China-Australia relations: Chinese tariffs weighing heavy on world’s largest listed winemaker after profits plunge

Su-Lin Tan
·3-min read

Treasury Wine Estates, the world’s largest listed winemaker, expects demand in China to “remain extremely limited” due to Chinese tariffs on Australian wine imports, with analysts saying the redirection of surplus wine to other markets will take up to two years.

China imposed up to 212 per cent anti-dumping duties on Australian wine in November, and after announcing on Wednesday that its half-yearly profit plunged, Treasury Wine is expecting a “minimal contribution from China” in the second half of the year.

In its interim financial result reports for 2021, Treasury Wine noted “reduced shipments in China due to the [Ministry of Commerce] investigations”.

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“In China, volume and [net sales revenue] was impacted by reduced shipments resulting from the commencement of investigations by [Ministry of Commerce] in August 2020 and subsequent introduction of provisional measures in November 2020,” the report added.

The winemaker said net profit attributable in the half year that ended on December 31 tumbled 43 per cent to A$120.9 million (US$94 million) from last year.

Treasury Wine is not the only casualty of the anti-dumping duties, with total Australian wine exports to China falling by 98 per cent in December compared a year earlier, research firm IBISWorld showed.

The loss of access to the Chinese market has resulted in an oversupply of wine in Australia exerting downward pressure on prices and export profit margins.

Redistributing the surplus wine no longer sold to China to alternative export markets, such as Canada and South Korea, is expected to take at least two years, IBISWorld added.

Ongoing restrictions on hospitality across global markets are continuing to limit demand for wine, hindering the industry’s performance

Matthew Reeves

“In addition to the China tariffs, the ongoing Covid-19 pandemic is continuing to disrupt Australian wine producers. Ongoing restrictions on hospitality across global markets are continuing to limit demand for wine, hindering the industry’s performance,” IBISWorld senior industry analyst Matthew Reeves said.

Treasure Wine CEO Tim Ford said while these disruptions would reverberate across the company’s sales channels throughout the rest of the 2021 financial year, it was poised for recovery once conditions improved, particularly luxury wine.

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Treasury Wine also said it will reorganise into three new divisions and will operate under Penfolds, Treasury Premium Brands and Treasury Americas starting from the 2022 financial year.

“It’s certainly setting itself up for the possibility of carving out bits in the future,” said Henry Jennings, senior analyst at Marcus Today financial newsletter.

It will take a while to pivot the products away from China and cost the company marketing dollars while it happens, added Jennings.

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The company said it was growing confident that it could divert its Penfolds Bins and Icon luxury ranges from China to other markets.

It will also look into divestments of non-priority brands and operating assets in the United States, and exit certain leases to cut costs across vineyard, winemaking, and packaging operations.

The company has had plans to spin off its high-end Penfolds label and shrink its low-end US “commercial” division since April but put them on hold amid mounting concerns over tariffs imposed on Australian wine imports by China, its biggest market.

Additional reporting by Reuters

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