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Treasury Wine Estates to focus on other markets after sudden Chinese levy

Penfolds is the company’s biggest selling brand in China. Image: Bigstock

Treasury Wine Estates says it will speed up the pursuit of growth in markets outside China after the country imposed a sudden and widely criticised import duty on Australian wines that took effect on Friday.

As one of the wineries likely to be most heavily impacted by the new duty – which appears to be driven by the escalating diplomatic dispute between the two countries despite being termed an “anti-dumping” levy – Treasury Wine Estates will be forced to pay a 169.3-per-cent duty on the imported value of its wines crossing the border in containers of two litres or less. Described as a provisional measure, it will last three months initially, but ultimately could be extended until August 28 next year at the latest. 

The company’s CEO Tim Ford says its biggest-selling brand in China – Penfolds – represents about 25 per cent of the brand’s total annual global allocation and it expects the duty will see demand for its products “extremely limited” in China. An unspecified portion of the wine currently exported to China will be redirected to other key luxury growth markets where the company says there is unsatisfied demand, including in Asia, Australia, the US, and Europe. 

“We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position,” said Ford in a statement. “We will continue to engage with the Chinese Ministry of Commerce as the investigation proceeds to ensure our position is understood. We call for strong leadership from governments to find a pathway forward.”

He believes the Chinese decision will have “a significant impact” on many across the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector. 

Treasury Wine Estates will accelerate its investment in sales and marketing activity across luxury growth markets to build incremental demand and expand the distribution footprint of Penfolds. 

‘Luxury’ grapes grown for Penfolds products will be reallocated to the company’s other premium Australian brands, including Wynns, Wolf Blass, Seppelt and Pepperjack, which Ford says have been significantly constrained in supply volume over recent years.

During the last financial year, China accounted for about two-thirds of the company’s total Asian region earnings. Luxury and ‘masstige’ wine contributed 63 per cent of volume and 91 per cent of revenue. Of the remaining portfolio, Rawson’s Retreat is the largest volume commercial brand sold by Treasury Wine Estates in China.

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