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30 WINES&VINES June 2018 Viewpoint I t sounds crazy but the United States sent less wine to China in 2017 than 2011 despite the imported wine market more than doubling there from 26.8 million to 61.5 million 9-liter cases. The Wine Institute listed 1.58 million cases of exports to China last year, down from 1.79 million cases seven years earlier, a performance as flat as week-old Schramsberg. While the value numbers are better, the U.S. has never- theless lost much ground in the China market. It is now a distant sixth as a wine source, behind France, Australia, Chile, Spain and Italy and has less than half the market share it held in 2011. This reality check comes at a time of major change for U.S. wines in China. On the distribution front, a key story is the parting of importer Nanpu from E. & J. Gallo Winery and its Carlo Rossi brand, which has represented a major chunk of U.S. sales in China. On a macro level, China put an extra 15% tariff on U.S. wine this year in response to U.S tariffs on Chinese goods (see related article, May issue Top Stories). Plugged into a formula with value-added and consumption taxes, it means the fee to enter China is now roughly 67% instead of 48%. That is a substantial burden given competitors like Chile and Australia, with free trade agreements with China, can soon or already avoid the default 14% import tariff. But even without Gallo's issues and that extra tariff, U.S. wine sales have long been stagnant. Why is this so, what could change the situation, and should anyone care? Wine pros U.S. wine sellers have big advantages in China. Food safety is a key concern — clients in China have some 30,000 "per- sonal shoppers" in Australia alone to source items like vita- mins and baby formula — and U.S. products are typically deemed high quality. U.S. producers also tend to use grapes that consumers are most likely to know, such as Cabernet Sauvignon, Merlot and Chardonnay. And the U.S. is a key destination for Chinese tourists, students and workers, thus providing exposure to American culture and products, includ- ing wine. Even those who do not visit tend to know quite a bit about the U.S., certainly more than the other way around. There have also been intriguing U.S. wine promotions in China. A shining example is the 21-city California wine master class tour by The Wine Institute from mid-2015 to mid-2016, followed by a second tour last year. That got U.S. wines to key opinion leaders in emerging markets far beyond Beijing and Shanghai — more than 100 cities in China now have a population of over one million. Along with the master classes, the Wine Institute has organized wine fair pavilions, export tours for wineries, and tasting events for trade, consumers and key opinion leaders, including at the U.S. Embassy in Beijing. Last year, it organized a six-week promotion with restaurant chain Element Fresh, which specializes in California-style food in a dozen cities. Other U.S. wine entities have also tapped the China market, most notably Napa Valley Vintners. With these advantages and initiatives, why are import numbers so low? Wine cons Price is a key issue. When President Xi Jinping slashed luxury goods spending by officials and state-owned enter- prises five years ago, expensive trophy wines were hit hardest. Consumers have since buoyed the market but many tend to be lower-volume, price-sensitive clients. Sellers seeking the high margins of the past are turning to big markups on cheap wines — the average Spanish bottle is claimed at U.S. $1.50 at customs — or private labels that, in essence, dupe consumers. That makes cheaper U.S. wines largely a no-go, especially as they tend to leave a price trail on sites like wine-searcher. Then there is visibility. U.S. wines are relatively rare on store shelves and restaurant menus. I took a Napa Valley Vintners delegation on a retail tour of Sanlitun, a Western bar and restaurant hub in Beijing, 20 months ago. We visited wine bars, shops and supermarkets and found few U.S. options: David Stone wines in a corner shop, an OEM Zinfandel in a wine chain, a Silver Oak-like label in a supermarket. Yet we saw craft beer from California, Oregon, Vermont, Michigan and elsewhere, selling for far more than local brews and showing a demand for higher-priced, quality U.S. products. There is also the issue of urgency. France, Chile, Italy and Austra- lia are more dependent on exports, while the U.S., the world's top wine market, drinks most of what it makes. On a well-orga- nized Sonoma County Vint- ners trip a n JIM BOYCE Is China a Long-Term Play for U.S. Wine?