The UK is a major importer of wine, and a major supplier of Scotch whisky. Domestically, there is also a growing craft beer scene.
The marked devaluation of the pound is one of the most notable short-term implications, impacting imports and exports.
Due to the softness of the British pound and the increased potential of the British economy deteriorating, foreign beverage companies may see more challenges in the UK. Consequently, they may consider alternative markets that will generate greater returns, says Rabobank.
French, Italian and Spanish wineries, for example, could look to markets such as the US and China over the UK.
However, UK craft brewers could see opportunities arise. With imports facing challenges, brewers could enjoy a better competitive position in the UK, while also being in a better position to export.
In the long term, the negotiation of trade agreements will be an important issue. Existing trade agreements will remain in place for two years once the UK triggers Article 50 (the process to withdraw from the EU).
Beer: can craft brewers take advantage?
In the UK, around 18% of consumption volume is imported, and 13% of production volume is exported. Most leading brands are owned by international brewers who produce beer both in the UK and abroad.
“Brewers may decide to change business models, from imported to licensed beer, but this will depend on the positioning and consumer perception of the brands,” says Rabobank.
“In the craft segment, British brewers could see domestic competition ease as foreign competitors are affected by weakness in the British pound and the long-term threat of trade barriers.
“In exports, British craft brewers would also benefit from the British pound’s weakness, but here, import tariffs would be a negative.”
Wine: will France and Italy turn to new markets?
The EU is the largest supplier of wine to the UK (France, Italy and Spain being particularly large suppliers), and Rabobank predicts that a soft pound could reduce demand for wine imports. Therefore, producers of EU wines will search for new markets.
Efforts to target other markets, such as the US and China, can be expected. This in turn will affect domestic suppliers and other competitors.
“Wineries in the EU will feel the effects most directly, but there will be tangible knock-on effects felt in nearly all major wine-producing regions,” said Rabobank.
“The prospect of the largest wine-importing country in the world leaving its free trade agreement with the largest wine-producing region in the world will have an obvious impact on trade flows in the long term, but the marked devaluation of the British pound will begin to drive some of those changes almost immediately.”
Spirits: what could happen to Scotch whisky exports?
The weakness of the British pound is expected to impact spirits imports, such as cognac and bourbon. On the other hand, this could provide opportunities for Scotch whisky exports, but the potential of losing free trade agreements is a pressing concern.
Scotland is considering another referendum on independence from the UK, which would allow it to stay in the EU. “This would alleviate the problem for Scotch suppliers, but EU wineries may be less happy about providing free access to the EU market for Scotch without receiving reciprocal access to the British market for wine,” said Rabobank.
Shifting geographies
In the future, EU companies may face an increase in import tariff when sending goods to the UK, as may British producers who sell goods in the EU.
“One way to mitigate the impact of this is to become more active in the end market, thereby lowering the value of the imported goods and the associated duty,” said Rabobank. “An additional advantage for British sales is that more costs will be in British pounds, which benefits from the recent devaluation and reduces the currency risk.”
Should trading terms under Brexit be disadvantageous, companies may want to shift as much of the production process as possible to the end market. However, this is not an option for all products (take for example those with geographical indicators such as Champagne and natural mineral/spring waters).