Much better !

Export market trends and outlook

Tim HuntGeneral ManagerFood & Agribusiness Research

28th July 2017

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Rabobank Food & Agribusiness ResearchRabobank’s unique global team of 90 analysts – supporting insight based banking

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Global context

Top export markets

Section 1

Section 2

Section 3

Section 4

The currency factor

Conclusions

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Global wine consumption is basically flat

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2006

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Consumption

MHL

Source: OIV, Rabobank 2017

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20021022023024025026027028029030020

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Production Consumption

But after years of over production, wine supply is also falling

MHL

Source: OIV, Rabobank 2017

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Inventories have declined as a result

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

MHL Estimated ending inventories of wine

Source: OIV, Rabobank 2017

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We see little prospect for inventories to increase anytime soon

Some challenges from early heavy

rains, recent heat

2017 +9%But low by hist. stds

April frost damage (Fr, Sp, N.It.)

2017 +10%But low by hist. stds

Heavy rains2017 -9%

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Global context

Top export markets

Section 1

Section 2

Section 3

Section 4

The currency factor

Conclusions

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Our key export markets

China22%

USA21%

UK16%

Canada8%

HK6%

NZ4%

ROW23%

Australian Wine Exports by Destination 2016 (Value breakdown)

Source: Wine Australia 2017

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Our focus today

China22%

USA21%

UK16%

Canada8%

HK6%

NZ4%

ROW23%

Australian Wine Exports by Destination 2016 (Value breakdown)

Source: Wine Australia 2017

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China: economy is slowing, but retail spending less so22% of Australian wine exports (by value)

China GDP Growth 2007-2020E

0%

2%

4%

6%

8%

10%

12%

14%

16%

2007

2008

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2012

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2016

E20

17E

2018

E20

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2020

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Q2 GDP +6.9% YOY

June retail sales +11% YOY

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We have pushed beyond the 2012-15 crackdown on corruption

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Wine imports are gaining market share, and will continue to do so

Source: IWSR, Rabobank 2017

Chinese Wine Depletions by Source

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Australia is very well placed to compete

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Volume of China Wine Imports by Origin

France Australia Chile Spain Italy New Zealand

Source: UN Comtrade 20175 years, import CAGR 8% in value and 10% in volumeAUS share increased: from 14% to 24% in value,11% to 16% in volume

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Australia has an edge in tourism and educational linksNumbers of Chinese students and tourists visiting select countries in 2016

1,025k

2,310k

356k

38k124k

328k

23k

40k

Source: National Statistics

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Suddenly we have more provenance worth fighting over!

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US market is a premiumisation play

• Not a lot of growth in wine consumption

• Domestic production is also pretty flat

• Strong premiumsation: with double digit growth in wines priced above USD11/bottle

• And appreciation of the USD in recent years increases the appeal

• Becoming more important given challenges in UK market

21% of Australian wine exports (by value)

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The challenge for Australia is recent market positioning

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LVolume of US Wine Imports by Destination

Italy France Australia Argentina New Zealand

Source: UN Comtrade 2017• Over past 5 years, market CAGR 2% in value and -1% in volume• AUS share decreased from 11% to 7% in value and 18% to 13% in volume.

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The challenge for Australia is recent market positioning

US Bottled Wine Imports from Aust and NZ (value)

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Signs this is being turned around

• Australian exports to the US rose 3% in value in year to June 2017

• Australian exports in AUD15-20 price point up 70% in year to June 2017 (off a low base)

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UK – a tough market for a while now16% of Australian wine exports (by value)

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Volume of UK Wine Imports by Destination

France Italy Australia Spain Chile New Zealand

Source: UN Comtrade 2017 5 years, market CAGR -4% in value and 1% in volumeAUS share decreased: from 10% to 8% in value and 19% to 17% in volume

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Breaking up is hard to do!

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Pound has fallen, increasing the cost of imported products

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GBP against USD and AUD

GBP/USD GBP/AUD

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The wine excise tax has also been increased (bad news in the past)

Annual change in UK wine excise and consumption

Source: Office for National Statistics 2017

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Canada – echoes from south of the border8% of Australian wine exports (by value)

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Volume of Canada Wine Imports by Destination

France Italy USA Australia Spain New Zealand

Source: UN Comtrade 2017

• Over past 5 years, market CAGR -2% in value and 2% in volume• AUS share value decreased from 12% to 9%, volume grew from

13% to 15%

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Global context

Top export markets

Section 1

Section 2

Section 3

Section 4

The currency factor

Conclusions

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Currency versus import regions

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Currencies of Wine Importers vs AUD

US Dollar Chinese Renmimbi Canadian Dollar UK Pound

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Currency versus competing export regions

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Currencies of Global Wine Exporters vs AUD

Euro Chilean PesoSouth African Rand US DollarNZ Dollar Argentinian Peso

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Currency versus competing export regions

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Currencies of Global Wine Exporters vs AUD

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Currency versus competing export regions

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Currencies of Global Wine Exporters vs AUD

Euro Chilean Peso NZ Dollar

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Global context

Top export markets

Section 1

Section 2

Section 3

Section 4

The currency factor

Conclusions

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Outlook is better than it has been in years• Global market is flat, but tending to tightness…

• …and unlikely to see major increases in inventories any time soon

• Beneath flat world market, demand is shifting to new markets

• UK market presents near term challenge

• While the industry is starting to re-position in the US

• Aust particularly well placed in Chinese market

• Our currency has strengthened in recent months, but still well below 2011-14 highs (and may well soften over coming year)

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For more from Rabobank on wine….

Report Topic Release

Liquid lunch: trends in global beverages markets Jul 2017

Focus on the EU wine market Jul 2017

Foreign wine looking for US market penetration May 2017

The future of asset light business models Jan 2017

The rise, fall and rise again of China’s wine market Dec 2016

Global wine sector update Oct 2016

The premiumisation conundrum May 2016

NZ grows up (and up) April 2016

Regional wine markets outlook Jan 2016

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Contact details

Tim HuntGeneral ManagerFood & Agribusiness Research and AdvisoryAustralia and New Zealand03 9940 8406Tim.Hunt@Rabobank.com

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