French Cognac Producers: Navigating Trade Headwinds to Unlock China's Luxury Market Potential

The recent France-China trade agreement has reshaped the landscape for French cognac producers in the world's most valuable spirits market. By agreeing to minimum import price (MIP) commitments, major brands like Pernod Ricard's Martell and Rémy Cointreau's Rémy Martin have avoided punitive anti-dumping duties, setting the stage for a recovery in China—a market where exports had plummeted by 70% since late 2024. This article examines how the MIP framework mitigates risks, unlocks growth potential, and creates a compelling investment thesis for luxury goods investors.

The Trade Deal: Mitigating Tariffs Through Minimum Prices

China's anti-dumping duties, initially set at 39% in late 2024, were due to become permanent on July 5, 2025. The final agreement reduced the tariffs to a range of 27.7%–34.9%, but with a critical exemption: producers complying with MIPs—such as $6.39 per liter for VS cognac and $85 for XXO varieties—avoid the duties entirely. This compromise stabilizes pricing, prevents a collapse in market access, and offers a lifeline to French producers hit hard by export declines.

The MIP framework addresses two core challenges:
1. Preventing "Dumping" Perception: By mandating price floors, French producers demonstrate compliance with China's anti-dumping rules, neutralizing claims of unfair competition.
2. Financial Relief: Smaller producers will benefit from refunds of deposits paid under provisional duties, easing liquidity pressures. Major brands, meanwhile, gain clarity to plan long-term investments in China.

Strategic Advantages for French Producers

1. Brand Preservation and Luxury Credibility

Maintaining minimum prices safeguards the luxury positioning of cognac in China. Lower-tier products, such as VS blends, now have a price floor that aligns with their premium branding. For ultra-premium XXO varieties, the $85/liter threshold ensures exclusivity, critical for retaining high-margin sales in China's growing luxury market.

2. Market Share Stabilization

While exports fell 70% under provisional tariffs, the MIP deal creates conditions for recovery. Pre-dispute, China accounted for 20% of global cognac exports—a share too large to abandon. Compliance with MIPs allows producers to reclaim lost ground without the threat of permanent tariffs.

3. Geopolitical Risk Mitigation

The agreement decouples cognac from broader EU-China trade tensions over EV tariffs—a key demand of French negotiators. While progress on EVs remains stalled, the cognac exemption prevents collateral damage, protecting producers from cross-sector retaliation.

Investment Implications: A Path to Recovery

The MIP deal's success hinges on whether producers can leverage stabilized pricing to drive growth. Key metrics to watch:

This data would show REY.PA's 20% drop post-tariffs and potential rebound post-July 2025 deal, while RI.PA's €100M loss (projected to double) underscores the stakes.

Bull Case: Market Recovery and Margin Expansion

• Export Growth: A return to pre-dispute export levels (assuming 5–7% annual growth in China's luxury market) could restore revenue.
• Margin Stability: Higher prices reduce reliance on volume, preserving margins despite rising production costs.
• Brand Premium: XXO products, with their high MIP thresholds, offer premium pricing power, a rare advantage in a competitive luxury market.

Bear Case: Structural Challenges

• EV Tariff Linkage: If EU-China EV talks fail, Beijing could reimpose tariffs or escalate trade measures.
• Consumer Shifts: A prolonged economic slowdown in China could reduce demand for premium spirits.

Portfolio Strategy

• Buy on Deal Closure: Investors should consider positions in REMY COINT (REY.PA) and Pernod Ricard (RI.PA) once the MIP agreement is finalized (post-July 5). Both stocks have downside protection from the tariff exemption but upside potential if China's luxury market rebounds.
• Diversify with Global Exposure: Pernod Ricard's broader portfolio (e.g., Jameson whiskey) offers resilience against China-specific risks.

Risks and Considerations

1. Compliance Risks: Producers must meticulously track pricing to avoid triggering tariffs. Smaller firms may struggle with compliance costs.
2. Geopolitical Volatility: The July 24–25 EU-China summit could reignite tensions if EV talks falter.
3. Market Saturation: China's cognac market, though lucrative, is mature; growth requires innovation (e.g., limited-edition releases or digital marketing).

Conclusion: A Fragile but Lucrative Opportunity

The France-China MIP agreement offers French cognac producers a path to stabilize China's market and rebuild sales. While geopolitical risks linger, the structural demand for luxury spirits in China—driven by wealth growth and cultural prestige—supports a bullish outlook for compliant producers. Investors should prioritize brands with strong compliance capacity and diversified portfolios, positioning for a rebound once trade tensions ease. For now, the deal's success rests on whether French cognac can reclaim its place as China's premium spirit of choice.

Final Note: Monitor the July 5 deadline closely—failure to finalize terms could trigger a collapse in cognac exports and a sharp sell-off in producer stocks.