The Treasury Wine Estates Ltd (ASX: TWE) share price is up 2.15% today to $14, and up almost 6.5% this week amid news of a further thawing in the trade relationship between China and Australia.
Acting Prime Minister Penny Wong announced an agreement between the Chinese and Australian Governments yesterday regarding barley tariffs.
She said China has agreed to an "expedited review" of its tariffs on Australian barley, while Australia will suspend its action against China with the World Trade Organisation.
The review is expected to take three months, or possibly four at the most.
Wong said the government was working to remove Chinese tariffs on a range of Australian goods.
If a deal can be reached on barley, Wong said "probably the next one I'd want to look at is wine", according to the Australian Financial Review (AFR).
Image source: Getty Images
Potential wine tariff change lifts Treasury Wine share price
With no news from Treasury Wine today, it's likely the share price is rising on the back of this news.
China introduced tariffs of 80% on Australian barley in May 2020. It followed that up with tariffs of up to 212% on Australian wine in November 2020.
This occurred amid souring political relations with the Morrison Government.
The Treasury Wine share price crashed to $7.87 per share on 5 November on news of the tariffs. Just three months earlier, it had been trading 26% higher.
It has taken some time for the ASX wine share to recover after losing such a valuable export market.
China remained a priority though, with Treasury Wine establishing vineyards in China to get around the tariffs.
It even launched a new brand just for China, called One by Penfolds. It sources grapes from China, France, and the United States.
Treasury also went on to find other markets for its wines, which it says has diversified its business.
In an investor presentation this month, Treasury Wine said this had "strengthened diversification of [the] global business following the implementation of China tariffs on Australian wine".
The company said it has "expanded [the] distribution footprint in priority growth markets and channels throughout Asia and the US".
How important is China to Treasury Wine Estates?
China used to be a key customer of Treasury Wine. The country's penchant for the winemaker's unique brands, particularly the prestigious Penfolds label, delivered Treasury Wine some handsome profits.
Back in January, Tribeca portfolio manager Jun Bei Liu said even a tariff reduction would create "an earnings upgrade of between 15% to 20% for [Treasury Wine]".
She said the Treasury Wine share price (trading at about $14.40 at the time) "hasn't really reflected that yet".
According to The Sydney Morning Herald, Treasury Wine CEO Tim Ford says even if China removed its tariffs, it would take time for Treasury Wine to rebuild its previous export capacity of 600,000 cases.
Ford said:
It would certainly take us time to increase the makes of those wines … because we've done such
a good job of reallocating what was going to China a couple of years ago.
Ford said the company has "plans and strategies in place" if the wine tariffs are removed quickly.
