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Australian wine exporters really need to up their game in Asia-Pacific

19-May-2014
Last updated the 19-May-2014 at 21:26 GMT - By RJ Whitehead
Australian wine exporters really need to up their game in Asia-Pacific
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The recent trade spat between Indonesia and Australia, which comes on the back of the southeast Asian nation’s objection towards its southern neighbour’s move to implement plain packaging of cigarettes, might have been blown out of all proportion, but it highlights yet another symptom of the export malaise the Australian wine industry is facing.

Indonesia has threatened to implement plain packaging on Australian wine imports—and do so only for wines that come from Down Under—as retaliation for Australia's strict anti-smoking policies, which include hefty health warnings and uniform pack design.

One of the world’s biggest exporters of cigarettes, with shipments worth US$655m last year, Indonesia has also joined the likes of fellow tobacco producers Ukraine, Honduras, Dominican Republic and Cuba in taking Australia to the World Trade Organisation over plain packaging, arguing a breach of trade and intellectual property rights.

Clearly, Australia is dead against the suggestion that its wines will be subject to plain labelling, which serves to bring all wines to the same level of branding regardless of cost and quality while at the same time bring limited appeal through drab packaging.

With only A$2.4m (US$2.25m) in sales in Indonesia each year, the country accounts for around just 0.1% of Australia’s annual A$2bn (US$1.87bn) wine exports.

But Australia needs to keep an eye on the country, which is seeing a steady growth in sales each year, according to recent Euromonitor figures. With annual compound growth currently at 1% out of a population of around 250m, and an exponential rise of its middle- and upper-classes, Indonesia is on a similar path to where India is now and where China was before the market began to really take off.

Whereas there is a broad perception that the world’s most populous Muslim-majority country is a no-go zone for alcohol exports, middle-class Indonesians often take a less hard-line view towards liquor than other countries, and it is also home a sizeable and wealthy ethnic Chinese population keen to assimilate Western goods, including wine.

There are no indications that Indonesia’s plain-label threats are any more than a broadside to Australia during a tense period in relations between the two countries, which was exacerbated last year amid claims that the phones of Indonesian leaders had been tapped by security services to the south.

However, it should serve as a reminder to Australian wine producers that they need to ramp up their game in Asia.

According to Nick Harty, the Malaysia-based country general manager for Platinum Wines, who closely follows Hong Kong’s wine market, where 60% of the world’s wine is traded, Australia has a long way to go before it can compete even on its own Asia-Pacific doorstep.

The auctions I saw in Hong Kong last year didn’t contain very much Australian stock at all; 2-3% at best,” he told FoodNavigator-Asia. 

Bordeaux dominates auctions massively in comparison and although relatively out of fashion, still accounts for 60% of auctioned wine worldwide, down from the usual 80%, which is a big part of the reason there’s been a return to value with both 2013 and 2012 En Primeur release prices.

Everyone knows there’s been a broadening of the market in China but while there’s no doubt the bigger Australian brands are very much on the radar for consumers, a lot of investors in the lesser known brands have seen little growth in value and will be hoping for the winemakers to continue with efforts to build their brands on the mainland.”

Industry sources suggest that Australia has a sizeable issue with over-production, which means it needs to raise volumes across all categories, but as we reported last week, exporters have been seeing overall reduced export volumes even though sales yields are increasing.

Put simply, sales of premium Australian wines are on the rise while exports of bread-and-butter bottles are on the wane—not ideal for a country that desperately needs to grow its market at all levels and reduce its wine lake.

To put the Australia-Indonesia labelling spat into perspective, it is interesting to note a similar tit-for-tat trade row last year, albeit involving China and taking place on a much larger scale.

The French, with the Spanish and Italians in support, had been lobbying for the rest of Europe to take a stand against the huge amount of photovoltaic cells the bloc had been importing from China.

As soon as the Chinese got wind of it they suggested they should increase duties on European wines imported to the mainland,” explained Harty—a move the French were quick to call an outrage as it would affect one of its most famous exports in a wine market that is in the process of exploding. 

This would have a much bigger impact on the world market than Indonesian imports of Australian wine. China spends €546m [US$748m] on French, €77m [US$105m] on Italian and €89m [US$122m] on Spanish wines, whereas exported wine from Australia goes to Indonesia for only US$2.3m.”

Related topics: Emerging Markets, Markets, Beer, Wine, Spirits, Cider