Brexit analysis: how the UK leaving the EU will affect your country’s exports
By Richard Siddle
There might still be 679 days or close on 22 months before the United Kingdom officially leaves the European Union. Deal or no deal.
That’s effectively two global harvests away and a lot of wine can run under the proverbial bridge by then. But that does not mean we can put the whole issue of Brexit to one side and come back to it in March 2019.
The ramifications of the UK leaving the EU will affect, whether they like it or not, every serious wine producing and exporting country in the world.
The UK might get a bad press, a lot of it which it creates itself, for being a difficult market to work in. Its excessive duty regime and fixation on hitting uncompetitive price points means any profits to be made selling wine to the UK are getting squeezed every year.
But for all the brickbats thrown at the UK it remains in the top five, if not top three most important export markets for countries right around the world. Particularly the New World and South America, New Zealand, South Africa and Australia.
Then there is the EU where not only do overall countries rely on the UK to buy up its wines - at all price points - but some of its most famous regions, notably in France with Champagne, Burgundy, Bordeaux, the Loire (the list goes on) all have the UK right near, if not top, of their agenda.
Yes, other key, potentially more profitable, markets are opening up around the world, particularly in the US and China, but for many producers that means starting from scratch trying to build up a base and network of sales. Which makes the UK even more strategically important.
It has ironically, considering its current Brexit position, been the most open market to do business in anywhere in the world, so the world needs to watch very carefully what these Brexit negotiations might mean for their potential to do business there.
On the one hand there are so many uncertainties in those negotiations that it makes planning for any possible outcomes seemingly impossible.
Well think again. There are actually a few scenarios that we do know will happen and can set our stall out for. The nitty gritty needs to be ironed out but here is what we do could and will happen once the UK pulls its drawbridge up from the EU.
It will all then rest on the WTO (World Trade Organisation) tariffs that all goods in to the UK will then fall under. With some exceptions. And there’s the rub. Some countries now can plan knowing what those exceptions.
Here is how it should - or could - play out, post Brexit.
Any wine imported in to the UK from any country will now come under the jurisdiction of WTO tariffs. Unless there is a deal struck between the UK and EU that negates it, but trade experts believe the WTO agreed tariffs are likely to be the ones used.
There are currently three tiers of tariffs that the EU uses as part of its WTO membership for wines imported in to the EU from anywhere in the world. These are the tariffs that the UK is expected to continue using unless any alternative arrangement is struck. These are:
- €32 per h/l for sparkling wine
- €13.1 h/l for still wine (less than 13% abv)
- €15.4 h/l for still wine (over 15% abv
If the UK does not agree a free trade agreement with the EU post Brexit then these tariffs would be added to all EU wine coming in to the UK.
The Wine & Spirit Trade Association in the UK estimates that effectively it will mean around an extra 10p being placed on a bottle of EU still wine and 22p on a bottle of sparkling wine, dependent on its abv.
But when you factor in currency rates - and the current weakness of sterling - and any duty rise that is likely to come in during 2019 then wines from the EU to the UK are going to be a lot more expensive. Whether they’re being shipped in bottle or in bulk.
Outside of the
Outside of the EU then things are a bit more complicated. They could in some instances be a little brighter because the UK can do “better than WTO standard” trade deals once it has completed its negotiations with the EU, deal or no deal.
But note. Currently Chile has negotiated a free trade agreement with the EU. The UK would either have to agree to honour that or come up with a separate agreement.
South Africa currently enjoys limited tariff-free access through a quota system in to the UK and this will also have to be re-assessed post Brexit.
Chile, South Africa and Argentina are also designated UN developing economies so the UK could agree to to a unilateral tariff concession to allow wines to enter tariff free, but it is far from a given.
For developed wine producing countries like the US, Australia and New Zealand the opportunity would be there to strike a free trade agreement post Brexit.
There are also the non-tariff benefits that Australia and the US have negotiated with the EU around winemaking practices that could also be in threat once the UK leaves the EU without any individual deals being struck on those. This does not include New Zealand.
Re-set for UK wine trade
But we don’t need to wait until 2019 to see the changes taking place in the UK and international market place. The near 20% collapse in the value of sterling may have already caused major problems for countries that now find their wines are far more expensive to ship and sell in the UK.
But it might be seen as a blessing in disguise. For it has forced all distributors, big and small, to raise prices of their wines in the UK. Most of which is being passed on to the consumer. Admittedly step by step.
It has, according to Mark Roberts, head of sales at Lanchester Wines, changed the dynamics of the marketplace. He told VINEX this week that there has been a “re-set of the wine trade in the UK”. A realisation that things have to change.
It is being driven by the supplier base, but with costs of goods going up across all the main consumer product areas from food, soft drinks, cars, and other day to day basics, then retailers, restaurants, bars and pubs are slowly becoming more accepting that prices will have to go up.
Similarly consumers are waking up to the fact that by voting for Brexit they are effectively agreeing to a more expensive average grocery basket. Whether they will be happy to see on-going price shifts on their favourite bottles of wine remains to be seen, but the lines in the sand have been rubbed out and redrawn.
All of which is potentially a further boost to the bulk, and bottled in market wines. For all the growth in the direct sourcing sector in the last two to three years there are sill a number of UK major distributors and retailers who remain steadfast to the belief that bottle is best. Not to mention the raft of operators in the on-trade, cash and carry and regional wholesale sectors that have, to date, only really scratched the surface of what they can do with bulk wine.
The countdown to Brexit has well and truly started, it’s time to make sure your clock is ticking too.