Why these winemakers aren’t banking on China despite the wine ban ending
What it's like to be on the receiving end of China's economic coercion, according to these Australian winemakers.
On my recent trip to Australia, I travelled to one of the world’s best wine regions, (well, according to me,) — South Australia’s Clare Valley.
I was keen to learn how the wine industry, which has suffered huge losses since China’s economic coercion of Australia, feels about Beijing’s decision to end the massive wine tariffs they imposed on the industry as punishment for the former government’s decision to call for an inquiry into Covid.
As a journalist who focuses on security, I’ve always been aware that it’s vital to share the views of those affected by security policy, just as much as those determining it.
So I was very grateful to Andrew and Cathy Pike for their wonderful, Australian hospitality and the time they took to explain to me over a beautifully home-cooked lunch, what it felt like to be caught in the geopolitical row between Australia and China.
For my overseas readers, the most important takeout was the contrast between how Australia’s ‘pluckiness’ is held up by China hawks around the world as what can be achieved by standing up to the Chinese Communist Party and the more domestic nuanced discussion about whether or not the original ‘offence’ should have been even committed by Australia.
This is certainly something I will be keeping front of mind in my reporting. I hope you enjoy this postcard from Clare.
Clare, South Australia: It is hard to imagine a more unlikely geopolitical frontline than the picturesque and quintessential Australian scene at Polish Hill, where galahs sit on swaying gum tree branches above a dried-up riverbed that separates a pre-federation stone homestead built by Polish migrants in the late 1800s from the ordered rows of grape wines.
But for Andrew Pike the past three or four years have been far from scenic.
‘Probably the toughest times that I’ve endured in the 45 years that I’ve been in the industry I reckon,’ he says, serving up a plate of squid he caught the day before.
Andrew and his wife Cathy established Pikes Wines exactly forty years ago in 1984. The business has always been a family passion. Their three sons now run the business and have expanded it to include a craft brewery and restaurant, as is typical of the Australian cellar-door experience.
In 2019 they were what Pike describes as ‘modestly profitable’. But then the horror began. It started with the spread of COVID-19 which triggered government-mandated lockdowns around the world but got a whole lot worse when former prime minister Scott Morrison called for an inquiry into the origins of the virus.
Beijing reacted angrily to Australia’s call for inquiry and set about making the country an example, slapping huge tariffs on barley, coal, lobster and wine in retaliation.
Australia became the poster child for economic coercion and the reaction was held up by China hawks around the world as proof China’s President Xi Jinping would and could use his trading leverage to silence his political critics, including sovereign countries.
‘Thanks ScoMo,’ Pike says as he pours a glass of his famous Reisling.
For the Pikes the effects were real, immediate and costly, especially as they came on top of the government-mandated lockdowns that were already crippling his business and ability to produce. Adding to this was rising interest rates.
‘It was a pretty bitter pill to swallow,’ he recalls.
Compared to other South Australian winemakers, the Pikes exposure to the China trade was lower. Pikes Wines is famous for its white wine and the Chinese predominately drink red wine.
But China was still their biggest export market and in 2020 was worth around a million dollars in sales for the family-run winery, or six per cent of their total business, with total exports making up around 15 per cent of their overall sales.
Crucially the Chinese were their highest-paying customers, paying more per litre of wine than anyone else.
‘A lot of people don’t get that,’ Pike says.
‘They think it’s all bulk volume but it’s not, it was actually volume and price so it made it a doubly bitter blow to the industry and we’re still trying to work our way through all that,’ he said.
Similarly, the Pike’s strength in domestic sales was no saving grace. The sudden glut of wine and grapes that would have been sold to China depressed local prices. So while good for consumers, for the Pikes it was just another erosion into their bottom line.
‘In real terms, the price of Australian wine in the Australian market has probably come off by 15 or 20 per cent in the last three to four years,’ he said. ‘And we’ve had to cut our red production by more than half.’
This meant reworking the vines where possible, but in many instances dropping red wine grapes on the ground to rot.
He lays the costs at the feet of Morrison for delivering the message in a way that insulted China.
‘It was politically naive on his part to say what he said, blaming China for Covid basically,’ he said.
‘I mean you don’t insult your major trading partners, you just don’t do that, you find a way to get your message through, you don’t insult them on the world stage.
‘It was unnecessary in my mind, it just didn’t need to happen.
‘Diplomacy is an art form, it’s not a stage act.’
Green shoots but cautious
Pike is grateful for the resumption of the wine trade, an agreement brokered with the Chinese government by Don Farrell, the federal Trade Minister, a fellow South Australian and proud owner of a small family winery nearby.
Farrell said he was hopeful the Chinese would be buying the Clare wines from their supermarket shelves very soon.
‘Pikes produce some wonderful wines from the Clare Valley and it will be great to see them back on supermarket shelves in China very soon,’ Farrell told Latika Takes.
‘The fact that the gates are now open is fantastic news,’ Pike says, adding that he was already seeing some ‘green shoots’ about resuming exports to China.
Australian wine sales to China peaked at $1.3 billion and 121 million litres in the 12 months ended October 2020. Wine Australia data shows that by contrast exports fell to just 1.4 million litres, worth $10 million in the 12 months to December last year.
The number of wine exporters was smashed to smithereens, falling from 2198 to just 117.
But Pike doubted that Australia’s sales would reach the levels experienced in the peak of the China boom for a variety of reasons, including the headstart and contracts that rivals including France, Chile, Italy and Spain now enjoy, the slowdown in the Chinese economy and the painful lesson that the political row taught he and other winemakers.
‘I don’t think it will ever get back to that, no,’ he said.
‘I just don’t think we’ll go that direction, we’ll try to diversify, adjust and grow other markets along the way to try and lift the overall effort without putting so much into one market.’
‘It’s going to be a long road back, but at least we are on the road again,’ Pike said.
This was echoed by Martin Cole from Wine Australia, who said that while sentiment for Australian wine in China remained positive.
‘However, the wine market in mainland China is different now to what it was at the end of 2020,’ he said.