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- Treasury Wine Estates (TWE) will implement a series of plans to mitigate the effects of Chinese tariffs on Australian wine exports
- The new system will see Treasury exports slugged with a 169.3 per cent duty for containers under two litres, potentially until August 28, 2021
- The company will attempt to reallocate product destined for China to other jurisdictions across Asia, Europe and the U.S.
- The company will also accelerate sales and marketing to drive demand to replace the shortfall in China
- The company is making plans which will “progressively reach their full potential over a two to three-year period” in case of future troubles with China
- Diverse exports including foods and raw materials have been essentially suspended as relations remain strained between Canberra and Beijing
- Treasury Wine Estates is down a further 5.96 per cent this morning, trading at $8.68
Treasury Wine Estates (TWE) will implement a series of plans to mitigate the effects of Chinese tariffs on Australian wine exports.
The new deal
The new system will see Treasury exports slugged with a 169.3 per cent duty for containers under two litres, potentially until August 28, 2021.
The punitive tariffs have been put in place amid allegations of “dumping” — where Chinese authorities have accused Australian producers of selling their product into the market at anti-competitive, below-cost prices.
The final determination of the anti-dumping investigation will determine whether the measure will be maintained, adjusted or removed.
TWE says it will “continue to engage respectfully with the Chinese Ministry of Commerce (MOFCOM) as part of the investigation, which is continuing.”
As long as the measure remains in place, Treasury believes demand for its portfolio will be heavily impacted.
Company CEO Tim Ford said it’s up to the government to find a way out of the crisis.
“We are extremely disappointed to find our business, our partners’ businesses and the Australian wine industry in this position,” Tim said.
“We will continue to engage with MOFCOM as the investigation proceeds to ensure our position is understood. We call for strong leadership from governments to find a pathway forward,” he added.
The response
The Australian wine industry has been devastated by the news that it has essentially been denied access to its second-biggest market by volume, worth around $1.2 billion annually.
Treasury has been forced to come up with a plan to mitigate the effects of the punitive measures.
While the wine giant is laying out plans to offset the worst of the effects, it has obviously been rattled by the measures and potential future impacts of the ongoing trade war with China.
As long as diplomatic relations remain strained with Australia’s biggest trading partner, local exporters are on a knife-edge, not knowing what measures might be taken next or how long they’ll last.
As it stands, diverse markets including seafood, timber, coal and beef have been affected, with no real clarity as yet as to how long the effects will last or if a resolution can be reached.
Treasury has, accordingly, laid out plans that will immediately seek to re-allocate product destined for China, and will then “progressively reach their full potential over a two to three-year period.”
First on the list will be the redirection of the Penfolds Bin and Icon range from China — which currently accounts for 25 per cent of sales — to other luxury markets across Asia, Europe and the U.S.
The company will also accelerate sales and marketing activities in those jurisdictions to drive demand.
The company is also looking to streamline its operations by reducing supply and overhead costs across its global operations.
The company expects the benefits of the plans to be minimal in the current financial year, but to provide a more stable and diversified model going forward should the ructions with continue into the longer term.
China accounted for 30 per cent of TWE group sales in the 2020 financial year.
The company says it “remains comfortable with its existing inventory position and valuation” and will make the most of its flexible sourcing model to adjust to the now-limited demand for its product.
Tim Ford says Treasury will be doing all it can to support the sector during the period of uncertainty.
“The strength of our brands, including Penfolds, combined with our diversified business model will allow TWE to implement a range of changes and plans that will enable us to manage through the significant impact of these measures going forward,” Tim said.
“However, there is no doubt this will have a significant impact on many across the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector.”
Treasury Wine CEO Tim Ford
“We will continue to work with our valued partners to further understand the implications and how we can work with the industry, governments and others to support the sector,” he added.
Treasury Wine Estates is down a further 5.96 per cent this morning, trading at $8.68 at 10:47 am AEDT.
