‘Red dawn’ for Australia as China boosts grape prices

A “red dawn” is rising over Australia, according to Rabobank, with grape prices rallying from their 2011 low, driven by the Chinese market and demand for cool climate reds.

Releasing its Q4 Wine Quarterly this week, Rabobank analysts noted a significant upturn in the price of Australian red grapes, particularly those from cool climate, more premium regions, driven largely by growing exports to China.

Prior to the market bottoming out in 2011, the national average wine grape price more than halved to AUD $413/tonne, and the premium that red wine grape varieties once commanded over white varieties had also almost completely disappeared.

“Sentiment in the industry was at its lowest level since the late 1980s – reflected in roughly 5% of Australia’s vineyard area being removed in the year following the 2010 harvest, and new plantings all but grinding to a halt”, the report noted.

Fast forward five years and “life has returned to Australian wine grape prices”, according to Rabobank analyst Marc Soccio, driven largely by growing demand for imported wine, particulalry red, from China and Hong Kong.

“Since 2011, red wine grape prices – in particular those from cool/temperate climate regions where the price recovery has been most significant – have moved according to the performance of the Chinese market in the year leading up to harvest”, the report said.

“Accordingly, the hiatus in the growth of the Chinese market in 2013 and 2014 weighed on the Australian wine grape market in 2014 and 2015, while the rebound in Chinese wine imports in 2015 helped to restore the rising trend in wine grape prices in 2016.”

Rising demand from China can be exemplified by a recent purchase by China’s Weilong Grape Wine Company, which this year spent AUS$13.4 million on acquiring a number of Australian vineyards as part of a wider plan to invest $120m in the country.

Having snapped up 484 hectares of vineyards around Mildura and Swan Hill in Victoria, along with another unidentified vineyard, and a further 605 hectares of land that could be developed, the company plans to build a winery in Mildura capable of processing 60,000 grapes each year. All wine produced will be sold back to the Chinese market under its Grand Dragon label.

“Understandably this has triggered a flurry of activity amongst incumbent processors, offering up improved prices and contract terms in order to secure their own requirements on the remaining supplier base in the region”, noted Rabobank.

This year, Wine Australia confirmed that China had now overtaken the US as Australia’s most valuable export market, fuelled by the increased demand for higher priced bottled wine.

Value sales of wines to China grew 51% to AUS$474 million during 2015 – up from AUS$27 million ten years ago – with more than a third of the wines priced AUS$10 and above now being destined for the Chinese market. This end of the market is now valued at AUS$190 million, marking an increase of 63%, according to the trade body.

Wines of Australia attributed this “exceptional” growth to the China-Australia Free Trade Agreement, which came into effect in December and will see the tariff on Australian wine exported to China fall to zero by 2019 from 14% previously, as well as the rising interest in wine among the growing Chinese middle classes.