China duty free faces Cognac supply freeze

Cognac producers have been unable to restock supplies to Chinese duty free retailers since the end of last year, DFNI can confirm, temporarily depriving operators of one of their most profitable spirits categories.

The issue has arisen as Chinese authorities continue to conduct an anti-dumping investigation into French brandy to discover whether it is being sold in China at unfairly low prices. Since December, Chinese Customs has been enforcing a set of 2009 guidelines which state that products under “foreign trade relief measures” (such as anti-dumping investigations) cannot benefit from reduced or exempted import taxes.

“Products currently on shelves or in the stockrooms [of retailers] can still be sold to travellers, but the transfer of stock from bonded warehouses to the stores is no longer possible,” a spokesperson from a major Cognac house told DFNI on condition of anonymity. “In effect, duty free operators are no longer able to clear Customs for Cognac products.”

The spokesperson added that a conclusion to the anti-dumping enquiry isn’t expected until early April. “Operators and suppliers are currently working with the relevant authorities to clarify the situation.”

Alongside Chinese baijiu and Scotch whisky, Cognac is one of the top-selling spirits categories for Chinese duty free retailers, with the major houses investing heavily in the domestic duty free island of Hainan since the pandemic broke out, opening branded corners and standalone boutiques in partnership with retailers.

The Chinese government began its anti-dumping investigation into French brandy in January last year following a complaint filed by the China Alcoholic Drinks Association, which alleged that French brandy in China at unfairly low prices, which it claimed was harming the domestic industry.

In October last year, China imposed anti-dumping duties on EU brandy, ranging from 30.6% to 39%, as well as requiring Chinese importers to pay security deposits. The duties were widely seen as coming in response to EU tariffs on Chinese electric vehicles.

The Bureau National Interprofessionnel de Cognac (BNIC) has said the imposition of duties last year has led to a monthly decrease of 50% in shipments of Cognac and Armagnac to China.