Harold Wilson’s infamous words on the devaluation of sterling “It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.” may seem as relevant today as they were in 1967 following recent events, but the UK’s economy is much different now and the impact of the Brexit fuelled sterling devaluation on the wine industry right here in the UK is certainly being felt.
At the WSTA we have tried to assess what impact sterling’s decline against the Euro, where a majority of wine is imported from, and other currencies from countries that import wine into the UK. Overall the drop against the Euro has levelled off at around 15% and against currencies such as the US dollar or Australian Dollar much further at around 18%.
The most immediate impact is that the cost of importing goods to the UK will increase. While there is a certain amount of hedging and long term contracts that will help to mitigate this change in the short term, the simple fact is if you try to import wine now you will be spending 15% more than you would have done in June. We have estimated that this 15% drop has cost the equivalent of around £126m since the Brexit vote in June and, should this fall last for a full year, would hit the industry with around £413m additional costs.
With no sign of sterling rallying, wine businesses will now have to work out how they deal with this additional cost. It is likely that some costs will be absorbed, but it is also likely that some of it will have to be passed on to consumers, something we are already seeing with some distributors. What exactly does that mean to consumers? Well, if the full rise in import costs were passed to consumers this would be the equivalent of a 29p rise per bottle for EU wine and 22p for non-EU wine, around a 5% increase.
This has a direct impact on businesses operating in the UK. While much of the product may be imported, the logistics companies that move it around, the retailers that sell it and the plants that bottle the 600m bottles of wine sold in the UK are based here and employ people in the UK (approximately 270,000 jobs). In fact for every bottle of wine that is imported into the UK there is around 80p of economic growth generated in the UK economy. Not to mention the £2.08 in duty and a further 90p in VAT that goes to the Treasury, which they will lose if consumption slows as a result of higher prices.
The consequences therefore are quite severe and this is why the WSTA is working closely with our wine importers to show Government the effect this is having, to ensure they understand the impact on jobs and growth in the UK. While they may not be able to change the value of the pound that easily, there are certainly other measures that they could consider to off-set this impact and protect consumers from sharp price rises, and the industry’s £4bn annual wine duty bill is a good place to start.
Head of UK Policy & Social Responsibility