China's middle class soaks up wine glut
AUSTRALIA'S lake of surplus wine could find a new home in China, with the emerging middle class developing a taste for our reds.
Australia's wine exports to China grew by 482 per cent to 11.75 million litres over the past year, according to statistics from the Australian Wine & Brandy Corp (AWBC).
The growth was concentrated at the discount or bulk end of the market, with the average price per litre of wine sold declining by 63.9 per cent to $1.75.
The Chinese market is small by comparison to Australia's largest export market, the UK, which imported almost 271 million litres of Australian wine worth about $968.5 million, to account for 37 per cent of total wine exports.
AWBC corporate affairs manager Eric Wisgard said Australian winemakers had received a boost in the Chinese market from a recent reduction on tariffs on wine from 65 per cent to 14 per cent, and by rising Chinese affluence. "There's a growing middle class, and there is quite a move to adopt Western symbols of success," he said.
"They're looking for international brand names and other signs of Western-style affluence, and wine fits into that quite comfortably."
Although China lacks the wine drinking culture of France or Australia, consumption per head in China has doubled in the last five years.
But annual consumption per head is still extremely low at 0.3 litres per person compared with 25 to 26 litres per person in Australia.
"But the sheer size of the population over there (in China) still means it's an opportunity," Mr Wisgard said.
Pernod Ricard Pacific, owner of the Orlando Wyndham Group, is having some success in China with its popular Jacob's Creek label, but sales director Nick Blair said it was a hard market to break into.
"There's quite a few challenges you're confronted with in terms of distribution and maintaining integrity of your products and so forth, in terms of warehousing and everything else, to make sure your product doesn't suffer heat exposure and the like," he said.
"We've had some reasonable success, mainly through the fact that we've got a substantial distribution network through our sister company there, Pernod Ricard China."
Mr Blair said Pernod Ricard had been focusing on selling branded bottled wine to big Chinese restaurants frequented by locals in the major cities and to international hotels.
"With the Olympics coming up (in 2008) we've also put a fair bit of effort into trying to increase our exposure in Beijing," Mr Blair said.
China has a substantial wine market of its own, with its vineyard plantings comparable to Australia's 154,000ha, although the quality is a lesser standard.
Mr Blair said only relatively wealthy drinkers could afford wine in China, so Pernod Ricard was trying to entice consumers interested in trying "Western" products and to appeal to the Chinese desire for authenticity.
"The fact that Jacob's Creek is the number one selling brand in Australia resonates with them, and we're finding that that gets us entry into quite a few restaurants," Mr Blair said.
Developing export markets for Australian wine has become a priority for the industry after the federal Government refused to underwrite a $60 million bail-out of grape growers struggling to survive, after a series of record harvests slashed the price of wine grapes to less than the cost of production.
The industry has blamed government incentives for contributing to a boom in vine plantings in the late 1990s and ultimately led to the glut of fruit.
A senate inquiry last October found a tax incentive for planting vines that was introduced in 1993 and scrapped in the 2004 federal budget had caused some of the problems.