Aussie Treasury Wine to make premium Penfolds in California amid trade spat

Sydney

AUSTRALIA'S Treasury Wine Estates , the world's biggest listed winemaker, announced plans on Tuesday to produce its premium Penfolds brand in California as part of a reset of the company's North American strategy.

The idea to produce the brand outside Australia had been discussed for years, a company official said. But analysts said the diversification was timely as a diplomatic rift between Canberra and Beijing threatens to harm Treasury's exports to China, a major market.

Penfolds chief winemaker Peter Gago said they would use grapes from California's Napa Valley from the 2018 harvest onwards. "We are striving to add outstanding Californian-sourced wines to our offering by fiscal 2022," he said in a statement.

The plan to produce a premium wine in the US comes five years after the company had to destroy products when exports of low-end brands failed to win over US wine drinkers.

"It sets Penfolds up for the next phase of growth," Angus Lilley, Treasury's deputy chief marketing officer, told Reuters. Mr Lilley said the US plan was not in response to the current spat between Australia and China, which has seen wine products from six Australian producers held up at Chinese customs.

Treasury said it planned to export wine from California, but analysts said those plans could be affected by trade disputes between Washington and Beijing, which has threatened a 15 per cent tariff on US wines. Analysts said it was advisable for Australian winemakers to explore their options.

"Diversification is prudent," said Phin Ziebell, an agribusiness economist at National Australia Bank. "There is some uncertainty around China, which has driven the market, so wine producers will need to look at other places," he added.

Prime Minister Malcolm Turnbull last year cited Chinese meddling in domestic affairs. China denies it, saying Australia has a "Cold War mentality". Australian wine exports to China surged with a 2015 free trade deal but the latest tensions suggested industry sales this year could miss a forecast to top A$1 billion (S$1 billion). REUTERS