Wine’s long and winding post-Brexit road
Figures from the UK’s Food and Drink Federation show a 21% increase to £274 million in the value of the UK’s wine ‘exports’ from January to July 2017 and they show a 15.4% increase in volumes. This H1 value figure compares favourably with 2016’s annual total of nearly £490 million.
Overall, the UK’s food and drink trade with the EU is worth £6.3 billion or 61.2% of total UK food and drink exports (ex-EU markets bring in another £4.0 billion).
“We currently export more wine than beef or pork and at current trends we’re set to overtake chocolate before long,” commented WSTA Chief Executive Miles Beale.
Re-exported wine is the UK’s sixth-most exported food and drink product.
Global ‘wine hub’ post-Brexit?
A global centre for bottling bulk wine, the UK claims to be ‘the hub’ of the global wine supply industry. Arriving in bulk, the UK bottles some 50 million cases of wine a year.
Much of the imported wine is reshipped back to the EU and markets further afield, particularly to the Far East, countries like China, Singapore and Hong Kong.
Bodies like the Wine & Spirits Trade Association argue that these figures show the importance of ensuring that the UK gets the right deal on leaving the EU. It evisages a somewhat doctrinaire deal in which trade can continue uninterrupted and wine trade agreements – like those the EU currently enjoys with the US, Chile and Australia – can be preserved and transferred to work for the UK post-Brexit.
Currently, the WSTA is working with wine trade bodies right across Europe, particularly with Comite Vin and more globally with the World Wine Trade Group to ensure the greatest trade alignment at both a European and international industry level.
“Uninterrupted trade with the EU is essential if we want to protect and increase our wine exports,” believes Miles Beale, “It’s also sensible for EU wine-makers exporting to non-EU markets via the UK, of course.
“Our industry also needs urgent clarity over the UK’s continued access to terms agreed under existing EU trade deals and wine agreements with third countries after March 2019 – particularly wine agreements with Australia and the USA, two key wine markets for the UK, as well as continuing to pursue a fast and comprehensive trade deal with the EU.
“The sooner businesses have this sort of clarity the easier a transition to a post-EU trading environment will be – when there also needs to be new bilateral trade deals of which British drinks can take advantage.”
UK alcohol exports to Ireland
But what happens to UK wine, spirits and beer coming into Ireland when the UK Brexits?
Will Irish importers have to seek a new way of importing EU wines post-Brexit?
“Post-Brexit trade with the UK could decline by up to 20% and as many as 40,000 jobs could be lost,” ABFI Director Patricia Callan has warned, commenting on the publication of the Seanad Report on the matter.
According to HMRC figures from the UK, wine exports to the EU in 2016 totalled £189 million with around £30 million of that going to Ireland. This equates to around 16 million bottles or about 15% of the total Irish wine market.
Sterling’s decline is already affecting wine importers.
In 2016 the UK exported 1.36 million hectolitres of beer to Ireland, worth £71.6 million.
But what about spirits – which will take on hugely increased significance should the €uro approach parity with a declining Sterling – and beer?
Last year, the UK exported some 31 million bottles of spirits, worth around £51 million (€56m) to Ireland according to the WSTA figures.
In return, Ireland exported some 33 million bottles of spirits worth £43 million (€47m).
Between the two countries some 17.9 million litres of pure alcohol (around 64 million bottles) are traded in a market worth £94 million (€103m).
With such an attractive price differential, the UK’s departure from the intra-European customs union initially scheduled for March 2019, would be the froth on the top for the 15 million passengers currently traversing between the UK and Ireland with the return of duty-free sales to the scene.
And according to a report in the Irish Times recently Irish consumers could save up to 60% on tobacco and alcohol.
With Sterling reaching its lowest level against the €uro since 2009, global financial services company Morgan Stanley expects Sterling and the €uro to reach parity by the end of this year.
That would quite simply be disastrous for the Irish drinks industry.
And the duty-free consumer traffic wending its way across a considerably more inconvenient NI border wouldn’t even begin to envisage it.
Barry & Fitzwilliam’s Kevin O’Mahony is one of those distributors with concerns for the future should duty-free shopping from the UK become a reality.
“If passengers can pick up one or two litres of vodka, for example, it might suffice their needs for the foreseeable future,” he reckoned, “as people are travelling to the UK and back all the time these days, so there will be plenty of time to top up.”
Bord Bia’s Brexit Barometer report highlights:
- If the exchange rates were to move towards parity, severe trading difficulties would be created for the industry which, layered on top of the implementation of tariffs, would essentially create the perfect storm for the Irish food and beverage industry. No sector is immune from the challenge and ongoing preparation is necessary.
- In terms of exchange rate, an exchange rate of 0.89 would cause severe difficulties for 39% of respondents while a rate of 90p – 94p would cause difficulty for over 80%. Ensuring appropriate risk management tools are in place will help manage future currency fluctuations.
But what might impact the attraction of importing wine from the UK would be the level of Common Customs Tariff(s) set.
At present this is considered to be set at a relatively ‘low’ level.
In the absence of a common EU border, everything will depend on what rate of tariff the UK government decides to set in a post-Brexit world.
When all the post-Brexit dust settles, goods coming into the UK could be subject to a much higher import tariff than exists at present.
And in the event that this tariff is reintroduced at a significantly higher rate, some wine companies on the market here may have to consider their position vis-à-vis importing re-exported wine from the UK.
“We may not be able to bottle our wine in the UK in future,” commented one major wine supplier in Ireland.
Route to market
But for nearly all Irish suppliers, the option to avoid importing wines, spirits and beers that don’t originate in the UK and have them shipped direct instead would pose a logistical nightmare. In the case of wine from some New World countries, what’s now taking one month to arrive could take three.
Anyway, even if wine suppliers here considered relocating to an EU bottling centre like that in Germany, it would still most likely have to be transported across the UK to reach Ireland.
And there’s the rub.
Some 80% of ferry traffic out of Ireland to the UK transits onwards to the Continental mainland and presumably what goes out must come back via inward-bound ferry traffic importing product.
At the bottom of the bottle, the UK constitutes the most handy route to and from the Continent for Irish exports and imports.
Without serious steps being taken by both governments just think of the paperwork that would be involved in both directions along the border and elsewhere when the UK Brexits…..