China’s growing taste for fine wine

In the year to November 2005, Australia’s wine exports to China didn’t rate a separate mention in the official figures. Now, just six years later, China ranks as our fifth largest export destination, by volume, behind the UK, USA, Canada and Germany.

In calendar 2011, Wine Australia approved 41 million litres of wine for export to China – compared with 248 million litres for the UK, 179 million litres for the USA, 50 million litres for Canada and 41 million litres for Germany.

As China modernises, its overall consumption of wine, both foreign and domestic, is increasing rapidly. Figures released at the recent China Worldwide Wine Summit Forum, at Hefei, Anhui Province, reveal a near doubling in the value of imports in the past year and an annualised growth rate for locally produced product of 18 per cent between 2006 and 2010.

Imports totalled $US1.27 billion ($AD1.23 billion) in 2011. Meanwhile, revenue for the domestic wine industry reached 34.2 billion yuan ($AD5.24 billion) – 36.3 per cent up on 2010.

China’s import figures and Australian export approvals aren’t precisely synchronous. But they’re near enough to put our approvals of $200 million in 2011 at around 16 per cent of China’s import market.

China came from nowhere six years ago to become our fifth largest wine export market by volume in 2011. But future prospects appear even brighter when we look at the detail.

In the more profitable bottled-wine segment, China ranked third, and growing rapidly, behind the declining USA and UK markets. The value of bottled wine exports to the USA declined 18 per cent in 2011 to $422 million. And exports to the UK declined by a more dramatic 38 per cent to $228 million.

However, Wine Australia attributes much of the decline to our larger companies shipping in bulk, for bottling in the UK. That is, the UK consumer buys the bottled Australian brand, but the wine leaves Australia in tanks.

Whatever way we view that, China is rapidly closing the gap on the UK, with $184 million of bottled Australian wine shipped their way in 2011 – an increase of 37 per cent).

The volume of bottled wine exported to China increased by just 28 per cent, indicating a seven per cent increase, to $6.01, in the value per litre – a pleasing and profitable result for exporters, given the high Australian dollar.

Conversely, exports of bulk wine to China declined by 44 per cent to only $16 million – a relief after years of surplus production China-bound at bargain-basement prices. Bulk shipments to the UK increased nine percent to $183 million (representing 53 per cent of bulk wine shipment). Wine Australia attributes much of this to bulk shipping for bottling in the UK, as mentioned above.

Bulk sales to the USA increased 14 per cent to $55 million. And the Germans roared into third place with a 30 per cent increase to a total of $32 million. The top four bulk importers (China came fourth) account for 83 per cent of our bulk exports.

Consistent with reports of it as the new hot spot for top-end wines, China became in 2011 Australia’s number one destination for wines valued, on shipment, at over $7.50 a litre.

Exports in this category totalled $78 million for China, $50 million each for the USA and Canada, $35 million for Hong Kong (how much of this went on the China?), $31 million to the UK and $30 million to Singapore.

The official figures don’t give details of wine values in this category. But we know, for example, that chief winemaker, Peter Gago debuted Penfolds  $1,000-a-bottle Bin 620 Coonawarra Cabernet Shiraz 2008 at Shanghai’s Waldorf Astoria hotel. “This signifies the importance of China to Penfolds”, he said at the launch in November last year.

Penfolds was simply joining the range of suitors, including the great producers of Bordeaux and Burgundy, lining up before China’s burgeoning class of multi-millionaires.

With Europe and the USA in deep malaise, the world’s wine producing nations see Asia, in general, and China, in particular, as markets with outstanding potential. For example, Australian bottled wine exports to Asia as a whole totalled $400 million in 2011 – 24 per cent up on 2010.

But despite massive growth in China it won’t be an easy sell. We can expect China’s domestic industry to continue its rapid expansion. And competition from the world’s wine producing nations can only intensify. Finally, there’ll be jostling among Australian exporters. Wine Australia says that in 2011 our suitors for the China market totalled 812 – far more than the 304 Australian exporters in the UK market, 270 in Canada, 201 in the USA or 124 in Germany.

Copyright © Chris Shanahan 2012
First published 11 April 2012 in The Canberra Times