Update: China’s Alcohol Market a Year after the US-China Trade War

Introduction

More than a year into the trade war between the US and China, both sides have temporarily called a truce. Envoys are set to meet for further talks and the planned increased tariffs on imports have been suspended until further notice. The world awaits if the involved parties will finally hammer a hard-negotiated deal that will end the standoff.

In September 2018, the U.S. imposed a tariff start rate of 10% on about US$200 billion worth of Chinese imports. China retaliated by putting an additional levy on over US$60 million worth of U.S. goods, including alcoholic drinks. Beverage makers have been scrambling since then to avoid major loss of income due to the subsequent price hike.

Unresolved Standoff Impacts China’s Alcohol Market

Many alcohol companies breathed a collective sigh of relief when there was hardly any effect of the trade war on China’s alcohol market in the first half of 2018. Wine imports rose, while sales of foreign beers and spirits increased. The latter of the year, however, painted a different picture.

Wine Import Drops in Q4 2018

Despite the additional 10% tariff slapped by China on U.S. wine imports in September, shipments rose by 14% in value, totaling US$38.4 million. By the end of the year, however, import value was down by 5.22%. The average import price per liter for American wines also dipped by 14% at US$5.01

China’s overall wine imports also dropped by 8.26%. This decline in import values from the biggest exporters (i.e. France, Australia and Italy) was heavily attributed to the US-China trade war. Since the start of the rift, the region has faced economic slowdown and the Chinese yuan depreciated more than 10%.

It was also revealed that a number of Chinese importers stopped sourcing American wines after the tariffs took effect. The 25% tariffs made the vintages too pricey so they opted to switch to Australian and Chilean imports. The International Wine & Spirit Research has predicted, though, that China’s wine imports would rise again by 8% in 2019.

Beer Price Increases by 8%

Months after the tariff for alcohol was raised, global beer giants and even local brewers reported lower revenues due to the declining beer sales. Prices grew by 8% in the first half of 2018. Anheuser-Busch’s earnings dropped by 2.7%, but the company is still confident of the strong growth momentum in China through its ongoing premiumization campaigns.

Meanwhile, China Resources Beer, the country’s top brewer, posted a 16.9% fall in its 2018 profit. Prices of high-grade barley used to produce malt increased in Q4, impacting production and sales by Chinese beermakers. CR Beer, along with other local giants, raised prices due to higher raw material and labor costs.

Imported Spirits Sales Remain Stable

2018 was a good year for suppliers of premium spirits to China. Most of them reported increased sales of their products. Diageo, the maker of Johnnie Walker, revealed that strong demand for Scotch and Chinese white spirits helped its organic net sales grow by 20%. French spirits group Rémy Cointreau likewise indicated a 20% rise in its cognac sales.

American whiskey was not as lucky. In the latter part of 2018, companies were feeling the bite of the levy increase. Exports dropped by 11% as the price of American whiskeys soared. This was are a sharp contrast to the first half performance where exports grew by 28%, the time when shipments overseas were accelerated to avoid the tariffs.

Conclusion

While the tit-for-tat duties and continued standoff have hugely affected the import and sales of US alcohols in China, companies remain optimistic that the Chinese’s thirst for high-quality beverages will prevail over any price hikes. Meanwhile, non-American producers should ramp up their campaigns and take advantage of this opportunity. With China’s alcohol consumption expecting to reach 65 billion liters by 2020, there is no better time than now to establish their presence in the region.

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