Bull in a China Shop

Australia will have to think bigger and better – indeed, rethink its entire approach – if our wine is to truly thrive in the sensitive Chinese marketplace, writes Jeremy Oliver.
jeremy oliver

The only possible explanation for the fact that in June our recently departed PM, Malcolm Turnbull, spoke in what The Sydney Morning Herald described as “broken Mandarin” to explain to China that Australians had “stood up” to their interference is he woke up that day convinced he was Donald Trump.

It could be argued – at least if you are The Donald – that the US, which has a well-publicised trade deficit with China, is in a position to make strident demands on the emergent Asian giant and does this publicly. Australia, which sells about a third of its exports to China, faces a diametrically opposite set of economic circumstances. And wine, while being a minor export next to tourism and education, has become dependent on China to the tune of A$1.1 billion a year, and rising.

In China I’m often asked if Australia really wants to take a dominant position in its wine market and bury the French. How quickly can we get to A$2 billion and higher?

Well, it’s not going to be that easy. We don’t have a limitless supply of wine, and we’re in drought. Big time. Australian wine brand owners could potentially get our sales up to about A$1.4 to A$1.6 billion in China in the relatively short term, but they’ll lose friends at home in the process. All the big Australian companies massively over-deliver in the ultra-competitive A$15-$20 RRP segment in this country, and they’d welcome the chance to make a greater return by selling the very same wine where it will be more appreciated, for which right now you can read “China”. Want proof? Just check out the
current going rate for Penfolds Kalimna.

What else could we sell to China? The wine we sell to UK supermarkets? You must be kidding. It’d be sent back. How about what we sell to the US? You can already buy Yellow Tail in China.

Where will the Australian wine come from that will further drive our burgeoning exports to China, which have yet to reach what marketeers call the hockey-stick growth stage that mathematicians call exponential? By and large, it doesn’t yet exist.

Someone will have to do something never done on a large scale before – invest in huge vineyards and processing facilities in Australia specifically to make wine for China. Interesting.

I’ve yet to encounter a significant appetite within Australian business to invest in this idea. Why? Apparently, it’s too flaky a concept, largely because of the risks presented by the Chinese government. This notion bears a little scrutiny. We all know the rulers of China are more than capable of introducing sudden, dramatic changes in policy that effectively turn its market on its head, overnight and without warning or apology. That’s a given. It’s expected. Most international companies just deal with that reality and take the hits every now and again. China’s growth compensates most of the time.

But I can’t see Australians, being a risk-averse crowd, buying the land, planting the vines and doing what’s needed to fund this potential growth. So, perhaps it’s over to the Chinese instead.

And now we’re talking real political risk. The kind of risk that occurs when Australian politicians decide to tap the vein of either media or parliamentary privilege for their 15 minutes of fame on the China topic. Instead of attempting to resolve whatever issue is burning the hole in their bonnets, they typically pour petrol on whatever fire they’re claiming to put out with a strategy that even the most naïve “China expert” would decry as raising the foot of the Australian economy only to shoot it at close range with a bazooka.

If you want to resolve issues with our Chinese colleagues, trade partners, customers and leaders, you do it by forming a relationship, building trust and then addressing issues with robustness and clarity, behind closed doors.

Back to the wine investment issue. Given the economic damage inflicted on Australian businesses by retaliatory Chinese responses to the ignorant recent behaviour of some of our leaders, some serious Chinese players tell me they’re worried about the political risk presented by the Australian government.

That’s a new game, and a concerning one. And one we need to resolve quickly if China is not to become the opportunity that we weren’t smart enough to take. Wine is a long, slow play, and if we’re not prepared to invest in our own growth, instead maybe we need to think about how best to sell our investment story to our most important market. With a dose of non-Trump-like humility and respect.