Since June 20th, Chinese RMB has continued to depreciated to USD. In just 10 days, the exchange rate of RMB to USD fell to 6.7 in July 3rd.
This is undoubtedly exacerbated the business situation for the United States, Chile and Argentina, which exported wines in dollars.
The devaluation of RMB to USD made it harsher for American wines
According to relevant media reports, up to July 3, 2018, only 75 days in total, the exchange rate of RMB to USD has depreciated from 6.26 to 6.72, and the cumulative depreciation exceeded 7%. The sharp devaluation has erased the appreciation of the whole year, and hit the lowest point since August 8, 2017. In July 4th, the exchange rate of RMB to USD rose to 6.62.
American wines are undoubtedly facing even worse situation in China market. With the start of trade war between China and the U.S., American wine is subject to an additional 15% tariff and a comprehensive tax rate of 67.7%. Now the exchange rate has gone down and cost has increased, which make more American wine importers feel heavy pressure.
Zhu Yuzeng, an American wine importer based in Guangzhou analyzed: “Now most of American wine importers mainly focus on distribution rather than buy in. High tax rate and rapid depreciation of RMB to USD, maKing the current price hard to cover the cost. We are importers, and the profit from wholesale is low.”
“But if we adjust our price now, this is absolutely against the market trend, which is possible to make our business tougher,” Zhu added.
As for how to tide over the crisis, he said, “On one hand, we should clear the inventory. If we really consider about importing new products, we need to tell our clients about the price adjustment. On the other hand, many wineries are contacting with me, I’m now opening to other wine producing countries, which could provide me wines with similar taste and good price.”
Another American wine importer also said that he will reduce American wines in his product portfolio significantly and wines settled by USD.
“We began to reduce Chilean wine and finally clear all. We only import 3 containers of American wines this year, and planned to pay more attention on Old World and New World such as Australian wines, for the reason that RMB will not that strong against USD,” said Zhao Guoren, a wine importer.
Cost rise of Chilean and Argentine wine is unavoidable
In fact, American wine is not alone. Last year, Chilean and Argentine wines had just reduced production and raise prices, and now the devaluation of RMB has also made the Chinese wine importers facing pressure when importing wines from these regions.
Speaking of whether the wholesale price has risen, an Argentine wine importer said that their price has been raised once last year as a result of a substantial reduction in output, and it is not so easy to raise prices for the second time, and still kept price at the present stage. But now it’s really stressed again.
A Chilean wine importer said: It is true that we are under the pressure of 7-8% cost rise, it is still acceptable. Brand building is different from simple trade model, stable price is one of the most important thing.
Similarly, Chilean wine that has just experienced a decline in output has met the same problem. An importer from Beijing analyzed: Chilean wine always boost cost price in China, but the production volume decreased last year, RMB continued to depreciate, in the long run the price ratio may not be as high as before.
Some postponed imports, while some hurry to buy in
In the face of the rising cost of Chilean wines, the importer Li Xinxin postponed the purchase, “Now I am selling my inventory, and the order I consider to make at the beginning of this year is not down yet.”
Li Xinxin also suggested that if RMB continues to depreciate, importers should think about how to improve business efficiency and reduce costs.
However, importer Ye Libin from Zhejiang province has rushed for purchase. “Now the RMB is devaluating, and I’m afraid it will continue to go down in the future, so we are hurry to buy all kinds of wines. After all, the wine will not depreciate”, said Ye.
Ye pointed out that the depreciation of RMB is not only to USD, but also from 7.4 to 7.8 to Euro. Therefore, both Old World and New World wines should be stocked in case of price rise.
Some importers suggest that if the RMB is further devalued against the US dollar and the euro, the Chinese imported wine industry will also face a new price increase, and the imported wine at low price will face greater pressure.