But how did the cognacs get involved in this mess? It's almost a year since the French wine industry has been entangled in the middle of a trade war between China and the European Union, against a backdrop of conflict over electric vehicles.
To respond to an investigation opened by the European Commission into state subsidies benefiting electric vehicles manufactured in China, which would distort competition according to Brussels, Beijing for its part opened an investigation last January into imports of brandies ( European wine spirits) – notably cognac which alone represents 95% of this category – a sector that he suddenly accused of “dumping” (agreement on prices).
The situation deteriorated significantly last October, when EU member countries voted to impose tariffs on electric cars imported from China. Beijing then responded by establishing a bank guarantee for the importation of European brandies onto its soil, corresponding to the customs duties of the People's Republic of China. This security deposit will be debited retroactively if China formally decides to apply customs surcharges, following its investigation.
This was due to end on January 5, but the Chinese Ministry of Commerce announced on Wednesday that it would ultimately be extended by three months, until April 5, due to the “complexity” of the file. Good or bad news? Some see it as a reprieve while waiting for a resolution to the conflict, while others deplore an unfavorable situation which will last for at least a quarter…
20 Minutes questioned Florent Morillon, president of the National Interprofessional Cognac Bureau (Bnic), to take stock of the situation in his sector.
How do you interpret this new announcement from the Chinese Ministry of Commerce to extend the investigation concerning supposed “dumping” in your sector?
Mofcom (Ministry of Commerce) says that this deadline is applied because of the “complexity” of the investigation, the truth is that it finds nothing, because there is nothing. How do you expect 250 Cognac trading houses, and a few European Armagnac and brandies houses, to agree to dump prices in China? This is completely absurd. We have nothing to reproach ourselves for. Now, I also want to see in this new deadline a glimmer of hope, since the final customs duties could also have applied from January 5, there is a three-month postponement. I interpret this as an opening to negotiation, a consequence, I think, of the meeting in November between President Macron and President Xi Jinping, on the sidelines of the G20, where they agreed that the prime ministers would see each other within three months . Despite the change of government, we hope that this commitment will be kept by the new Prime Minister, and that he will travel to China within three months to continue this negotiation.
How did you experience this year 2024 which was punctuated by several twists and turns around this issue?
It's a real soap opera, which is starting to be painful for our sector… We have been taken hostage in the electric car issue between the European Union and China. Despite this, since January 5, we have complied with everything, we responded to all the surveys, we went to Beijing to be interviewed, we opened the doors of our businesses… But the vast majority of our homes trading companies are SMEs, and they are exhausted, they can no longer take all these twists and turns. Just ten days ago, customs suddenly withdrew all our bottles from duty-free in China, relying on an old circular which stipulates that, when an anti-dumping investigation is underway, duty-free products are also concerned. Then they finally put them back on the shelves after two days… Since October, there has been this bank guarantee system, which is nothing more than a temporary customs duty. It's a pressure on an entire region, on our 4,000 wine growers, our 250 trading houses, but also the 70,000 jobs who work directly and indirectly for us.
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What are the consequences at the economic level?
Of the 160 million bottles we sell each year worldwide, around a quarter, or 40 million, are destined for China, which represents our second largest market. This year, we are at 30 million, a drop of around 20%. In addition, this dispute is now well reported in the Chinese press, and buying a bottle of cognac is no longer very well regarded…
This crisis also occurs in a difficult context for your wine industry, with an erosion of sales, while also looming the threat of taxes from the Trump administration on several European products, including wine and cognac could part ?
The situation is indeed very complicated at the moment for the entire wine industry, and when we hear Donald Trump say, basically, that Europe does not buy enough American products and that he will remember that , this does not bode well. The United States is our largest market, so we could find ourselves with our first and second markets, which together represent 70% of our business, weighed down by heavy taxes. We are worried, clearly. Whether on the United States or on China, I think our fate will be sealed in the next three months.
What would be the other markets where you could expand, or your new growth prospects?
We export almost 98% of our products, and we are already present in 150 markets around the world. Of course we will need new engines of growth, and we are working to develop new outlets, I am thinking in particular of South Africa. We leave no stone unturned. But it took decades to develop a market like the United States, which today has 60 million bottles. We don't replace it like that.
Will wine growers have to adapt, or even diversify, if the situation deteriorates?
We are already going to put in place a temporary grubbing-up system, which will allow the wine grower to sell the same quantity of alcohol with fewer hectares, that is to say to maintain the same level of income, but with less of charges. We are also working on storage. But if tomorrow our two main markets find themselves significantly impacted, this will completely change the situation, and we would then be obliged to touch the vineyard with definitive effort on our 88,000 hectares. But we are not there yet, and we still remain confident in the medium and long term. We cannot exclude that after this chaotic year 2024, reason will prevail on China's side, and that we will avoid the worst with the United States. The economy can also recover, which would allow some sort of compensation. Several scenarios are possible, but today there is uncertainty.
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