There is – or certainly should be – a two-part fable about the young girl who put all her eggs in a single basket which she then dropped, breaking the basket and all its contents. And then – this is the important part – she repeated the exercise.
Background
After building a strong export market in the UK in the 1990s but failing to achieve anything like the same level of success in the rest of Europe or North America, the Australian wine industry famously focused its attention on its neighbour, China. With the help of a free trade agreement and lots of effort by would-be exporters and the Wine Australia generic body, a vibrant trading relationship and an apparent wine boom in this giant Asian market were created. At their peak, Australian exports were worth more than AU$1bn ($653m).
Then, in November 2020, for political reasons that had nothing to do with wine, Beijing imposed swingeing sanctions of up to 218% on all Australian wine, and exports almost came to a halt. Over the following three years until the sanctions were finally removed, Australian producers tried to build sales to other countries, but this was not easy given the decrease in consumption in its largest developed markets.
As Wine Australia states in its latest report, “IWSR data shows that wine sales in the US have fallen for three consecutive calendar years, with volumes… down 10% from 367m cases in 2020 to 330m in 2023. It is expected to fall by a further 22m (7%) by 2028 … Data from Circana on the US off–trade market shows that this decline has continued in the current year, with volumes sold down by 5% in the 12 months ended March 2024.”
North of the border in Canada, the picture is no better “IWSR reports that sales in Canada have fallen from 51m cases in 2020 to 44m cases in 2023 and [are] expected to fall to 41m by 2028. And the news from the UK is maybe even worse. IWSR reports show sales there falling from 134m cases in 2020 to 118m cases in 2023.
Waiting for China to return
It is never easy to grow in a shrinking market but, like a man yearning for his former love to return, many Australians patiently waited for China to reopen its doors, which it did in March 2024. And, sure enough, in the first three months of the year, sales volume grew from a million litres to 33m, with value exploding from AU$8m ($5m) to AU$400m ($272m).
Behind these eye-catching numbers lie some more. A quarter of all the shipments to China cost AU$50 ($34) or more per litre FOB, and over a third cost over AU$20 ($14). In other words, these are not wines that are going to be consumed by what one might call the ‘average Chinese wine drinker’ assuming such a person were to exist. It is reasonable to wonder how large a proportion of these Australian exports are from Penfolds.
Vino Joy, always an invaluable source of news from China reported that “a concentrated shipment of Penfolds wines arrived in June. In July, the focus shifted to restocking based on specific demand, leading to less concentrated shipments. This shift may explain the drop in import value and the average price per litre, which fell from US$22.45 in June to US$16.85 in July.” Whatever Penfolds’ role, revealingly, the >AU$20 premium-price wines are the only one to show sales growth. Cheaper wines all lost traction.
Failing elsewhere
But so did sales to almost all markets apart from China. As the report admits “The value of exports to the rest of the world (excluding mainland China) declined by 4% to $1.8bn and volume decreased by 5% to 587m litres. This is the lowest volume exported to the rest of the world in a financial year since 2003–04.” If total Australian wine exports increased in value by 17 per cent to AU$2.2bn ($1.5bn) the highest level since the year ending September 2021, this was due to the “surge in exports to mainland China”. And those high prices in China explain why total export volumes declined by 0.2% to 619m litres.
The roll call of other major markets makes for depressing reading.
US
Exports to the US declined by 8%(11m litres) in volume to 124m litres and in value by 1% (AU$2m/$1.4m) to AU$357m/$243), the lowest levels in 25 years.
Canada
Exports to Canada fell in value for the sixth consecutive year, down 11% to AU$146m ($99m) in 2023–24. Volume also fell by 11% to 68m litres, after very strong growth in 2022–23… Value is now at the lowest financial year level since 2001–02.
UK
The UK remains the biggest destination for Australian wine exports by volume despite exports declining by 1% to 217m litres. Value also declined, down 3% to AU$353m ($240m), the lowest level since 2016–17.
Europe
There was some good news from Europe, with export value rising in the Netherlands, Sweden, Belgium and Switzerland, but this has to be set against a fall of 16% in value of Germany and Denmark the region’s two biggest markets for Australian wine.
Asia
Possibly through shipments to the Chinese mainland, Hong Kong was by far the standout here, with the most value (AU$275m/$187m), and value growth (25%). But, again, other significant markets all saw a fall, with Singapore bringing in 23% less revenue.
What next?
If the Chinese market continues to rebound, Australia can arguably withstand falling sales elsewhere. But this is a very big ‘if’. Consumption levels are currently lower than they were in 2012. Changyu, the leading Chinese producer has seen its second quarter income fall by 28% compared to 2023, while Concha y Toro’s 2024 first half sales in China were nearly 20% down on last year.
Against this background, long-time China-watchers wonder how the recent shipments of Australian wine to China will translate into depletions and consumption. Will the newly-arrived wine simply sit in warehouses? One answer to this comes from optimists who point out that rumours that the pipeline in March 2024 was still full of unsold Australian wine seem to have been unfounded. But Vino Joy’s Morris Cai says that “While many Chinese wine merchants have stocked up on Penfolds wines, the end-market reaction has been lukewarm, attributed to a challenging economic environment and decreased demand for business gifts during the off-season.”
Other observers also believe that there is little likelihood of China regaining its previous market stature. As Jeremy Oliver, a leading Australian critic with extensive experience of the Chinese market told Drinks Trade magazine in April 2024
“A lot of people have been given this false idea that everything will be back to normal, and that worries me… More than half what we were selling was sold via Chinese citizens seeking permanent residency in Australia and selling wine through their own networks back into China. These were called informal exporters… That’s not coming back anytime soon…”
Time will tell whether the young girl manages to carry her basket full of eggs more successfully this time around, but wiser. Older heads may wonder if she might have been better advised to spread her risks more widely.
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