Australia could be set to benefit from a new tariff imposed by the US on European wine imports, which could potentially open up opportunities for other wine suppliers, according to Rabobank’s latest global Wine Quarterly.
The 25 per cent ‘ad valorem’ tariff – which came into effect on October 18 on wines imported from Spain, France, Germany and the UK – is set to have the biggest impact on French and Spanish wines, with the US accounting for around 18% of French and 12% of Spanish wine exports in value terms.
Under the current terms of the tariffs, the report says, while sparkling wines and wines with over 14% alcohol content are exempt, it estimated around 60% of wine sales from France and Spain to the US will be affected by the tariffs.
In Germany, while a much smaller proportion of their wine is exported – with the US representing around 10% of total German wine exports by value – around 90% of wine exported to the US will be impacted.
“The tariffs will force wineries to make difficult choices between sacrificing margins by absorbing the increase or passing on the costs and losing hard-won market share that can be difficult to regain,” the Wine Quarterly said.
Given the size of the tariffs, wine exporters will “likely be forced to pass on at least part of the extra tariff to their importers and ultimately the consumer”, with the report saying retail prices could increase by 10 to 15%.
And this could trigger a substitution effect, it says, as other wine suppliers – including Australia – could benefit from transferred demand. Although higher-priced wines are likely to be less sensitive to the price increases.
Other key developments in the global wine market, the report says, include the potential for an increase in bulk wine prices with the latest estimates from the European Commission pointing to a 15% contraction in volume for the region in 2019, with smaller harvests expected for all major producing countries.
Australian outlook:
Locally, the report says, all eyes are now on the Australian 2020 vintage, with potential downside given the ongoing drought conditions in many key wine-growing regions.
In terms of exports, Australian wine exports fell by around six per cent in volume terms in the 12 months to June 2019, a contraction of 50 million litres.
However, the report says the recent trend in value growth has continued, with exports increasing by four per cent in value terms over the same period – with both bulk and bottle exports reporting an increase in value per litre.
This was evident in Australia’s largest export market by value China, where Australian wine exports fell by 16% in the 12 months to June 2019 by volume, but increased in value by 7% to AUD$1.2 billion, largely due to the increase in premium wine exports.
