(Bloomberg) -- The vintner behind Penfolds, one of Australia’s most iconic wine labels, isn’t banking on China removing its eye-watering tariffs that decimated what was the company’s most lucrative export market.
Beijing slapped tariffs of about 200% on Treasury Wine Estates and other Australian producers as diplomatic relations soured between the two nations. With access to the Chinese market cut off for wine originating from Down Under, Chief Executive Officer Tim Ford has to find creative means elsewhere.
“We’re not planning for them to end,” he said about the tariffs in an interview on Thursday. “We’re moving down this path with other countries of sourcing for our Chinese market, and building that over time with the assumption that, you know, it won’t change.” China had accounted for 30% of Treasury’s earnings.
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The Melbourne-based company has moved down that path at an impressive pace since China first introduced the trade curbs in 2020. With the current tariffs set to last for about five years, Treasury is firm on pushing ahead with production plans that branch out well beyond Australian borders, Ford said.
It’s snapped up multiple wineries in California’s Napa Valley, where it produces 19 Crimes wine in partnership with rapper Snoop Dogg, and is broadening its presence in France’s famed Bordeaux region.
The company debuted its French collection of Penfolds earlier this month, and this week announced the acquisition of Chateau Lanessan, which will more than double its vineyard footprint in Bordeaux and increase production capacity.
While it’s only producing small volumes to start with, the French product is targeted almost exclusively at the Chinese market, Ford said. Treasury aims to one day supply 100,000 cases of luxury French wine, he said.
“We’ve got a few cases in other markets around the world just to satisfy some of our more private clients,” he said. “But absolutely -- designed for China, built for China and made for China.”
Next on the menu is a made-in-China Penfolds, which is poised to hit the market around the end of September and will dodge the punishing tariffs. Ford said the project was in the works well before the trade curbs were imposed.
“We’ve had our winemakers up in that market, experimenting on: where do we get the fruit from? How do we make the wines? Can they meet the Penfolds house style for a number of years?” he said. “This doesn’t happen overnight.”
Making up for lost China sales will be a challenge. Overall Penfolds net revenue fell 9% in the 2022 financial year due to a decline in shipments to mainland China. This is despite strong growth in other markets.
A political rift between Beijing and Canberra that worsened under the previous administration led China to impose trade restrictions on a range of Australian commodities including wine, coal and barley. Ford sees prospects for relations to improve under the government of Prime Minister Anthony Albanese.
“The key ministers and the prime minister clearly have shown intent to be more balanced in their approach in terms of how they talk about the Australia-China relationship,” Ford said. “The intent seems to be strong from both sides to, over time, improve it.”
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