UK’s Post-Brexit Tariff: Stimulus for Growth
The UK government’s new tariff, which will replace the EU’s Common External Tariff on 1 January 2021 on all imported goods is set to increase wine prices for consumers.
Under the new tariff (UK Global Tariff, UKGT), wine from countries such as Italy, France and Spain will be taxed at a rate between £10 and £26 – essentially inflating their prices in the domestic market.
In addition, the tariff does not apply to those imports shipped from countries with a tariff suspension already in place, developing countries or countries with a trade agreement already reached with the UK government.
This news comes at a time when the hospitality sector is weak and desperately in need of reviving– as the COVID-19 related restrictions have seen retail alcohol businesses close to the public for months (notwithstanding the innovation of delivering cocktails to one’s home).
Imposing a tariff on wine imports could increase their costs – so essentially companies now face 2 choices: pass higher costs to consumers by way of increased prices or absorb the costs. With demand already mired by the pandemic, either of the two choices will erode margins for companies.
There is, of course, a third choice, and this may be the real reason for the policy decision – stock more home grown wine. This could be just what the UK wine industry needs now that it has got its product right – there have been some truly excellent wines and vintages coming out of UK vineyards over the last few years.
Before the pandemic was declared, the UK vineyards industry was one of fastest growing sectors in the UK, but this was curtailed as responses relating to COVID-19 pared both demand and supply.
One direct implication of the tariff is to make UK wine more competitive in the domestic market, it has been fairly priced at the top end (and the top end is good). But by making non-UK wine imports more expensive in the domestic market, we suspect consumers (and so suppliers such as pubs and restaurants) are likely to turn to domestic products which we believe should support the UK wine industry. Wine producer Chapel Down (CDGP), listed on London junior market Aquis, could be an investment proxy for the UK wine industry.