Cases of wine piling up in Australia as China shuns imports

Australian wine exporters should be preparing for their peak selling season, the months preceding Christmas and New Year celebrations in China. They are instead watching stockpiles of product mount in warehouses as its biggest market clamps down on shipments from the country.

Already on edge after China announced two trade probes into the country’s wine industry earlier this year, people familiar with the situation said this month Beijing had also ordered traders to stop purchasing at least seven categories of Australian commodities—including wine, rock lobsters, barley, and copper ore—in its most sweeping trade move against Canberra yet.

The prospect of indefinite bans would be a worst case scenario for Australian exporters, who have already been hit this year by Covid-19 lockdowns.

The issue is keeping Alex Xu awake at night as he tries to keep his business afloat. The Sydney exporter sells his own brands of wine from vineyards located in South Australia’s Coonawarra, McLaren Vale and Barossa wine regions, as well as custom products. About 80% of its clients are in China.

Lately, his company Royal Star Wine has had six or seven orders from China canceled, resulting in a financial hit of A$200,000 ($146,000) to A$300,000. The importers had been recently ordered not to buy Australian wine, he said. By whom, it’s unclear.

“This is a very serious matter because we don’t know how long we’ll be banned,” Chinese-born Australian Xu said. “Every night I’m still thinking about ‘what should I do tomorrow?’”

The orders not canceled are being delayed at customs in China, Xu said. He currently has two containers, holding about 14,000 bottles of wine apiece, waiting on ships to clear customs in China. He’s been told they will be processed on Nov. 25 but isn’t confident that will happen, given reports of ongoing hold-ups from other exporters.

China hasn’t officially confirmed whether the bans are a government directive. Still, a spokesman for China’s Ministry of Foreign Affairs said Tuesday Australia is to blame for souring relations, listing a raft of complaints against Canberra for interfering in matters related to Hong Kong, Xinjiang and Taiwan, among others. Treasurer Josh Frydenberg is due to deliver a speech on Wednesday, saying his nation is ready to re-engage in dialogue with Beijing.

The wine trade to China appears to have effectively stopped, according to Tony Battaglene, chief executive of industry group Australian Grape and Wine. Product set for export is down by as much as 60% and shipments that do reach customs in the country face intense scrutiny.

About 40% of Australian wine exports would typically be shipped in the final four months of the year, he said. “This is the peak export period,” Battaglene said. It’s “not good at all.”

Increased Scrutiny

Taylors Wines has also expressed concern about the increased inspections faced at the border. The company considered whether to withhold product from export to China after it had wine delayed by Chinese customs a month ago but now has four containers en route to the country, The Australian reported.

Australia’s agriculture sector is watching the situation closely, with industry shipments to China comprising about A$16 billion in 2018-19. The Asian country accounted for about 39% of all exported goods in the most recent fiscal year, according to Bloomberg Economics.

China is the biggest buyer of Australian wine, importing A$1.2 billion in the year through September, according to government marketing body Wine Australia. That’s 167% more than the value of exports to its next biggest market, the U.S.

Xu typically makes about six business trips to China each year. Accompanied by a glitzy showroom refrigerator—one complete with a diamante-encrusted handle and built-in cigar storage—and boxes of thick, glossy brochures, he sells his product to Chinese consumers at some of the biggest trade shows. Not so this year, with coronavirus travel restrictions keeping him in Australia.

He’d hoped trade in the lead-up to Chinese New Year and Christmas would make up for pandemic-related trade disruptions earlier in the year.

Now, he’s not sure his business will make it beyond three or four months if things continue as they are. Although his Chinese customer base has grown as much as 40% every year since he started the business in 2010, and he had planned to expand into more cities, he’s thinking of leaving the business, recently investing in a Sydney childcare center.

“Because of the trade issue, we have to put our investment into a different basket.”