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California wineries determined to stay in China despite tariffs

California wineries have shown they are reluctant to lose contact with China, despite the country's trade war with the Trump administration putting US wines at a disadvantage to rivals from other countries.

Facing an effective import tariff tax of 91% in China since the beginning of June, California wineries may have shifted more stock to other markets but have shown little desire to exit a country with massive long-term sales potential.

China has again raised tariffs on thousands of US products, including wines, after president Trump recently announced fresh levies on Chinese goods. Wine was already one of the sectors targeted by retaliatory Chinese tariffs in 2018.

‘Many wineries have not yet determined a plan of action,’ said Honore Comfort, international marketing vice president at the Wine Institute, a public policy advocate representing more than 1,000 California producers.

‘We will know more in three to six months, as wineries work with importers and see what the real ramifications are in the marketplace.’

Some producers are using the situation as an opportunity to invest in and develop market share in other Asian countries, such as South Korea, Taiwan, and Singapore.

But, they are maintaining a presence in China, particularly though the Wine Institute’s education programmes and other trade exhibitions, Comfort added.

Maintaining contact with Chinese clients is important, but such a high tax ‘makes it very hard to compete against wines from Australia, Chile and New Zealand, which have a zero tariff,’ said Stephanie Honig, of Honig Vineyard & Winery.

Honig went from selling 1,000 cases of wine in China in 2016 to 560 cases in 2017, and to zero cases last year. Even before the fresh tariff increase this month, Honig’s wines were ‘almost double the price they were a couple of years ago’, she said.

Some have painted a rosier picture by looking at China’s long-term potential.

‘Japan, Korea and Taiwan are very good markets over the short and immediate terms, whereas China has great potential down the road,’ said Abigail Smyth, export manager for Crimson Wine Group, which represents several top California brands being sold in China, including Pine Ridge Vineyards and Seghesio Family Vineyards.

Speaking to Decanter.com from a business trip in Xiamen, a port city on China’s southeast coast, Smyth said that a growing number of China’s middle class, and millionaires, visiting the US ‘for education, business opportunities and familial connections’ means that more of them will try American products, including wine.

‘When they return to China,’ she said that ‘unique, high value offerings from special wine regions in the US will continue to grow in demand and value over the long run’. She added, ‘the more unique the offerings, and the higher the value, the less impact tariffs have.’

Nevertheless, it is difficult to gauge the future impact of the tariffs, said Bruce Cakebread, of Cakebread Cellars in Rutherford, California.

Cakebread has made up for lost sales in China by selling more to other markets but ‘the tariffs are not helpful for either the Chinese wine consumer or the California winemaker’, said Cakebread.

For all the fuss, winemakers say that wine is a minor player in a trade imbalance between the US and China that was $420bn in 2018, according to US government figures.

The US wine market is about $58 million in China. ‘A needle in a haystack,’ Honig said.

Editing by Chris Mercer

May 2019: Fresh China tariffs a worry for US producers


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