Wine export value slows as Chinese tariffs take effect

Market Bulletin | Issue 231
03 Feb 2021
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In the 12 months ended December 2020, Australian wine exports decreased by 1 per cent in value to $2.89 billion and increased by 0.5 per cent in volume to 747 million litres (83 million 9-litre case equivalents). The average price per litre declined 1 per cent to $3.87 free on board (FOB). 

Figure 1 shows that the value of exports hit a record $3.1 billion in the 12 months ended October 2020 before a steep decline in the last two months of the calendar year. The sharp increase from August to October was primarily in exports to mainland China and the United Kingdom (UK), while the decline after the peak was in exports to mainland China.

Figure 1: Value of Australian exports over time (A$ billion FOB)

Container type

In the past 12 months, the value of wine exported in glass bottles decreased by 5 per cent to $2.3 billion and volume decreased by 9 per cent to 311 million litres (35 million 9-litre case equivalents). This translated to a 4 per cent increase in the average value of bottled exports to a near record $7.34 per litre FOB (the record was $7.45 per litre FOB in the 12 months ended October 2020).

Unpackaged wine exports increased by 20 per cent in value to $585 million and increased 9 per cent in volume to 428 million litres (48 million 9-litre case equivalents). The average price of unpackaged wine increased by 10 per cent to $1.37 per litre FOB. 

Figure 2 illustrates the steady growth in the average price per litre of both glass bottle and unpackaged wine exports over the past five years. The drop in the bottled average price in November and December was due to the decline in exports to mainland China, where exports have been heavily weighted to wines priced at $10 or more per litre. (N.B. tariffs imposed since November apply to wine packaged in containers of less than two litres.)

Figure 2: Average price per litre of glass bottle and unpackaged exports over time (A$ per litre FOB)

Destinations

In the 12 months ended December 2020, Australian exporters shipped wine to 114 destinations (down from 120 destinations in the same period in 2019).

The most significant growth came in exports to Europe, up 22 per cent to $704 million; the highest value in a decade. There was also growth to North America, up 4 per cent to $628 million, and Oceania, up 11 per cent to $115 million. The growth to these destinations was offset by a decline to Northeast Asia, down 10 per cent to $1.2 billion, as well as to Southeast Asia, down 14 per cent to $172 million, and the Middle East, down 58 per cent to $14 million.

Figure 3: Change in value of exports by region

Mainland China

The Chinese Ministry of Commerce (MOFCOM) announced a decision to impose temporary deposit tariffs from 28 November 2020 of between 107.1 per cent and 212.1 per cent on Australian wine in containers of up to 2 litres ahead of finalising the ongoing anti-dumping investigation. MOFCOM announced a decision to impose interim countervailing duty deposits from 11 December 2020 of between 6.3 per cent and 6.4 per cent on Australian wine ahead of finalising the countervailing duties investigation.

Exports to mainland China were down, unsurprisingly, following the imposition of interim tariffs in November. Value declined 14 per cent to $1.01 billion and volume by 29 per cent to 96 million litres (10.7 million 9-litre case equivalents). Average value increased by 21 per cent to $10.52 per litre FOB.

Figure 4 illustrates the impact of the tariff imposition on the value of exports to mainland China in November and particularly December. Exports fell from $135 million in November 2019 to $58 million in November 2020.

Figure 4: Value of exports to mainland China by month (A$ million FOB)

The decline was even more dramatic in December. In December 2020, exports fell to $4 million compared to $173 million in December 2019. The number of exporters fell from 832 to 48. Bottled exports fell from $166 million to $3 million and unpackaged exports from $7 million to $300,000. For bottled exports, all price points declined but the biggest fall in absolute value terms came at $10 or more per litre, down from $117 million to $2.4 million.

Exports to mainland China will be constrained while the tariffs remain in place and any exports are likely to be higher-priced products that are less price sensitive and are better able to absorb the price increases. In addition, some product may be sent in bulk and be bottled in-market. Also, some exporters may divert products into Hong Kong, where there is a zero tariff. In December 2020, the number of exporters to Hong Kong increased to 109 compared to 72 in December 2019, and the value for the month increased from $9 million in 2019 to $40 million in 2020.

United Kingdom

The UK continued the strong growth that commenced at the advent of the pandemic due to increased demand and then grew further in the months leading up to Brexit. Exports in the 12 months ended December 2020 to the UK increased by 29 per cent in value to $456 million and 19 per cent in volume to 266 million litres (29.6 million 9-litre case equivalents), extending its lead as the biggest destination for Australian wine exports by volume and overtaking the United States of America (USA) as the second most valuable destination.

Figure 5 shows that exports to the UK have been on the rise since April, in response to growing demand for wine in the UK market following the pandemic as well as some sending wine into the market ahead of Brexit. IRI reports that in the 12 months December 2020, Australian sales in the UK off-trade market increased by 13 per cent in value and 9 per cent in volume. Australia has been the number one country of origin in the UK off-trade market for twenty years. For Australian wine, the growth was across most price points, but was strongest between £9 and £20 per bottle.

Figure 5: Value of exports to United Kingdom by month (A$ million FOB)

United States of America

After declining for the three previous calendar years, the value of exports to the USA increased, despite the widespread effects of the pandemic and the political turmoil that engulfed the country during the year.

The value of exports increased by 4 per cent to $434 million, despite volume falling by 1 per cent to 136 million litres (15.1 million 9-litre case equivalents). The average value increased by 5 per cent to $3.21 per litre, the highest level since 2009.


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