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Stability during pandemic highlights SE Asian emerging wine markets for Australian exports

On Sunday 15 November 2020, Ministers from 15 countries signed the Regional Comprehensive Economic Partnership (RCEP), including Australia and members of the Association of Southeast Asian Nations (ASEAN).
This week’s Market Bulletin will examine a group of emerging wine markets within the Southeast Asian region.

The Southeast Asian group of markets received $178 million worth of Australian wine in the year ended September 2020. This represents a growth of 5 per cent on average each year for the past 5 years. This region of the world includes markets such as Singapore, Malaysia, Thailand, Indonesia, Philippines and Vietnam (which import most of the Australian wine for the region, see Figure 1), and also Cambodia, Myanmar, Brunei and Laos.

Figure 1: Value of Australian wine exports to Southeast Asia by market (million AUD)

The main contributor to this export growth has been Singapore (up 10 per cent in value over the past 5 years). As mentioned in a previous bulletin, Singapore is a major entrepôt (a market where transhipment is common; i.e. products are imported, held and then re-exported to another market). Therefore, it cannot be assumed that all of the growth in Australian wine imports has been consumed in Singapore. Other markets showing growth over the past 5 years are Thailand (by 4 per cent), Indonesia (34 per cent) and the Philippines (11 per cent).

Figure 2: Export value to Southeast Asian markets, year ended September

As a group, the Southeast Asian markets are high-value destinations for Australian wine. In the year ended September 2020, 68 per cent of the value exported to Southeast Asia was shipped at an average value above $10 per litre. Over the past 5 years, shipments above $10 per litre have driven growth, increasing by 7 per cent per year on average (see Figure 3).

Figure 3: Exports to Southeast Asia by price segment, year ended September (million AUD)

The average value of bottled shipments to Southeast Asia is $11.66 per litre, growing 13 per cent in the past year. For comparison, the average value of all bottled Australian exports is $7.14 per litre (see Figure 4). One of the main contributors to this high average value is Singapore, where an excise tax is applied to wine imports, making it a relatively expensive compared to other alcoholic drinks. However, Malaysia and Indonesia also have average bottled values that sit above total exports.

Figure 4: Average value of bottled exports by destination, year ended September

Australia’s share of wine consumption

According to IWSR, Australian wine has a 24 per cent share of the value of wine consumed in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam combined, which makes Australian wine the number 1 country of origin, followed by France, Chile and Italy.

Australia has the greatest market penetration in Malaysia (34 per cent share of retail value) and the lowest in Vietnam (10 per cent), while Singapore and Thailand consume the majority of Australian wine for the region (31 and 28 per cent of value respectively).

An analysis of the value of consumption (Figure 5) shows that Australian performance has a roughly linear correlation with total market performance in these markets, meaning that for the most part Australian wine sales are keeping up with the total market. However, this analysis also reveals that in Vietnam, where Australia has the lowest penetration, Australia value growth also lags slightly behind the total market. On the other hand, the opposite is true in the Philippines; while penetration is low, Australia is growing at a faster rate than the total wine market.

Figure 5: Retail value growth rates, Australia versus total

(Source: The IWSR)

COVID economic recovery

Besides the strong performance of Australian wine in these markets, Southeast Asia is also attractive now due to its strong track record with managing the COVID-19 pandemic. Possibly due to lessons learnt from past infectious diseases in the region, these countries have largely been able to keep case numbers down. As illustrated by Figure 6, with the exception of Indonesia and the Philippines, mortality has stabilised since mid-year in most countries.

Figure 6: COVID-19 mortality rate by country in Southeast Asia

Good management has affected case numbers and also economic performance. According to GlobalData, economic data gathered on 35 countries reveal that Malaysia, Indonesia and Singapore all sit in the top half in performance against the median value. This performance is based on measures such as forecasted Gross Domestic Product (GDP) growth, inflation rate, number of COVID-19 cases, size of stimulus package and year-on-year change in industrial production. Malaysia is the top performing Southeast Asian market on the list, with a low number of COVID-19 cases, low unemployment and a stimulus package that was valued at about 20 per cent of GDP. The Philippines is the worst-performing Southeast Asian market, with large declines forecasted in GDP, a high inflation rate and a sharp decline in production. Vietnam and Thailand were excluded from this analysis.

Positive economic performance will be key to ensuring that wine consumption continues to grow, bringing more opportunities for Australian exporters. The IWSR has calculated a 6 per cent growth rate per year between 2015 and 2019 for wine retail value in this group of markets. Importantly, it forecasts a 4 per cent growth rate over the next 5 years, meaning that it estimates COVID to have a small impact on wine consumption.

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