30 May 2017
The UK has accounted for a major share of the world’s wine imports for centuries, and wine currently accounts for more than one-third of UK alcohol consumption. Its withdrawal from the European Union (Brexit) will therefore affect not only UK wine consumers, producers, traders, distributors and retailers but also suppliers of those imports.
Based on a model of the world’s wine markets, in their Briefing Paper ‘Will Brexit harm UK and global wine markets?’ Professor Anderson and Glyn Wittwer determine the impacts of various alternative Brexit scenarios through to 2025, involving adjustments to UK and EU27 bilateral tariffs on wine imports and any changes to UK income growth and the value of the pound over the period of adjustment.
Their research indicates that for wine markets, the impact of the UK leaving the Customs Union is likely to come not only from tariff changes but also from slowed growth of UK incomes and devaluation of the pound.
The paper was presented at an event at Chatham House on 19 May and discussed by Jancis Robinson, Writer, Financial Times; Tamara Roberts, Chief Executive Officer, Ridgeview Wine Estate; and Miles Beale, Chief Executive, Wine and Spirit Trade Association.
In the main scenario considered, for consumers in the UK the price of wine in 2025 is 22% higher in local currency terms than it would be without Brexit, the volume of UK wine consumption is 28% lower, and the value of UK imports is 27% lower because of Brexit. This is mainly sterling and income effects, the effect of the tariff are small.
Under an alternative scenario (with just half the assumed shocks to incomes and the pound), the consumer price of wine in 2025 would be 11% higher in the UK and the volume of UK wine consumption would be 17% lower.
For either scenario, such a sales reduction in the UK would be a blow to participants in UK wine bottling, transporting, storing, wholesaling and retailing businesses, as well as restaurants and pubs.
All in all, as reported by the Financial Times, the result is sobering. Yet, Prof Anderson suggests that the future for the UK wine market could be brighter with suitable policies such as lower taxes on wine consumption and by adopting better macroeconomic policies to boost UK economic growth.
Will Brexit harm UK and global wine markets? UK Trade Policy Observatory Briefing Paper 9 (May 2017) Kym Anderson and Glyn Wittwer
Working Paper – The UK and Global Wine Markets by 2025, and Implications of Brexit Kym Anderson and Glyn Wittwer (May 2017)
The opinions expressed in this blog do not necessarily represent the opinions of the University of Sussex.