UK wine trade braces for a no-deal scenario

Thursday March 28 2019 by Sharon Nagel

Miles Beale, director of the Wine & Spirits Wine Trade Association : 'at that stage, we thought the chances of no-deal were around 5-10%'Miles Beale, director of the Wine & Spirits Wine Trade Association : 'at that stage, we thought the chances of no-deal were around 5-10%' - Photo credit : DR
British ports could descend into chaos if no agreement is reached on how the United Kingdom is to exit the European Union. As political wrangling continues on either side of the Channel, Vitisphere asked Miles Beale, director of the Wine & Spirits Wine Trade Association, how members are coping with the prospect of a no-deal scenario.

What threats does a no-deal Brexit pose for the wine trade?

We’ve been saying since, quite shortly after the referendum, that we think all of our members should prepare for no-deal, because if you’re prepared for a no-deal, you can manage anything else. At that stage, we thought the chances of no-deal were around 5-10%. We now think that no-deal is the most likely option. Almost everything else is speculation but overall we are still telling our members to prepare for no-deal because it really could happen on March 29, although I find it very hard to think there won’t be some extension to the current timetable. I think the UK could not manage, either no deal, or a deal that’s not yet been finalised to be in place on March 30. I simply don’t know how we’d get there. We represent spirits too, but we definitely think that the risks and the stakes are higher for wine. That’s principally because wine is 99% imported and half of it comes from the EU. If there were no deal, the tariffs that exist on wine under WTO trading terms around the rest of the world would overnight be applied to all European wines. Then there are all the logistical hassles, so we’ve been suggesting to our members that they increase their stock levels by about 20% on what they would usually hold at this time of the year, to mitigate the impact of what we think will probably be 4 to 6 weeks of chaos at ports. I think it will go on longer than that and that we will never go back to the free-flowing traffic we have now, but there will be a sort of new normal established after 6 weeks.


As a reminder, what are the tariffs that would be applied to imports of EU wine into the UK?

The tariffs are 9.90 euros per hectolitre of bulk still wine under 13% ABV; for bulk still wine between 13 and 15%, they are 12.10 euros; for still wines in bottles (less than 2 litres) it’s 13.10 euros per hectolitre for less than 13% ABV and 15.40 euros for 13-15% ABV; for sparkling wine it’s a rather hefty 32 euros per hectolitre. These are standard WTO tariffs on wine coming into the EU.


Apart from transportation, what will be the other logistical issues?

Currently wine moves around the EU under the entirely electronic EMCS system. If that disappears on 29 March, we have to replace it with pieces of paper, and we also have to have lab analyses with each consignment of a single product. We have estimated the cost to UK businesses of this at over 100 million pounds, but those costs will also be borne on the other side of the Channel, by producers. All of this is totally unexplored, certainly costly and will slow everything down, and definitely be extremely painful. Also, by the way, it will be extremely pointless because it’s not as if EU wine overnight is suddenly going to become unfamiliar to UK consumers or a health and safety risk.


How many of your members have followed your advice on increasing their stocks by 20%?

I think the answer is that most have. In one sample we surveyed, we observed that everyone had done between 10 and 20%, so not always as much as we would want. A few may have done a bit more. It tends to be that they have used our 20% as a guide and frankly, that’s all it is. It is based on trying to avoid the impact of the six weeks after a no-deal, which will be the most difficult to manage. We have had some reassurance from her Majesty’s Revenue and Customs that they won’t stop things at ports, they will do any checks they deem necessary away from the ports. I think that will help a lot. I’m not sure they’ll do this for people, so I think there’ll be a certain amount of traffic for a certain period of time.


Have you seen a surge in imports that would corroborate the results of your surveys?

We don’t have figures to collate a surge in imports, but from talking to our members, we do know that that’s what they’re doing. Any business importing products has certainly been looking at increasing their stocks. There’s a real challenge for small business around cashflow, particularly coming after Christmas and with an excise duty increase effective on wine on February 1st. Some of them probably aren’t able to bring an additional 20% in because they simply don’t have the cash to do so. That’s another issue we’ve tried to bring to ministers’ attention, but it’s quite difficult to get anyone’s attention at the moment.


UK wine and spirits businesses have spent millions on preparations for a no-deal Brexit. What has the money has been spent on?

Devaluation of the pound has cost money and they’ve certainly had to look carefully at where supplies are coming from and therefore diversify. In order to increase stocks, businesses may have had to pay over the odds and given that most of our members seem to be heeding our advice to increase stocks, they have paid for them. I’m not sure how they’ve done it, but it looks like they may have had to spend more than they may otherwise have done, buying outside their usual contracts, or looking for a particular varietal where global supply is lower. The other area of cost is logistics and warehousing space - if you buy in an additional 20% of stock, have you got room for it? Soon after the Referendum, we did some research into the availability of bonded warehouse space for stocks that we expected to be needed and the answer was, barely.


Have you estimated the overall cost of Brexit so far to UK businesses in the wine trade or is it impossible to gauge?

I don’t think we’ve probably estimated the overall cost. Immediately after the referendum, our best guess was that a bottle of wine would increase by 30 pence by the time we left the EU. That was certainly underestimated because it’s more than that already. The trouble is that we still don’t really know what we’re costing. No-deal is a very big cost and we could probably work out how much it would cost if it were to happen. But if we assume that no-deal is taken off the table, then you’re into some sort of deal or no-Brexit scenario and the cost would be much lower.


The UK has been developing a strong local bottling industry, often serving the EU. Has Brexit had any impact on this?

We haven’t got any hard evidence, but we have quite a lot of anecdotal evidence. We certainly have good evidence from our members who either provide or rely on UK bottling. There are some big companies that do bottling at scale in the UK and then send the product to other parts of the EU, and they are certainly thinking about whether a UK hub is the best model or not. I know that some of them are thinking about changing their hub but again, they’re waiting to see what kind of Brexit emerges.


Several New World countries have struck continuity deals with the UK. Will this give them an advantage over EU wines?

The continuity arrangements are, in a way, a bit of a hoax. We’ve always said to government, what we really want you to deliver is nothing, i.e. no changes to the way we trade. Post-Brexit we could work on improving them, by say removing tariffs on wine from Australia and New Zealand. Dr Liam Fox has signed some continuity agreements… but the elephant in the room here is the EU. More or less 50% of wine in the UK market comes from the EU and so it’s quite important whether tariffs are or not applied when we’ve left the EU. If we have no deal and tariffs are applied, I think we would have an acceleration of the tip from Old to New World wine, a bit more quickly than is happening anyway. But that can’t really happen overnight because contracts are in place, there is limited or constrained amounts of wine on the world markets which means that it’s quite difficult to respond very quickly, and prices could potentially go up. If tariffs were applied in the event of a no deal, I suppose there’s still a chance that an FTA would be put into place very quickly with the EU. Considering it’s simply replicating the situation we have now, how quickly would the EU and the UK agree that tariffs should not apply on wine from the EU into the UK?


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