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China tariffs to squeeze jobs, production in leading SA wine regions

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South Australian wineries are already looking to cut staff, reduce contracts with grape growers and cancel bottling runs in the wake of harsh tariffs that have halted wine exports to China.

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The Chinese government announced on Friday it would impose duties on Australian wine of between 107 and 212 per cent following an “anti-dumping” inquiry announced as part of a suite of measures in past months targeting Australian exports.

The provisional measures will stay in place until August 28, 2021, at the latest. Final determination of the anti-dumping investigation will determine whether the provisional measure becomes permanent.

China is Australia’s largest wine export market with $1.2 billion worth shipped last financial year.

The Barossa and McLaren Vale are the number one and two Australian regions for labelled bottled wine by export value to China. Coonawarra and Clare Valley are also in the top 10.

McLaren Vale Grape Wine & Tourism Association general manager Jennifer Lynch said the peak body had been flooded with calls from concerned exporters and had held several crisis meetings with members since the tariffs came into effect on Saturday.

She said wineries were already making plans to cut staff numbers in the new year, reduce or end contracts with growers for the 2021 vintage and hold off on package wine from the 2019 vintage earmarked for the bottling line.

“For any of our producers and particularly our exporters, supply chain impacts, grower contracts, bottling projections for vintage ’19 and ’20 – all of these decisions are within the normal day to day of operations,” Lynch said.

“But they have immediate impacts when you are looking at export opportunities ceasing almost overnight and when you have supply chain considerations then further impacts will be felt in employment too.”

McLaren Vale exported $39 million of wine to China in the 12 months to September 30. However, that figure was down from the $50 million in exports the previous year because of the coronavirus pandemic and the announcement of the Chinese investigation in August.

Lynch said the association would meet with Federal Trade Minister Simon Birmingham on December 14 where it would put forward a number of recommendations to help ease the impact on the industry.

“We’ve continued to work with various federal and state agencies and we remain encouraged that there continues to be dialogue sought between the Australian Government and relevant Chinese authorities and we’re looking forward to meeting with the minister,” she said.

“We have some potential recommendations for consideration that have come from a group of high-value and high-profile producers that are really at the forefront of what it means for our trade relationships.

“We believe that what we are putting forward would also be beneficial for other regions across the board. These are not necessarily immediate tactical solutions but they are strategic.”

Lynch said at least six McLaren Vale exporters she had spoken to had wine either on the water to China or in customs that they were trying to find out what would happen to.

The average price of McLaren Vale wine exported per litre is more than three times the national average. Barossa wine is more valuable again.

According to Wine Australia data, about $120 million worth of bottled wine labelled Barossa Valley was exported last financial year, the most of any individual Australian wine region.

Barossa Wine chief executive James March said about half of the region’s wine exports by value went to China.

He said while some Barossa wineries had held off on sending shipments to China in recent months, there were also some shipments on the water, about to land in China or subject to customs clearance when the tariffs were imposed.

What would now happen to that wine was up to the individual companies involved and would depend on the relationship they had with their importer, he said.

“At the moment our priority is the ongoing co-operation to the process and our second priority is to robustly explore additional opportunities within the domestic and export markets,” March said.

“I don’t think there’s an immediate quick fix to the market diversification but we have been actively working in a number international markets and the domestic market to build on some of the strategies that have been prevalent in our market development with China.”

Australia’s wine exports to China grew to $1.26 billion in the 12 months to September 30 as total Australian wine exports reached almost $3 billion, their highest level since 2007.

March said although it was still too early to tell what the full impact of the decision would be, “uncertainty is always troubling”.

“There are potentially serious ramifications but it’s still early days in terms of how these measures will play out – they were only notified on Friday that the decision would come in on Saturday,” he said.

“It’s important to remember that the Chinese consumer still has an affinity for our wine, they won’t necessarily be able to access it because of the trade barrier, but it isn’t an issue that has been put on them by something Australian wine has done.

“We’ve had challenges to our industry before – over a long period of time. There was COVID and before that the GFC and ongoing challenges to the market and we’re a remarkably resilient industry and I just think we need to focus on that.”

In August, China announced it had launched an anti-dumping investigation into Australian wine.  A second investigation was subsequently launched by China into countervailing duties.

As per the ruling by China’s Ministry of Commerce, interested parties have 10 days to respond to the November 27 announcement and Australian Grape and Wine has indicated it will lodge a submission refuting the allegations of dumping.

The Federal Government has also said it may take its case to the World Trade Organisation but that process could take many months.

SA Wine Industry Association chief executive Brian Smedley said there was disbelief at the severity of the tariffs locally and recognition that the percentage was of such a high level that the Chinese market would be unviable to sell into for most if not all exporters.

He said unless the appeals were successful the tariffs could be increased, reduced or scrapped in August next year.

“All of those options are possible but given where we are at with the situation, I suspect we are not expecting anything other than the same going forward for a little while or for a long time,” Smedley said.

“This is in relation to the anti-dumping investigation and has nothing to do with the countervailing duty investigation and that’s of concern.

“But even if they did pile on another range of duties it’s probably not going to make much difference as the damage is already potentially done and the longer it goes the more concerning it is.”

Smedley said it was his understanding that the differing levels of tariffs were applied based on a wine company’s willingness to participate in the Chinese investigation, with those who abstained earning the full 212.1 per cent tariff and penalties for participating businesses ranging from 107.1 per cent to 169.3 per cent.

“The majority I think are on 160.6 per cent but what I can’t identify is the reasons why the companies that did participate had a differential rating.

“Whether it’s 107 or 212 it doesn’t make a lot of difference … I just can’t see how an exporter can participate.”

Smedley said the impact would be felt right through the supply chain.

He said companies needed to quickly assess their business as a whole to see if there were other markets that wine earmarked for China could be sold into.

“If there’s not then what are their contractual relationships with all of those various elements along the supply chain and how easy is it to undo?

“Is there an opportunity to reduce costs, is there an opportunity to reduce intake for the upcoming vintage because you’ve basically got to cut your cloth to whatever is required given the circumstances.”

In the past five years China has overtaken the US as Australia’s largest wine export market by value and Australian wine has taken the No.1 place from France for imported wine sales in China.

Quickly establishing new export markets has been touted as one possible solution but Smedley said ”you do not establish new markets overnight”.

“We built capability in China over 15 years so if they’re looking at diversification of markets there’s a number of things that will be critical to determine where it is you want to go,” he said.

“As we’ve seen in the past with the GFC, it’s taken a while for us to re-orientate ourselves and face what the reality is to go froward and see what we have to do to make sure we can support our businesses.

“It may not yet be a closed door – it’s pretty close – but we just need to recognise that China does have an important part to play in wine consumption, it is an important market for us and thing may change over a period of time that will then make it a viable market for us again.”

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