Muscling back into China won’t be the same

Tahbilk Wines director Alister Purbrick was an inaugural board member of the peak body Australian Grape and Wine which formed in 1990 and said that in all his time in the industry, the last three years had been the most challenging.

“It kicked off with COVID and then in November, 2020 the guillotine came down (with China) and what was easily Australia’s largest export market at almost $1.25 billion almost overnight became a $10 million market,” Mr Purbrick said.

“To put that into context, the USA market was worth about $440 million, and the UK about $390 million.

“The China market was worth more to (Australia) than our second and third biggest ones put together.”

Mr Purbrick said Mother Nature ‘not being kind’ and the Ukraine war also led to a high inflationary environment and logistic issues for exporting.

“Add all that up and it is almost cataclysmic.”

Mr Purbrick said the China market would not return to its heyday.

“You would think we can come in and start to reclaim the market share from our competitors who have been having a lovely time filling the void while we haven’t been there.

“That’s sounds nice on the surface, but this is not a silver bullet solution.

“I think a great outcome for (Australia) would be to reclaim about $550 million of our former $1.25 billion; that would be realistic.

“But I hasten to add that if we can achieve this, China will still be our biggest market, because some of our more established traditional markets such as the US and UK have shrunk.”

Mr Purbrick said a normal harvest for Australia was about 1.6 to 1.7 million tonnes but on current requirements — allowing for the re-entry of China — only 1.2 to 1.3 million tonnes were required.

“This will result in a 25 to 30 per cent decrease in mostly red grape plantings to get our stock-sales balance back into trim.

“That means, sadly, that vines will be pulled out.”

Mr Purbrick also said the industry would not have a consistent recovery.

“There is nothing like a bit of competition to come and muscle your way back into for a bit of market share,” he said.

“But the winners will be those who have got regional prominence, well known icons and flagship wines — Penfolds, Henschke and Tyrrells for example.

“The losers will be the inland red grape growers because the market share that they previously enjoyed is now dominated by Chile, Argentina, South Africa and some European countries, which now are arguably making wines that are just as good as what Australia makes — we don’t have that differentiation on quality at lower price points any more but most of them have lower cost of production.

“So, if Australia comes in at a lower price point, then they’ll simply undercut us.”

According to a report from the University of Adelaide, China’s wine consumption has reduced to about a third of what it was at its peak in 2017.

The report said the decline may be a consequence of local businesses reducing their investment due to profit expectations not being realised and to the austerity measures imposed by President Xi in 2013.

Mr Purbrick said a reduction in banquets reflected this as well as changed consumer choices.

“More wine is consumed at home, but the females have more say now so they are buying more white wine and sparkling.”

Another loss for the industry has been the need of inland red wine producers to store vast quantities of unbottled wine.

“All of that red wine destined for China has been sitting in-tank,” Mr Purbrick said.

“And is still sitting in-tank; and those wines by their very nature don’t have a very long shelf life, so you can imagine there are some 2018 and 2019 reds past their use-by date by now.”

Sam Plunkett from Wine By Sam said the easing of tariffs would not see a return to past exports.

“China will never be that huge monster magical market it once was,” Mr Plunkett said.

“It is also worth remembering that their economy is currently challenged, and that wine is a luxury product there.

“Sales of baijiu, which is their grain-based spirit, are also on the way up which I think is an element of a justifiably proud country celebrating their own beverages.

“However, the ripe, plush supple wine which is suited to the Chinese palate is still a fundamental appeal of our Australian reds.”

Mr Plunkett said consideration needed to be given also to Australian-based Chinese businesses which managed the export distribution.

“The China exports might only be a fraction of our sales, but for them, it was often 100 per cent of their business,” he said.

“We need to remember that these were hard-working people and our own exporters welcomed us down to their homes and they often visited us.

“They suffered just as much as us.”