US-EU import tariff suspension signals olive oil and alcoholic beverage industry recovery

Other Wine

Germany

Published Mar 10, 2021

After more than a year of tit-for-tat trade war between the US and EU, the two parties have finally agreed to lift all retaliatory trade sanctions for four months on March 5, 2021. The olive oil and alcoholic beverage industries of both parties were lethally harmed from the import tariffs, reporting millions of dollars of losses. The suspension of import tariffs was met with optimistic outlooks from the olive oil and alcoholic beverage players who are hoping that this is the start of a full recovery from damages caused by the trade war and Covid-19.

After more than a year of a mutually disadvantageous trade war between the US and EU over the Airbus-Boeing dispute, leading to import tariffs on even non-airline products, the two parties have finally agreed to lift all retaliatory trade sanctions for four months on March 5, 2021. Previously, due to the World Trade Organization’s (WTO’s) authorization on both plaintiffs to impose import tariffs on each other amounting to USD 7.5 billion for US to EU and USD 4 billion for EU to the US, the wine and olive oil industry of the US and EU have been devastatingly affected. In 2019, the US administration slapped a 25% import tariff on French, Spanish, German, and British wines, whiskies, and Spanish olive oils. Similarly, the EU placed an additional 25% ad valorem tax on US rum, brandy, and vodka.

During the first half of 2020, Spanish olive oil export volume to the US has dropped by 39%. Within exports, bottled olive oil suffered a staggering 81% drop compared to the previous year. The damage is evidently shown in its domestic price trend as it dips down to its lowest point during the first half of 2020 and slowly recovers but still unable to reach its previous high point in 2018. Exports of French champagnes experienced a similar downward trend. The estimated loss of French winemakers summed up to €500 million just for 2020. The Scotch Whiskey Association also shared that Scotch Whiskey exports to the US dropped by 35% in 2020, costing the industry more than half a billion pounds. Similarly, US whiskey exports to the EU declined by 37% after the tariff, reversing from its increasing trend during the last decade. The situation worsened as Covid-19 took a toll on businesses around the world. (Read previous analyses on Spanish olive oils and Wines)

Olive Oil Domestic Price of Spain

Source: Tridge

Post-Tariff suspension

The 4-month suspension of the hefty tariffs is a big relief for the alcoholic beverage and olive oil industries of both the US and EU as the industries try to survive and recover from the daunting decrease in demand due to the trade war and Covid-19.

Olive Oil Industry

The main beneficiaries of the trade sanctions of Spanish olive oil exports to the US were Tunisia and Portugal as they filled the gap left by Spain, previously the second-largest olive oil exporter to the US. During 2020, olive oil export volume to the US increased by 700% for Tunisia and 800% for Portugal. Moreover, because Spanish branded olive oils cant be exported to the US, Spanish olive oil companies also had to import from Tunisia and Portugal to meet previously agreed orders from US clients. After the tariff suspension, this trend is to be disrupted as Spanish olive oil companies are now able to produce and export to the US without significant hurdles. This would go two-ways, wherein Tunisia and Portugal’s export to Spain would decline and with the restored demand for Spanish olives in the US market, domestic prices are likely to experience upward pressure.

Alcoholic Beverage Industry

After the reconciliation of the two biggest and most profitable alcohol markets-the US and EU, German and French wine producers and US spirits producers expressed an optimistic outlook. The alcoholic beverage industry was one of the hardest hit by the trade war, where tensions were further heightened by the Trump administration’s decision to include cognac and other types of wines in the import tariff product list in January 2020. Previously in the wine market, the trade sanction resulted in a two-fold effect where wine prices increased and available varieties decreased in the US market. To boost the recovery of the alcohol industry, Washington and Brussels agreed to temporarily hold off their imposts on each other’s drinks industries.

With vaccinations taking place, social distancing measures are expected to be soon relaxed, allowing more celebratory gatherings, the main consumption factor for alcohols. With the alleviation of the pandemic, prices may decline due to reduced import costs, and the demand for alcoholic beverages in both US and EU markets is expected to recover. However, although the outlook is positive, researchers worry that the tariff suspension won’t be able to completely undo the lethal damage it has caused to the alcohol industry.

Sources

Beverage daily. Com. ‘Fabulous news’: Alcohol industry welcomes suspension of EU / US Airbus-Boeing dispute tariffs.
Olive Oil Times. Spanish Exports of Bottled Olive Oil to U.S. Drop 80 Percent
Olive Oil Times. Imports Rise in Spain as Big Brands Work Around U.S. Tariffs
The drinks business. ANALYSIS: HOW TARIFFS HAVE AFFECTED WINE AND SPIRITS
The New York Times. U.S. and Europe Will Suspend Tariffs on Alcohol, Food and Airplanes
Wine Enthusiast. E.U. and U.S. Tariffs Suspended, Wine Professionals Hope for Refunds