Adapting to tariffs and a pandemic

Australia's wine industry lost its single biggest export market in a single day in November 2020. 

On November 27, the Chinese government announced the preliminary findings of an anti-dumping investigation into Australian wine.

The news wasn’t good for Australian producers.

The investigation claimed to have found examples of dumping, and substantial harm to Chinese producers as a result. 

(view a PDF version of this special report)

China imposed tariffs on Australian wine exports ranging from 107 to 200 per cent. 

The market, worth $1.2 billion to Australia for the year to September 2020, lost almost all its value overnight. 

ASX-listed Treasury Wine Estates, owner of Margaret River-based Devil’s Lair and Fifth Leg brands (the third largest producer on Business News’s Data & Insights), was hit hard by the tariffs, with its share price falling 11 per cent.

Treasury Wine Estates produces premium red wine, including Penfolds, which is popular in China. 

The company’s net profit was down 23.5 per cent in its 2021 half-year results, which it told the ASX was due to a combination of the Chinese tariffs and the COVID-19 pandemic. 

In late March 2021, the Chinese government completed its anti-dumping investigation and confirmed that tariffs on some Australian wine imports, ranging from 116.2 to 218.4 per cent, would remain for five years. 

Despite this challenge, Australia’s exports to other markets have grown.

Wine Australia reported significant growth in exports in the year to March 2021, with exports to Europe up 23 per cent to $710 million, and sales to North America up 5 per cent to $628 million.

Fortunately for most producers in Western Australia, while 25 per cent of Australian wine is sold in China, that figure falls to 4 per cent for WA wine, according to Wines of Western Australia chief executive Larry Jorgensen. 

Mr Jorgensen said the challenge for WA producers could come if premium red wine meant for China had to be sold in the local market. 

Calneggia Family Vineyards owner and director of alcoholic beverage consultancy Langley and Co Advisory, Mike Calneggia, said he was nervous about the possibility. 

“If a lot of that wine comes back into the market, then it does impact red wine pricing across the board and that has the potential to impact WA producers, so that’s been a challenge,” Mr Calneggia told Business News.

“It’s an unknown challenge at the moment because there are such long lead times in wine, and obviously a lot of wine got shipped into China before the tariff was applied.”

In the meantime, new opportunities are emerging.

Mr Calneggia said New Zealand producers which typically sold into the Australian market had found more lucrative opportunities for their semillon sauvignon blanc, leaving a gap in the local market for WA producers to fill.  

Pandemic impacts

COVID-19 lockdowns and restrictions have also affected sales, although most wineries spoken to by Business News said the extent of the impact was dependent on the split between retail and on-premises sales. 

Calneggia, with a strong retail presence, had a good financial year in 2020 and was on track for a reasonably good 2021, Mr Calneggia said. 

“A lot of those people who were going overseas to the south of France or Italy or even Bali are staying home and travelling, or staying home and drinking,” he said. 

“We are getting the benefit of that.” 

Sandalford Wines chief executive Grant Brinklow said the closure of international borders had an immediate impact, particularly given the winery had invested time and energy becoming ‘China-ready’ to host Chinese tourists at its cellar door and restaurant. 

“In the nine months to the end of March [2020], we had over 180,000 paying guests of some type through the estate,” Mr Brinklow said. 

“I would expect that, for the period we have reopened, starting with the functions through to June this year … we will probably get 125,000, and they are all Perth people.”

Online direct-to-consumer sales was a growth area for the business, up 250 per cent from April to November last year. 

To make its offering more appealing to Western Australians and encourage more local visitation, Sandalford used the downtime in 2020 to expand its Swan Valley venue. 

The winery, ranked as the seventh largest on Data & Insights, spent $3.5 million renovating its restaurant, cellar door, grounds and building a playground. 

The restaurant has transitioned from seating 100 to 250 people, and is now serving a slightly more relaxed menu, which is less focused on high-end dining. 

“From a business point of view, it makes sense to invest in this site and the canvas that we have here,” Mr Brinklow said. 

“Yes, there’s vineyard but there is land here ready and ripe for all sorts of different offerings. 

“Accommodation I am sure will feature as part of our next stage of plans. 

“Cultural attractions, walking trails, additional food and beverage offerings and anything that sits under those broad definitions is what we are looking at now.” 

He said the board had made the strategic decision to develop its Swan Valley asset instead of its Margaret River offering. 

With just under 1,000 hectares of vines in the Swan Valley, Mr Brinklow said about 75 per cent of those were for table grapes. 

“The reality is there’s a dozen or so wine producers out here, so there’s less competition,” he said. 

“There are fewer places for people to visit, that’s the big difference.”

Labour

One of the biggest challenges for vineyards over the past year has been the availability of workers.

Cellar doors and hospitality venues were first to feel the pinch, unable to find front-of-house staff and chefs.

Mr Brinklow said it had been difficult to staff Sandalford’s new venue, as there were plenty of hospitality venues advertising for employees. 

When it came time to harvest, vineyards found it difficult to find people to handpick fruit, without access to the usual pool of international backpackers. 

“We would normally be able to tap into the backpacker workforce, which didn’t exist to the same extent that it has in previous years,” Wines of Western Australia’s Mr Jorgensen said. 

The state government organised for seasonal workers to travel to WA to assist, which Mr Jorgensen said was a great help.

He said it was important for the industry to consider attracting other groups of people to provide labour in future years if the international borders didn’t open, including grey nomads or university students. 

Skilled winemakers who usually flew into WA to work in production were also unable to enter the country, putting existing workers under pressure.  

“In the winery itself, there was typically a program of flying winemakers who would come in and take up extra positions in production, in processing, because the workload around vintage quadruples,” Mr Jorgensen said. 

“People have been able to find locals, to a degree, to do that but I think what’s also happening is the permanent workforce has taken on a greater role and worked a lot harder this year.

“That’s all well and good, but I don’t think it’s sustainable over a number of years.” 

Voyager Estate head of viticulture and winemaking Steve James said Voyager foresaw the worker shortage and hired its own picking team from around Australia, offering a few months’ guaranteed work with a certain number of hours each day. 

The winery also provided accommodation, which was in short supply given the low rental vacancy rate in the Margaret River region. 

“We were very fortunate at Voyager in that we have some accommodation on a property about a 10-minute drive away,” Mr James said. 

“People want to come to Margaret River, it’s a beautiful location and it’s paradise down here; they want to come here and want to work, but you can’t come here if you’ve got nowhere to live.” 

He said the season had been challenging, with variable weather, but the end result was positive. 

“Weather wise, it was certainly an up and down 12 months,” Mr James said. 

“Despite all the hot, cold, dry, wet, the ups and downs, the harvest period ended up pretty well bang on normal, the actual picking dates.

“One of those years, if you get it right in the vineyard, you made pretty nice wines out of the 2021 vintage.” 

Annual production data sourced by Business News and used to rank wineries shows most produced around the same as last year, with few changes. 

Trends

Mr Calneggia said interest in vegan-friendly wines was growing, to the point that all wines from Calneggia’s 2020 vintage were classed as vegan friendly, meaning they used vegetable-based fining agents instead of those that were egg or fish based. 

“We are using a vegetable alternative, which is more expensive and probably not necessarily as good, but from a technical point of view it means we can call all our wines vegan friendly which we are getting more and more demand for,” he said. 

“With a lot of these trends, sometimes they burn brightly for a short period of time and then they fizzle away, but I think there’s a general trend towards more healthy lifestyles, people understanding where their food and beverages are coming from. 

“Sustainability seems to be bandied around quite a lot now and we are meeting the market as best we can in that respect.”

Low-alcohol and zero-alcohol wines were also in demand, but Mr Calneggia said they were yet to perfect a recipe and get the product to market. 

Old Bridge Cellars owner Jay Beeson noticed a big increase in lower-alcohol and alcohol-free wines over the past year. 

“I think a lot of people had problems in lockdown with mental health, drinking, that kind of thing, and have come out the other side,” Mr Beeson told Business News.

“It [non-alcoholic wine] has been the biggest growth category for us.” 

People had also been drinking less, but better-quality wine, he said. 

“In wine, when they would normally drink a $20 shiraz, they are drinking less but are buying a $40 bottle and drinking it over a couple of nights,” Mr Beeson said.