With a possible announcement of a referendum date imminent, and a hefty report on the topic from highly regarded fund manager Neil Woodford released this week (https://woodfordfunds.com/economic-impact-brexit-report/) it seems opportune to think seriously about the consequences for wine and wine investors of a Brexit.
Quite apart from copious quantities being quaffed at victory parties or commiseration wakes in the aftermath of the results we can expect some consequences both on the supply side and the demand side, in price and potentially in regulation.
Now obviously wine is only a very small part of the equation when it comes to the financial implications of Brexit. The real answer to what will happen if we leave the EU is that nobody knows. Estimates on the impact to GDP vary wildly as you can see below, with the difference between best case and worst case 20% of GDP or approximately $600bn:
It is notable that the most recent estimates above paint the gloomiest picture of Brexit, while the best estimates are from individuals and organisations with a clear bias (Civitas's position here is debatable UKIPs is certainly not).
We know there are certain to be implications for immigration, trade, foreign investment, the strength of Sterling, property prices, consumption and regulation, all of which would depend hugely on the terms that the UK could negotiate upon exit, and only some of which will have a significant impact on wine. Some of the things that stand out include:
- Currency: The run up to the referendum is likely to see Sterling weaken, an understandable market response to uncertainty. Whether the pound recovers and maintains its status as a safe haven currency is probable, but uncertain at this stage. A falling currency would be good for existing investors, bad for those still building their portfolio.
- Trade rules: Currently the import of European wine (and the vast majority of investable wine is European) is simple and easy, trade rules after a Brexit would have to be negotiated if importing becomes more costly then we can expect the value of wines already in the UK to increase.
- Status of the UK market: Much like in financial services the UK punches well above its weight in the wine world, acting as a distribution hub and a major clearing house for global wine supply, especially at the high end. The UK enjoys some of the best pre-tax prices for wine available, and at the high-end in particular, strong competition keeps prices very keen. Much in the same way that the financial services industry fears a movement by Paris and Frankfurt to take advantage of Brexit, it is reasonable to suggest that Bordeaux may make moves to usurp the UK's status. We should expect this to result in an increase in UK wholesale prices, great for people who already have large cellars, bad for people building them.
- Regulations: Currently the alcohol market in the UK is very lightly regulated. Political support from Brexit (generally speaking) seems associated with a strong protectionist / anti-free trade instinct, if this branch of politics comes into ascendancy we might expect much more stringent regulation. It might be as simple as rules insisting that restaurants and supermarkets stock a certain proportion of English wine, it might mean limits on how much alcohol can be bought at once or a minimum price / unit, or it might mean full financial regulation under the auspices of the FCA.
Vin-X believe the latter to be unlikely, (we should be clear we welcome regulation of the wine investment sector) principally because of the difficulty in distinguishing between retail stock, stock held by a company like Vin-X, restaurants and clubs that have substantial cellars bought over many years (and sometimes traded) and private clients.
In short, for wine, like the rest of the country the consequences of Brexit are full of unknown detail, much of which would have to be negotiated with our European partners after the referendum. If the EU wishes to deter other countries from leaving, these negotiations are likely to be protracted, and the outcome less positive than we might like.