Editor’s note: The following article was first published in The Beijing News. It discusses the outrageous price mark up on imported wine in China as well as the fake wine pandemic. The article concludes that these problems are both the result of ineffective supervision in the industry that has failed to keep up with China’s recent boom in wine consumption.

While it's no secret that wine drinking has become vastly popular in China in recent years, were you aware that importing wine into China has also turned into one of the world's most lucrative (legal or not) business ventures as well? Case in point: the freight-on-board (f.o.b.) price for an ordinary bottle of imported wine is about 15 RMB on average, but once it enters the Chinese market it may retail for as much as 562 RMB. If this ridiculous price mark-up doesn't already cast the Chinese wine trade in a negative light, consider this second point: Last year, the Chinese market consumed about one million bottles of the much-sought-after Chateau Lafite Rothschild red wine from Bordeaux, France, despite the fact that its vineyard only produces about 240,000 bottles per year. So where did all of those extra bottles of Lafite come from, and why is the mark-up price for wine so high in China?

Outrageously inflated retail prices

During a recent random inspection at one of the ports in Zhejiang Province, the Consumer Protection Commission discovered that imported wines were mysteriously doubling in price somewhere along the way.

The random inspection found that in 2011, the port imported wine from France, Spain, Italy, Romania, Montenegro and other countries 42 times – a grand total of 400,000 litres of wine, worth 1,170,000 USD. Using a standard 750 ml wine bottle, this calculates out to about 2.19 USD per bottle (f.ob.), or about 15 RMB. But once these bottles were offloaded and made it to the port's wholesale market, a spot check showed that Vivanco (Spanish), Royal Estate (Australian) and 71 other brands were selling for about 312.04 RMB per 750 ml bottle on average. Furthermore, once these bottles actually made it onto the shelf, the retail price had jumped up to 562.12 RMB per 750 ml bottle on average. Based on these figures, we can calculate that the wholesale price of a bottle of imported wine is about 20 times the f.o.b. price, and that the retail price is a staggering 37.5 times the f.o.b. price – and nearly double (1.8 times) the wholesale price.

For example, according to a Chinese wine trader in Paris, the price for a bottle of Lafite wine, depending on the vintage year, will wholesale for about 800 euros give or take, while in the Chinese market it will sell for a minimum of 15,000 RMB. The current exchange rate is: 800.00 euro = 6,655.44 RMB, meaning that the same bottle is 2.27 times the price in China.

Hundreds of thousands of bottles of fake wine consumed

According to the same Chinese trader, Lafite’s annual production output is about 240,000 bottles. An investigation conducted by the Zhejiang Industry and Commerce Bureau tells us that about 50,000 of these Lafite bottles are sent to the Chinese market each year. Yet, according to industry estimates, one to two million bottles of Lafite are consumed each year in China – an output that would take Lafite roughly a decade to produce. Where did all of these extra hundreds of thousands of Lafite bottles come from? A recent case in Zhejiang may help answer this question.

In February of this year, the Industry and Commerce Bureau in Zhejiang investigated the Chengsheng Trade Co., Ltd. (程盛副食品商行) for the manufacture and distribution fake wine in Yiwu (a city of about 1.2 million people in central Zhejiang Province). The investigators discovered that the owner of Chengsheng Trade had purchased a large number of blank wine bottles from factories in Changli, Hebei Province and Yantai, Shandong Province; registered two sales companies in Hong Kong called "French Lafite Wine (Hong Kong) Limited Liability Company" and "French Castel Manor Limited Liability Company", and then printed and attached labels for these two fabricated companies to the blank bottles which he filled with his own home brew of sorts in the Changli and Yantai factories. According to Pan Wei, the head of the Industry and Commerce Bureau’s inspection department, "When our team went to Changli to investigate Chengsheng Trade's fake bottling operation, we discovered that the ‘wine’ he was using didn’t actual contain any grape juice. It was just a blend of industrial chemicals."

World’s biggest and most unregulated consumer

On March 14th, an article in the French newspaper Le Figaro reported that according to an International Wine & Spirit Research (IWSR) report, China, who is currently the fifth largest consumer of wine in the world, will become the biggest consumer by 2020.

Meanwhile, the Industry and Commerce Bureau in Zhejiang estimates that the annual consumption of wine in the Yangtze River Delta region specifically accounts for nearly one-third of China’s total wine consumption, not to mention that the region’s annual consumption growth rate is greater than 60%. The 2011 Statistics from the Zhejiang Entry-Exit Inspection and Quarantine Bureau confirm these numbers: Last year, a total of 699 batches of wine were imported through Zhejiang Province, with a total weight of 6975.26 tons and a total cost of nearly 38 million USD, representing a 60.32% increase over 2010.

But unfortunately, it seems that the supervisory authorities are having a hard time keeping up with the recent boom in imported wine trade. Zheng Yumin, the Director of the Industry and Commerce Bureau in Zhejiang admitted as much recently: "The wine market in China is so chaotic right now that it makes our supervisors blush with shame…the supervision measures that we are employing right now have fallen behind and cannot effectively fight the sale of fake wine or supervise the price inflation of real bottles. It is due time that the relevant departments further rationalise institutional mechanisms to combat these problems."

Source: bjnews 

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Keywords: Chinese wine industry popularity of wine in China Lafite wine China China’s fake wine epidemic China wine industry out of control