Australian vineyards struggle to stay afloat amid wine glut

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The equivalent of 859 Olympic-sized swimming pools of wine sloshing around Australia is testimony to a brutal period for the country’s wine growers.

Two billion litres of Shiraz, Cabernet Sauvignon and other varieties have accumulated since China, the world’s biggest buyer of Australian wines, imposed punitive import tariffs in 2020 as relations soured during the Covid-19 pandemic, according to one investment bank report.

Now, with a different government in Canberra, relations with Beijing are on the mend and a string of sanctions on other key Australian exports — including coal and barley — have been lifted by China.

Anthony Albanese, Australia’s prime minister, raised the issue of wine tariffs with Chinese premier Li Qiang at the Asean meeting in Jakarta this month. “It is in Australian wine producers’ interest to export wine, but it is also in China’s interest to receive it,” he said.

But Australia’s winemakers believe that even if they are once again able to sell to China, trade has changed for good — and they fear many businesses will wither on the vine.

“The market has effectively collapsed, which means there is a lot of bulk red wine floating around without a home. [The tariffs] have taken out the biggest market by the proverbial country mile,” said Alister Purbrick, chief executive of the family-owned Tahbilk winemaker in Nagambie in northern Victoria who has been in the industry since 1976.

Australia’s wine industry, long one of the country’s biggest-earning exports outside of mining and commodities, has trebled in size since the 1990s to about 1.3bn litres of annual production in 2022.

The Wine Australia trade body said there were more than 2,000 wineries spanning the country, employing 164,000 people and generating A$40bn ($25bn) annually for the economy. Yet the value of wine exports fell 10 per cent to A$1.86bn in the year to June 2023, according to the trade body, the lowest level since 2014.

Before the tariffs were introduced, China was by far the biggest market for Australian wine in terms of value.

According to the Australian Grape and Wine trade body, China was worth A$1.2bn to the industry, more than double the UK or the US, the next biggest export markets for Australian wine. In the year to date, that has dropped to about A$8mn, according to the trade body.

Nikki Palun, a winemaker based in Melbourne, said a full removal of tariffs would be a “godsend” for the struggling industry.

Palun, who speaks Mandarin Chinese and had been exporting 200 containers of wine a year to China, said the abrupt shutdown of trade was a “shock” for an industry that had become dependent on its biggest export market after encouragement by Australian government missions to expand trade with China.

Some winemakers were able to divert supply to other markets. Many refocused on the domestic market, only to be hit by Covid lockdowns. Some particular varieties popular in China, such as Shiraz and Cabernet, proved difficult to sell elsewhere. As a result, a glut of wine has built up.

Few expect Chinese exports to return to pre-2020 levels even if the trade dispute is resolved. Chinese consumption has changed in line with global trends, with people buying fewer bottles of wine. The country’s wine consumption in 2022 was 880mn litres, down 16 per cent on the previous year.

Purbrick, who used to count on China for a quarter of Tahbilk’s sales, said Australian winemakers faced a “slow road” to recovery after losing almost all of their market share in China to rivals from Chile, Argentina, South Africa and Europe. Even getting back to a third of pre-tariff export levels to China within five years would represent a good result, said Palun.

Many Australian winemakers have said they are looking to India as a potentially lucrative alternative to the Chinese market in the future, but that hinges on a reduction in tariffs as part of talks over a free trade agreement with Australia.

Australia needs to learn its lesson from its previous dependence on one export market, said Purbrick. “Companies will have to keep an eye on the risk profile to make sure they are not overexposed in case China decides to do something about Taiwan and we end up in a regional conflict,” he said.

It is in the “engine room” of the country’s wine industry — its inland red grape-growing regions stretching through northern Victoria and South Australia — where most predict there will be a shake-out of growers and winemakers in the coming years.

Tim Ford, chief executive of Australia’s largest wine company Treasury Wine Estates, said: “It will take two years to sort it out. Calm heads need to prevail.”