Treasury Wine facing China customs delay amid diplomatic rift

Treasury Wine facing China customs delay amid diplomatic rift

Thu, 17/05/2018 - 14:30

Treasury Wine Estates is responsible for the export of some of Australia's most valuable wine brands to China. Photo: Reuters

Treasury Wine Estates, the world's biggest listed winemaker, said it was facing delays getting some products through Chinese customs, sending its shares tumbling amid fears it may be affected by a diplomatic dispute.

Treasury disclosed the issue on the day Australian Trade Minister Steve Ciobo is due to visit China to reinforce trade ties with Australia's largest trading partner after a recent souring in relations.

In a statement to the ASX, Treasury said it was asking Chinese authorities about unspecified "new and additional verification requirements" since last month, seemingly applied only to Australian wine.

China's customs department did not immediately respond to a faxed request for comment.

A problem getting wine into China presents a major setback for the owner of the Penfolds, Wolf Blass and Rosemount labels which has benefited from an insatiable thirst for wine among China's expanding middle class.

Treasury shares fell as much as 12 percent in morning trading, their biggest decline since 2014 when the company issued a profit warning related to a troubled expansion in the United States. The broader market was down 0.2 percent.

The Melbourne-based company said in February its China sales leapt 60 percent in the six months to end-December, pushing its shares to a record high. Treasury said then that its direct distribution model in China was working so well, it planned to roll it out in the United States.

Treasury said it was talking with senior Australian officials and Chinese authorities to resolve the issue, adding it had "no reason to believe that this slowdown will be a long term issue".

Overall Australian wine exports to China grew by nearly two thirds in 2017, according to government data, making the wine industry one of the biggest beneficiaries of a 2015 free trade agreement between the countries.

Ciobo's three-day visit to Shanghai is part of Canberra's efforts to protect access to a market for everything from iron ore to baby formula, analysts said.

A spokeswoman for Ciobo did not immediately respond to request for comment.

Australian Prime Minister Malcolm Turnbull has acknowledged relations between the countries are at a low ebb since Australia introduced new laws banning foreign political donations, a move directed at China.

Canberra has also accused China of seeking to exert influence in the Pacific though its aid programme.

China responded with a formal protest and has reportedly withheld visas for Australian government officials, jeopardising a biennial trade fair and sparking fears the row could escalate and further threaten economic ties.

"China could do significant damage if China stops buying wine, with grape growers around the country going out of business," said Nick Bisley, an expert on international relations at Melbourne's La Trobe University.