Opinion UK Wine Industry Steps into the Unknown

UK Wine Industry Steps into the Unknown

The clock is ticking and a trade deal seems as far away as ever.
© Thinkstock | The clock is ticking and a trade deal seems as far away as ever.
After more than four years of stuttering starts, Brexit finally looms as a reality for the British wine trade.
By James Lawrence | Posted Tuesday, 13-Oct-2020

In January of this year, UK Prime Minister Boris Johnson achieved his "end of the beginning" moment.

After years of tumultuous debate and vitriol, the United Kingdom left the EU on January 31. A departing footnote was designed to reassure remain voters; Johnson told the British public that securing a free trade agreement with the EU was entirely possible.

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Indeed, his party was elected on a promise to do just that.

However, with the Brexit talks reaching endgame, the United Kingdom is veering dangerously close towards a "beginning of the end" scenario. The EU has initiated legal proceedings against the UK, in response to a piece of domestic legislation that potentially overrides sections of the ratified Brexit divorce settlement.

This does not bode well, particularly as Boris Johnson had previously set a deadline of mid-October for the Brexit talks. He said that both sides should "move on" if a deal was not reached by October 15.

Of course, Johnson is notoriously willing to bend his "cast-iron" promises. At the current time of writing, Johnson and the European Commission president have agreed that talks might continue into late October. Their caveat is that some progress must have been achieved by the date of the UK/EU Brexit summit on October 15.

Considering the various points of disagreement and heightened acrimony between the parties, an economy-saving trade deal looks more implausible than ever. European Vice President Maros Sefcovic recognizes the imminent disaster; he told the European Parliament that "time is short" and a deal was looking unlikely at this point.

If both sides fail to strike even a bare bones deal, then the consequences for the UK's wine sector will be disastrous. In brief: widespread job losses, dramatic price inflation, significant restructuring and less consumer choice. Richard Walker, MD of the leading supermarket chain Iceland, recently told the British press that a no-deal Brexit would cost the food and supermarket industry "an extra 5 billion". Any nation attempting to grapple with Covid-19 and a global recession cannot afford additional and unnecessary economic pain.

The resulting chaos will be an exercise in egalitarianism; the agony of a no-deal Brexit will be felt by a wide range of stakeholders – both in the "everyday" and fine wine trade. Although the UK produces a tiny amount of wine in global terms, the nation is one of the world's key wine exporters, due to its status as an important fine-wine trading hub. Entrepreneurs have created a lucrative business that manages just over a third of the multi-billion fine-wine trade, employing thousands of people.

Unfortunately, we can kiss goodbye to all that, if the worst consequences of a "hard Brexit" are realized.

A hard landing

"The ramifications for the fine wine trade and EU exporters could be catastrophic," admits Miles Beale, chief executive of the Wine and Spirit Trade Association, a trade organization tasked with lobbying the UK government.

"Businesses such as fine wine platform Liv-Ex may have to relocate and base themselves inside the EU. At a time of global crisis, additional – and unnecessary – job losses are the last thing people want to think about."

Taylor's CEO Adrian Bridge is pessimistic about the future of the trade in the event of a no-deal Brexit.
© Fladgate Partnership | Taylor's CEO Adrian Bridge is pessimistic about the future of the trade in the event of a no-deal Brexit.

Yet Philip Cox, owner of the Romanian wine brand Cramele Recas, argues that too much of the debate is focused on a deal/no deal outcome. Cox is mightily frustrated; he believes that exporting to the UK will become an expensive nightmare, regardless of what agreement is potentially struck between the UK and Brussels.

In January 2021, the UK becomes exempt from a complex legal framework designed to allow goods, services and capital to move freely between European nations. The achievement of a "Canada-style" tariff-free trading arrangement won't stop the bureaucrats having a field day.

"At the moment, it looks unlikely that the UK will achieve a trade deal with the EU before mid-October, however, many of these new legal requirements will come into force even if the UK secures a tariff-free trading relationship," observes Cox.

These new requirements are a Soviet dictator's wildest dream. I wish to spare you the mind-numbing and tedious details, but in essence, the form-filling, time-waiting and expense-incurring will rise exponentially.

"We're currently not required to complete an import/export declaration when we move goods to the UK," says Cox.

"All that changes in 2021: we'll have to complete a full customs declaration, with all the expenses and bureaucratic headaches that entails."

British ports are already making plans to expand their facilities and are expecting truck queues as long as Lake Titicaca.

This isn't journalistic hyperbole – it's an utterly conceivable trade dystopia. We're potentially moving towards a new reality, in which exporting wine to the UK is more trouble than its worth.

"I imagine many EU producers will walk away from the UK in 2021," says Cox. "As for us, let's see what happens. But at the moment, I'm planning for the worst. The UK is an important market, and one which we love and have worked hard to nourish. It all depends on whether we can manage the additional costs."

Goodbye to all that

Several other European producers have shared their concerns – off the record, of course.

One Spanish grower noted that: "I'm looking at abandoning the UK market in 2021."

They added: "We've estimated the extra costs of shipping to the UK and it would mean raising our prices significantly.  Our importer won't stand for that, so we're exploring other markets. The German market is looking more appealing by the second."

Another producer, also reticent to be named, added: "These new rules could not have come at a worse time; everyone is trying to grapple with Covid-19 and then the UK government dreams this up. We're having some difficult negotiations with our importer, as I refuse to carry the full cost of these new trading regulations. If the talks go badly, then I'll look elsewhere."

It seems likely that similar discussions are playing out all over Europe; only a monumental earthquake such as Brexit could discourage European producers from exporting to one of the world's key alcohol markets.

Some of these brands have been shipping bottles across the English Channel for hundreds of years. Strong relationships have been built up – generations of families have forged bonds with leading importers and buyers.

But such goodwill is at the cusp "of going up in smoke", to quote one agitated party.

"It seems likely that some producers, post the Brexit transition period, will withdraw from the UK market," says Taylor's CEO Adrian Bridge.

"Of course, it depends on how important the UK market is to the individual brand. We will stay the course, even if hard times are ahead. We sell most of our volume in the last quarter, so in 2021 we have some 'breathing room' to let the UK government hopefully sort out the mess that follows from the country's departure from the EU trading framework."

Bridge is reasonably sanguine about the future, but also far from complacent. The Port shipper freely admits that he anticipates "a perfect storm" of waning consumer confidence, a decline in the value of the pound and shrinking retail space.

"The currency issue worries me more than the new bureaucratic stuff," says Bridge.

"If Brexit goes badly, then the pound will lose further value and our products will become more expensive. Retailer shelf space will become a keenly contested commodity. Everyone in the supply chain will take a hit, as the discretionary spend is likely to fall in the UK."

Covid-19 offers few compensations, but the rapid ascension of the online model has helped too keep numerous retailers and producers afloat, providing consumers with their compensatory weekend tipple. To embark on a political project that will see the cost of importing EU-origin wines rise considerably could only be described as insane.

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