Wine : The consequences of Brexit for the wine industry

The British have always loved wine, especially when he is French. But the Brexit could well come to disturb this pleasure …

A few days after England left the euro zone, everyone wonders what may be the consequences to come. England and France have become economic partners who can no longer do without each other. Among the most affected areas, that of wine appears as one of the big losers this outing.

Friday 24 last june, 51,9 % of the British voted in favor of Brexit. A - weak - majority therefore decided to leave the country from the European zone. The economic consequences of this exit are difficult to predict, but as David Cameron explains : "Brexit is a leap into the unknown".

This decision risks having significant economic consequences for French winegrowers. The United Kingdom is a major importer of French wines and of course a loyal economic partner of France.

The UK produces some wine - 25 mhl —, but this is not enough to cover his consumption : England is the sixth largest market in the world for wine consumption, ie 5,25 % of global consumption. It is also the second largest importer of wine in the world by value behind the United States and by volume behind Germany. Every year, 6 millions of bottles are sold there. England imports 14,834.2 million hectoliters and France is the leading supplier of wine by value with 34,22 % market share and third in volume with 15,95 % in 2014.

According to Pierre Gernelle, president of the union of negotiators-breeders of Burgundy : "What is necessary is to distinguish the very short term, short and medium term. In the very short term, we see that the purses are heckled, stock market values, stocks and also parities in the pound sterling. We expect central bank intervention to stabilize the situation very soon. "

One of the biggest risks of Brexit for the wine industry is certainly the strengthening of price competition. Leaving the European Union, Britain will be able to renegotiate on its own the free trade agreements that bound it with trade partner countries of the European Union.

The Commonwealth is an intergovernmental organization made up of 53 Member States which, for the majority, are former territories of the British Empire. The Commonwealth emerged in the mid-20th century during the process of decolonization. It is formally constituted by the London Declaration of 1949 which makes member states “free and equal” partners. The symbol of this free association is Queen Elizabeth II who is head of the Commonwealth. The Queen is also head of state of 16 commonwealth kingdoms. The other Member States are 32 republics and five monarchies with different monarchs.

The Commonwealth is therefore an area in its own right and wine trade with Australia and New Zealand is likely to gain importance over other countries exporting to the United Kingdom such as France., Chile or Argentina.

European stock markets panicked before and after the referendum. The sterling / euro exchange rate is now unfavorable for exports. If the pound's exchange rate drops further, British buyers may well be more cautious about importing products into the territory. On the announcement of the result of the referendum on leaving the European Union, the pound unscrewed 8 % against the dollar and the euro. Central banks should succeed in limiting the widening gap, but there will be negative effects on exports. According to Cabinet Euler Hermes, we can expect a loss of 40 % on French wine exports to England, that is to say 200 million euros in losses.

French products enjoy a good reputation as they are often synonymous with high quality. However, they may be less accessible for Great Britain. If the monetary imbalance continues to widen, French wines will be more at home in Great Britain. It is really not sure that the English will accept an increase in 5 to 10 % the purchase price of the wine. French winegrowers are therefore worried about a drop in the volumes purchased by trading houses. Some winegrowers export a large part of their production to the UK. According to a winegrower interviewed by France Info, since the Brexit results, "Everything is blocked, the bottles do not leave anymore ». English buyers are being cautious and this is normal. The price of wine bottles went up in just one night by 9 to 12 books.

For Pierre Grenelle, we will have to keep an eye on the terms of the British exit : “Since the United Kingdom decides to leave the common market, we will see the reintroduction of customs tariffs and even regulatory banners… and it could - I say it in the conditional - penalize exports of Burgundy wines. It could mean a more expensive Burgundy wine for the English, knowing that it is an extremely competitive market where all global players are present and where prices are very important and where consumers are extremely sensitive to price changes. "

The Wine and Spirit Trade Association estimates that a bottle of wine from the European Union should increase on average by 29 pence, against an increase of 22 pence for a bottle of wine from a third country.

Suffice to say that the British organization representing operators in the wine industry is starting to get hot. She estimates that the decline in the value of the pound 15% since the end of June represents a cost of only 225 million pounds per year for imports of European wines, that is to say 251 millions of euros ! The same goes for imports from third countries with a cost of 188 million pounds, that is to say 209 millions of euros. These colossal losses correspond to nearly 10 % the tax levied on liquor in the United Kingdom. Unfortunately, "This cost will probably have to be absorbed by the wine sector". This effect is likely to have serious consequences on the economic activity linked to the marketing of wine and employment.. Note that this still generates 17,3 billion pounds per year, evening 19,29 billion euros and creates 170’000 direct jobs.

Leaving the euro zone will also certainly sign the return of economic barriers, as well as a return of customs barriers. The great return of these barriers threatens to further increase the price of French wines in England. A considerable danger to be taken into account for French winegrowers.

According to ANIA - National Association of Food Industries -, Brexit could limit trade because of the reinstatement of tariffs on trade or the loss of the benefit of having a customs union. "These customs duties can be particularly high for foodstuffs", underlines ANIA. The association specifies that administrative costs can represent up to 25 % of the value of the goods traded, in the event of the emergence of non-tariff barriers.

With the emergence of these risks, French wine producers are organizing themselves to find other markets to limit breakage, such as Lithuania or Russia for example. Even though it's important to prepare for the worst, we must still wait to know the conditions of exit from the United Kingdom as well as the agreements that will be made in the future. Hopefully the agreements will be based on the principle of free trade that already exists so as not to impact the trade of the two countries..

[update of 09/06/2017]

As I announced, Brexit had serious consequences for the world of wine. Today, the price of wine reaches an unprecedented peak in the United Kingdom due to the country's forthcoming exit from the European Union. Based on revised forecasts from the Wine and Spirit Trade Association, being an oenophile will cost more and more…

According to the new report drawn up by this institute, the average price of a bottle of wine increased these 12 last weeks than in the last two years.

After crossing the threshold of 5,50 £ (6,30 €) for the first time in the last trimester 2016, the average price of a bottle of wine is now 5,56 £ (6,37 €), partly because of the fall of the pound sterling. Consumers therefore pay 16 pence more than the same period last year, to 19 pence more compared to 2015.

According to the institute, the effects of inflation and a tax increase will maintain this phenomenon : a next increase should still add 8 pence at the average price of the bottle.