Australian wine makers bet on expected China reopening with big shipments to Hong Kong

FILE PHOTO: Chinese tourists sample wine at McGuigan Winery in the Hunter Valley, located north of Sydney in Australia, February 3, 2018. REUTERS/Tom Westbrook/File Photo

By Peter Hobson and Lewis Jackson

CANBERRA (Reuters) – Australian wine makers have shipped millions of bottles of wine to Hong Kong in a bet that China will soon lift tariffs on Australian wine and revive a trade worth hundreds of millions of dollars, according to industry figures and trade data.

FILE PHOTO: Bottles of Penfolds Grange wine and other varieties, made by Australian wine maker Penfolds and owned by Australia’s Treasury Wine Estates, sit on shelves for sale at a winery located in the Hunter Valley, north of Sydney, Australia, February 14, 2018. REUTERS/David Gray/File Photo

Australia sent wine worth almost $800 million to China in the year to November 2020, when Beijing responded to a call in Canberra for an inquiry into the origins of COVID-19 by blocking imports.

But China has been lifting trade barriers on other goods as relations improve and Australian officials and industry expect a review of the wine tariffs begun by Beijing last year will lead to their removal next month.

Australia’s government said in December it was confident the tariffs would be lifted in early 2024. In November, Prime Minister Anthony Albanese was the first Australian leader to visit China in seven years, hoping to improve relations.

A diplomatic confrontation over a suspended death sentence given by a Chinese court to an Australian writer should not imperil progress on trade, Australia’s trade minister said this week.

Trade data show that Australian wine makers sent almost 2.5 million litres worth $65.5 million to Hong Kong in December, up from around 685,000 litres a month in recent years and the most since September 2019.

Among those shipping to Hong Kong is DMG Fine Wine, whose brands include Handpicked and House of Arras.

Chief executive William Dong said DMG typically sold 1-2 containers of wine a year in Hong Kong but now had 10 in the territory, each containing around 12,000 bottles.

Most of the wine is earmarked for China, he said.

“We’re hoping the door to China will open and everything will go in … We are getting everything ready to go.”

Hong Kong is a trade hub and potential staging post for deliveries into mainland China. It did not impose tariffs on Australian wine.

SHRINKING MARKET

The shipments to Hong Kong are far below the roughly 10 million litres of wine a month that Australia sent to China before the tariffs.

The number of shippers was also smaller, with Industry body Wine Australia saying there were 531 exporters to Hong Kong in December, 138 more than a year earlier but less than the 2,366 who exported to mainland China in December 2019.

China’s appetite for wine has fallen in recent years — part of a global trend of declining alcohol consumption compounded in China by a change in preferences towards beer and spirits — and rival exporters such as France and Chile have taken Australia’s share of the market.

The loss of sales to China has contributed to a severe oversupply in Australia, where the amount of wine in storage has risen to more than two billion litres.

But Australian wine makers said they were optimistic that they can become the biggest shipper into China again within a few years.

“Lots of Chinese customers view Australian wine positively,” said Richard Burch, who said his company Burch Family Wines had sent around 1,500 bottles to Hong Kong to be used as samples for distributors in China if tariffs are lifted.

While less wine is being sold, Chinese drinkers are moving towards more expensive bottles, preserving margins for wine makers.

The average value of Australian wine sent to China rose from roughly $4 a litre in 2016 to $10 in late 2020, and the bottles shipped to Hong Kong in December were worth on average around $26.50 a litre, customs figures accessed using Trade Data Monitor show.

The value of wine sent to Australia’s two other main export markets, Britain and the United States, is between $1 and $3 a litre.

The chief executive of Australia’s largest wine maker, Treasury Wine Estates, said China was a “significant growth opportunity” for Treasury’s higher-priced Penfolds wines.

Tim Ford said Treasury had not shipped wine for China to Hong Kong.

“What we plan to ship in this year ahead is sitting in the warehouses here in Australia,” he told analysts on Thursday.

Other major producers of wine in Australia including Casella Family Brands, Australian Vintage and Pernod Ricard did not respond to requests for comment.

Announcing its agreement with Canberra to resolve the wine tariff dispute last October, China’s commerce ministry said China was willing to meet Australia halfway through dialogue and consultation and to jointly promote the healthy development of economic and trade relations.

(Reporting by Peter Hobson and Lewis Jackson; Additional reporting by Casey Hall; Editing by Kim Coghill)