Australia-China trade war: Penfolds sources grapes from US to escape wine crackdown

China’s brutal trade war with Australia has brought many companies to their knees. But a famous company managed to avoid the drama.

The devastating trade war between Australia and China has decimated countless businesses and industries and wiped out billions of dollars in the economy.

Relations between Canberra and Beijing began to deteriorate in 2016, leading to a diplomatic freeze – but things accelerated last year, when a dozen Australian merchandise exports were hit with tariffs.

Coal, barley, beef, timber, lobster and wine were among the casualties, and earlier this month we learned how overwhelming the spat has been.

According to a revealing report by the Australian-China Relations Institute (ACRI) in early December, Australian exports of 12 key commodities affected by Beijing sanctions fell by $ 17.3 billion in the first nine months of 2021 , compared to 2019.

Professor James Laurenceson, ACRI director at UTS, told that many Australian brands and livelihoods have been devastated by the ongoing trade war.

“When you start looking at the longer term, a lot of the costs will depend on the ability of the Chinese market to outperform alternative markets as it has over the past 20 years – for example, research shows that Over the past 15 years, China has added 60 million people to the middle class every year, and it far exceeds anywhere else – India is far from that, ”he said.

“So when we’re left out of the Chinese market, diversification is great, but all we can try to do is sell into smaller, slower growing markets, and that comes at a cost.

“In 2017, an Australian government foreign policy white paper predicted that the Chinese economy would add more new purchasing power than the United States, Japan, India and Indonesia combined, and if that is true, it suggests the cost of being locked out and having this disruption to the chinese market will increase over time.

The “smart” move of the Australian icon

Professor Laurenceson said the impact on some commodities such as coal and barley was less severe because sales could simply be diverted elsewhere.

But other industries like wine were starting to “really struggle” – although he said some Australian brands, such as the iconic Penfolds, had taken “really smart” steps to stay in the game.

“Penfolds is a flagship Australian wine brand, and guess what they do? They still sell to China and source from California rather than the Barossa Valley, ”he said.

“So it’s an Australian brand coming into China, but the product isn’t actually Australian – California wine growers are now profiting from this business, and we’ll see more and more Australian companies doing things like that – and good for them, they keep the brand afloat, but it comes at a cost to the Australian economy.

“It’s a sad comparison to the reality of what’s going on. “

While it is understood that work on the Penfolds California collection began long before the introduction of Chinese wine tariffs, a spokeswoman for parent company Treasury Wine Estates said the company was adjusting to this setback. by exploring global opportunities.

“The effective shutdown of the Chinese wine market to Australian wine has been important to us and to the Australian wine industry, but we have walked it with the implementation of our global response plan, including reallocation of product to respond unmet demand and accelerating investments to support Penfolds’ future growth in key global markets, ”the spokesperson told

“As we have said before, we remain committed to the Chinese market for the long term and continue to invest in our people, our brands and our relationships with customers and consumers.”

It was a sentiment shared by Treasury Wine Estates CEO Tim Ford, who recently told ACRI’s deputy industry member Glenda Korporaal OAM that the company is committed to doing business with China.

“When the tariffs (on Australian wine) came in, everyone said you had to take China off your game plan. But I was like, ‘No, it stays there,’ ”he said.

“We remain committed to China, we’ll just find a different way to do it… We continue to have strong engagement at all levels with China.”

Meanwhile, Professor Laurenceson said it was a similar story with the lobster industry, which was banned from China last November.

While the industry feared looming disaster at the time, fishermen simply started selling to Hong Kong instead, with the lobsters then being smuggled into China via a so-called ‘gray route’, which means that “sales were hardly affected” by the sanctions.

No end in sight

Professor Laurenceson has sadly said he doesn’t believe the trade war will be resolved anytime soon.

“I see no reason for China to suddenly turn around and change course – Kurt Campbell, Joe Biden’s Indo-Pacific Tsar, recently said in a speech at the Lowy Institute that he expects ‘in time China re-engages with Australia,’ on Australia terms, ‘but why would China choose to re-commit to Australian terms? ”he said.

“If anything, this stalemate would end with a mutual agreement, but this idea that China would come with its cap in hand begging to get us back is utterly ridiculous to me.

“China’s economy is ten times bigger than ours, so having no Australian coal makes hardly any difference – I don’t see the point in Beijing adjusting its course, and that would send a signal to others as well. country saying “hello everyone, we ‘failed”.

“The prospect of Beijing making a 180-degree turn is almost nil.”

Professor Laurenceson said that while many countries currently have problems with China, Australia is unique in the range of sanctions it faces.

“New Zealand, Korea, Japan – what really sets them apart is… the way they handle diplomacy more carefully,” he said.

“If the Australian government were more careful in its diplomacy, we wouldn’t be in this situation. Many countries have banned Huawei, but no other is in the business mess we find ourselves in.

“A lot of countries would take Australia as a lesson in what not to do – I don’t think a lot of countries would see Australia as a model of diplomacy.”

Professor Laurenceson said if political relations between Australia and China deteriorate, education could be next on the chopping block, dealing a heavy blow to the Australian economy.

He said the problem could easily spread to other industries and businesses, as well as Australian companies currently operating in China – although if Labor wins next year’s federal election there could be a certain thaw in relations.

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