Over the past decade, the Chinese wine market has been the fastest-growing in the world and in more recent years, Australia has emerged as the “clear winner” in this market – recording the strongest import growth into China since 2015 – according to Rabobank’s latest global Wine Quarterly.
While the volume of imported wine (from global suppliers) into China has surged by “nearly fourfold in a decade” as it benefits from a high-quality, premium image in the mind of the Chinese consumer, the report says 2018 saw the first decline in Chinese wine import volumes since 2014.
“Overly optimistic expectations and aggressive investments in the wine market have resulted in oversupply and overstocked products, and the market is working to draw down existing inventories,” the Wine Quarterly says.
The report also cited a slowdown in economic growth, notable price increases of French wines, fading consumer confidence, the weakening of the renminbi, and uncertainty in US-China trade as contributing to the overall decline in imported wine.
While France and the US have seen the biggest declines in the Chinese market – with French wine imports falling by 23 per cent in volume and four per cent in value in 2018, and US wine down by 25 per cent in value over the same period – the report says “Australia has emerged as the clear winner among imports”.
And while the Chinese wine market appears to be slowing, the report says this is likely to be a “temporary phenomenon”.
“China is expected to remain an attractive export market moving forward, though the competitive landscape for both foreign and domestic wine companies continues to evolve quickly”, the report says. This includes changes in consumption habits, the competitive positioning of imports, the rapid changes in the retail environment – which it says is evolving faster than anywhere in the world especially in e-commerce with the rise of ‘new retail’ – and adjustments in the strategies of domestic players.
When all these factors are considered, the Rabobank report cautions that while China offers enormous opportunity, it requires dedicated focus in order to understand the ongoing changes.
Australia “winning” in imported wines
Australia’s share of imported wine to China, by value, has risen from 19.8 per cent in 2018 to 25.7 per cent in the first four months of 2019, according to the report. And in the four year period from April 2015 to April 2019, Australia’s volume share has increased by 12.1 per cent – outstripping other major importers, with Italy the only other country to record positive growth at 0.9 per cent. Meanwhile France’s share fell by 8.4 per cent over the same period, Spain by 3.6 per cent, the US by 1.0 per cent and Chile by 0.3 per cent.
Rabobank senior wine and horticulture analyst Hayden Higgins says Australian wine has also hit the highest average price per litre, increasing by 14.9 per cent (January to April 2019) to AUD 5.4/litre FOB (free on board).
“Australian wine has benefited from the free trade agreement with China,” he says, “but also currency shifts, production variations and the ongoing US-China trade war.
“US wines were already at a competitive disadvantage relative to Australian wines due to the free trade agreement, but the tariff increase – with US wine now attracting a 106 per cent levy after three increases in import duties on top of local taxes – means US wines entering the Chinese market cost around 64 per cent more than equivalent wines from Australia.”
The impact on the shelf price should be even more dramatic, he says, but has been limited by margin compression along the value chain. “That said, the increased costs are hard to completely pass on to consumers given such a highly competitive market and recent weak sentiment.”
Higgins says while US wine imports to China only account for less than one per cent of US production, China is poised to be an increasingly important wine market, as their demand for premium wine continues to grow.
