News

Chinese tariffs cost Australian exports $1 billion, as overall exports plummet

03 February 2022 By Arabella Mileham

Australian wine exports plummeted by 30% by value in 2021 as Chinese tariffs wiped nearly $1 billion off the value of Australia’s exports to mainland China, the latest figures from Wine Australia showed.

Overall wine exports fell by 30% to AUS$2.03 billion in the 12 months to December 2021, on volumes down 17% to 619 million Litres (mL) the data showed – the lowest levels in a 12 month period since 2004.

The falls were due to “unprecedentedly tough market conditions” notably the back of deposit tariffs imposed on bottled Australian wine imported to mainland China, Wine Australia said. Exports to China fell by a whopping 97% to AUS$29 million on volumes down 93%, to 6.4 million litres – a loss of nearly $1 billion in value and 90 million litres in volume, when compared to the 2020 calendar year where shipments were free from tariffs for most of the year.

However, Wine Australia also pointed to the continuing impact of the global freight crisis, and a “counter-swing” in some markets after COVID-19 related stockpiling in 2020, which had also had an effect.

Wine Australia general manager corporate affairs and regulation Rachel Triggs said the Australian wine export community was managing its way through “exceptionally challenging times”.

“The 2021 calendar year represents the first full 12-month period since very high deposit tariffs on Australian wine imported to China were imposed, and the global impact of the challenging operating environment can now be observed in full,” she said, adding that the result of the deposit tariffs would impact export data until the end of 2022.

However, she noted that exports excluding mainland China had increased by 7% in value to $2 billion – the first time it had reached this figure since 2009 – with volumes down 6% to 613 million litres. Indeed there were increases to be seen across some Asian markets, with the value of exports increasing in Singapore (up 108 % to $166m), Hong Kong (up 45% to $191m), South Korea (up 74% to $47m), Taiwan (up 65 % to $31m) and Thailand (up 31 % to $28m).

Other positive signs indicated that the wines that might previously have been exported to China – those above $10 per litre FOB – had increased in value by 49% once mainland China had been excluded, indicating they were emerging in other market, which Wine Australia said highlighted the importance of the Australian grape and wine sector investing in market diversification.

Disruption

However, Triggs said it would take time to offset the lost trade to mainland China, particularly with the on-going disruption across the on-trade and shipping delays and increase freight costs caused by the global freight crisis.

“But the Australian wine sector is resilient, and there are early signs that hard work in expanding and diversifying markets is paying off,” Triggs said.

Figure 1: Export value (million AUD, FOB) – mainland China versus the rest of world

Outside China, there were decrease in volume exports to the UK, US and Canada, partly due a surge in export volumes in 2020 due to COVID-19 induced stockpiling, as well as the impact of the global freight crisis towards the end of 2021.

In the top five exporting countries, the UK took the top spot, with value sales falling only 1% to $453 million, on volumes down 9% (243mL). This pointed to an average value per Litre increase of 9% to $1.87 per litre – the highest level in more than ten years. There was also good news that the “extraordinary” level of shipments that were seen in the last quarter of 2020 due to Brexit, had held up in 2021, with Australia benefitting from the strong sale of wine across the off-trade, with outstripped the wider market.

Australia’s second market, the US also saw sales down 7% to $403 million, on volumes down 8%. However, it should be noted that the majority of the decline was in wine below $5 per litre with exports with an average value above $5 per litre increasing in value by 13% to $84 million. Exports with an average value of $10 per litre or more increased by 20% to $48 million, the highest value since November 2009.

Low inventory

One factor contributing to the significant overall drop in volumes highlighted by Wine Australia was low wine inventory levels at the start of 2021 following three small vintages. During 2021, 201 million litres of 2021 vintage wine was shipped – around 10% less than the 2017, 2018, and 2020 vintages at the same time in their respective years, and 7% ahead of where the 2019 vintage was at this stage.

“A relatively high share of the small 2020 vintage was brought forward to ship in 2020, leaving a smaller amount left to ship in 2021,” Triggs explained. “The 2020 vintage was the smallest vintage since 2007 and much of it was shipped in 2020 to the UK and the US in response to increased demand for Australian wine during COVID-19 and ahead of the Brexit transition conclusion.”

Freight Crisis

The global freight crisis also played a part after emerging in the second half of 2021, making it harder for exporters to get wine into different markets – particularly in the US and Europe. Wine Australia pointed out that logistics companies Hillebrand and Flinders Port Holdings reported that the combination of a fundamental shortage of container ships and a sudden and strong rebound in global demand driven by the US and China – compounded by Covid-19 related labour shortages and other factors – led to port congestion, worse than ever schedule reliability and increased costs.

“Exporters experienced both increased delay times and increased costs of containers over the past year. Flinders Port Holdings reported that Australia also represents only 1 per cent of global container throughput, so we are at the mercy of bigger international players with this increased demand for freight. The crisis is not expected to be resolved before the end of 2022,” Triggs said.

Key export markets

Australia’s top five markets by value were: