Why imported wine undercuts domestic labels in China

Summary

China applied zero tariffs to bottled wine from 12 free-trade partners, including Chile, New Zealand and Australia, in 2024. Chile alone accounted for 38.7 percent of China's total import volume, according to 2023 General Administration of Customs data, helped by an upgraded China-Chile Free Trade Agreement that scrapped tariffs outright from 2019. Four factors explain why imported wine sells for less than domestic wine: tax, raw materials and scale, distribution structure, and currency settlement.

On tax, domestic wine carries 13 percent VAT, 9 percent consumption tax and local surcharges, a combined burden of 25–28 percent. Imported wine under zero tariffs pays VAT at 13 percent on the sum of the dutiable value plus tariff and consumption tax only. A batch of Chilean Cabernet Sauvignon priced at 50 yuan a bottle CIF lands at a dutiable cost of about 56.5 yuan.

A domestic wine of comparable quality leaving the winery at 60 yuan reaches 82–88 yuan at the retail end once tax is included. On raw materials and scale, the world's five largest wine producers average more than 200,000 hectares under vine, with yields steady at 6–8 tonnes per hectare. Chile's Central Valley uses one third the pesticide of the Penglai district in Shandong, hand-picks under 15 percent of its fruit and runs mechanisation above 85 percent.

China's winemaking grape area was about 650,000 mu in 2022, scattered across 12 main producing regions, with average yields of just 3.2 tonnes per hectare and 76 percent hand-picked. Labour costs 18–22 yuan an hour, and Ningxia Cabernet Sauvignon purchase prices rose 23 percent year on year in 2023. On distribution, leading importers such as ASC and Shengpi'er buy more than 1 billion yuan a year, with minimum order quantities above 50,000 cases per SKU, spreading logistics and warehousing costs to 0.8 yuan a bottle.

Domestic wine typically carries a 45–60 percent mark-up at the provincial agency level, and terminal tobacco and liquor stores demand gross margins of at least 80 percent. On currency, the yuan appreciated about 6.3 percent against the US dollar and 11.7 percent against the Australian dollar between 2020 and 2023. Importers mostly use forward letters of credit to lock in exchange rates for six to 12 months.

In 2023 Australian Shiraz was quoted at AUD 2.15 a bottle FOB, or 9.8 yuan, below the 11.6 yuan per bottle paid for domestic Shiraz base wine of the same specification.

Commentary

Imported wine undercuts domestic wine in China chiefly because of zero tariffs, large-scale production costs, shorter distribution chains and a stronger yuan. For small and medium-sized New Zealand wineries, the analysis points to one key fact: price competitiveness is not a natural endowment for New Zealand wine in China. Chile, with more than 200,000 hectares under vine and mechanisation above 85 percent, pushes per-bottle costs very low, while the average New Zealand vineyard is under 50 hectares and labour costs far exceed Chile's.

New Zealand wineries that take on Chilean and Australian volume producers on price will inevitably lose. Under the China-New Zealand Free Trade Agreement, however, bottled New Zealand wine has been tariff-free since 2012, offsetting part of the cost disadvantage for smaller brands. The deeper commercial opportunity lies elsewhere.

New Zealand accounts for only 4 percent of China's imported wine volume but about 12 percent of import value, 2023 customs data shows, meaning its average price sits well above the market average. Consumers are willing to pay a premium for New Zealand wine's purity, high acidity and distinctive varieties such as Marlborough Sauvignon Blanc and Central Otago Pinot Noir. New Zealand wineries should steer clear of e-commerce platforms and mass-market tobacco and liquor stores, and focus instead on high-end dining, fine wine specialists and private clients, using the 'New Zealand equals purity' association to sharpen their storytelling.

They should also watch yuan-NZD volatility and consider forward foreign exchange contracts to lock in margins. Another angle: the high cost of domestic wine stems partly from fragmented smallholder growing. New Zealand wineries could partner with Chinese wine merchants to supply bulk wine on an OEM basis, using zero tariffs and brand endorsement to tap the market for upgraded replacements to domestic wine.

Keywords: imported wine, zero-tariff policy, domestic wine, combined tax burden, cost structure, channel mark-up rate, yuan appreciation, Chilean wine, brand premium, winemaking grape growing

Source: Jianshu