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For Australian winemakers, Chinese relationships are bearing fruit

From Reuters - February 14, 2018

HUNTER VALLEY, Australia/SHANGHAI (Reuters) - Wang Zhe, a wealthy Chinese businessman from Guangzhou, liked his glass of decade-old Chardonnay at an Australian winery so much he wanted more.

So he asked to buy the entire vintage.

It was the sort of offer, made over roast lamb and vegetables at a dinner in Wangs honor, that has sent Australian wine exports to China soaring by 63 percent, hitting A$848 million ($660 million) last year. And Col Peterson, the winemaker behind the Chardonnay, said Wang is the kind of buyer who has upended Australias wine industry.

At the dinner party, Wang, wearing a red hoodie and Prada loafers, said through a translator who works at Petersons Hunter Valley vineyard that the wine was amazing.

Ive tried a lot of wines from different countries, and after that I thought: Australian wine is very good,' said Wang, whose purchase at the vineyard, some 250km (155 miles) north of Sydney, sought to add more wine to a collection already full of Burgundy and Bordeaux.

His association with Peterson illustrates how Australian winemakers are cultivating connections in China, the worlds fastest-growing wine market, that are bearing valuable fruit even as entrenched European exporters are hitting headwinds.

Policy changes have helped too: Australian wine sales to China have more than doubled since a free trade agreement between the countries took effect in December 2015, cutting tariffs from as high as 20 percent to about 3 percent.

EXPANSION, UNCORKED

France is by far the dominant wine seller to China, holding about 40 percent of the imported wine sales market. Australia has been in second place for a decade, according to figures from International Wine and Spirit Research and Wine Australia.

But where French sales growth has been steady, Australias has skyrocketed.

In the first-tier cities here, in Shanghai or Beijing, we see more and more wines coming from Australia, Spain, Chile because consumers are more open minded to new origins and styles, said Guillaume Deglise, chief executive officer of Vinexpo, which organizes wine and spirits trade fairs.

At the same time in the second- or third-tier cities, the same consumers, especially the younger consumers, are also interested in these countries because they offer a more competitive option than France, he added.

Over the past decade, Australias exports to China by value have expanded roughly twice as much as volume, as sales of higher-end wines such as Penfolds Grange have grown most of all - leading to record profits for its producer, Treasury Wine Estates.

A FLOOD OF INVESTMENT

At the same time, Chinese investment has flowed through the wine supply chain, with a flurry of relatively small purchases of Australian wine assets.

Last May, Chinese wine distributor YesMyWine made one of the largest investments with its purchase of a 15 percent stake, and a board seat along with it, in Australian Vintage Ltd, Australias fifth-largest winemaker. The A$16.5 million deal came through its investment vehicle Vintage China Fund LP.

In January, Yantai Changyu Pioneer Wine Co Ltd bought a majority stake in South Australian vineyard Kilikanoon for $15.5 million, on the heels of several smaller deals in recent years.

Cain Beckett, director of Hunter Valley realty agency Jurds, said he sells a few vineyards a month to Chinese buyers.

Australias tax office, the only official tracker of foreign agricultural land purchases, said privacy concerns prevented it from disclosing how many vineyards were Chinese-owned.

MAKING TASTE

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