The only possible explanation for the fact that in June our most 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 that he woke up that morning 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 do 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 $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 $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 1.4 to 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 $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 other wine could we sell to China? The stuff we sell to UK supermarkets? You have to be kidding. It would be sent back here. How about what we’re selling to the US? You can already buy YellowTail in China.
So where is the Australian wine going to come from that will further drive our burgeoning exports to China, which have yet to reach what marketeers call the ‘hockey stick’ stage of growth that mathematicians refer to as exponential? By and large, it doesn’t yet exist.
That means someone is going to have to do something that no-one has ever 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 that 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 fifteen 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 recent economic damage inflicted on Australian businesses by retaliatory Chinese responses to the staggeringly ignorant recent behaviour of our elected leaders, I have been told by a number of serious Chinese players that 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, maybe we need to think about how best instead to sell our investment story to our most important market. With a dose of non-Trump-like humility and respect.
