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China - emerging market or competitor?
Name: Richard Smart
The Wine Australia website claims: 'China has been the fastest-growing export market for Australian wine in recent years, and is now the third largest destination for bottled exports. In the 12 months to the end of March 2012, the value of bottled exports increased by 37% to A$192 million, the volume by 28% to 31 million litres, and the average value by 7% to A$6.11 per litre.
Significantly, exports priced at more than A$7.50 per litre rose 47% to A$84m, putting China in first place in this category, ahead of the US (A$48m), Canada (A$47m), Hong Kong (A$35m), Singapore (A$31m) and the UK (A$30m). Australian wine is now the second largest imported wine in China, with a 14% market share in value and 13% in volume'.
This all sounds good, just like the heady days of the 1990s when nothing would stand in the way of the Australian wine exporting juggernaut; watch out world! Now, it is watch out China!
Sadly, we all know what happened in the mid-2000s. Australia lost its market share in exports, and in the domestic market, to other New World wine-producing countries, primarily New Zealand. This was an incredible failure of the bodies entrusted with sector strategy development not to anticipate what was going to happen, and not to issue warnings. I wrote an article in the Australian and New Zealand Wine Industry Journal, the forerunner of this magazine, in May 1994, titled 'Australia's competitive advantages in wine exports; what are they?' I concluded none, that Australia had no sustainable competitive advantage over other New World producers. In another article published in the March/April ANZWIJ, 'The Australian wine sector: is the outlook healthy?', I wrote that Australia was being out-competed in export markets and failing to develop production of cool-climate vineyards and, so, meet market demand. (At this time, however, we were still burdened with the then Australian Wine and Brandy Corporation's definition of 'cool climate' as anything but the inland irrigated regions; no wonder producers were confused!)
That may be enough promotion of my skills of clairvoyance. However, is Wine Australia reading China properly now? Should we be encouraging exports to China as a salvation to the grape and wine surplus or, rather, saying that future Chinese wine production will put the final nail in Australia's coffin of cheaper wine exports, and maybe even premium wines (and, for some other producing countries as well)?
My vote is for the latter, at least in the medium term (say, 20-30 years), and this column explains why.
Some world statistics
Recent world statistics from the International Organisation of Vine and Wine (OIV) released in 2011 show some interesting trends. The world's vineyard area is contracting, from a recent high of 7.9 million hectares in 2003. China and Argentina are the only two of the top 14 with increasing area; the rest, including Australia, are decreasing. The grape area includes drying and table grapes. China is now the third largest grape producer in the world, after Italy and the US, and ahead of France and Spain. World wine production is decreasing since a high in 2004; China, Argentina and Russia are the only three of the top 12 that are increasing. China is currently the world's sixth largest producer after Italy, France, Spain, the US, and Argentina, at 13 million hectolitres. China now produces more wine than Australia (11 million hL). Wine consumption in the top 12 markets is generally declining, or stable; only three markets are increasing: Australia, China and Canada. Exports are stable or decreasing; those increasing are from Italy, Spain, Italy, Chile, Germany, and New Zealand, the latter showing substantial growth. For countries importing wine, only two markets are growing: the US and China, the latter presently around one-third of that of the US.
In summary, China is presently a relatively small market, but rapidly growing, and with enormous potential for growth. The world's major wine producers, Spain, France and Italy, face shrinking domestic markets, and will look increasingly to exports, to China and the US. China is one of the few countries with increasing production. So, if, and when, China produces more wine than it will consume, then it will join the world's exporters, and all will change.
Manufacturing, garlic, apples, cider and wine
Most Australians will be aware of the success of China in manufacturing, likely fewer of their success in agriculture. China produces 66% of the world's garlic, and 43% of the world's apples. China produces 29.9 million tonnes of apples, number one in the world. Second place is the US, with only 4.4MT. Cider is increasing its share of the beverage market in Australia. The great majority of cider consumed in Australia is made from imported Chinese apple juice concentrate.
China is a very large country, the third largest in the world after Russia and Canada. It has an area of 9.6 million square kilometres, and larger than Australia in sixth place with 7.7 million km2. The eastern and coastal part of China has high summer rainfall and humidity.
Towards the west, rainfall decreases, summer temperatures are higher and winter temperatures are lower.
China has the land and water resources to greatly expand its wine production, and has plans to do so. There are four principal vineyard regions of China: Shandong Province on the coast, Hebei Province west of Beijing, Ningxia Province in central China, and Xinjiang in the far west. I have consulted in the first three regions, and will here concentrate on Ningxia, where I have had the most recent experience.
Viticulture in China
Viticulture in China is generally more difficult than in Australia. There are big problems of fungal diseases, because of summer rainfall and humidity, especially near the coast. Further, rainfall around veraison can stimulate vegetative growth and hinder ripening. Higher night temperatures near the coast also reduce red wine quality.
Inland the climate is more arid, and irrigation must be practised. This is traditionally by flood irrigation, and I have the impression that this is not very well done. Trellis posts are typically square and made of reinforced concrete, and foliage and fruit wires are generally loose and often rusty. Many of the inland soils are very deep (I have seen 100m deep soil profiles) and most are sandy loam in texture, typically with good drainage.
There are indigenous Vitis species in China; one has thorns on the canes! However, most production is from Vitis vinifera varieties as used in Australia. China has had its share of misnomers like other countries. What was thought to be a local selection Cabernet Gernichet was proved to be Carmeniere. The white Italian variety Sauvignonasse grows well in Shandong and resists botrytis effects; it should be considered for the Hunter.
Immediately after harvest, the vineyards are pruned and irrigated, then buried. Tractors throw up earthern banks, and these are smoothed by shovel. Burial should be complete by early December. Burial does not guarantee survival of vines if winter temperatures are particularly severe.
Viticulture in Ningxia
China is committed to expand wine production. The national conference of liquor-making in 1987 set forth the task of 'change from grain liquor to fruit liquor', which brought about a new stimulus for wine development. A common beverage in China is 'Baijiu', liquor distilled from sorghum and, in my opinion, the world's worst alcoholic beverage. The government has decided that grain is for food and, so, it is promoting alcohol from fruit, particularly grapes, and especially red wine, which is good for the health. There are current proposals to double wine production.
At the moment, there are some 25,000ha of vineyards in Ningxia province, but I am not sure if this includes table grapes. There are now around 20 wineries. The government program is to increase this area to some 67,000ha within 10 years, and to have 100 wineries. This will make the Ningxia region the number one vineyard region of China. To put this in perspective, Australia has 157,000ha of vineyards, so Ningxia will have more than one-third of Australia's vineyard area. And, it is but one of four major regions.
Already, the local government has planned a 'wine route', and has begun to attract investment. Great Wall, a Chinese wine company, has planted 500ha at the base of the attractive Helan Mountains. Other notable wineries involved include large producers Xi Xia King, Changyu and Dynasty, and the Pernod Ricard-invested Domaine Helan Mountain, and a Moet Chandon project supposed to produce sparkling wine in a few years. As well, there is Asian Development Bank funding for irrigation developments to improve efficiency, in which vineyards figure largely.
Existing vineyards in Ningxia
The Ningxia region is arid, with around 200mm of rainfall. Temperatures are very continental, with large diurnal and seasonal differences. Mid-summer is hot, like Loxton in the Riverland, but the ripening and harvest period is cool.
Chinese vineyards are generally not of the standard of Australian ones. Mechanisation is limited, as can be technical input. Irrigation management is poor, as is trellising and canopy management. Further, vineyards are often out of balance and over-vigorous, with poor fruit exposure and shoot tip growth after veraison. The biggest problem, in my opinion, is the unevenness of vineyards; a mixture of healthy, low vigour, dead vines and, often, replants. Local wisdom says this is due to winter injury, but my investigations suggest that trunk disease is the major problem. It has only been described in China in 2011. Virus diseases are also widespread.
Existing wines in Ningxia
Most commentators are pleasantly surprised by the wine quality, especially for Cabernet Sauvignon, Merlot and Carmeniere. The wines have good colour and high natural acidity. In 2011, there was great excitement when local winery Helan Qing Xue, saw its Jia Bei Lan wine become the first Chinese wine to win an 'international trophy' at the Decanter World Wine Awards — and in a category for Bordeaux-style wines, no less.
Further, there was a celebrated 'Bordeaux and Ningxia' tasting in Beijing in 2011. Five wines from each region and of comparable price were judged blind by five Chinese and five French judges. The Ningxia wines filled the first four places. There is a general appreciation that the area does and will produce quality wines
Growth and investment in vineyards and wineries are happening, along with a national growth in consumption. To my mind, the trajectories of these growth patterns should be very carefully monitored in Australia. When China's wine production exceeds local consumption, export is inevitable. The big question is whether it will dominate the world then, as it does for garlic and apples now. My guess is yes.
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