Opinion

Australia and New Zealand after UK's Wine Industry with new Post-Brexit Regulation

Bulk Wine
United Kingdom
Other Wine
Published Nov 11, 2021
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As of the 1st of January of 2022, the UK Government will remove VI-1 certification for all wine imports. The announcement comes after a year of concern from the UK’s wine industry over the regulatory import process following the Brexit transition period. Once in place, this change will simplify exporting wine to the UK for European and non-European wine exporters by simplifying trade and reducing compliance costs for wine exporters. Australia and New Zealand, the two main non-European wine suppliers to the UK, are already negotiating free trade deals that will allow them to have greater access to the second-largest wine import market in the world.

2020 was not a good year for the wine trade globally due to COVID-19 lockdown measures that reduced consumption, mainly in the hotel and restaurant sector. Total UK wine imports, however, remained steady at USD 4.4 B. Moreover, the hospitality sector is expected to resume full activities by next year. This will surely stimulate demand for wine imports, for which a new regulation will be in place.

Trade Implications of the VI-1 certification Removal

The planned removal of VI-1 certification simplifies trade and reduces compliance costs for wine exporters. According to The Wine and Spirit Trade Association (WSTA), exporters will no longer need to obtain an estimated 16,000 VI-1 certificates and lab analyses per year, which overall cost are estimated to be USD 70 M. According to The UK’s Department for Environment, Food & Rural Affairs (DEFRA), the requirement of a VI-1 forms adds 10% to the cost of every bottle of imported wine.

Before Brexit, VI-1 certificates were a requirement for non-European origin wine, while wine originating from the EU didn’t require the certification. Thus, European wine had a significant cost advantage over the rest. However, since the 1st of January of 2021, when the Brexit transition period was over, all imported wine into the UK needed to comply with VI-1 certificates, which caused chaos and confusion among traditional European suppliers such as France, Italy, and Spain.

Wine importers welcomed the decision of the VI-1 certificate removal in the UK as it will save costs and time in the import process. Furthermore, the new regulation aims for a much open and competitive import market for all wine exporting countries and, with this, larger offers and lower prices for British consumers. Thus, non-European countries will have greater access to compete with European products, especially if they can close Free Trade Agreements that allow tax and duty reductions.


Source: ITC Trade Map

Australian Free Trade Agreement will Support UK Wine Importers and Exporters

According to Australia Wine Exporters, the UK was Australia’s most valuable wine market in the first semester of 2021. The market accounted for 25% of the value of Australian wine exports. Australian wine exports to the UK were worth USD 383 M in 2020, representing around 17.5% of the total export share. Sales of Australian wine increased by 9% in volume in the UK and a 38% increase in value from the previous year. Also, in 2020, Australia was the UK’s third-largest supplier of wine (8%), behind France, the largest supplier (31%), and Italy (18%).

The UK and Australia trade deal announced in June would eliminate import tariffs on Australian wine brands already positioned in the market. This is a real opportunity for the Australian wine industry to deliver quality wine at a lower cost for British consumers and gain a greater share of the import market. Australian wines would have a price advantage over other international competitors in the UK market, especially the traditional European competitors.

The agreement happens to be of great advantage for UK importers as well as it will enhance the UK as a global hub for wine trading. Over the last three decades, the UK has developed into an important global wine hub in the international wine trade, supplying other markets in Europe. Following the UK’s departure from the EU, the FTA offers the opportunity for the UK to develop its own domestic wine policy and better compete with wines from the EU and elsewhere.

New Zealand can Generate Important Price Advantage

New Zealand would be the fourth-largest supplier of wine to the UK behind Australia, accounting for 8% of the UK’s import share. For New Zealand, the UK is the second-largest export market for wine, with exports valued at USD 328 M in 2020. The US is the primary market for New Zealand wines with 32% of the export share, and the UK represents 25% of them. Exports to the UK have grown continuously over the years, and in 2020 they had a 13% increase in value from the previous year. New Zealand competes directly with Australian wines for the non-European wine offer in the UK.

The deal between the UK and New Zealand was announced in October, and details haven’t been discussed yet. What is clear is that the agreement aims to eliminate tariffs and confirm the removal of VI-1 certification requirements on New Zealand exports. In addition, under the deal, New Zealand and the UK have committed to a Wine Annex and a Distilled Spirits Annex, which will help remove technical trade barriers and minimize burdens from certification and labeling requirements.

According to the UK's Wine & Spirit Trade Association, reduced tariffs on New Zealand wines could be cut by 10%, and the other 10% on certificates issue savings. As a result, New Zealand wine could be up to 20% cheaper for UK consumers generating a substantial price advantage over European wines, which will be paying the complete import duty imposed by the UK. 

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