Provisional measure to be implemented on Australian wine imports into China

Treasury Wine Estates (TWE) is facing a 169.3 per cent tariff on its wine in containers of two-litres or less, which could remain in place until August 28, 2021 at the latest.

TWE has set out measures it will implement to reduce the impact of the tariffs on Australian wine announced by the Chinese Ministry of Commerce (MOFCOM) last week.

TWE’s series of plans to reduce the impact of the provisional anti-dumping measure (Provisional Measure) on imports of certain categories of wine from Australia into China

TWE CEO Tim Ford says the company is “extremely disappointed” by China’s tariff decision, and TWE will be actively engaging with the Chinese Ministry of Commerce.

“We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position,” he said.

“We will continue to engage with MOFCOM as the investigation proceeds to ensure our position is understood. We call for strong leadership from governments to find a pathway forward.

“The strength of our brands, including Penfolds, combined with our diversified business model will allow TWE to implement a range of changes and plans that will enable us to manage through the significant impact of these measures going forward.”

Ford said there is no doubt the significant impacts the high tariffs will be high for Australian wine exporters to China.

“There is no doubt this will have a significant impact on many across the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector,” he said.

“We will continue to work with our valued partners to further understand the implications and how we can work with the industry, governments and others to support the sector.

“At the same time, we will continue to work with our customers and partners in China to demonstrate our long-term commitment to the growing number of Chinese consumers who enjoy our brands.”

The final determination of the anti-dumping investigation will determine if the measure will be maintained, adjusted or removed.

TWE says it will continue to engage respectfully with MOFCOM as part of the investigation, which is continuing.

The company expects that, while the Provisional Measure announced remains in place, demand for its portfolio in China will be extremely limited.

Since the commencement of the investigation, TWE has continued to develop a detailed response plan, which will commence immediately.

Benefits are likely to be limited in F21, but will progressively reach their full potential over a two to three-year period. TWE will update investors on the progress of these plans, and expected timeline, at the 1H21 financial results announcement.

These initiatives aim to reduce the impact on earnings and maintain the longterm diversification and strength of TWE’s business model and brands.

The plans include, but are not limited to, the following:

Driving incremental growth across TWE’s global priority markets:
- Reallocation of Penfolds Bin and Icon range from China – which represent 25% of TWE’s annual global Penfolds allocation volumes – to other key luxury growth markets where there is unsatisfied demand, including Asian markets outside of China, Australia, the US, and Europe;
- Accelerated investment in sales and marketing resource and capability across these other luxury growth markets to drive incremental demand and expand the distribution footprint of Penfolds; and – Reallocation of luxury grape sourcing to other premium Australian portfolio brands, including Wynns, Wolf Blass, Seppelt and Pepperjack, which have been significantly supply constrained over recent years.
China business model enhancements:
- Alternate operating and supply chain models for TWE’s China business; and
- Acceleration of the multi-country of origin portfolio growth strategy, with a focus on growing sourcing for TWE’s portfolio from its existing asset base in France and potentially from China.
Global operating model changes:
- Reductions in global costs of doing business, including supply and overhead costs, as appropriate; and
- Reductions to future vintage intake plans, commencing from the 2021 vintage in Australia.