Brexit's High Costs for UK Wine Trade
I think my father-in-law – a man of wit, poetry and uncommon clarity of thinking – said it best: "We're fooked James. It's an absolute nightmare." This succinct summation of the current Brexit standoff, while undeniably terse, captures the mood perfectly.
At the current time of writing, the UK's divided, floundering parliamentarians have failed to reach a consensus, after taking part in a second round of votes on alternative proposals to the Prime Minister's Brexit deal. The aforementioned withdrawal agreement, which would ensure a relatively painless transition (at least in the short term) for the UK wine trade, has been rejected three times. The UK Parliament then agreed to disagree on eight proposals put forward by various MPs. Twice. None of the eight proposals secured a majority, but those which received the most votes were a customs union with the EU and a referendum on any deal.
Yet even in this febrile, toxic atmosphere, one can find consensus. Campaigners on all sides, and their allies, agree that their position on Brexit is the only realistic and tenable one. They also agree that the UK is in "a bit of a mess". Everyone wants the Prime Minster to resign – even her closest allies in the government. And increasingly, even leave voters are admitting that the key proponents of this fiasco – particularly Boris Johnson, Nigel Farage and David Davis – sold them more than a few lies. There's no shortage of needle between the sides.
I remember the nation's mood in June 2016, following the announcement that the leave campaign had won. It was carnival time across the country – even a few of my remain-voting friends were starting to waver. And why wouldn't they? The British public were told repeatedly that glory would follow our departure, and that negotiating a favorable exit-deal would be child's play. Even for the spoilt children that make up our government. "There will be no downside to Brexit, only a considerable upside," said David Davis in October 2016. "There will continue to be free trade, and access to the single market," said Boris Johnson during the leave campaign. And finally, this gem from the Secretary of State for International Trade Liam Fox: "The free trade agreement that we will have to do with the European Union should be one of the easiest in human history."
Yes Fox, as easy as climbing Everest in a lycra thong. For while the Brexiteers continue to delude the UK's public, the wine trade has been making vital preparations. Major importers such as Matthew Clark and Hallgarten Druitt & Novum have been desperately increasing stockholding ahead of the now defunct March 29 deadline for leaving the EU.
Hallgarten, for example, has spent more than £1 million ($1.3m) increasing its UK stockholding. They're not alone. "We have increased our stock holding on our key lines (so around 150 wines). We normally sit on a buffer of six weeks of these stocks and have increased that to between 10 and 12 weeks depending on the line," says Peter Mitchell MW, wine director at Jeroboams.
"This has obviously meant putting a large amount of cash into stock and will result in higher storage costs, with the prospect of having to maintain this as long as any resolution gets kicked down the road."
The Wine & Spirit Trade Association (WSTA), the UK trade's leading voice, has recommended importers increase their stockholding by 20 percent to mitigate the effects of a no deal. For despite MPs largely symbolic agreement to take no deal off the table, it is far from an unlikely scenario. The consequences of this eventuality are sobering, particularly for businesses with an already fragile profit margin.
For a start, a hard Brexit would require customs agencies in the UK to treat imports from any EU member in the same way as they currently manage relations with non-EU states, bringing new burdens in controls and risk management, as well as additional resources in relation to information technology systems and staff. Moreover, a good majority of fine wine imported currently emanates from Europe. Import/export logistics may once have been viewed as prosaic by the trade, but post-Brexit, adjectives like tortuous and costly are more likely to be thrown around.
"Describing out-dated, UK two-party politics as having made a complete dog's breakfast of Brexit does a great disservice to dogs (and dog owners)," says Fullers' Wine Buyer Neil Bruce.
"In practical terms we have stock built, along with everybody else. To buy us, and above all our customers, some time in the (hopefully unlikely) event of no deal/complete chaos. The work on stock building has soaked up a massive amount of time and resources, that could otherwise have been used far more productively. Stock building also carries additional costs, but which we plan to absorb (i.e. take the hit)."
Mitchell adds: "Whilst a sudden departure with no deal seems to be a bit less likely at the moment, that would certainly cause weeks of disruption in the supply chain and lead to higher prices on the shelves, probably to further decreased margins and I would expect it to be the final straw for some businesses."
But even if, by some miracle, our parliamentarians find a way out of this mess and we leave under a sensible withdrawal agreement, the damage has already been done. This is the really unforgivable thing about Brexit. Quite apart from the social divisions and frictions created by this madness, Brexit has done nothing for the vast majority of businesses except provide a three-year headache.
The 2016 referendum result, and the ensuring market turmoil, was another ill-timed kick in the teeth for the UK wine trade, at a time when businesses were already coping with escalating overheads and competition from the supermarket/online sphere.
"From a personal point of view, Brexit has been a nightmare. We have already seen substantial price hikes across the board from our Spanish food producers as well as wine suppliers. Our ingredients have gone up on average by 10 percent since Brexit," exclaimed restaurateur Owen Morgan in 2016.
"Wines are now also starting to take the hit, with prices from November 1 in many cases going up 6 percent. It's always difficult to convey this to customers without some pain, but we can't absorb it all."
Almost three years on, and it's a similar tale.
"We have been affected in the same way as every other business, especially from an importer perspective. In hard, monetary terms by the currency devaluation overnight," says Neil Bruce.
"I think there are very few wine businesses that could claim they haven't been adversely affected by the last three years if only because prices in the market have yet to recover the lost margin from currency issues," adds Peter Mitchell.
"In the retail environment, it has also been noticeable that where there was previously a good supply of high-quality European staff wanting to work on the shop floor, this has mostly dried up and sadly the quality of the native workforce is not generally as good as, for many, wine is just a job rather than a vocation."
There are other costs inherent to Brexit, which have received less media attention. The government's finances will undoubtedly be in a poor state following the UK's departure from the EU on April 12 – if it actually happens – and so the Treasury will be desperate to claw back any revenue it can. Alcohol will be a soft target and it seems likely that future budgets will contain significant duty rises on alcohol.
Indeed, Brexit has already claimed one major casualty – multiple retailer Majestic. CEO Rowan Gormley announced the decision to sell off his UK retail business in March, preferring to concentrate on the growing online wine subscription service. Moreover, Gormley has admitted in several interviews that the worsening economic climate and Brexit uncertainty had a massive impact, having increased the cost base by up to £40 million, through changes to the currency and exchange rate.
Yet the hardline Brexiteers still insist that a no-deal scenario would be beneficial to the UK's overall prosperity. Are they simply telling fibs? Deluded? On drugs? Who can tell, but as with all things Brexit, it depends on who you talk to.
Still, if there's one upside, it's that the trade is largely united in their views on the referendum result. It has brought them together in unified despair and frustration. I've only met two members of the trade so far – both writers – who have been open about their desire to leave the EU. "I'm proud of my decision," came one remark.
I tentatively suggested that trading under WTO rules would hardly be a boon for the UK trade, especially considering that the tariffs on wine could rise significantly, squeezing already tight margins on a highly price-elastic product.
But, of course, I was wasting oxygen. Leave voters approach Brexit with a religious fervor, pining for a lost Britain that is never coming back. Like the Terminator, they can't be reasoned with, or bargained with. They don't feel pity, or remorse, or fear. And they absolutely will not stop, ever, until we leave the EU.
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