Analysis of Wine Market Under the Impact of “Zero Tariff”

184

Imported wine from New Zealand and Chile beginning to reap the rewards China’s Free Trade Agreements.

The 2015 China-Australia FTA means that by 2019, tariffs on imported Australian wine tariff will be reduced to zero. Therefore, under the background of weak recovery in the wine industry, domestic wine will face the challenge from the imported wine, a new round of reshuffle may be inevitable.

1. The imported wine from New Zealand, Chile and Australia will enjoy “zero tariff”

Imported wine has been able to enjoy 1: 3 zero tariff because of the customs clearance and zero tariff based on APEC’s framework. Since January 1, 2012, 96% of the category of goods exported to China from New Zealand have enjoyed duty free access (MFAT). Similarly the China-Chile FTA, provides that since January 1, 2016, Chile enjoys a duty free access for 96% of goods exported, but will be required to pay the 10% consumption tax.  China and Australia’s free trade agreement came into force on 20 December 2015 (Austrade). The agreement will see wine tariffs reduced from 34.7% to zero by 2019 although the same consumption tax will be levied.

2. The current situation of imported wine market with “zero tariff”.

2.1. In recent years the volume of imported wine has been increasing, especially from the likes of Australia, Chile and New Zealand. From January to June 2015, China’s imported wine data from CIQ demonstrates that the amount of imported wine imports rose 13.43% on year-on-year and the imported value of wine rose 0.59%. Wine from Australia, Chile and New Zealand also surged in the first four months of 2015, with Australian wine increasing by 48% year-on-year, and the Aus import value surging up to 90%; becoming the second-largest wine importer after France.

2.2. Benefits from China-New Zealand Trade Agreement:

New Zealand wine has made rapid development. Wine is one of the fastest growing industry in New Zealand reaching a market growth of nearly 23%, with China being the largest export market of New Zealand wine in Asia, second only to the USA globally. New Zealand positions itself in the global market in the high-end image of “small amount, high quality and high price”, and Chilean wine win the favor of consumers around the world in high performance to price ratio. By contrast, the policy of “zero tariff “can stimulate the Chilean wine even greater. Since 2011, the amount and value of Chile exports to China have achieved more than 25% growth.

2.3. The price of imported wine are continuing to decline.

Data from CIQ shows that the amount and value of imported wine continued to grow but its price was declining in the first half of 2015, and its average price is $3.68 /L, down by 1.1% year-on-year. The volume of bulk wine imports are 46,321,400 liters, up to 41,65% year-on-year: imports amounted to $32,810,100, rose 8.94%, but the average price is lower22.82% than the previous year about $ 0.71 /L. Bottled wine was almost the same as that of bulk wine, total imports are 1.43 million liters, rose  7.65%. Value of imported wine is $655 billion, rose 2.16% year-on-year. The average price is a slight decline, it is about $4.59 /L, down by 5% that continue to refresh people’s consumption price bottom line. The price of imported wine is getting lower and lower which ever was very high under the influence of “zero tariff” policy. It seems that price war is inevitable.

2.4. The quality of imported wine varies greatly.

Imported wine is favored by Chinese. At the same time, the quality of some wine is also worrying. AQSIQ announced a list of unqualified foods and makeups in June 2015, many different kinds of wine from different country were found not qualified. For example:

· Dominicia rosé wine produced in Spain was returned because of sugar-free extract, this shows that the wine contains less natural ingredients and less grape but more water, thus the quality of wine is affected. It is not a unique instance,

· Trita white wine from Spain exceeding sorbic acid levels,

· Spanish Dewar Earl dry red wine exceeded iron levels,

· Italian Barbera red wine, Ludgona from Slovenia and other high-sparkling wine exceeded copper levels.

Imported wine is always better than domestic products is a misunderstanding of domestic consumers in China. Although free trade agreements have led to the rise in volume of wine imports, it also means an increase in quality issues with some newer players on the market. A number of wine quality issues can cause ripples across the domestic wine market and damage the confidence of consumers. In this regard, consumers should not blindly pursue foreign brands, but consume rationally after understand the wine culture and knowledge.

3. The effects on the domestic wine industry caused the “zero tariff”.

3.1. Accelerate the re-shuffle of the domestic wine market:

Zero tariff has a direct impact on the final price. So as the price of imported wine continues to drop, the domestic wine market share begins to tighten and becomes more competitive. Low priced imported wine will continue to eat into the domestic wine market share.

With a slow in growth in domestically produced wines and dumping of cheap overseas wine, the free trade agreements could be re-negotiated to protect some of the higher volume, lower priced Chinese wines.

3.2. Accelerate the domestic wine industry change.

The deputy Secretary-General of China Alcoholic Drinks Association Wang Zuming said, “the price is not the only factor to determine the development of the industry. Wine is a highly personalized beverage which has quality. Regions and cost are highly important, but Chinese wine is still lacks of personality and characteristics and recognition.” Therefore, it’s necessary for the domestic wine industry to evolve. At this stage, are lower costs the local producer’s competitive advantage in dealing with the impact of imported wine? Domestic wine should be based on production, improve the selection of grape varieties, cultivation patterns and techniques to enhance the production of brewing process to improve the taste and enhance the personality and quality. Second, we should attach importance to marketing and local wine culture, enhance the cost performance of wine. Domestic wine business pay much attention to channels but despise culture, it’s not feasible to copy the liquor marketing model but create a wine consumption atmosphere in the market actively.

3.3. Adversity reborn, domestic wine brands can broaden the layout of the overseas market.

In order to cater to the consumption concept of the Chinese people, Changyu, Dynasty, COFCO and other wine enterprises have taken advantage of their brand and capital to buy relevant wine enterprises and wineries in New Zealand, Chile and Australia. Private capital also buy and Layout overseas wineries to meet the challenge. But some experts believe that investment in overseas is more like a capital game, low cost and high efficiency. If we want let our wine enterprises abroad, the point is not channels but brands. It can cure the symptoms, not the disease — temporary medical relief. It’s not good for the development of domestic wine industries. Useless to explore wine regions which are representative, distinctive, and even stunning, or domestic wine cannot compete with imported wine but only highlight the Chinese style is the real core competitiveness of producing areas.