In seven days’ time the UK will be voting in a General Election for the second time in a little over 2 years. You may be right in thinking that voting in the general election won’t have much effect. But as we get closer to those negotiations it is clear that the attitude taken in the negotiations post BREXIT election will have a resounding impact in one way or another on the wine we drink.
Theresa May has anchored her party’s strategy in ‘strong and stable’ and banked on the idea that the voters won’t trust Jeremy Corbyn with or without a coalition to do the job of negotiating a ‘good’ BREXIT deal – whatever that means. But what is good for one, may well not be good for another.
Beyond the rhetoric we actually don’t know what this means in any detail whatsoever. We are no further informed than June 24th 2016.
The first impact on wine is price. The Wine & Spirit Trade Association has just revealed that the retail price for 75cl of wine in the UK has risen above £5.50 mark for the first time to hit £5.56. This 3% increase is in stark comparison to the 1% of the previous 2 years. These numbers are a direct result of currency depreciation generated by the BREXIT vote last June. They don’t include the impact of this years 3.9% duty rise nor any reduction in consumer spending.
BREXIT has had an impact on UK wine pricing without being defined beyond a concept. The ramifications of the forthcoming BREXIT negotiations may be more profound.
We have to assume that they have to be conducted by the next government of whatever colour. The approach of the negotiating team is massively important to each individual trading category. How important is fishing, UK agriculture, as opposed to our services and financial sector? From the commercial and UK plc standpoint then that is the first question that will be asked.
The UK is the second most important wine export market behind the USA in value and Germany in volume, and supports directly and indirectly 277,000 jobs. From the position of a government and negotiator this generates only trading levels of income, it doesn’t ‘produce’ anything. English wine production i.e. wine produced from freshly gathered grapes in the UK is the only category that would be strongly considered in a trading perspective. Whilst there is lots of noise and awards and celebration around English wine and it is great to hear and see, it is only a tiny proportion of exports and revenue in the UK. The total production is estimated at 10M bottles by 2020 with around 5% (c.250k bottles) exported currently.
So the wine category stands to be relegated to the back of the queue when it comes to trading agreements, tariffs and opportunity. Further when BREXIT is activated in approximately 2 years time, unless new trading agreements are put in place, then there are two countries, Chile and South Africa, that have beneficial tariffs with the EU currently, which will lapse in the UK. We will be less motivated to buy their wines because their prices will increase.
A recent UK Trade Policy Observatory (UKTPO) forecasts that by 2025 under a ‘worse-case scenario’ of BREXIT negotiations volumes of wine consumed in the UK will reduce by 28% as a result of 22% higher prices. Even considering a lesser impact it predicts 17% consumption reduction and 11% price hikes. It proffers that global wine trade will suffer by 3.8% or $1.8Bn as a result of ‘large’ BREXIT.
Within these numbers there are some interesting assumptions. The first of which is further currency depreciation. I am not sure that most of us are thinking that the currency could go much lower, but if it did then as demonstrated post the BREXIT vote it will impact on wine and significantly.
Second is consumer spending. When we are better off we drink more wine. It has been a long-term trend for the wine category, presumably because it is (or has been) seen as ‘better’ than drinking beer or spirits. There’s a feel-good factor in wine. So if inflation continues to rise and wages don’t, then we can expect a squeeze on discretionary income, and therefore wine purchases.
How and will government respond to such scenarios? They could reduce duty, but it is unlikely considering that it only raises £9.5Bn, a small pot in the context of UK plc, albeit the biggest alcohol revenue. We could elect to become a Free Zone, the Hong Kong of Europe perhaps with lower taxes on wine. However, it will take time for that situation to become a reality and in between time we will have the current or worse than status quo.
Wine consumption over the last 60 years has risen to a third of UK alcohol consumption, correlating with the rise in global trading. There is the prospect that we might have re-appraise our relationship with the vineous liquid.
For now wine is our drink of the moment and it is to be hoped that the dramatic circumstances don’t come to pass. Academic studies do rely on specific scenarios and so rarely play out in the harshest of ways predicted. However politicians in pressured circumstances also make rash judgements. Wine has helped bring a worldliness and richness to the UK population. It is a more social and inclusive environment where a glass of wine is reasonable common social currency.
We can but hope that whoever we vote in goes beyond the rhetoric and can navigate us through a turbulent situation. What is clear is that the attitude of those in power will influence the detail of the negotiations. The BREXIT negotiation is full of bear-traps that anyone of us can fall into unwittingly.
Alistair Morrell
Hospitality & Catering News, Wine & Drinks Editor
