China Wine Tariff Pushes Australia’s Grape Growers Into Crisis

For years, China’s thirst for Australian wine seemed insatiable. Chinese drinkers were so passionate about big-bodied red wines from Australia that many vineyards replaced white grapes with darker varieties. Wineries even reverted to using corks — instead of convenient screw tops — because Chinese consumers liked the traditional plug.

But then everything unraveled.

In April 2020, Australia’s prime minister at the time, Scott Morrison, called for an independent investigation into the origin of Covid-19. Beijing was furious, denouncing “political games” meant to assign blame for the pandemic. In response, China unleashed its overwhelming economic might.

It imposed a punitive tariff on Australian wine, and the country’s biggest overseas market vanished almost immediately. Sales to China plummeted 97 percent that first year. Storage tanks overflowed with unsold vintages of shiraz and cabernet sauvignon, pressuring red grape prices.

Australia’s grape growers are still suffering. This year, there is even less demand for red wine. Farmers are facing a choice between selling grapes at a huge loss or keeping costs to a minimum and not harvesting. Grape growers like Mauro Travaglione are even questioning the future of their family business.

On his 130-acre farm in Australia’s Riverland region outside Adelaide, Mr. Travaglione has not produced any wholesale red wine since the tariff came into effect. Last year, he sold his red grapes to other wineries and felt lucky to do so, even though he barely covered his costs.

“Every day is a struggle,” said Mr. Travaglione, whose family has lived in Waikerie, a rural town in the state of South Australia, since his parents bought a small fruit farm there in 1966. “You have to seriously think: Is it worth continuing on?”

When the Chinese market was emerging, Beijing dangled entry as a carrot. Now that its economy is entrenched as the world’s second largest, the threat of losing access to China’s 1.4 billion consumers is a stick that few countries or industries can afford to provoke.

China has applied political pressure on Taiwan by blocking imports of the island’s pineapples, apples and fish. When Lithuania cozied up to Taiwan, China imposed an unofficial trade blockade on the Baltic nation.

In recent months, China has embraced a softer approach to diplomacy, fueling optimism that trade relations with Australia may improve. In November, China’s top leader, Xi Jinping, and Australia’s prime minister, Anthony Albanese, met at a gathering of the Group of 20. A month later, Foreign Minister Penny Wong became Australia’s first top diplomat to visit China in four years. The two sides agreed to start a dialogue on trade.

But there will be a lot of acrimony to unwind. Shortly after Australia called for a Covid inquiry, China’s Ministry of Commerce opened an investigation into whether Australia was dumping wine onto the market at artificially low prices. In March 2021, China imposed a five-year tariff of up to 218 percent for Australian wine sold in quantities of less than two liters.

The punitive measures didn’t end there. The tariffs excluded red wine shipped in large pouches and bottled in China, but Australian farmers said their shipments sat in Chinese ports for months, unable to clear customs. China also blocked other Australian imports, such as coal, barley, cotton and lobsters.

China went from being the biggest buyer of Australian wine, accounting for 40 percent of exports, to 23rd, below countries like Sweden and the Philippines. It was devastating for an industry that had reoriented its priorities after the two countries struck a free-trade agreement in 2015.

Since roughly 95 percent of Australian wine bought in China was red, Riverland farmers had added 1,600 acres of cabernet sauvignon, shiraz and merlot vines in the last decade, even as the total acreage devoted to grape growing shrank, according to Wine Australia.

“We were seduced by China,” said Tim Whetstone, a member of South Australia’s House of Assembly representing the Riverland, the country’s biggest grape-producing region. He estimated that half the region’s red grapes would not be harvested for sale this year.

“We put all our eggs in the China basket, and it has come back to bite us,” Mr. Whetstone said.

Nikki Palun was one of the Australian winemakers who charged into China. Fluent in Mandarin, she started shipping bottles of wine to China in 2014, reaching a height of more than two million a year — roughly 90 percent of her business. When the tariffs hit, her business disappeared.

She tried products unaffected by the tariffs. At first, she made spirits like vodka and brandy. She even dabbled with sparkling grapefruit juice, but they failed to catch on. The situation was further complicated because Australia was in a Covid lockdown, making it difficult to drum up new business at home.

Ms. Palun eventually opened a tasting room in Melbourne and focused on selling in Australia. Now, most of her sales are domestic. She said she had been looking at other overseas markets, “but nothing can replace China in terms of volume.”

Despite all that has happened, Ms. Palun said the problem was not China but a lack of skillful diplomacy by Australia’s previous government. “We publicly humiliated China, and to me you just don’t do that,” she said.

The pain continues to deepen in Australia. Accolade Wines, a conglomerate, told its cooperative of Riverland farmers that producing more red wine this year would only depress red grapes again next year.

Instead of buying more red grapes as part of a multiyear contract, Accolade said, it wanted to ease the glut and would pay farmers to “mothball” vineyards, or put vines in a dormant state and not produce fruit for sale this year. Accolade also offered to pay farmers to switch red grape vines back to white. Melanie Kargas, a commercial manager for CCW Co-operative, a collective of about 500 Riverland grape growers, said she had never heard of such offers before.

“They’re not profitable options, but they’re sort of tread water options,” said Will Swinstead, a cooperative member who owns a family farm in Overland Corner, in the Riverland.

Mr. Swinstead chose to not harvest his red grapes. He said it was disappointing because he had invested heavily to plant shiraz vines in the last five years to meet the demands of the Chinese market. He is better off than other farmers in the area, however, because he has another business growing watermelons, he said.

Running a farm is never easy, and it is prone to boom-or-bust cycles. But grape growing is in Mr. Travaglione’s blood. His parents, who came to Australia in the 1950s, were born into winemaking families in Italy. He had long hoped that his children would one day take over the family farm.

But now Mr. Travaglione, 55, is reconsidering whether this is a life he would want for them. The tariff wasn’t the only challenge. An unusually heavy rainy season flooded the nearby Murray River, and that moisture elevated the risk of crop disease. The cost of fertilizer, shipping containers and other business expenses is also higher.

When his son expressed an interest in winemaking, Mr. Travaglione encouraged him to explore other careers. His son will study mechanical engineering at a university next year.

“It was heartbreaking,” Mr. Travaglione said. “It’s hard to encourage the younger generation to come into the industry.”

Recently, he learned that his neighbor, a third-generation grape grower, was calling it quits and listed his property for sale. Even exiting the industry is tough, Mr. Travaglione said, because many vineyards are for sale but there are no buyers.

“If this continues for another two or three years, a lot of growers will be pulling out and just walking away,” he said. “It’s just not viable.”