Aussie winemakers' ties with China are bearing fruit

Shanghai

WANG Zhe, a wealthy Chinese businessman from Guangzhou, liked his glass of decade-old Chardonnay at an Australian winery so much he wanted more.

So he asked to buy the entire vintage.

It was the sort of offer, made over roast lamb and vegetables at a dinner in his honour, that has sent Australian wine exports to China soaring by 63 per cent, hitting A$848 million (S$884 million) last year.

And Col Peterson, the winemaker behind the Chardonnay, described Mr Wang as the kind of buyer who has upended Australia's wine industry. At the dinner party, Mr Wang, clad in a red hoodie and Prada loafers, said through a translator who works at Peterson's Hunter Valley vineyard that the wine was "amazing".

"I've tried a lot of wines from different countries, and after that, I thought: 'Australian wine is very good'," he said. His purchase at the vineyard, some 250 km north of Sydney, adds to a collection that is already full of Burgundy and Bordeaux.

His association with Mr Peterson illustrates how Australian winemakers' connections in China, the world's fastest-growing wine market, are bearing valuable fruit even as entrenched European exporters are hitting headwinds.

Policy changes have helped too: Australian wine sales to China have more than doubled since a free-trade agreement between the countries took effect in December 2015, cutting tariffs from as high as 20 per cent to about 3 per cent.

France is by far the dominant wine seller to China, holding about 40 per cent of the imported wine sales market. Australia has been in second place for a decade, going by figures from International Wine and Spirit Research and Wine Australia.

But where French sales growth has been steady, Australia's has skyrocketed. Guillaume Deglise, chief executive officer of Vinexpo, which organises wine and spirits trade fairs in China, said: "In the first-tier cities here, in Shanghai or Beijing, we see more and more wines coming from Australia, Spain and Chile because consumers are more open-minded to new origins and styles.

"At the same time, in the second- or third-tier cities, the same consumers, especially the younger ones, are also interested in these countries because they offer a more competitive option than France," he added.

Over the past decade, Australia's exports to China by value have expanded roughly twice as much as volume; sales of higher-end wines such as Penfolds Grange have grown most of all, leading to record profits for its producer, Treasury Wine Estates.

At the same time, Chinese investment has flowed through the wine supply chain, with a flurry of relatively small purchases of Australian wine assets. Last May, Chinese wine distributor YesMyWine made one of the largest investments with its purchase of a 15 per cent stake - and a board seat along with it - in Australian Vintage Ltd, Australia's fifth-largest winemaker.

The A$16.5 million deal came through its investment vehicle Vintage China Fund LP. In January, Yantai Changyu Pioneer Wine Co Ltd bought a majority stake in South Australian vineyard Kilikanoon for A$15.5 million, on the heels of several smaller deals in recent years.

Cain Beckett, director of Hunter Valley realty agency Jurds, said he sells a few vineyards a month to Chinese buyers.

Australia's tax office, the only official tracker of foreign agricultural land purchases, said privacy concerns prevented it from disclosing the number of Chinese-owned vineyards.

Stephen Strachan, director of Adelaide-based wine consultant Gaetjens Langley, said about half of foreign interest in vineyard purchases across Australia comes from China. Mr Beckett estimates that one fifth of the 250 vineyards in the Hunter Valley region are Hong Kong or Chinese-owned. Among them is Iron Gate Estate, with Semillon, Verdelho and Shiraz vines, bought several weeks ago by the Hong Kong-based Kuo family, which owns an electric-parts manufacturing plant in Shenzhen.

Gavin Kuo, 38, who moved from Sydney to manage the vineyard, said: "We're looking to increase (production), but Asia for us is a place where we are still finding our way.

"But we have to be careful because we are a boutique winery and we can't actually change certain flavours just for an Asian market."

Since China replaced the US as Australia's largest export market by value in 2016, winemakers have redoubled efforts to adjust: they hire Mandarin-speaking staff, turn out Chinese-language labels and lay out chopsticks with meals at their restaurants. Australian producers who had mostly switched to sealing bottles with screw caps have returned to corks to meet Chinese expectations; French wines, which typically use corks, are considered more traditional and prestigious.

A few Australian vintners have experimented with changing the way their wines taste.

Winemaker Bill Sneddon told Reuters at the Allandale Winery in Hunter Valley: "It's the one question I would say that we grapple with most in terms of export. Do we make wines that we think will fit the market, or do we make the best wines we can and try and fit the market to the wine? I don't think we've got an answer to that, honestly; we've tried both."

In the end, he added, his winery just wants "to make the best wines we can, stylistically, from the fruit we've got".

Other winemakers fret that Chinese enthusiasm could fade, or that producers could be buffeted by the kind of import-rule changes that hit Australian milk powder and vitamin makers with high tariffs.

Tony Battaglene, chief executive at the Winemakers Federation of Australia, said: "Everyone is making hay, but like everything, there are risks, and these sort of growth levels can't continue. We all know that."

For winemakers like Mr Sneddon and Mr Peterson, it means selling most of their wine domestically. This was partly why, after that dinner, Mr Peterson declined Mr Wang's offer to buy up his pride Chardonnay, offering instead a single bottle as a Lunar New Year gift. REUTERS