Australian wine exports to China surge as FTA cuts tariffs

January 23, 2018

By Tom Westbrook

SYDNEY (Reuters) – Australia’s annual wine exports to China jumped 63 percent by value in 2017, industry figures showed on Tuesday, as high-end sales rose and a free trade agreement signed two years ago cut import duties.

The surge in sales to Australia’s No. 1 wine export market lifted shares in the country’s biggest wine exporter, Treasury Wine Estates , to an all-time high as the news augurs well for first-half sales at the China-focused company.

The rise also helped Australia boost its total wine shipments to their highest in a decade last year, up 15 percent to A$2.56 billion ($2.05 billion), according to data from industry group Wine Australia.

Excluding Hong Kong, Chinese sales hit A$848 million for the year, more than doubling since a free trade agreement between Australia and China took effect in December 2015, cutting tariffs from as high as 20 percent to around 3 percent.

The tariff cut and lower shipping costs than European and U.S. rivals have made Australian wines more competitive in China, where their reputation as a premium product is growing, said Stephanie Menere, finiancial controller at Canberra-based wine exporter Inland Trading Co.

“I think this year we’ll see more of an increase again because of the tariffs being reduced,” she said. Tariffs are scheduled to be eliminated by 2019 under the free trade deal.

Australia’s quarter-share of the Chinese wine market is still only a little more than half that of France’s.

But the cracking pace of China sales is benefiting major exporters such as Treasury, the world’s biggest standalone winemaker, which reported a 55 percent profit rise last August as Asia sales surged.

Treasury declined to comment on Tuesday ahead of its Feb. 15 earnings announcement. Its shares rose as much as 4.8 percent in morning trade to A$16.70, while the broader market < .AXJO> added 0.7 percent.

The boom has also lured Chinese producers to look at Australian terroir, with the purchase last month of a majority stake in Clare Valley vineyard Kilikanoon by Yantai Changyu Pioneer Wine Co Ltd <000869.SZ> for $15.5 million, following several smaller deals in recent years.

Sales to the next top export markets behind China, the U.S. and Britain each fell 2 percent. Sales to Canada, where restrictions on foreign sales last week prompted an Australian complaint to the World Trade Organisation, fell 3 percent.

In volume terms, Australia’s total exports grew 8 percent to a record 811 million litres, even as 2017 worldwide production was expected fell to its lowest since 1961.

Nineteen percent of Australia’s wine by volume was sold in China. The fastest-growing segment of the export market was for expensive wine valued at more than A$200 per bottle.

($1 = 1.2477 Australian dollars)

(Reporting by Tom Westbrook; editing by Richard Pullin)

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