Brexit: will the UK wine trade cope with EU divorce?
In 1973 New Zealand was selling almost 100% of its dairy products to the UK and had been doing so for a century. Then it received a call to say the market was closed because Britain had joined the EU, and it had to embark on the long and strenuous process of forging new trade deals with countries across the world.
New Zealander Sean Allison, a former Merrill Lynch economist who now produces wine in Bordeaux, remembers it well. “We are a good example of a country that fell off a cliff from a trade perspective,” he said. “The market closed on us straight away. The response was to find some new markets and negotiate entry points in markets not related to Europe. As a small country turning up to negotiate, it’s very, very difficult. New Zealand trade since then has been years of hard negotiation to get trading arrangements in place.”
He believes the UK will face a similarly tortuous time after Brexit, when it has to negotiate new trade deals with the EU and individual countries across the world. “I would say to everyone in the UK, be very careful about the timetable you give yourself. The UK is a lot bigger than New Zealand, but it’s still a small country, and being able to turn up in China and the US saying you want a free trade arrangement... it doesn’t happen the way Boris Johnson thinks it happens. It takes five or six years of hard negotiation.
“Certain things are taken off, certain things are put on the table and there’s a lot of to-ing and fro-ing. You have to implement the agreement, which takes a number of years. You need a lot of expertise at the negotiating level. Leaving it with politicians does not fill me with a lot of confidence because they know nothing about the details of trade or what needs to happen.”
His sentiments are echoed by Wine & Spirit Trade Association chief executive Miles Beale, who worries that politicians could derail ease of trade. “We have worked hard to persuade the UK government there should be as little change as possible to the way the UK trades, especially in wines and spirits,” he says.
“Something like €2.5 billion worth of wine is imported into the UK every year, and about €2.2 billion worth of spirits goes in the opposite direction. The one thing we are really worried about is that politicians will do something to change that. We want to see trade as free and unrestricted as possible.”
In the aftermath of a confused election result, there are claims Brexit may never happen, but Beale believes nothing will stop it now. “Divorce is inevitable because the EU has had enough of it,” he says. “The UK should be taken at its word and let’s get on with it. The UK has voted to leave the EU and I don’t see any prospect of that changing. Therefore we have to work out how to get the best result. The wine industry has to work together to persuade the heads of all member states to get the right answer. We are working hard to achieve nothing. We want no change, so what we are asking for is not complicated.”
SUSTAINABILITY IS KEY
Buyers are also keen to see as little change as possible. Andrew Shaw, head of buying at Conviviality, says: “Sustainability is the key element. We want as little change as possible. If things can become simpler then even better, but we need to make sure trade is as simple and efficient as it is now. There is so much complexity to trading between countries nowadays and the EU provides a framework that we have got used to and an industry structure that works around the levels of bureaucracy we have, but what could break it is uncertainty within that road map rollout.”
Allison argues that it all comes down to competitiveness and economic performance.
“The most important thing is that people have enough clarity to keep investing in the UK, because it’s really the performance of the economy that is the most important thing for the wine trade,” he says.
“Wine is a discretionary item. A lot of people don’t drink it every day. Having surety on income and investment is very important, so there needs to be a far more proactive approach from the government to continue to provide investment to give positive messages to business so the economy doesn’t suffer.
“Post-referendum we have been in a honeymoon period. The economy did not tank. It wasn’t the disaster that some people were expecting, but that doesn’t mean it won’t end up like that in the future. We have been lucky, but we need to be mindful of the fact that this could drag on, so we need to lobby as an industry aggressively.” There is an acknowledgement that duty increases are another huge concern, but Brexit and the impact on FX is also causing much consternation among the trade.
“We have seen a 3% rise in prices in the past year, as opposed to 1% over the previous two years, so the market is looking a little bit wobbly,” says Beale. “I’m sure it’s temporary, but how long will it go on and where do you find yourself at the end of that period?
“One of the really big problems for anyone working with the UK wine trade is that there is a policy of increasing excise duty by at least inflation. We have had one increase already this year that was meant to be inflationary, but it is linked to retail prices and came up at 3.9%. If you have a currency hit, inflation coming at 3.9% on top, and a second Budget coming this year then it looks quite tough.”
But he says one positive is that £5 bottles of wine are now no longer the Holy Grail as the average bottle price is already at £5.56 (Nielsen), and believes there are opportunities as well as challenges on the horizon.
“New trade deals for the UK will be interesting. We haven’t done it for more than 40 years. We are almost completely clueless. We will be buying in some expertise from New Zealand and Australia. The good news is that the first trade deal has to be with the EU. We are already converged, so you should be able to do it in record quick time. That is what we are going to be demanding of our government, and we hope others will be demanding of other EU countries. It shouldn’t be rocket science.”