FTAs continue building opportunities for Australian wine

This week we look at the effect of free trade agreements (FTAs) on Australian wine exports to China, Japan and South Korea, and future opportunities in these markets.

China

Ten years ago (in 2007), Australian wine exports to China were valued at $56 million and there were 340 different exporters of wine. Growth in exports has been consistent since then (except when the austerity measures were in place), but the implementation of the China–Australia Free Trade Agreement (ChAFTA) at the end of 2015 provided impetus to an already strong market. In 2016, there were 1372 exporters and the value of exports grew by 40 per cent to $520 million.

It’s critical that winemakers and brands develop and maintain strong importer/trade relationships for success in China. Furthermore, sales through retail stores account for a much lower share of wine sales than in other markets such as the USA and UK, and there are no dominant retailers akin to Australia’s Woolworths/Coles duopoly.

The opportunities from the rise of online retailing are also important to consider. In late 2016, a flagship Australian wine online store supported by Wine Australia was launched on Alibaba Group’s business-to-consumer (B2C) platform, Tmall.com, providing a further avenue for Chinese consumers to purchase Australian wines.

South Korea is the eighth largest Asian export market for Australian wine, with a total export value of $14 million. Since the introduction of the Korea–Australia Free Trade Agreement (KAFTA) at the end of 2014, the value of wine exports has increased by 63 per cent ($6 million) – the highest rate of increase of any of the top 10 Asian markets. Eighty-four per cent of wine exported to South Korea is bottled, and the average price of bottled exports is $7.09 per litre, compared with $5.48 across all Australian wine export markets.

South Korea has one of the most developed and fastest growing economies in Asia, leading to a growing middle class with increasing disposable income. Euromonitor (2016) reports that the wine sector has been one of the main beneficiaries of this trend, with an eight per cent compound annual growth rate (CAGR) over the past five years. According to Euromonitor, consumption is expected to continue to grow as South Koreans take a greater interest in wine and are becoming more adventurous with their wine choices.

Another trend has been more people drinking at home, resulting in a growing off-trade market. As wines are increasingly purchased in supermarkets and on impulse, it is important to pay attention to packaging and attention-grabbing features of the product.

Australian wine ranks sixth amongst imported wine in South Korea. Over the last 12 months, it experienced 19 per cent growth, well above the overall market growth of 1 per cent.

Japan

The immediate removal of the tariff on bulk wine when the Japan–Australia Economic Partnership Agreement (JAEPA) came into effect has seen that category grow by 131 per cent over two years to $3 million. The stepped tariff reduction on bottled wine has underpinned growth of 18 per cent to $38 million. The tariff on bottled exports will reduce to zero by 2022.

Chardonnay and Chardonnay blends account for 27 per cent of exports compared with 15 per cent across all Australia’s export markets. In the $10 and above per litre FOB category, Shiraz and Shiraz blends dominate but Chardonnay and Chardonnay blends experienced the highest growth in the past 12 months – nearly doubling to $1.5 million (see chart).