Australia’s top five Asian markets and COVID-19 impacts

More than half of Australia’s wine exports by value go to Asia. While Australia’s total wine exports grew by 3 per cent in value in the latest 12-month period^[1], exports to Asia grew by 12 per cent. The average value of our exports to Asia was $8.64 per litre free on board (FOB) compared with $3.98 per litre FOB across all markets.

While we export to 25 different markets in Asia, the top five destinations: mainland China, Singapore, Hong Kong, Japan and Malaysia account for 93 per cent of the total value (see Figure 1). This week’s market bulletin looks at how each of these important markets for Australia fared in the first quarter of 2020 and assesses the early effects of COVID-19 on wine consumption.

Figure 1                                Australian wine exports to Asia by market

Mainland China

Mainland China^[2] is the world’s fifth largest wine-consuming country by value^[3], the world’s sixth most attractive wine market according to Wine Intelligence^[4], and Australia’s number one export market by value.

Although China’s total imports of wine have been declining gradually since mid-2018, Australia’s exports have increased by $145 million (14 per cent) and our share of the import value has grown from 27 per cent to 37 per cent over that time, largely at the expense of France.

Recently, there has been a decline in exports. The latest figures, for the quarter ended March 2020, show that Australia’s wine exports to China were down 14 per cent compared with the March 2019 quarter.

For the month of March, exports to China were down 43 per cent compared with the previous year. While this coincides with the period of the COVID-19 lockdown in most of mainland China, there is a lag effect, which means that reduced consumption in these months, combined with a stock overhang from the cancellation of Chinese New Year celebrations, is expected to have a greater impact on exports in the next quarter.

China’s wine consumption is likely to have been hard hit, as on-premise consumption makes up a relatively large share of the market (34 per cent compared with 13 per cent in Australia^[5]) and consumers did not engage in stockpiling or panic buying of alcohol, as they have done in other countries such as the United Kingdom (UK) and the United States of America (USA).

However, this effect may prove to be short-lived. There has recently been an easing in restrictions, including a partial re-opening of the on-premise. The International Wine and Spirits Record (IWSR) reports growth across all channels, alcohol categories and price segments in April compared with March – although only small percentages. A survey conducted by McKinsey & Company^[6] during the lockdown found that 60–70 per cent of Chinese consumers expected to resume or slightly increase their consumption of alcohol after the outbreak, while 10 per cent expected to ‘notably increase’ consumption. The official unemployment rate is reported as 6.2 per cent, only a small increase since the crisis.

Singapore

Singapore is Australia’s second largest Asian market by value, having recently overtaken Hong Kong. It also has the highest average value ($14.26 per litre FOB) of Australia’s top 50 markets, thanks to having 100 per cent packaged wine and a dominance of red wine – 87 per cent of wine exported to Singapore is red.  

Singapore is rated as the 19^th most attractive wine market by Wine Intelligence, climbing 5 places in 2019, primarily as a result of its strong economic performance. It has the sixth highest Gross Domestic Product (GDP) per capita of all 50 wine markets identified, and the second lowest unemployment rate (2 per cent)^[7].

Australian wines made up a quarter of all wine imports to Singapore in 2019, second only to France with 43 per cent, and was the only source country to grow in both value and volume in that year.

However, Australian wine exports to Singapore in the first quarter of 2020 declined by 12 per cent in value compared with the previous March quarter. This is primarily attributable to a big decline in February (see Figure 2), which is too early to be explained by a consumer response to the COVID-19 pandemic. It is too early to tell whether the decline is a result of a short-term fluctuation or a trend.

Figure 2                                Exports of Australian wine to Singapore by month (2020 vs 2019)

Social restrictions have recently increased in Singapore as a result of a new spike in COVID-19 cases. As of 22 April 2020, retail wine shops have been required to shut.

Pre-COVID-19, the on-premise had a high share of wine sales in Singapore – accounting for 32 per cent of consumption. In the COVID-19 restrictions, bars and clubs have been closed since the end of March. However, restaurants remain open and this is providing an avenue for continuing wine sales during the pandemic.

The partial lockdown is due to remain in place until 1 June, and the effects of this lockdown on local wine consumption and on trade in wine^[8] will not be apparent until later in the year. However, Singapore’s relatively small number of cases and lack of a complete lockdown mean it can expect a smaller long-term impact.

The strong growth and high value of this market for Australian wine indicate that this will remain an important destination, particularly for our premium red wine exports.

Hong Kong

Hong Kong is the seventh largest wine importing market by value and the twelfth most attractive wine market according to Wine Intelligence, although it is classified as an ‘established’ market where historical growth is tailing off. Hong Kong has the highest per capita consumption of any Asian wine market at 6 litres per person (Singapore is 2L per person and China 1L per person).

Hong Kong has had a difficult 12 months, with the market falling into recession in late 2019 for the first time in 10 years.

Domestic consumption of wine in Hong Kong is estimated to have decreased by 15 per cent in 2019, based on the difference between total wine imported and wine re-exported in that year.

Australia’s wine exports to Hong Kong declined by 12 per cent in the year ended March 2020. In the first quarter of 2020, exports declined by 40 per cent – i.e. losing more than a third in value.

Hong Kong was one of the first places outside of mainland China to report cases of COVID-19 infections, with its first case reported in mid-January. Retail sales fell by more than 30 per cent in January and February compared with the previous year, although supermarket retail increased by 11 per cent as a result of early stockpiling^[9].

Hong Kong has one of the lowest rates of COVID-19 infection^[10], having instituted significant restrictions very quickly. An uptick in cases in mid-March led to more restrictions, including closing bars and a ban on public gatherings of more than three people, but restaurants remain open. This second round of restrictions is expected to flow through into wine sales and hence import figures in the next few months. Coming on top of the existing economic downturn and a longer-term decline in consumption, it may be some time before Hong Kong returns to growth as a wine destination.

Japan

Japan’s choice of wine is very different from the other markets in this bulletin. White and sparkling wine comprise a much higher proportion of Australia’s exports to Japan than the other top five Asian markets (Figure 3). Nearly 10 per cent of Australia’s wine exports to Japan are sparkling wine, compared with 1.5 per cent across all Australian export markets.

Japan is the third largest importer of sparkling wine in the world, and its consumption of sparkling wine has nearly doubled between 2008 and 2018^[11].

Figure 3                                Share of exports to top five Asian markets by wine style

Australia’s exports to Japan declined by 8 per cent in volume and value in the year ended March 2020. This is consistent with overall declines in volume and value of wine consumption in Japan, which saw it drop 9 places to 20^th in Wine Intelligence’s 2019 ranking of wine markets.

The first quarter of 2020 shows a further decline in export value, but this appears to be the result of an unusually big month in March 2019 (Figure 4) rather than an obvious recent decline.

Figure 4                                Exports of Australian wine to Japan by month (2020 vs 2019)

Japan had a low rate of COVID-19 infections until mid-March, when it began to climb rapidly. The government announced a month-long state of emergency for Tokyo and six other prefectures on 7 April, but has not instituted a lockdown.

Japan has very limited powers to enforce social restrictions on its citizens and can only ‘request’ people to follow guidelines. Recent reports suggest that most activities are continuing as usual in Tokyo.

Despite this, the Nomura Research Institute predicts that the month-long state of emergency in the Tokyo area could cause consumer spending to fall by US$23 billion. The government has announced a stimulus package the equivalent of 20 per cent of Japan’s annual GDP. There is expected to be a considerable long-term economic impact from COVID-19 in Japan.

Malaysia

Malaysia is a relatively small wine market, importing just 9 million litres of wine in 2019, of which one-third came from Australia. Australia is the number one wine importing country to Malaysia, with a 32 per cent share of total imported wine value.

Australia’s exports to Malaysia grew by 23 per cent in value in the year ended March 2020 and by 27 per cent in average value per litre. In the first quarter of 2020, export value grew by 75 per cent, driven by a near-record month in January (Figure 5).

Figure 5                Exports of Australian wine to Malaysia by month (2018–20)

Malaysia has had a partial lockdown as a result of COVID-19 since mid-March, but has just announced a re-opening (under strict conditions) of almost all economic sectors from Monday 4 May.

Should the restrictions remain lifted, the short-term impact of the coronavirus pandemic on wine sales to local consumers is expected to be limited. However, with over two-thirds of the population practising Islam or Hinduism, the majority of alcohol consumption is normally by tourists. Therefore the economic damage suffered by the country as a whole – including the loss of international tourism – may have a larger and longer-term effect on Australian wine exports.