At the opening of a new AU$165million winery extension near Stockwell in the Barossa Valley last week, managing director Tim Ford said: ‘I don’t spend any time thinking about it. [the China market for Australian wines] to come back”.

But, he continues, “I spend 100% of my time on the country of origin strategy” – supplying the Chinese market with wines produced outside Australia.

They come from France and the United States, and eventually, it is expected, from China itself.

While wines produced in Australia by the Treasury are now subject to a 175.6% tariff, those it produces elsewhere are duty free in China.

These punitive tariffs imposed by Beijing at the end of 2020 on Australian wines in retaliation for Canberra’s “belligerent” position on human rights and the origins of the covid pandemic should be lifted in 2025.

But Ford assumes they will become permanent. He reset Treasury strategy on the basis that the Australian export market to China is gone forever.

It’s ironic because the expanded Barossa facility, which is increasing production by around a third to more than 100 million liters a year, was announced in 2019 as a key cog in the Treasury’s ability to meet demand. growing in China. Today it is the largest premium wine-growing site in the southern hemisphere.

Until Beijing effectively shut the door on Australia’s A$1.3 billion wine exports, China’s burgeoning middle classes were buying the iconic Penfolds brand in ever-increasing volumes, so much so that counterfeiting was rampant. .

Stockwell’s extension has been reduced slightly to reflect the effective disappearance of Treasury exports to China. Its sales there have fallen from A$72m in the six months to the end of 2022 to just A$2m in the same period last year.

Forced into a drastic change in strategy (China has absorbed nearly 40% of the company’s exports), the Treasury is looking to increase Australia’s sales to other Far Eastern markets, including Thailand, Malaysia, Vietnam and Singapore, as well as to increase demand for its high-end products. American wines.

Realizing the danger of devaluing the Penfolds brand by suddenly discounting excess inventory, Ford is playing the long-term game of building demand through quality and reputation.

And, he says, the Treasury is exceeding its internal diversification targets. “We are ahead of what we thought we were,” he said last week.

Over the past two years, the Treasury purchased the Frank Family Vineyard in Napa Valley for which the Treasury paid $315 million.

He also bought left bank properties in Bordeaux, including Château Belle-Vue (15 hectares), Château Gironville (5 ha) and Château Bolaire (7 ha) to add to Château Cambon la Pelouse which he bought in 2019.

Further purchases are said to be imminent as part of the premiumization strategy and the global development of the Penfolds brand, which in 2019, according to Prowein, was the most valuable in the world. This was before the loss of the Chinese market.

Over the past year, Treasury shares have gained around 8.5%, but since Christmas they have fallen 13% in response to the recession, Australia’s extended lockdowns ahead of Easter and the market crash global stock exchange.

Capitalized at just over S$8 billion, some analysts believe the shares are undervalued by up to 20% given the development of the Treasury since the Beijing bombshell.

They explain that in addition to being ahead in its home country strategy, Treasury is making faster-than-expected inroads into the crucial U.S. market now that it has restructured the company, sold product lines of basis and repositioned the portfolio.

It now has what Ford calls a focus on expanding its portfolio through a “relentless” focus on premiumization.

Ben Dollard, president of Treasury Americas, said the goal is to become America’s premium wine market leader.

Additionally, brokers were encouraged by Ford believing that despite inflationary cost pressures driving up the price of glass, closures and labels as well as high shipping rates, “we haven’t seen that degenerate”.

They calculated that the additional costs this year would be on the lower end of the range of SA10 million to A$20 million that they had penciled in.