A sequence of events in international markets have combined to lower the volume and value of Australian wine exports, as detailed in Wine Australia’s Export Report for the year ended September 2021, released today.
Substantial import tariffs on Australian bottled wine to mainland China, the Brexit transition period concluding, COVID-19 market fluctuations, and low supply have combined to create a challenging year for Australian wine exporters.
In the year ended September 2021, exports decreased by 24 per cent in value to $2.27 billion and 17 per cent in volume to 638 million litres (71 million 9-litre case equivalents). Average value also declined by 9 per cent to $3.56 per litre free on board (FOB).
10 months on, China exports see steep decline
The biggest driver of the decline in exports was a significant decrease in exports to mainland China, following the imposition of import tariffs on Australian packaged wine in November 2020. The value of exports to mainland China in the 12 months to September 2021 was down 77 per cent to $274 million. The number of exporters shipping wine to this market also dropped, from 2241 in the year ended September 2020 to 750 in the year ended September 2021.
The imposition of tariffs not only saw exports to China drop away, but was also part of the reason there was an increase in exports in September and October 2020 – with exporters shipping wine ahead of the tariffs (see Figure 1). This amplified the decline in September this year.
Figure 1: Australian wine export volume and value
The drop in mainland China meant that exports to Northeast Asia declined by 56 per cent to $598 million, with increased exports to Hong Kong, South Korea, Taiwan, and Macau unable to outweigh the decline.
The most significant growth came from shipments to Southeast Asia, up 43 per cent to $255 million, followed by Europe (including the UK) up 4 per cent to $703 million (see Figure 2).
Figure 2: Change in the value of exports by destination region, MAT September 2021
COVID-19 market fluctuations and effects on shipping
There was also an increase in exports to the United Kingdom (UK) and United States (US) in late 2020 due to the COVID-19-related surge in off-trade sales, where most Australian wine is sold, when the on-trade sector was shut-down.
This year in the US, with the on-trade re-opening and the off-trade subsiding to more normal levels of activity, there was a counter-swing and exports declined. In the year ended September 2021, exports to the US declined by 11 per cent in value to $393 million. This market adjustment was also reflected in the off-trade data: in the quarter ended June 2020, total wines sales in the US off-trade grew by 20 per cent in volume, while in the quarter ended June 2021, wines sales declined by 19 per cent in volume (IRI Worldwide). Meanwhile, wines sales in the on-trade increased by 239 per cent in the quarter ended July 2021, when comparing to the same quarter in 2020 when most outlets were shut or restricted (Nielsen CGA).
In the year ended September 2021, Australian wine exports to the UK increased by 7 per cent in value to $460 million and decreased by 2 per cent in volume to 251 million litres (28 million 9-litre case equivalents). The significant increase in exports to the UK over the past 18 months has led to the market solidifying its place as Australia’s number one destination by volume, and overtaking mainland China as the number one destination by value. Exports increased to the UK, not only because of the aforementioned increase in demand in the off trade, but also the conclusion of the Brexit transition period. This growth in the UK is only just starting to slow down in the last three months (see Figure 3).
Figure 3: Value of exports to the UK by month
Another, less clear, factor has also emerged.
Global shipping delays have impacted most export and import industries worldwide. Thanks to COVID-19 and its related fluctuations in consumer demand, as well as impacts on labour availability, shipping lines around the world are lacking capacity, while there are major delays at ports.
Although it is unclear how much this problem has affected actual volume and value of Australian wine shipped so far this year, it is worth noting as an added complication making it more difficult for Australian exporters to get their wine overseas. It remains to be seen if these shipping delays will impact the export of a large 2021 vintage.
Hillebrand, an international logistics company specialising in beer, wine and spirits, reports that there is a record level of ocean freight, with worst ever schedule reliability. For example, on shipping lines between Asia and North Europe, only 20 per cent of shipments were delivered on time in August 2021. For more insights on global shipping delays, please refer to Wine Australia’s recent webinar: Global Shipping Update
Stock levels diminish
Furthermore, aside from the impact of China tariffs and COVID-19, there is an underlying force impacting on shipment levels – low inventory levels resulting from small vintages between 2018–2020. The front loading of exports in late 2020 led to the majority of 2020 vintage wines being shipped earlier than usual (see Figure 4) resulting in the lowest inventory levels in 10 years coming into the 2021 calendar year. While the 2021 Australian vintage crush was a record size, it is expected to take some time for the impact on export volumes to be realised with the majority of the 2021 vintage wines expected to be shipped over the next two quarters.
Figure 4: Share of vintage exported by quarter/year
For more analysis, please visit the Export Report. More data can be found on the Export dashboard.