2017 Brexit Impact On Wine Remains Cloudy

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It was one of 2016's biggest news stories: the United Kingdom's vote for Brexit. And as 2017 begins, the government has just started the complex process of leaving the European Union. For wine, some effects of last June's referendum are being seen, but the long-term consequences are still hazy.

"We have indeed felt a bit of a reduction in the shipments to the U.K. since the Brexit referendum," said Joao Machete Pereira, export director of Marqués de Murrieta in Rioja. In the immediate aftermath of the decision, "several players froze and decided to put on hold their scheduled shipments." Then, he says, shipments again slowed as the pound began losing value.

The pound has fallen more than 10 percent against the euro since the vote, making imported wines more costly. U.K. distributors and retailers will inevitably have to pass this increase on to the consumer. "Some distributors have already started to put through cost increases, and I would imagine the majority if not all of them will do so early in 2017," said Richard Billett, managing director of importer Maisons Marques & Domaines UK.

With the United Kingdom already suffering from a general economic malaise, it's difficult to say how consumers will react to more expensive wine. Industry members worry their customers will trade down. "On the other hand," argued Andrew Hawes, managing director of importer Mentzendorff, "there remains a large group of affluent wine consumers willing to pay more for quality wine with provenance and a story."

Price inflation will disproportionately affect value-oriented brands—a £30 increase on a bottle of wine that costs £300 will not deter most of the consumers who can afford that bottle in the first place.

While the pound's decline could hurt sales long-term, it has increased sales for U.K. wine merchants for the time being. Jean-Philippe Lemoine, marketing and commercial director for Bordeaux's Château d'Yquem, reports that customers from markets like the U.S. and Hong Kong have been rushing to buy Bordeaux wines from the U.K., rather than directly from Bordeaux merchants, because of the favorable exchange rate.

While that's not good news for Bordeaux in the short term, Lemoine believes their U.K. clients will eventually have to restock. "The U.K. will always be a big buyer of Bordeaux," he said.

Starting from scratch
Brexit's full ramifications will not be clear for months or years to come, however. That's because as part of leaving the European Union, the U.K. government has to negotiate new trade deals with both E.U. and non-E.U. countries.

The Wine and Spirits Trade Association (WTSA), which represents over 300 wine and spirits companies in the U.K., published a policy paper last month detailing their priorities for negotiations. They are calling for tariff- and quota-free access to the E.U. market—a similar trade policy to the one the country has now as an E.U. member.

"One would hope that because those mechanisms are already in place, there can be a sensible relationship with Europe that won't disrupt flows of product going both ways," said Simon Stannard, the European affairs director for the WSTA. "It's frankly not in the interest of European wine producers to put in obstacles, because they want to sell their product."

Indeed, 99 percent of the wine consumed in the U.K. is imported, and about half of that comes from E.U. countries. The U.K. is also the second-largest wine importer in the world, by both volume and value. A policy anchored in free trade, the cornerstone of what some have called "soft Brexit," seems mutually beneficial.

But is it politically possible? While European wineries might support the idea, their governments are still upset about the U.K.'s vote. They may oppose the idea of giving the U.K. the trade benefits of being an E.U. member, with none of the financial responsibilities or open borders.

Outside the E.U., negotiations could become particularly interesting. The E.U. charges tariffs on wine coming from non-member countries. After Brexit, the U.K. would be free to review this strategy. The vast majority of non-E.U. wine currently consumed in the E.U. is drunk in the U.K., so favorable trade deals could help wine countries outside Europe.

Another area where industry leaders see opportunity is in production regulations. The E.U. has strict restrictions on how wine sold within its borders is made and labeled. The U.K. will be free of these regulations, and will be able to renegotiate production standards and equivalents with non-European countries. "We can move from what is currently a restrictive system into something that actually facilitates trade," said Stannard.

This system has posed problems in the past. Earlier in 2016, the E.U. blocked bottles of Felton Road Bannockburn Riesling coming from New Zealand because the wines fell slightly short of a minimum alcohol requirement.

While the WTSA supports regulations that control wine authenticity and quality and help maintain consumer confidence in the product, they believe there is room for innovation. In their report, the organization proposes a partnership with the World Wine Trade Group (WWTG), a body made up of government and industry representatives from Australia, the United States, South Africa, Chile, New Zealand, Argentina, Canada and Georgia. Rather than imposing common production standards, the WWTG works to recognize equivalents in winemaking and labeling practices between member groups, thereby facilitating trade while also protecting the product.

Time will tell what's in store for the U.K. wine consumer. One of the world's oldest and largest wine markets is effectively starting over.


Scource: Wine Spectator
Emma Balter
January 3, 2017