Curtin Economic Centre report on WA/China export

West to East

The Bankwest Curtin Economics Centre at Curtin University has released a 112-page report, WA Wine Exports: Building an economic future with China, by Galbreath J, Gao G, Geneste L, Georgiou K, Hynes N and Weber P (2016).

The report explores the issues and possible rewards for WA wines in the Chinese market. It starts with what the authors term “key themes”, which include:

  • There appears to be a perception that WA’s wine production volume is too small to make any significant penetration into the Chinese market.
  • There is clearly a market for premium wine in China (a strength of WA wine production).
  • Distribution [in China] is, perhaps, the biggest barrier in exporting WA wine to China.
  • Significant effort is required by the State Government, national peak industry bodies, Wines of WA, regional associations, and producers to simplify the process, while ensuring trusted distributors are secured who will act in the best interest of WA wine.

TKR is unsure where the authors get this perception. Is export not a winery decision? Are not WA wineries the same as any winery in the country? Why should it be any harder for them? Again, why should distribution in China be any harder for WA wineries then it is for wineries in other states?

As for help for WA from all and sundry, all wineries across the country require assistance from regional, state and national bodies.

The report carries on with the importance of presentation, and how this needs to be China specific. We think enough is known about this topic for wineries to get the right advice. It doesn’t appear the authors of the report did a great deal of research on this topic. Should any winery want free advice on the Chinese market and what is best practice for labelling and wording, try one, more, or all of the following sources, suggested by Kate Harvey, general manager, corporate affairs and strategy, Wine Australia:

Export Market Guide: China. It is a comprehensive guide for wine businesses about duties and taxes, labelling regulations and other country-specific export requirements as well as some brief market information on the wine market size and scope, consumption trends and import analysis, and Australia’s positioning. Export Market Guides are available free of charge to levy payers through Winefacts:  Click here for Export Market Guides

Wine Australia is working with Austrade to ensure that wine businesses understand the opportunities coming from the free trade agreements, and we will be discussing these at Regional Roadshows in late April, May and June. The focus of the Roadshow is export growth opportunities for a region and/or state and how to further drive brand or regional growth. Go here for Wine Australia’s Regional Roadshow 2016

Last month the Australian Wine Flavours Card was launched, which businesses can use to guide Chinese customers through the tasting process using Chinese terms that Chinese wine consumers use when describing Australian wine. Go here for Australian Wine Flavours Cards 

Wine companies can register to receive a free copy here: Go here to register

Last February, Wine Australia jointly hosted a webinar, ‘Road to China: Trade + Business + Culture’, with Wine Communicators Australia. The webinar discussed the FTA, business advice and cultural insights into China’s wine market. The webinar can be accessed for free here:  

There was a similar webinar looking at opportunities in Japan and Korea last April:  Go here for webinar on Korean and Japanese opportunities

The report says marketing and branding are a concern because WA is isolated and not well known:

Even regions like Margaret River have little global recognition (outside of knowledgeable wine consumers). Recommendations are put forth that would engage industry to create a branding exercise on a regional basis, with a goal of putting WA wines on the global map.

Sound advice, but it might surprise the authors and WA authorities to discover that there are many wine regions around the world that do not have the recognition they deserve, and some whose reputation is greater than the bulk of wines produced in those regions, i.e. there are more poor quality and mundane wines coming out of Bordeaux than its reputation warrants.

The report carries on to mention business models. It’s good advice to “collaborate or cooperate” but can WA do it? This is a personal memory – and times have moved on – but back in the 1990s when wineries came to the UK for regional roadshows, of all the regions that did so, the WA wineries were the least cooperative towards each other. When one winery had an appointment with a possible distributor, and the winery owner was away from their stand for an hour, the wineries with stands either side refused to pour wine on behalf of their neighbour.

A round up of the WA industry:

  • 340 wine producers
  • 46 per cent exporting, 54 per cent not exporting or not reporting exporting
  • 156 exporters
  • 128 exporting 1-25 per cent of production (38 per cent)
  • 22 exporting 26-50 per cent of production (6 per cent)
  • 6 exporting 51-75 per cent of production (2 per cent)
  • 5 exporting more than 75 per cent of production (1 per cent)
  • 90 exporting to China (26 per cent)

Nearly half (48 per cent) of those exporting to China come from Margaret River.

According to the report, the peak for WA exports was $52.9 million in 2006, falling to $33 million in 2010, and rising to $45.3 million in 2012. Figures from Wine Australia show total wine exports from WA in 2015 were valued at $35.4 million. The WA figures show:

By HQ By label claim
2004 $80,367,462 $52,824,453
2005 $75,319,407 $67,703,356
2006 $65,606,687 $61,195,164
2007 $55,691,894 $55,998,962
2008 $39,649,734 $45,673,125
2009 $35,055,637 $38,257,675
2010 $31,829,429 $36,612,621
2011 $41,418,063 $44,840,264
2012 $44,721,400 $42,735,976
2013 $32,909,980 $35,931,229
2014 $31,348,303 $33,737,642
2015 $33,128,709 $35,716,265

The differing figures may be explained by labelled exports being higher because exports by HQ do not include the likes of Accolade, Rathbone and so on.

As with the rest of the Australian industry, WA wine production is dominated by the few: Accolade, Fogarty and Ferngrove are responsible for 40 per cent of total production. The next five companies account for a further 15 per cent.

WA wineries have a very good direct sales channel: “Direct sales to customers are strong, accounting for up to 21 per cent of total sales and up to 80 per cent of income for some small wine companies.”

With 48 per cent of total value generated through sales in WA, one wonders why a WA winery would put effort into exporting. A further 40 per cent goes to the eastern states, and just 12 per cent is exported.

The report continues with basic infill stats and the China market. Then come the interviews that the authors carried out among a fair cross-section of the WA industry:

Exports to China WA

Thirteen out of the 26 export to China. Of these:

  • Four export less than 999 cases
  • Two export 1500-2499 cases
  • One exports 2500-4999 cases
  • Five export 5000-9999 cases
  • Two export 10,000-19,999 cases
  • One exports 20,000-49,999 cases

The report says wine producers offered a similar perception with respect to size. Producers not exporting to China offered the following quotes:

“Because you have a lot more smaller wineries here… than South Australia.”

“So to make it work [exporting to China] is quite difficult because you have to have the volumes and the economies of scale.”

“From our point of view it’s I think a size thing and having the focus of where we put our resources, so with the amount of wine we have to sell it’s not worth us putting in a lot of resources to find an export market.”

A lot more smaller wineries in WA than in SA? This displays the West Australians’ lack of understanding of the whole Australian industry. From the latest edition of the Wine Industry Directory, wineries producing less than 500 tonnes:

663 568 398 325 102 75

Wineries producing 500-999 tonnes:

42 13 17 7 3 2

It would be correct to say other states have more of the larger wineries, but not fewer smaller wineries. With that type of thinking, WA wineries are not going to crack an egg, let alone the Chinese market.

The producer from Manjimup said in interview:

“The other thing is volume, we’re not a big producing state but there’s a lot of wineries doing great things but they’re all quite small and quite boutique whereas on the eastern seaboard they’ve got massive companies and they can deliver big volumes at low prices.

Fortunately, the report’s authors commented:

“However, it is not clear to what extent size is always the issue with respect to Chinese exports. For example, there were some relatively small producers (less than 5000 cases annually) exporting to China. Further, for those who do export, with few exceptions, volumes to China are generally small. We therefore looked deeper.”

They concluded the small wine producers of WA were of the opinion China is more interested in cheaper wines in volume. Someone should inform Michael Clarke, CEO of Treasury Wine Estates (TWE), that he is taking the wrong route in flogging top-end, high-priced wine to China and the wider Asian market. Then again, the increasing sales and higher profits that TWE is raking in may be the stronger factor.

The WA whinge about being small and premium and unloved and unknown and under-privileged compared to wineries in the eastern states is long and ear splitting. Export is not compulsory. If a winery can’t cope with the hassle of export, don’t bother with it. Concentrate instead on the domestic market, especially those sales direct to consumers.

There is one valid observation: the only region that gets overseas recognition of any merit is Margaret River, and according to the interviews even that region doesn’t get much. One interviewee said just getting Australia established in China would probably be the biggest challenge.

Do they not read reports or look at the information available? The last export figures from Wine Australia to China show:

“Exports surged as value increased by 66 per cent to $370 million and volume increased by 71 per cent to 68 million litres. Bulk exports are now valued at $13 million, while bottled exports have risen by 63 per cent to $356 million. The average value per litre declined slightly, down 3 per cent to $5.44 as a result of the higher share of bulk wine in the export mix. The average value of bottled wine exports was up 5.2 per cent to A$6.41 per litre.”  

The Curtin report contains a fair amount of reference to the lack of wine knowledge in China, and suggests more needs to be done. It’s acceptable criticism, but the inference is it needs to be done by someone else. Not so. It was the boys from the Barossa and a several others that helped get Australian wine established in the UK.

TKR believes every producer, no matter how small, has a responsibility to spread the word and promote all Australian wine, not just their brand.

The interviews are somewhat depressing to read, the negativity huge. The authors sum up:

“Lastly, we asked the participants what they believed to be ways to increase the volume—if not value—of WA wine exports to China.

“Responses were varied, including everything from resourcing local, state, and national bodies, to facilitating tourism, to education efforts in China, to industry responsibility, to collaboration among producers, to efforts to brand WA regions in China, to accessing export grants, to regions taking control of their own destinies, to the recently signed FTA with China, to the vetting of Chinese wine importers, to greater marketing and promotion efforts, and to simply being patient in establishing a presence in China.”

The report lists lots of recommendations, all sensible, many known for years, and which apply equally to other markets. They are export issues, and one has to take them on board or not export.

There is a huge amount of useful information in the report but it won’t amount to a great deal unless the WA producers stop bleating about how disadvantaged they are compared to other states.

2 thoughts on “Curtin Economic Centre report on WA/China export”

  1. “There appears to be a perception that WA’s wine production volume is too small to make any significant penetration into the Chinese market.”

    1. This is just so much BS Tony! ANY size winery can find a market in China!
    2. At this stage there are only three Australian brands that are of any significance to the general market –
    (a) Penfolds (notably Grange)
    (b) Jacob’s Creek (thanks to Pernod Ricard also having Martell Cognac and Chivas Regal)
    (c) Brand Australia…!
    Note that both Grange and (commercial) JC are not promoted as regional!
    In the GENERAL market it is pointless to promote “Western Australia” – but at least it does include the name of the country – not something VIC, NSW, TAS & QLD have the advantage of…

    “There is clearly a market for premium wine in China (a strength of WA wine production).”
    Can I say “Oh Duuhh…”? There is a market for ALL premium wine in China!

    “Distribution [in China] is, perhaps, the biggest barrier in exporting WA wine to China.”
    Ditto above! Distribution in China is the biggest barrier in exporting wine to China for ALL countries!

    “Significant effort is required by the State Government, national peak industry bodies, Wines of WA, regional associations, and producers to simplify the process, while ensuring trusted distributors are secured who will act in the best interest of WA wine.”
    Ditto above!!!!

    “They concluded the small wine producers of WA were of the opinion China is more interested in cheaper wines in volume. ”
    As you say – more BS! IN GENERAL, the Chinese are not as (low) price conscious as are other markets – quite the reverse in fact! The reason so many Chinese importers are trying to screw prices down is to secure ridiculous profit margins and we should resist feeding them as it sets an expectation!

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