The Australian wine sector has been asking for many years – what is the next big market after China, and could India be its replacement? The simple answer is no, at least not for some time and not without a lot of work to grow the market. India has always been a long-term prospect for Australian wine exports, but prohibitive import tariffs, high taxes and a consumer base unfamiliar with wine has made success in the market difficult. It is a challenging market logistically, it is expensive for exports, there are technical and quality challenges and in terms of beverage alcohol, wine is behind spirits and beer in the pecking order of Indian consumer choice. We need to work to address these issues over time in order to build this market.
Despite the challenges India also presents some significant opportunity. According to Euromonitor International, a rising middle class, increasing urbanisation, an inclination towards imported wine, and a shift in consumer preferences from hard spirits towards wine are expected to drive wine consumption in India. Australian wine is also seen as high quality by the Indian consumer.
It is a small market at present. In the 12 months to the end of December 2021, Australian wine exports to India increased by 81 per cent in value to $12 million – a record value of Australian wine exports to India. Volume also increased by 71 per cent to 2.5 million litres, and 74 per cent of this volume of wine was red wine. The Australian Government announcement on 2 April 2022 that Australia had signed the interim Australia-India Economic Cooperation and Trade Agreement (AI ECTA) is the starting point, and an opportunity to grow exports of Australian wine.
So, what does the interim AI ECTA provide us now and what does it mean for the sector….?
Nobody expected trade negotiations with India to be easy. Australia has been negotiating this deal for 11 years. Our major competitors have not managed to clinch a deal including wine – notably Chile, where wine was completely excluded from the negotiations. Up until quite recently, if you had asked those who had been involved in previous negotiations what our chances of gaining any meaningful outcomes would be, they would have told you the chances were next to zero.
Fortunately, the growing strength in our political relations between our countries, a tenacious Trade Minister in Dan Tehan, and a geopolitical environment that meant both countries were in need of diversifying trade, provided an environment where a deal was at least a possibility. Despite this, the most recent negotiations have remained incredibly challenging.
This is highlighted by the outcomes of the interim AI ECTA with some of the more sensitive commodities not featured at all and others like wine, with a less than perfect outcome.
The outcomes of the interim AI ECTA should be understood in this context and that they represent a significant shift in India’s long held position on agriculture market access.
What does an interim agreement mean?
This agreement has been termed an interim agreement, with both sides committing to further negotiations to extend the scope of the agreement and the market access offers. However, the reality is that it has been a battle to win the limited gains within this phase of the agreement and it will be a real struggle to extend our access for wine in Phase 2. However, we now have the opportunity to demonstrate to the India grape and wine producers that we are not a threat, and there is mutual economic benefit to both parties from improved market access for Australian wine exported to India.
Import tariff reduction
Under AI ECTA, tariffs on Australian wine with a cost, insurance and freight (CIF) value of over US$5 per 750ml bottle will decrease from 150 per cent to 100 per cent upon entry into force, with a further phased reduction of 5 per cent per year for 10 years down to 50 per cent. Tariffs on Australian wine with a CIF value of over US$15 per 750ml bottle will decrease to 75 per cent upon entry into force, with a further phased reduction of 5 per cent per year for 10 years down to 25 per cent. The table below provides the full schedule for tariff reduction for Australian wine detailed in the agreements Appendix for Wine-HS 2204, over the next 10 years.
|CIF* Value of Wine for a 750 ml bottle||Existing Customs Duty||EIF||Year 1||Year 2||Year 3||Year 4||Year 5||Year 6||Year 7||Year 8||Year 9||Year 10|
This schedule provides the greatest benefit for high value Australian imports into India. However, import tariffs are only one of a number of additional taxes and charges imposed on imported wine product in India and cost will remain high on entry into force even with these reductions. It doesn’t solve the problem of high cost of imports into India, but it creates a starting point that will improve over time and provides us with a first mover and competitive advantage in the market.
First mover and competitive advantage
Australian wine’s presence in India is small but its growing. In the 12 months to the end of December 2021, Australian wine exports to India increased by 81 per cent in value to $12 million – a record value of Australian wine exports to India. Volume also increased by 71 per cent to 2.5 million litres, and 74 per cent of this volume of wine was red wine.
Despite this currently small volume of Australian wine imported to India, Australian wine is the largest importer of wine of any other importing country with around 72 percent of wine consumed coming from the domestic market. According to IWSR, Australian wine held a 42 per cent value share of the imported wine category in India in 2020, well ahead of Italy (14 per cent), France (12 per cent) and Chile (11 per cent).
Our already dominant footprint in the imported wine market plus a competitive advantage over all other imports creates a great opportunity for the sector to invest to build that dominance as an early entrant to the market.
Most favoured nation treatment
One of the most valuable aspects for Australian wine, and where Australian Grape & Wine has advocated hard for, is inclusion in the agreement for provision of a “most favoured nation” treatment for Australian wine. This outcome was achieved via a side letter which forms part of the AI ECTA.
The most favoured nation treatment specifically provided to Australian wine in the agreement means that any preferential tariff treatment which has been afforded to other countries in FTA negotiations with India will also be applied to Australian wine. For example, if a larger trading partner like the EU manages to negotiate a better deal on wine import tariffs, this will also be provided equally to Australian wine. This means that Australian wine will always have better, or at least parity of import tariffs with any other wine importing country to India. This is particularly important given that the UK, Canada and the European Union are all negotiating with India.
Side Letters on Trade and Production of Wine
The interim agreement not only addresses aspects of tariff reduction but also establishes the beginning of technical cooperation aimed at removal of wine technical barriers to trade and harmonisation of regulations. The inclusion of another wine specific side letter on Trade and Production of Wine is another major step that will create opportunity to remove some of the non-tariff barriers for Australian wine and make it more cost effective and timely to export Australian wine to India.
Australian Grape & Wine has received federal funding to initiate its long-term strategy for technical exchange and regulatory cooperation with India. This funding and the basis of the FTA side letter on trade and production of wine creates significant opportunities to work with India to further harmonise wine trade and remove a number of technical barriers to trade. This in turn will further reduce cost and time of export to provide significant long-term benefit. More information on this funding and the broader market diversification efforts can be found at Australian Grape & Wine ‘Growing our export’ page here