This means the industry – which includes players such as ASX-listed Treasury Wine Estates (Blossom Hill) and Australian Vintage (McGuigan), alongside Casella Family Wines (Yellow Tail), Yalumba and Accolade Wines (Hardys) – is highly exposed to the potential perils of Brexit.
A no-deal Brexit could mean new customs procedures between Britain and the EU that could clog ports and increase red tape and costs. Meanwhile, the hauliers on which winemakers rely may struggle with traffic logjams and restrictive new licensing conditions that reduce the number of trucks available.
And if these problems persist in the medium term, the standard practice of bottling in Britain may have to change. Some may choose to bottle in Europe, while others may wear the higher cost of sending bottled wine straight from Australia.
“For the longer term we have the option to supply Australian bottled [yellow tail] into Europe should we have issues with exporting bottled wine from the UK,” Casella’s Mr Lawson said.
Casella isn’t the only company weighing up options for a post-Brexit world, said Simon Stannard, European and international affairs director at Britain’s Wine and Spirit Trade Association, which also represents Australian winemakers.
“Business are looking very seriously at their business model that currently has the UK as a hub for their bottling operations, and to see what it’s going to be like post-Brexit, and whether or not actually they may be forced to move their operations from the UK,” he told a parliamentary committee in London last week.
Another Australian wine industry player said his company was doing diligence on taking bottling operations into Europe, but no decisions would be taken immediately.
Brexit could also mean winemakers face different standards and regulations in Britain and the EU. The industry hopes the Australia-EU Wine Agreement will be ‘rolled over’ so that it covers post-Brexit Britain. This would maintain the status quo until any Australia-Britain free trade agreement (FTA) comes in.
“Without rolling over that agreement, some of the wine exports to the Britain would have to be re-labelled … and some of the wine-making practices that the agreement provides for will no longer be provided for,” Mr Stannard said.
He was hopeful Britain would roll over the agreement, but “it’s just a question of whether it’s going to be ready in time” for Brexit D-Day on March 29.
All eyes on an FTA
Winemakers are also keenly awaiting the start of substantive FTA talks between Australia and Britain. The tariffs are relatively low – 10p a bottle on still wine, 20p a bottle on sparkling – but are “still a nuisance value and an administrative cost,” Mr Stannard said.
“We’d like to see the tariffs removed. Whilst they are relatively small, the majority of wine from that we get from Australia is very much at the ‘value’ end of the market, where actually 10 pence a bottle can make quite a significant difference.”
The average price of a bottle of wine is £5.60 to £5.70, and of the 300 million Aussie bottles sold, around 95 per cent would be at the “value” end.
Mr Stannard said potentially more important gains from an FTA might come from a greater embrace of mutual recognition of standards than under the Australia-EU Wine Agreement, which would increase flexibility.
Britain’s fledgling domestic wine industry would also like its government to loosen the country’s visa regime, allowing more Australian wine practitioners to work in British vineyards.
“We already get quite a lot of Australians and New Zealanders who come over on short-term visas to work in wineries and vineyards here,” said Simon Robinson, chairman of English Wine Producers. “The ability to bring in expertise is pretty important … they have skills that we don’t necessarily have in the UK or are in short supply in the UK particularly as the industry grows.”
And while it’s not strictly an FTA issue, the British wine industry hopes Australian officials will lobby Britain on the excise duty announcement in Chancellor Philip Hammond’s 2018 budget, which spared beer and spirits but raised the tax on wine.
“At the ‘value’ end the margins are quite small per case, and that’s enough to wipe your margins out,” Mr Stannard said. “That’s gone down very badly in Australia. It’s not helped set the mood for future negotiations.”