Your glass of wine is set to get less expensive

Free Trade Agreements signed between India and Australia could set the precedent for more competitive pricing for imported alcoholic spirits and wines

On 2 April 2022, the Australian and Indian governments signed the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA), a free trade pact that might just set the template for a slew of other such deals that are also being negotiated. At the moment, the agreement guarantees that wines from the Barossa and Yarra valleys, alongside other wine-growing regions, are going to be available at cheaper rates for Indian consumers.

Doing the math

The deal targets two categories of Australian wine—ones with a minimum import price of US$5 (₹390) and ones that are $15 (₹1,172) a bottle. Both will see their duty levels come down immediately from 150 per cent to 75 per cent. Over the next ten years, tariffs will fall further by five per cent a year, before eventually settling 25 per cent of the price of a bottle. Effectively, for drinkers, this means that final prices should come down by 30 per cent initially, and will gradually decrease over time. For example, a bottle of wine priced at US$5 currently incurs duties and enters the country priced at US$12.5 (₹977), and this does not include import margins. Going forward, its price will drop to US$8.75 (₹684).

Scope for growth

Sonal Holland, India’s only Masters of Wine and South Australia’s Wine Ambassador in India, explains, “Australia is one of the leading countries from where India imports wine, with brands like Jacob’s Creek, Hardys and [yellow tail] doing well. However, these are at the entry level and there is scope for the market to grow at the mid-level,” where, she believes, there’s scope for growth, given that it will be better priced following the trade deal. Holland elaborates, “Australia makes terrific quality wines, even at the mid- to premium-level,” and that will get a fillip following the agreement. It should be noted that Australia is the largest supplier of imported wine to India, with about 40 per cent of wine imported, beating even the European Union.

There’s still an element of protectionism to the deal, with the government working to safeguard India’s local wineries. Holland says, “The government does not want to flood the market with entry-level, cheap, Australian wines for two reasons. Firstly, we don’t need them anymore. And secondly, the government does not want to completely eradicate the Indian wine industry, which is, in fact, growing.”

Chaitanya Rathi, COO of Sula Vineyards, concurs when he says, “If you look at the entire Indian wine market, the bulk of wine consumption is sub-₹1,000. A large part of it is between ₹1,000 and ₹2,000 at MRP, and these are Maharashtra MRPs I’m talking about. There isn’t a very heavy consumption of wines priced above ₹2,000. It is a more urban and SEC-A+ or class A kind of consumption. So overall we don’t really see this as a very negative FTA deal that has been signed.”

What’s more, the deal could serve as the first of many, with similar discussions ongoing with both the EU and the United Kingdom to lower tariffs on wines from the EU as well as Scotch whiskey from Scotland. A January 2022 publication by the UK Department for International Trade titled UK-India Free Trade Agreement – The UK’s Strategic Approach noted that annual duties on UK whiskey exports were estimated at £164 million (₹1,578 crore) for 2019. This is owing to a 150 per cent duty paid on whiskey imported from the country.

Trade versus competition

These tariffs are significant, given that the same report stresses, “In 2010, India imported £36.5 million worth of whisky from the world, which just over quadrupled to £168 million in 2020.” As consumption has grown, there’s a desire to increase exports while also lowering the ultimate price for consumers. The hope is that a new FTA will increase both trade and competitiveness.

The EU and India will also be re-starting negotiations towards a free trade agreement at the end of the week. These will cover a range of products and services, including wine. There’s also murmurs of renewed interest in finalising a US-India FTA, which could also cover alcoholic spirits and wine.

Nikhil Agarwal, one of the partners in Anggel’s Share, an alcohol import company, says, “It is not possible that India does this [the FTA] with one country, and then doesn’t do it with another country.” He argues that foreign governments are increasingly seeking access to the Indian market and with the precedent set, it’s unlikely that Australia will be the sole country to benefit. In that case, Holland points out, “If everybody does an FTA, then no one particular country will have any advantage.” The market will hopefully grow, as importers bring in niche grape varieties and drinkers can move up the value chain. As a percentage of total alcohol imports (wines, beer and spirits included) the country’s wine imports make up about eight per cent by value, as per a 2019 USDA Wine Production and Trade Update.

With approximately half of all imported wines making their way to the restaurant and bar industry, Zorawar Kalra, managing director of Massive Restaurants which operates brands like Farzi Café, Bo-Tai and Masala Library by Jiggs Kalra, says, “I think wine consumption, overall, is on a big rise. There’s also an improvement in the quality of Indian wines, which are now very competitive.” But he also says Australian wines are doing better, and with prices going down, there will be pressure for Indian wine-makers to compete in the market.

For consumers, however, the hope is the availability of a wider variety of wines that are easier on the pocket. Says Agarwal, who also runs All Things Nice, a wine and spirit consulting and marketing agency, “It will also give people an opportunity to experiment a little bit more, because nobody likes to buy a bottle and then get stuck with something that they don’t like.” As prices rationalise, and more wines enter the market, the hope is that smaller grape varieties start being imported, further broadening the options available.

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