Greetings from Beijing,
So, a fellow nation put a 15% tariff on your wine. That's not a nice way to start the week, is it? Then again, it depends on who is tariffing (word?) and who is being tariffed (another word?). In the case of China
and the U.S.
, I've included ten quick takes
Also, check out my piece on the dodgy wines
faced by Penfolds
in China. My analysis of what Xi Jinping
and Kim Jong-Un
were drinking--one had red, one had white
--at last week's Beijing confab. And this year's April Fool's
post, featuring waijiu
, a wine and baijiu blend.
As usual, please pass this newsletter to others who might like it. You can also follow Grape Wall via Facebook
Cheers, Jim Boyce
China tariff, US wines,
10 Quick Takes
Ten initial reactions to news that China slapped a 15-percent tax on U.S. wines this week.
1. The amount of U.S. wine involved is small. The U.S. only exports about 12.5% of production and, in 2017, only 3.7% of those exports went to China. That means about 0.4% of total production or 1 out of every 250 bottles.
2. As perspective, the U.S. exported six times more wine, by value and volume, to Canada.
3. But the tariff attracts attention because wine is tangible. Mention a steel tariff and I imagine huge coils of shiny metal illuminated by a smelter in some rough part of America. But wine? I can hold a bottle. And now it's going to cost rmb115 instead of rmb100? Nooooo!
4. Also, the amount of U.S. wine in China has shrunk. U.S.-based Wine Institute puts exports to China at 16.1 million liters in 2011 versus 14.2 million liters in 2017. China Customs stats show the U.S. share of imported bottled wine slid from 5% in 2011 to 2% in 2017. This when the overall market more than doubled and the U.S. faced no extra tariff. More details here
5. Then again, the issue in China is less about current consumers and more about potential ones, the dream of moving toward a market where a billion people one day vociferously scream for Screaming Eagle.
6. That doesn't mean the tariff won't hurt right now. One China-based distributor told me this afternoon she has a container of U.S. wines arriving tomorrow and has fingers crossed it gets through sans extra tariff.
7. But it will be less painful than expected, in part because U.S. wine has some price insulation. You don't see it in the bargain bin, or listed online as the cheapest option. Like New Zealand wines, U.S. labels cost a bit more.
8. I think U.S. wine fans understand this. France is the top source of wine but a huge amount is tied to status—gifting and entertaining. I think a higher proportion of people buy U.S. wine for taste. Maybe they visited, worked or studied in the U.S., or are wine aficionados, but they seek these labels. You often hear this from people doing U.S. wine promotion in China. There is lots of focus on "premiumization", which tends to be a longer game.
9. You could argue there is even more price insulation with the very best U.S. wines. This brings us to the Hong Kong duty free factor. Wine Institute reported exports of 9.4 million liters to Hong Kong in 2017 (versus 14.2 million for China) worth USD118.8 million (versus USD78.7 million for China). Many of those pricey wines make their way to continental China. Let's see if people who spend rmb1,000 for a bottle balk at, say, rmb1,150.
10. A bigger worry is the tariff getting tied to nationalism, that consumers, retailers and distributors turn their backs on U.S. wines as a political point. We saw this happen to some South Korean products in recent years and it had a major impact, although, as noted, the amount of U.S. wine in China is relatively small..
None of this is to say the tariff is inconsequential. The U.S. faces wine competitors who have free trade deals with China, including Chile, New Zealand and Australia. Paying an extra 15% alongside the current 14% tariff is an extra burden.
But China is a small market where U.S. wines carry a premium compared to those of many other nations and attract buyers who are less price sensitive than those simply seeking the cheapest bottle. Perhaps it's best to chill out—with a bottle of Schramsberg bubbly, Twomey Merlot or Hermann J Weimer Riesling—and figure out how get even more wine fans trying those tasty U.S. wines.
Australian brand Penfolds has long faced dodgy competition in China, from clear-cut fakes to labels leveraging the brand in misleading ways. It’s no surprise more examples were spotted at the China Food & Drink Fair
in Chengdu last month or that English-language reports arose last week of 50,000 bottles of fake Penfolds being seized in central China. More here
Photos from a banquet featuring leaders Xi Jinping
of China and Kim Jong-Un
of North Korea yesterday had people wondering what exactly was in their glasses, as Xi held a red liquid and Kim a “white” one. More here
Our 2018 April Fool's post featured PuKao Distillery
in northern Hebei province, which launched ‘waijiu’ at the China Food & Drinks Fair in Chengdu.
“We took the ‘w’ from wine and ‘aijiu’ from ‘baijiu’,” PuKao president Lianghe Gao
told a packed room of distributors. “Also, ‘wai’ means ‘outside’, so it’s perfect for our outreach to international markets.”
Full post here
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