New trade agreement between Australia and India offers opportunity for premium wine exports

On 2 April 2022, the Australian and Indian Governments signed the Australia–India Economic Cooperation and Trade Agreement (AI ECTA). When the AI ECTA enters into force, preferential tariff treatment will be afforded to premium Australian wine imported to India, which currently represents a small portion of Australia’s wine exports. Today’s Market Bulletin will provide an overview of the market and analyse what the preferential tariff treatment means for Australian exporters.

Effects of the trade agreement

In accordance with the AI ECTA, tariffs on Australian wine with a cost, insurance and freight (CIF) value of more than US$5 per 750ml bottle will decrease to 100 per cent upon entry into force, with a further phased reduction of 5 per cent per year for 10 years down to 50 per cent. Tariffs on Australian wine with a CIF value of more than US$15 per 750ml bottle will decrease to 75 per cent upon entry into force, with a further phased reduction of 5 per cent per year for 10 years down to 25 per cent. 

For Australian exporters US$5/bottle CIF roughly translates to A$8 per litre FOB and US$15/bottle CIF translates to A$26 per litre FOB. This means that the tariff reductions will, in theory, equate to reduced retail prices for Australian premium wine exports to India. Therefore, it is expected AI ECTA will make India a more viable proposition for small to medium winemakers who have not previously contemplated entering the market. Currently, only 3 per cent of exports to India are at an average value of A$8 per litre FOB or higher. 

As an example of what could happen once the agreements enters into force, wine that leaves Australia at an average value of A$10/litre FOB would be eligible for the lower level of benefits through the AI ECTA. According to estimates determined using Wine Australia’s FOB to retail calculator, this wine currently retails around INR 4300¹ per bottle and can expect to fall to around INR 3600 when the AI ECTA comes into force (a 15 per cent reduction) and to around INR 3000 after 10 years (a 30 per cent reduction).²   

Estimated retail price per bottle for each stage of AI ECTA

^{Source: Wine Australia’s FOB to retail calculator}

The Indian wine market and future opportunities 

More than one-seventh of the world’s population lives in India. In 2020, the population was estimated to be 1.38 billion people and is set to overtake China as the world’s largest population within forty years. Compared to other countries, it has a low median age (28.4 years) and a small proportion of older people. This, coupled with rising life expectancy, has resulted in rapid population growth. 

India is also one of the largest economies in the world, sitting sixth behind the United Kingdom and ahead of France, with an economy worth US$2.7 trillion in 2020. Like most economies, COVID-19 impacted growth during 2020 and recovery in 2021 was hampered by another large outbreak of in the first half of the year. Pre-pandemic economic performance is expected to return in 2022.

Alcohol consumption dominated by spirits and beer

In 2020, India consumed 475 million cases of alcohol. Fifty-eight per cent of this volume was spirits, while 41 per cent was beer – wine made up just 1 per cent of alcohol sales volume. Although total alcohol sales dipped by nearly 30 per cent in 2020 compared to 2019, due to the on-premise and many liquor stores being shut, the market is expected to grow by 8 per cent each year between 2020 and 2025.³  

2020 volume of alcohol consumption by category

^{Source: IWSR}

According to Euromonitor’s Export Market Development Guidebook for India (available here for Australian wine and grape levy-payers and exporters), wine consumption is expected to grow from 29.2 million litres in 2020 to 55.5 million litres by 2025, thanks to a rising middle class, increasing urbanisation, an inclination towards imported wine, and a shift in consumer preferences from hard spirits towards wine.

In the 2021 calendar year, India imported 5.6 million litres of wine, up 84 per cent from the previous year. Australia was the main contributor to this growth, although all the top source countries grew, except for South Africa (see chart below). According to the IWSR, 85 per cent of the volume of imported wine is sold in the ‘standard’ segment which is between INR1000–1999 per bottle and most of the remainder is sold above that price segment. They forecast that by 2025, 81 per cent of imported volume will be sold in this segment, while 18 per cent will be sold in ‘premium’ and above.  

Volume of imported wine by source country

^{Source: Global Trade Atlas}

Australian exports growing

Australian wine exports to India grew by 81 per cent in value to $12 million and 72 per cent in volume to 2.5 million litres in 2021. This is a record level of shipments to India. However, it must be noted that there are only 20 exporters to India currently, out of 1269 globally. The average value of shipments is $4.80 per litre, up 6 per cent from the previous year. In 2021, all shipments of wine to India were packaged – 99 per cent in glass bottles. 

Australian wine exports to India over time

^{Source: Wine Australia}

The majority of shipments to India are at an average value between $2.50–4.99 per litre FOB and grew by 79 per cent to 2.3 million litres in 2021. However, most other price segments also grew, although off small bases (see chart below).  

Australian wine exports to India by price segment ($/litre FOB)

^{Source: Wine Australia}

The new AI ECTA tariff rates and other regulatory updates are available for levy-payers and exporters in the recently revised India Export Market Guide. April 2022 updates include:

• Food Safety and Standards (Labelling and Display) Regulations 2020 came into force on 17 November 2021
• Notification of the Food Safety and Standards (Import) Amendment Regulations 2021
• Australian and Indian governments sign the Australia–India Economic Cooperation and Trade Agreement (AI ECTA)

^1. INR – Indian Rupee

^2.  Assuming all other factors are constant. Based on the tax regime of Maharashtra. Please note these are estimates only, and as such, should be used with caution. It is best to discuss your pricing strategy with all relevant parties.  

^3. The IWSR