What Does Brexit Mean For The Fine Wine Market?

Justin Knock, Oeno’s Chief Wine Analyst and a Master of Wine, gives an update on the implications of Brexit for the fine wine market.

“The worst fears of the UK wine trade have been averted with the signing of the Brexit deal on Christmas Eve. Yet while importers and traders are relieved with the outcome there is no doubt wine movements between the UK and the EU have become more complicated, and there will be a slow period of adjustment to the new rules. But it could have be much more difficult without a deal in place.

The best news is that the implementation of VI-1 certification has been avoided. The VI-1 is a standard form certifying origin for non-EU wines arriving in the EU, and must include analytical data from lab analysis of each product. It’s estimated that through paperwork and analysis costs each VI-1 would add 300-400 euros in cost to every single EU shipment into the UK. With around 250,000 movements per year this would be a significant barrier to trade and a huge additional cost to producers with no tangible benefit for importers or consumers.

The impact would have been acutely felt on small lots and fine wine, where the cost is spread over a smaller quantity sometimes only a few cases at a time. This would dramatically increase on-shelf prices for fine wine but have almost no impact on supermarket wine.

Fine wine outcomes could have been potentially even worse. Lab analysis for alcohol, pH and acidity requires destructive sampling, so if you were, for example, shipping 6 bottles of Armand Rousseau Chambertin to the UK, one bottle would be destroyed to generate the analysis data for the VI-1. This would be required for every single shipment, regardless of whether that exact wine had been shipped previously with a VI-1 certificate. The implication is that many small producers would simply refuse to supply the UK, or the cost of fine wine would increase dramatically.

But EU producers do not get off for free. Wines still require certification authenticating origin, which the producer can complete themselves. This is additional paperwork, but not a deal-breaker to trade. So while producers from the EU breathe a sigh of relief, it’s believed that the New World producers (which includes Australia, the US, Chile, South Africa, New Zealand and Argentina) who already comply with VI-1 certification requirements would have the most to benefit from a more level playing field with the EU.

A further boost is that VAT deferment in EU imported wine remains in place, so long as the wine is delivered into a bonded warehouse. If this had not been rolled over the cash flow blow against wine importers would have been sufficient to push many into insolvency or at best, struggle to adjust to the new terms.

In many other areas it’s still too early to know what the impacts will be. It’s believed that samples arriving into the UK for Burgundy En-Primeur tastings this month, will, for example, now incur duty costs of £2.23 per bottle whereas previously there would be no charge. Given the huge number of cuvees Burgundy producers make this can easily be a new bill for thousands of pounds for importers.

Other impacts will simply take time to ascertain. A great majority of importers, at least those not crippled by COVID, have beaten the Brexit deadline by importing several months of additional stock and are capable of operating without EU shipments for at least the first quarter. Some of these are running test-shipments, without needing the stock, to determine how the new customs clearance processes will work.

Overall we know that things are not simpler. Costs will inevitably rise and it’s to be determined whether this will be absorbed by the trade or passed on to the consumer. Longer term the strength of sterling will be a bigger determinant of whether UK prices rise or fall. And regardless of the barriers that eventuate (or not) this year, the new deal contains plenty of break clauses and opportunities to apply tariffs, just as it does for other imported goods. And the whole deal is up for renegotiation in just three years. Just like nature, the wine trade is going to have to adapt to the new environmental conditions to survive.”

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