Treasury Wine Estates Ltd yesterday unveiled an emergency plan to find new markets for its best-known labels after China imposed crippling anti-dumping duties of 169 percent on its wine over the weekend.
Melbourne-based Treasury in a statement said that demand in China would be “extremely limited” while the taxes are in place.
All told, the company needs to find a new home for one-quarter of its annual global Penfolds volume.
Photo: Reuters
The plan to diversify away from the world’s biggest buyer of Australian wine would take years to bear fruit.
Treasury shares plummeted as much as 12 percent in Sydney as investors digested the scale of the reorganization facing the wine producer, the latest corporate victim of an escalating political dispute between Australia and China.
The duties follow a raft of other measures targeting Australian commodities from coal and copper to barley this year.
Australian Prime Minister Scott Morrison’s government has vigorously rejected claims that Australia is dumping wine into China and said it is becoming increasingly clear that Beijing is using trade as a diplomatic cudgel.
Canberra is considering taking China to the WTO and said its “aggressive” actions are undermining confidence in the global economic recovery.
Australia’s largest listed winemaker had made China a central plank of its growth strategy by distributing a suite of luxury labels, spearheaded by Penfolds, to the wealthy and emerging middle class.
The country represented about 30 percent of its total earnings last fiscal year.
Now, the company is reallocating the Penfolds Bin and Icon labels to other luxury markets including Australia, the US and Europe.
Chief executive officer Tim Ford said he is also accelerating a drive to produce more wine in other countries, such as France, and potentially China, to avoid the made-in-Australia duties.
The benefits of Treasury’s swiftly drawn-up response are likely to be limited during the fiscal year ending in June next year, and would yield maximum results over a two to three-year period, it said.
One of Treasury’s challenges is redirecting China-bound wines without oversaturating other markets and sacrificing profit margins.
In the past few years, the company has focused on top-end labels and leaned less on mass-market brands, a strategy that delivered record profits and a soaring stock price under Ford’s predecessor, Michael Clarke.
The company yesterday said that it would retain wine on its books for future release to balance demand with supply.
On a call with investors, Ford said that Treasury would also need to address its cost base in China in light of the expected collapse in demand.
He said Chinese demand for Penfolds would persist at some level, and Treasury has a “long-term commitment” to the market.
“We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position,” Ford said.
China is the biggest buyer of Australian wine, importing A$1.2 billion (US$890 million) in the year through September, according to government marketing body Wine Australia.
Australia is the world’s most China-dependent developed economy and finalized a free-trade agreement with Beijing in 2015.
However, relations have been fraught since 2018, when Canberra barred Huawei Technologies Co (華為) from building its 5G network.
They went into free fall earlier this year when Morrison’s government called for an inquiry into the origins of the COVID-19 pandemic, a move that bruised China’s pride and unleashed a torrent of criticism that Australia is a puppet of the US.
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