Iconic South Australian wine brand Penfolds has announced plans to circumvent steep Chinese tariffs on Australian wine by producing a wine made in China itself.
Penfolds parent company Treasury Wine Estates (TWE) will release its first "made in China" vintage to the domestic market later this year.
The company said it had found "promising characteristics" in grapes sourced from Ningxia, in China's central-north, and Shangri-la in the south-western Yunnan province.
Chief Executive Officer Tim Ford said the move represented Treasury Wine's "commitment to China."
"China is an emerging fine winemaking region and we're confident we can produce a premium Chinese Penfolds that maintains the distinctive Penfolds house style and uncompromising quality," he said.
TWE added it had entered into a "strategic co-operation agreement" with the China Alcoholic Drinks Association, the country's primary wine industry body, which would allow it to build China's "fast-growing wine industry capability."
'Not surprised' wine executive says
China's so-called "anti-dumping" tariffs imposed on Australian wine exporters in 2020 have devastated the market.
The yearly value of Australia's wine industry has shrunk from $1.26 billion a year to $82 million.
Chief Executive of Australian Grape and Wine Tony Battaglene welcomed Treasury Wine's move as "a way to keep Australia's presence in the market."
"I'm not really surprised. Most of our companies are going through a really difficult time because of the closure of the Chinese market so everyone is trying to diversify their supply chains," he told ABC Radio Adelaide.
However, Mr Battaglene did have reservations about the quality of the wine.
"China is a really difficult place to grow grapes and make good wine," he said.
"In general, most of the quality is at lower price points… so it's not of the quality of a Penfolds. Having said that, there's a couple of areas where you get small quantities of very high-quality wine.
Australian wine 'still in demand'
Treasury Wines said China is tipped to become the world's second-largest wine market by next year, with an estimated 52 million regular wine drinkers.
In 2021, Chinese consumers drank more than one billion litres of wine.
Mr Battaglene said while Australian wines are held at a premium in China, there is also an appetite for local products.
"Chinese consumers want to know that what they buy is what they get, so I think the strength of the Penfolds brand will drive the integrity home," he said.
He added other Australian wine producers with the resources would likely follow Penfolds' lead by expanding into the Chinese market.
