Beijing wants a taste of Australian wine sector

Michael Sainsbury, China correspondent From: The Australian January 14, 2010 12:00AM Increase Text Size Decrease Text Size Print Email Share Add to Digg Add to del.icio.us Add to Facebook Add to Kwoff Add to Myspace Add to Newsvine What are these?
CHINESE companies are poised to target Australia's $26 billion wine sector with a range of companies across the country -- most of them government-owned -- exploring deals that would result in them buying local wineries or taking equity interests in wine and beverage groups.

Australia's largest trading partner is extending its investment activities into sectors other than mining and resources.

Shanghai-based food and beverage conglomerate Bright Group -- one of China's biggest -- this week signalled its interest in paying $1.5bn cash for the sugar and renewable energy division of CSR, and is eyeing winemakers as part of a wide-ranging look at investment in Australia.

Other major beverage groups -- including the massive food and drinks group COFCO, owned by the central government, which has recently stepped into the wine market in China as a major distributor -- are also believed to be mulling Australian wine industry purchases.

Australia is the second-biggest exporter of wine to China, with market share of about 20 per cent compared with France's 39 per cent. It sold $93 million worth of wine there last year in a 50 per cent increase on the previous year. Sales are expected to increase as much as 50 per cent again this year.

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Wine is Australia's third-biggest agricultural export, with sales of $2.7bn in 2007-08.

Several Australian brands, led by Jacobs Creek and Penfolds, already have a strong presence in China, and a number of Australian winemakers are spending up big to push their brands in the Asian nation.

The Chinese market is divided into two clear categories: bottled and bulk sales. Bulk is the large shipment of surplus wine that producers often have when there has been a bumper harvest and supply gets out of whack with demand -- as it did in Australia a few years back.

Chinese distributors buy this and either rebottle it or bulk up their own "made in China" brands. In 1999-2000, total Australian wine sales to China were only $1.5m.

Last financial year they were $94m, including bottled and bulk wine, up from $62m the year before and $46m in the 2006-07 financial year.

Growth is set to continue at that level -- 40-50 per cent this year according to Matthew Bahen, a Melbourne native who is sales manager at Beijing distributor The Wine Republic.

The company is owned by the Rathbone family, which runs a number of Australian vineyards and founded Nufarm, the ASX-listed agribusiness company that spurned a $2.3 billion offer from China's Sinochem, in favour of a Japanese investor's bid.

Now, China food processors and distributors want not only to import our wines but to own the production as well, just as the country's steelmakers are investing billions of dollars in new mines in Australia that produce the metal's key ingredient, iron ore.

Chinese corporations, flush with cheap loans due to multi-trillion-dollar bank lending by state-owned banks, are eyeing Australian sectors beyond mining, in which they invested $11.5bn last year.

As well as wine and sugar they are looking at a range of food producers and agribusinesses, for so-called food security and access to technology and expertise.