Penfolds announces plan to make wine in the USA

Iconic Australian wine brand Penfolds has flagged its global expansion with plans to make wines in the Napa Valley in the United States.

The brand's parent company Treasury Wine Estates said it would use American grapes from the 2018 harvest onward, with the first of the Californian red wines likely to be released in 2021-2022.

The idea to produce the brand outside Australia had been discussed for years, a company official said. But analysts said the diversification was timely as a diplomatic rift between Canberra and Beijing threatens to harm Treasury's exports to China, a major market.

Penfolds Chief Winemaker Peter Gago said: "We are striving to add outstanding Californian-sourced wines to our offering by fiscal 2022." 

"This will broaden our base and help future-proof Penfolds," he said at a launch in Adelaide on Tuesday.

The plan to produce a premium wine in the United States comes five years after the company had to destroy product when exports of low-end brands failed to win over American wine drinkers.

"It sets Penfolds up for the next phase of growth," Angus Lilley, Treasury's deputy chief marketing officer, told Reuters.

Mr Lilley said the US plan was not in response to the current spat between Australia and China, which has seen wine products from six Australian producers held up at Chinese customs.

Treasury said it planned to export wine from California, but analysts said those plans could be affected by trade disputes between Washington and Beijing, which has threatened a 15 per cent tariff on US wines.

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Mr Gago quipped that despite the Californian sun above and soil below, "everything in between" would be pure Penfolds, from barrels to open fermenters. "All the techniques that have worked here will be used to craft and create Californian styles."

He insisted the new plans would do nothing to hamper local production. "This is not an overnight thing, this dalliance in California," Mr Gago said. "We've been working in California for many years. Back in 1998, we planted maturing vines using cuttings from Magill ... this is a long term project. We're very fortunate this year to start making Penfolds wines in the Penfolds way using house style as a stylistic template."

Analysts said it was advisable for Australian winemakers to explore their options.

"Diversification is prudent," said Phin Ziebell, an agribusiness economist at National Australia Bank.

"There is some uncertainty around China, which has driven the market, so wine producers will need to look at other places," he added.

Prime Minister Malcolm Turnbull last year cited Chinese meddling in domestic affairs as justification for new foreign interference laws passed last week. China denies meddling and says Australia has a "Cold War mentality".

Australian wine exports to China surged with a 2015 free trade deal and changing consumer tastes, but the latest tensions suggested industry sales this year could miss a forecast to top $1 billion.

Wine shipments have slowly resumed passing through Chinese customs, said Tony Battaglene, chief executive of the Winemakers Federation of Australia, an industry group.

"The speed that shipments clear customs is much slower than what is was in early 2018," he said.

Analysts say exporters like Treasury can ill afford a prolonged dispute between the two countries, which had two-way trade of $170 billion last year.

Treasury reported a 37 per cent increase in first half profit in January, driven by growth of 60 percent in sales to North Asia, a division that includes China.

Special bottlings

Penfolds used the occasion to announce a new range of special bottlings, including a 28-year-old single batch brandy ($425); a fortified Barossa shiraz bolstered with the Chinese spirit Baijiu ($150) for release in September; plus plans for a landmark new French champagne expected to be released in 2019.

"Australia is making some of the world's greatest sparkling wines," said Gago. "What an opportunity to make champagne, and that's what we're going to do, and more will be revealed and it is happening. We hope that the the first will be released next year."

Such bold strategies ensure sustainable growth for the luxury brand, according to CEO Michael Clarke. "Multiregion and multi-country sourcing brings excitement and energy into established brands and at the same time, strengthens TWE's ability to deliver consistent, quality wine year on year; regardless of vintage variation," he said. 

The news was unveiled amid hundreds of roses on the grounds of Penfolds Magill Estate in the Adelaide foothills, in line with 175th anniversary celebrations next year.

with Reuters