While many industries have raised concern about the recent deterioration of Australian-Chinese relations, the Wine Production industry is one of the least capable of coping in the face of increasing tensions, according to industry information research company IBISWorld.
“Australian winemakers have raised the alarm on the worsening diplomatic relationship between China and Australia, and claim their products are being stalled by new customs rules targeting Australian companies,” said IBISWorld Senior Industry Analyst Andrew Ledovskikh.
After the global financial crisis, global wine markets went into an era of structural oversupply. Weakening global demand saw prices fall, and Australian winemakers suffered. The Wine Production industry was valued at almost $8 billion in 2006-07, but by 2013-14 this had declined by almost one-third. Prices were so low that by 2015, 85% of all wine grapes were being produced at a loss.
“However, this changed in 2015-16. The industry grew by 9.0%. Exports started growing again, export prices surged, and with them so did profitability. The industry suddenly had a positive revenue outlook,” said Mr Ledovskikh.
According to Mr Ledovskikh, the single most important reason for this reversal was a surge in demand from China.
Between 2013-14 and 2016-17, wine exports to China grew from $300.7 million to $737.8 million. In 2013-14, China was the third largest market for Australian wine, and by 2015-16 it had become the largest. A Wine Australia report recently showed that for the year to March 2018 Chinese exports topped $1.0 billion - worth more than the next three markets combined. Also, Chinese consumers were buying wine at higher prices.
“China is not a bulk wine market like the UK; 75.0% of all Chinese demand was for bottled red wine. The average price per litre of wine sold in China was often double other established markets, due in part to Chinese respect for the quality of Australian agricultural products,” said Mr Ledovskikh.
China is expected to be responsible for just over 75% of all industry revenue growth over the five years through 2017-18. Exports are projected to account for over 50% of all industry revenue by 2022-23, up from 36.1% in 2013-14. Export markets are forecast to account for almost 80% of all revenue growth over the next five years.
“As a result, the Wine Production industry cannot afford any trade disputes with China, and will be watching Trade Minister Ciobo’s efforts to resolve the issue very closely,” said Mr Ledovskikh.
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Australia's wine exports[/caption]
