Source: GlobalData
New duties to reduce competitiveness of European brandy in China, says GlobalData
Posted in Consumer
Trade wars between the West and China have been an ongoing affair for more than five years. In a fresh salvo, the European Union decided to impose anti-dumping duties on Chinese-origin electric vehicles (EVs). In return, China opened an anti-dumping case and has imposed additional import duties on European-origin brandies. The elevated tariffs, which came into effect on October 11, are expected to drastically reduce the competitiveness of EU brandy in China, leading to a potential decline in sales volume, says GlobalData, a leading data and analytics company.
Bokkala Parthasaradhi Reddy, Consumer Lead Analyst at GlobalData, comments: “The higher prices resulting from the tariffs may deter Chinese consumers from purchasing EU brandy, which could result in a shift towards domestic or other non-EU brands that are more competitively priced. This shift could diminish the market share of EU brands in one of their key growth markets, as consumers may opt for alternatives that offer better value for money due to the increased costs associated with imported brandy. This will be detrimental to the global spirits business, and the Chinese market, in particular.
“The imposition of tariffs could lead to a long-term shift in consumer sentiment towards EU brandy. If consumers perceive EU brandy as a luxury that is now out of reach due to high tariffs, they may become less inclined to purchase it, even if prices stabilize in the future. This shift in perception could have lasting effects on brand loyalty and market dynamics, as consumers may turn to other spirits that remain affordable.”
Elyn Gao, Business Development Director, GlobalData China, adds: “The imposition of the new tariffs can lead to higher prices for consumers and businesses alike. Companies may struggle to absorb these costs, resulting in price increases for end consumers or reduced profit margins. This inflationary pressure can impact consumer spending and overall economic activity, affecting sectors like retail, manufacturing, and food services. The psychological impact of tariffs and trade conflicts can dampen consumer sentiment. For instance, the decline in housing prices in China has already affected consumer confidence, leading to reduced spending.”
Reddy continues: “The impact will significantly impact the fortunes of leading brandy companies, especially French cognac producers, such as Remy Cointreau, LVMH, and Pernod Ricard. Remy Cointreau is expected to be the worst affected as it has a significant exposure to China. Meanwhile, Pernod Ricard is expected to face a lower impact as it expects the import duties to be lower for its products due to its cooperation with Chinese authorities.”
Reddy concludes: “This situation is part of a larger pattern of trade disputes between China and Western countries, as seen in the previous tensions with Australia over wine imports, where similar accusations of dumping led to temporary tariffs of over 100%. In response to these challenges, EU brandy producers may need to reassess their strategies in the Chinese market. This could involve exploring cost-reduction measures, enhancing marketing efforts to emphasize the quality and heritage of EU brandy, or even considering partnerships with local distributors to navigate the new pricing landscape more effectively.
“Additionally, producers might need to diversify their markets to reduce dependency on China, especially if the tariffs remain in place for the foreseeable future.”