new trends to wine consumption.

Poised to occupy 27 percent of the workforce by 2025, Gen Z consumers have the potential to become a major consumer demographic. The generation is also well aware of their growing purchasing power and their influence over brands. Following a greener agenda, younger wine enthusiasts are gravitating toward higher-quality and premium wine, with clear origin and sustainable production in mind.

As Gen-Zs show their interest in discovering wine, it is crucial for producers to quickly identify and adapt to new market trends.
As Gen-Zs show their interest in discovering wine, it is crucial for producers to quickly identify and adapt to new market trends.

“The biggest trend that we have observed overall is the change in how the consumers perceive wine,” said Daull, who cited the health-consciousness trend following the Covid-19 pandemic as the key reason for the rising demand for non-alcoholic or medium-strength alcohol.

“A clear trend that we’ve seen across consumers in different country markets, starting with Gen Z consumers, is that there is now an interest for lower or medium-strength wines,” noted Daull. “This does pose a new challenge for Australian wines, which are traditionally stronger in alcohol content, cultivated for a bolder palate. But most wineries are adapting and adjusting well and stepping up on production of wines with lower alcohol content to cater to the demand,” said Daull.

With the transformation of the wine market post-pandemic, comes inevitable changes that are redefining the industry's norms. Like fine wine that matures with time, wine producers must draw from the lessons of the pandemic and adapt to any uncertainties in this ever-changing market.