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Brexit chaos hits wine industry and consumers

Brexit chaos hits wine industry and consumers

What does Theresa May's Brexit plan being voted down by British MPs for the second time mean to the drinks industry both in Australia and the UK?

In one word: uncertainty.

As it stands, leaving the EU without a deal will be the default option if Parliament can't come to an agreement on March 29. And it's widely expected that MPs will reject leaving without a deal.

Parliament will vote on an extension on leaving the EU, but the EU needs to agree to an extension and may not. 

Among the possibilities that follow are May putting a new deal to the Parliament for a third time; the cancellation of Brexit by revoking Article 50; a second Brexit referendum; and a general election.

And what's the impact on the wine trade?

Britain is the sixth-largest wine market in the world, with around 55% of wine consumed in the UK being from the EU according to the Wine and Spirit Trade Association.

A study done by the Journal of Wine Economics found UK customers may have to pay up to 25% more by 2025 in the event of a hard Brexit; while a softer version of the withdrawal agreement could see the price go up by 11%.

Australian winemakers are well positioned. In February, the Australian Senate passed the Australia-United Kingdom Wine Agreement, which will allow wine exports to continue to flow to Britain post-Brexit.

Under the deal, Australian winemakers will be able to export products using the same labels, certifications and manufacturing processes to both the UK and the EU after Brexit.

However, Nick Rowley, an advisor to former UK prime minister Tony Blair who worked at Downing Street between 2004 and 2006, told ABC News that there's a broader picture to be examined.

Britain is Australia's fifth largest trading partner, with our major exports to the UK being gold and lead (accounting for more than $3.6 billion annually), followed by $413 million of wine exports.

"But what these statistics fail to reveal is that the value of us trading with Britain is greatly enhanced by it being a member of the EU," he said. 

"Much of the value of Britain as a trading partner to Australian firms is that it is an English-speaking gateway to accessing the far larger €14,800 billion European market.

"So if Britain leaves the single market, it may prove easier for Australian firms to bypass the UK and trade directly with the individual EU countries where our goods are sold."

How the wine industry is preparing

Casella Family Brands revealed in January that it was stockpiling supplies in the UK and Europe as it braces for Brexit's impact on Australian wine exporters.

"We are raising our stock levels here in the UK and with our European distributors to cover any short-term challenges," Simon Lawson, European general manager for Australian winemaker Casella Family Brands, told the AFR.

Complicating the situation is that Britain is the hub for Australia's wine exports to Europe, with 80% of the 240 million litres Australia sends to Britain each year being shipped in bulk. It's bottled at British plants, with 25% then re-exported to countries such as Norway, the Ukraine and Russia in bottled form.

Winemakers may need to decide whether to move their bottling operations to Europe or make the costly decision to bottle in Australia and then export it.

"For the longer term we have the option to supply Australian bottled [yellow tail] into Europe should we have issues with exporting bottled wine from the UK," Lawson said.

Simon Stannard, European and international affairs director at Britain's Wine and Spirit Trade Association (WSTA), told a parliamentary committee in London last week: "Business are looking very seriously at their business model that currently has the UK as a hub for their bottling operations, and to see what it's going to be like post-Brexit, and whether or not actually they may be forced to move their operations from the UK."

UK distributors stockpiling wine

WSTA has been advising members for more than a year that they should increase their stock by 20% as a starting point in case of a no-deal Brexit.

UK wine merchant The Wine Society brought forward an extra 60,000 cases of wines to gives the society “extra breathing room” and to act as a buffer before and after the March 29 Brexit deadline.

Meanwhile specialist wine retailer Majestic has stockpiled around £5 – £8m worth of product in the run up to Brexit as it plans for “tough times” in the UK.

Direct Wines is bringing in an additional two million bottles on their usual stock, while Bibendum has developed a “robust Brexit plan” which will see it ordering “significant” extra wine to have ready in stock.

How British drinkers are preparing

As Britain’s secession from the EU approaches, one in five Britons are considering stockpiling, and one in 20 have already done so, according to a poll from ITV News.

Also, analysis by Quartz found: "Some of the finer things in life come from Europe, and they are expensive. A no-deal scenario could make these items even more costly, due to tariffs and an unstable currency.

"Regardless of the reason for stockpiling, our analysis found that wine was in the most-mentioned items to include in any stash."

Day trips across the English Channel to France are rising as shoppers race to beat a no-deal Brexit.

Direct Ferries says sales of day trips from the UK to France are up 25% over the last five weeks on a year ago.

David Nicholls and Steve Chappelle were among those queuing in Majestic Wine. They bought 300 bottles of wine for a wedding in May. “We wouldn’t have come this early without Brexit,” Nicholls told The Guardian

In the event of a hard Brexit, the WSTA said it's likely the duty-free rules that apply to the rest of the world would apply to alcoholic drinks from the EU as well, meaning a four-litre wine allowance.

“This means that it would no longer be possible to buy wine and spirits for personal consumption, duty paid in the EU, and bring them back into the UK unrestricted,” said Simon Stannard, the WSTA’s director of European and international affairs.