Country's largest winery buying stake in Australian winemaker

China's largest wine producer, Yantai Changyu Pioneer Wine Co, is purchasing 80 percent of Kilikanoon Estate Pty Ltd of Adelaide, Australia, at A$20.65 million ($16.45 million), a decision that will further enhance the Chinese winery's global portfolio and help meet Chinese consumers' growing demand for quality wine.

The financial details of the deal have not been revealed. Kilikanoon's chief wine operator Kevin Mitchell and managing director Warrick Duthy will retain their shares and stay on in their positions.

This is Changyu's fifth overseas acquisition, after the Yantai-based wine producer expanded its global reach to wineries in France, Spain and Chile, according to Zhou Hongjiang, chairman of the company.

Founded in 1997, Kilikanoon is located in Australia's famous wine-producing Claire Valley. The vineyards produce brands such as its intense Riesling and expressive Shiraz and Cabernet Sauvignon. Annual production is about 100,000 cases.

Currently, about 10 percent of Kilikanoon's total production is sold to China. This figure is expected to reach 50 percent as production increases.

"China's wine market is one of the fastest growing ... in the world. Changyu must seize the market opportunities created by the new consumption pattern, and constantly meet the consumer demand of Chinese consumers for wine diversification," Zhou said.

In recent years, sales of overseas wines have been rising in the Chinese market. At the moment, Australian wine plays an important role in the Chinese market.

Some experts predict that under the policy of the Sino-Australian free trade area, the wine trade tariff will further decrease in 2018, and will be reduced to zero after Jan 1, 2019, further enhancing the competitiveness of Australian wine in the Chinese market.

According to the data, Australia is now the sixth-largest producer of wine in the world, with more than 4,000 wineries.

From Jul 1, 2016 to Jun 30, 2017, Kilikanoon had revenue of A$11.5 million and a net profit of A$1.26 million.

According to the 2016 Australian wine export report issued by the Australian wine Management Agency, the total export of Australian wine was valued at A$2.22 billion; exports to China reached a value of A$520 million, an increase of 40 percent. At present, China is Australia's second-largest wine export market.

At present, Changyu has 10 factories and eight wine chateaux in China. Overall, Changyu's wine is exported to 70 countries and regions. It has 22,910 hectares of vineyards worldwide. Changyu ranked No 4 in the world for annual sales, with 15 million cases sold in 2016.

Changyu's goal is to have 30 percent of its revenue generated from overseas ventures, Zhou said.

According to Guotai Junan Securities, the acquisition of Kilikanoon will complement Changyu's domestic assets and operations. The wine products from the Australian winery will be quickly worked into Changyu's domestic distribution channels.

Sun Jian, vice-general manager of Changyu, said last November that prioritizing high-end products and internationalization are the focuses of the company.

According to Euromonitor International, the wine market size in terms of volume in China has grown to 4.5 billion liters in 2016 and is forecast to increase to 5.84 million liters in 2021.