Peru FTA, Trump Administration, global rankings

Peru P-plates

The launch of Peru-Australia Free Trade Agreement (PAFTA) negotiations was announced on 24 May. All well and good. As yet, trade between the two countries is not large, amounting to a mere $504 million both ways in 2016. In merchandise trade, Australia exported $82 million worth of goods and imported $255 million in goods. The remainder of the trade was in services to and from.

Tariffs are cited as a major issue for Australian goods into Peru. Some reach 29 per cent, but most tariffs comprise three rates: 0 per cent, 9 per cent and 16 per cent, with a weighted average tariff of about 3.2 per cent.

The lure for Australia is mining, and things associated with mining. Wine, though mentioned in Trade Minister Steven Ciobo’s announcement, is way down the list.

It should also be noted that Peru gives preference on certain items to fellow members of the Andean Community (Bolivia, Colombia and Ecuador). This also applies to its fellow members of the Latin American Integration Association.

In short, there is plenty of good wine to be easily had in Peru, not only via imports from other South American countries such as Chile, Brazil and Argentina, but also from its own wine industry, established two centuries before Australia’s. It’s also worth noting that should an Australian wine company wish to start exporting to Peru, it would need a physical-chemical and microbiological quality analysis to be completed by an authorised laboratory in Peru.

Trump TT

It’s known that President Trump is a non-drinker. Therefore, one assumes he’s not likely to be overly protective of the American wine industry. This gives his Administration some latitude when drawing up budget proposals.

To the dismay of Washington DC-based WineAmerica, which touts itself as the national voice of the American wine industry, danger is in the air.

Last week the Trump Administration released its Fiscal Year 2018 Federal Budget Request. It’s a wish list of where the Administration thinks taxes can be increased, or spending cut. In 2017 the Market Access Program (MAP) has allocated US$173,505,997 ($233,097,329), with the following allocated to wine:

New York Wine and Grape Foundation US$461,932
Northwest Wine Promotion Coalition US$1,114,323
Wine Institute US$6,639,278

The 2018 proposals are to scrap MAP funding completely, which would hamper any export drives in which any of the above groups partake, including overseas promotional offices.

This could be seen as a benefit to competitors such as Australia. The other side of the coin is that if US producers give up on export, they will concentrate more on the home market, making that a harder market for imported wines.

MAP is only one of the proposed cuts. There are others that would affect grape growing, wine production and marketing.

Meanwhile, as the American wine industry worries about future grants, a group of American wine writers, importers and sommeliers are enjoying a junket to Georgia. One wonders if Georgia is close enough to Russia to please President Trump.

American dream

The American dream is becoming tarnished. In the 2017 Best Countries report the US has fallen from fourth to seventh. The rankings are based on how global perceptions define countries in terms of a number of qualitative characteristics: impressions that have the potential to drive trade, travel and investment and directly affect national economies. Eighty countries were measured in the 2017 report. The top 10:

1. Switzerland (first time inclusion)
2. Canada (no change)
3. United Kingdom (no change)
4. Germany (down from first in 2016)
5. Japan (up from 7)
6. Sweden (down from 5)
7. United States (down from 4)
8. Australia (down from 6)
9. France (down from 8)
10. Norway (first time inclusion)

China comes in at 20th, but is Australia’s number one export destination overall, and for wine.

Forbes has also put out a global ranking of the best countries in which to do business. Top 10:

1. Sweden
2. New Zealand
3. Hong Kong
4. Ireland
5. United Kingdom
6. Denmark
7. Netherlands
8. Finland
9. Norway
10. Canada

On the Forbes list Australia is ranked 11th, the US 23rd and China 102nd.

And this week?

Last week there was speculation about Constellation Brands being a player for Ste Michelle Wine Estates. This week the rumour mill still has Constellation Brands in its grip, but the target has changed to Brown-Forman, parent of Jack Daniel’s whiskey.

It’s said Constellation made the approach but was rejected. Should this come to pass, it looks to be a better deal in terms of future earnings than taking on Ste Michelle.

If the Brown family were looking to sell Brown-Forman, this would ignite a fierce bidding war, with Constellation facing stiff competition. Diageo would go to some lengths to acquire the Jack Daniel’s brand.

Pernod Ricard would also be looking to see how much money it could raise, though it probably would prefer a sale to take place a few years down the track.

Shares in Brown-Forman shot up, then down, and have settled. It’s a company that is doing absolutely fine on its own. One feels that should it go to a competitor, many of its brands, excluding the mighty Jack, would not fare as well.

Spanish invasion

Pernod Ricard (PR) is introducing its Spanish brand Campo Viejo to the Indian market. This appears to be a logical move, but TKR thinks there is more to it than just expanding Campo Viejo’s footprint.

Wine wise, PR is playing the long game with India, and taking a bashing in the short term. Indian customs impounded several containers of Jacob’s Creek, along with other wines and spirits, in 2014 over label disputes. Jacob’s Creek is the largest selling imported wine in India. Taxation is a nightmare, with states having different requirements. For many companies, just dealing with India is a turn-off.

PR also has its own winery in the Nashik region. The Nine Hills winery produces about 40,000 cases a year. Now PR is bringing in the Spanish Campo Viejo, and no doubt will face issues for doing so. We wish PR well.

Putting wine aside, the attraction of India at present is the spirits market. PR has local brands such as Blenders Pride, Imperial Blue and Royal Stag, which all do very well. Added to these are the international brands including Absolut Vodka and Chivas Regal.

Should India erupt, as China did, in terms of international wine and spirits, PR is very well placed for the long game. The advantage is that the Indian average age is 29, compared with 37 in China and 48 in Japan.

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