China’s tariffs slam door shut on Australian wine’s biggest export market

Australia’s winemakers are scrambling to find new buyers around the world after China imposed hefty tariffs on the industry, effectively cutting it off from its most important export market.

Beijing’s decision last week to impose tariffs of up to 212% on Australian wine imports has endangered business with mainland China, according to Tony Battaglene, CEO of Australian Grape and Wine, a national association.

Battaglene works with around 800 wine producers in Australia who have “built their businesses” around exporting to China and are now left with no backup plan, he added.

“We were surprised, we were shocked,” Battaglene told CNN Business. “Having the extent of these interim tariffs, I mean essentially they will close the market to Australian bottled wine, to premium wine, in China. There’s no way that we can compete at those levels.”

China’s Commerce Ministry announced Friday that its decision was made after finding preliminary evidence of dumping. Australian officials have bitterly protested the move, saying that China has been unable to provide proof.

The wine war is taking place against the backdrop of a wider deterioration in relations. Australia has upset China this year by calling for an investigation into the origins of the coronavirus pandemic. Beijing later targeted Canberra over trade, namely by suspending some imports of beef and slapping heavy tariffs on barley.

Cases of wine sit in a storage room at the Royal Star Wine experience center in Sydney, Australia, on Tuesday, Nov. 17, 2020. Australian wine exporters are watching stockpiles of product mount in warehouses as China, its biggest market, clamps down on shipments from the country. Photographer: Brent Lewin/Bloomberg via Getty Images

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The tariffs on wine, which took effect on Saturday, have forced businesses to scramble. After the announcement, some container ships that were en route to mainland China had to turn back to Australia, according to Battaglene.

“Orders are being canceled, orders are being suspended,” he said. “No one’s willing to … take extra import duties just to get it through customs. Essentially the market will be closed to us.”

On Monday, Australia’s leading winemaker, Treasury Wine Estates (TSRYF)(TWE), announced a contingency plan. It said it would start redirecting its shipments away from China to other markets, such as the United States, Europe and other Asian countries, after finding out its products would be slapped with tariffs of 169.3%.

Some of the wine TWE is considering reallocating had already arrived at a port in Shanghai, according to CEO Tim Ford. “We will reassess [what to do with] that product,” he said on an analyst call Monday.

“We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position,” Ford added. “Our attention’s very clearly on building our business outside of China over the next period of time.”

The plan wasn’t enough to reassure investors. TWE shares closed down 6.9% in Sydney on Monday, following an 11.3% drop on Friday, when the tariffs were announced.

A Chinese paramilitary police officer gestures and speaks over his two-way radio whlie standing at the entrance gate of the Australian embassy in Beijing on July 9, 2020. - Australia on July 7 warned its citizens they could face "arbitrary detention" if they travel to China, the latest sign of growing tensions between the two nations. (Photo by NICOLAS ASFOURI / AFP) (Photo by NICOLAS ASFOURI/AFP via Getty Images)

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China is by far the biggest importer of Australian wine, according to Wine Australia, a trade organization backed by the country’s government. In the most recent financial year, which ended this September, mainland China alone made up 39% of Australia’s total wine exports by value, the group said.

Going forward, more “Australian winemakers will now be forced to consider alternative markets for export sales,” Australian Grape and Wine said in a statement.

On Monday, Ford called on the Australian government to help businesses find a solution.

“Left unresolved, there will be a significant impact,” he said. “Things may change, and we’ll deal with that as they change, but we’re sort of dealing with the cards that we know at the moment, without a strategy of hope if you like. Because a strategy of hope is not a very smart strategy.”