Brexit : what will the consequences be for the wine industry and the value of wine collections?
On June 24, 2016, while many Québécois were preparing to celebrate while enjoying a few good bottles, the UK and Europe as a whole woke up with a hangover the size of a redefined continent. England had voted overwhelmingly to separate from Europe, creating a shock wave that will continue to reverberate for a long time.
At Alfred, we wondered what effect the so-called Brexit would have on the wine industry, still intensely dominated by Europe and, by extension, what could be the consequences on the value of the wine cellars of collectors .
Obviously, it is still early in the process and we will need time to see clearly the developing trends, but it seemed interesting to take a first look at the situation.
Britain is the first market affected
At first, the British seem the most affected by the events. The pound lost more than 20% of its value in a few hours while the British and European stock markets collapsed as quickly.
Inevitably, all european wine purchases will become more expensive for the English.
At the same time, the British alcohol taxes are amongst the highest in the world, which would imply that once out of the European market, Britain would become the place where the purchase of European wines would be the costliest. Sadly, the country had just regained some momentum in the local consumption of European wines; with this state of affairs, the risk is great that European wine consumption would fall again in England.
This could affect small wine exporters like Portugal where England ranks as its 6th largest customer. A drop of this magnitude in wine importation would certainly lead to a critical loss of revenue for the whole food and beverage industry. This will also be the case for France, Spain and Italy.
As for France, according to the International Monetary Fund, the food industry will most likely be very affected, with potential decline in exports of 0.39 billion euros over two years. This represents 14% of French agricultural exports and in these exports, wine is a major element. In addition to the decline in exports, due to the depreciation of sterling, the potential reestablishing of customs duties will primarily affect the sectors of wine and dairy products.
Bernard Fargès, former president of the Union des appellations Bordeaux and Bordeaux Supérieur, has expressed serious concerns since England is the fourth largest market for Bordeaux and the first in Europe. The English have always been very fond of “Claret”, the name the British gave red Bordeaux wine in the eighteenth century
It’s the same situation for the Beaujolais, with more than six million bottles crossing the English Channel each year.
Hard times ahead for Prosecco
We can certainly project the same kind of damage to the economy of regions of Italy such as Tuscany or Rioja in Spain.
Moreover, in Italy, it is the producers of Prosecco who worry the most. Britain had become, over the years, their largest market, surpassing the United States. Prosecco, being cheaper, had gradually replaced champagne in England. The Italian government had projected sales of over EUR 600 million for this year alone.
Obviously, all of this reflection remains in the domain of future projections and we can not assess the exact damage that will occur when the separation is acted upon and trade agreements amended.
What about here?
On our side of the Atlantic, it is certain that American wine collectors are jubilant. The US dollar experienced a major increase against both the pound and the Euro as well as, incidentally, the Canadian dollar.
For now, American buyers can find great deals on European wines and even bigger ones if they pass through British merchants.
We will also probably see the price of British artisanal gins diminish drastically.
Interestingly, Australian producers, considering that their wines will be cheaper in the British market, could benefit greatly.
For Quebec collectors, the bad news comes with the much lower Canadian dollar against the US currency and the Euro. On the international market, this factor may affect the value of local wine cellars. It is probably advisable to wait for the European economy to stabilize before planning transactions with American collectors.
At Alfred, we will observe and analyze the situation and inform you of any developments on the international wine markets.
We should also wait to see what will happen with Scotch whiskey if Scotland decides to separate from England to rejoin Europe. But that’s another story and we do not dabble in political fiction…