Article | Lin Xi
Editor | Wu Qiao
Recently, Fuyi Wine Group released its financial report for the first half of the fiscal year 2022 (July 1, 2021-December 31, 2021), which showed that the Group's net profit of A$109 million after tax was down by 7.5% year-on-year, and EBITDA declined by 7% to A$261 million, and that sales of Australian wines exported to China would have increased by 28% year-on-year if not counted. strong> Excluding sales of Australian-origin wines exported to mainland China, this would have been a 28% increase year-on-year.
The report also showed that the group's EBITDA from Australian-origin wines in mainland China for the period was A$2.0 million, compared to A$78.2 million in the previous year, a year-on-year decline of 97.44%.
Fognac's "Waterloo" in the Chinese market triggered a lot of sighs of relief from many in the industry. As the hottest imported wine company in the Chinese market, Fognac had led Australian wines to overtake France in the import data, removing the "perennial second place" from the top spot in the market. "The company's imported wines were the most popular in the Chinese market.
Now, because of the unstable political relationship between China and Australia, Australian wine exports to China have fallen dramatically.
So how did Australian wine become the mainstay of the Chinese wine market in the last 20 years, and how will its current decline affect the market?
01
The rise of Australian wine due to favorable government support
Compared to old-world wine-producing countries such as France and Italy, Australia's wine industry is a latecomer to the market, but it is growing strongly.
In 1788, the British fleet arrived in Australia with grapevines and planted them in Sydney Cove, marking the beginning of Australian wine. After decades of planting and development, around 1840, Australia found suitable sites and established a nascent commercial winegrowing base.
Under the influence of the unique climate, diverse terroir and favorable ecological environment, Australia quickly emerged from the New World producers, laying the foundation for the later Australian wine.
From the data, the high level of Australian wine exports to China came after the signing of the China-Australia Free Trade Agreement (CAFTA), which established a zero-tariff policy. And from a macro perspective, government support, the drive of mainstream brands and the immigrant wine trade are critical.
First, as a representative of the New World wine region, Australia was the first country in the world to publish a "wine tourism development strategy" (1997). In the two decades since then, the government and related organizations have launched support programs and financial support, which has helped Australia become one of the top five wine-producing countries in the world.
Secondly, in 2015, the China-Australia Free Trade Agreement (FTA) came into force, attracting a large number of importers who were optimistic about the future of Australian wine, and the volume and value of imports began to rise significantly.
This was also the year that Fognac, which had been in the red for two consecutive years, launched an aggressive self-help program to turn itself around by changing its marketing strategy, replacing its executives, and investing more in its brands.
Thirdly, Australia's favorable natural environment and relaxed immigration conditions have led many Chinese to choose to immigrate to Australia as wine traders.
02
Encountered a heavy blow, the Australian wine to the bottom
In the timing, location, and people and under the circumstances, Australia's wine industry in the Chinese market rose rapidly, and in 2019 (to achieve zero tariffs) successfully surpassed the French. In 2019 (when zero tariff is realized), Australia will overtake France to become the top wine producer in terms of volume and value of exports to China.
However, it didn't last long, and the status that Australian wine gained as a result of the China-Australia FTA policy eventually evaporated with the removal of the tariff benefit.
In August 2020, China's Ministry of Commerce announced that it had launched a "double reverse" investigation into wines originating in Australia, and rumors of a tax hike were circulating in the market for several times, resulting in a number of importers stepping up their stockpiling and planning to lay out other production areas;
On March 26, 2021, the Ministry of Commerce issued two announcements, making a final ruling on the double reverse investigation of Australian wines. On March 26, 2021, the Ministry of Commerce issued two consecutive announcements to make a final ruling on the double reverse investigation of Australian wines, deciding to impose anti-dumping duties on the relevant wines originating from Australia two days later, with the highest duty rate of 218.4%.
The data shows that in the first half of 2021 alone, Australian wine exports to China fell from A$490 million in the first half of 2020 to A$13 million, a year-on-year decline of 90%.
It's worth noting that the overall export volume of Australian wine has also seen a significant drop due to the hard-hit Chinese market. According to a report released by the Australian Wine Authority, All of 2021, total Australian wine exports slipped 30% to A$2.03 billion, while exports totaled 619 million liters, a decline of 17%, a record low since 2004.
Australian media "Herald Sun" reported that, due to the loss of the Chinese market, superimposed on the impact of the epidemic, rising transportation costs and other factors, the Australian wine grape prices plummeted more than 40%, and some growers or will be faced with grapes can only be rotting in the ground. There are even rumors that the Australian agricultural sector has put forward "pulling the vine" of the extreme program.
From the customs data, from January to September 2021, the export volume and value of Australian wine to China have declined by nearly 90%, with the average price of $9.62/liter, a year-on-year increase of 33.8%, much higher than that of France, Chile, Italy and other top-ranking countries in terms of import volume.
In the view of many importers, the high anti-dumping duty has turned away most of the low-end Australian wine, from the average price of Australian wine imported to China can also be seen, there can only be a very small number of high-end, ultra-high-end wines can continue to export to China.
03
Market shrinking? Imported wine reshuffles
So, after Australian wine exports to China were blocked, did the imported wine market, which was already declining in size, continue to shrink?
Customs data show that from January to December 2021, China's wine imports were 426.62 million liters, compared to the same period in 2020, a decrease of 44.74 million liters, a year-on-year decline of 0.3%; the import value of $169,723,000, compared to the same period in 2020, a decrease of $113,488,000, a year-on-year decline of 7.7%.
Looking at the data alone, the total amount of wine imports did not see a significant decline due to the big drop in Australian wine, which was basically the same as in 2020. At the same time as Australian wine exports to China fell sharply, France, Chile, Spain, Italy and other countries to catch up to fill the "gap".
Among them, French wine back to the top of the list, imports increased by 15% year-on-year; Chilean wine with a bumper harvest in 2021 and the advantage of zero tariff, imports increased by 36% year-on-year; Spain's wine in the big single product Red Riding Hood, led by a year-on-year growth of 37%; Italian wines have been vigorously expanding the Chinese market since 2015, and the share of China from 4% to 8%, and imports of 2021 from 4% to 8%. to 8%, with imports growing 22% year-on-year in 2021.
"In fact, it is difficult to say that any brand has taken over the dividends of Australian wine," said Huang Wei (a pseudonym), an importer in Guangzhou. In his view, like Penfolds such a volume and price and awareness of the brand is rare, can stand out in the Chinese market is even more rare, but the withdrawal of Australian wine so that other producing countries see the opportunity to early branding operation of some of the products to be able to have more harvest. Today, the imported wine market is being reshuffled.
"First of all, many dealers who want to make quick money as well as do labeling have withdrawn from the market, and the players who stay are more aware of following the laws of the market and earning reasonable channel profits; secondly, the ability of consumers to discriminate is improving, and there are fewer and fewer low-quality and high-priced OEM products, and the new importers who have entered the market place place place more emphasis on branding operations and long-termism. " Huang Wei so said.