“There will be some failures”: For Aussie wineries, global political and economic instability couldn’t come at a worse time

Aussie wineries

A vineyard in South Australia.

With China reportedly preparing to block imports of Australian wine, it’s the smaller winemakers that could be worst affected.

And elsewhere, with the US presidential election results still hanging in the balance, there’s also a question mark next to the continued stability of global markets more broadly, leaving exporters all over the world facing uncertainty.

After droughts, bushfires and COVID-19, economic and political instability couldn’t come at a worse time.

Trade relationships between Australia and China are fraught.

Last week, The Sydney Morning Herald reported that we could be heading for a ‘D-Day’ situation that would see Chinese customs authorities ban Australian imports of anything from copper and coal to sugar, barley, wine and even lobster.

All of that could amount to an economic loss of some $6 billion.

Since then, rumours have continued to circulate, suggesting Chinese importers are indeed being warned away from Australian wine and other goods.

China is a significant market for the Aussie wine industry. According to Australian Grape & Wine, more than 60% of Australian wine is sold overseas, with China coming in as the most valuable export market by far.

Last year, China accounted for $1.2 billion in wine exports. By comparison, the second biggest market is the US, which accounted for $439 million.

Speaking to SmartCompany, Tony Battaglene, chief executive of Australian Grape & Wine, notes that there’s no overt ban yet.

Rather, importers have told exporters not to send products, because as of the end of this week, they may have trouble clearing customs.

Of course, that’s a concern for all wine businesses exporting to China.

But, it could be particularly painful for small operators, he says.

As noted, Australian wineries export more to China than to any other market. But, many of the smaller operators also have exclusivity deals and strong relationships with the importers.

For them, a ban on imports could be catastrophic to business.

“There’s going to be potentially quite a large impact on those smaller companies from Australia,” Battaglene says.

Will Taylor, the partner in charge of the Wine Group at law firm Finlaysons, tells SmartCompany this comes at a tricky time for the wine industry as a whole.

Among his clients, orders have dried up. And on the Australian end, exporters don’t want to send their wine off, not knowing if there’s going to be a tariff imposed anyway.

“Containers have stopped flowing,” he says.

Also, this is just the latest in an “extraordinary series of knocks” for the industry.

First, there were devastating droughts, then frosting and other issues led to a small crop for a lot of growers. While the bushfire crisis last summer destroyed some vineyards, many others were affected by smoke, which tainted fruits.

Then, along came COVID-19, which led to logistical issues for everything from harvesting to exporting, and all but shut down local hospitality too.

“I’ve been practising law for 30 years in the Australian wine industry,” Taylor says.

“I’ve never known a 10-month period with so much thrown at the industry.”

It’s a resilient sector, he stresses, and it’s got through crises before.

But still, if large Chinese tariffs come in, and stick, “there will be some failures,” he says.

“There’s no doubt about that. Some people just won’t be able to survive it.”

US election brings economic shakeup

Of course, all of this also comes at a time of international political tension. At the time of writing, we’re crawling towards the final stages of the US election results, with Democrat Joe Biden edging ahead.

Speaking to SmartCompany this week, Jared Mondschein, a senior research fellow at the University of Sydney’s United States Studies Centre, suggested that a Biden administration would likely mean more stability and certainty than a re-elected Trump administration.

Whatever the final outcome is, there could be an impact on small Aussie exporters, including wineries.

As it stands, the US has a lot of trade tensions, not only with China but with several countries, Battaglene notes.

That’s causing all kinds of problems for all kinds of exporters.

“We just hope that whatever administration gets in there is commitment to the multilateral trading system,” he says.

“I don’t think it matters who gets in … as long as they commit to some of those principles and start to open up trade and diffuse that international tension.”

Taylor is also keeping an eye on what’s going on in the US, although he doesn’t necessarily think the outcome of the election will have any immediate effect.

To an extent, the Chinese government views Australia as “being in the US’s pocket”, he notes.

“If Biden has a much better relationship with Xi Jinping than Trump did — and there’s a fair chance he will — that makes it much easier for Australia to have a much better relationship with China.”

However, the US leadership is by no means a game-changer. Taylor predicts whatever happens the Australian government will continue to call out ongoing issues like IP theft.

So, even if there is a change in the White House, wineries and other exporters should probably not hold their breath for a Chinese reprieve.

“I don’t think a change of president in the US is a panacea for fixing the relationship. There will always be tensions,” Taylor notes.

“But it could certainly assist.”

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