Wine Australia debates UK in or out of Europe

Wine Australia for or against

Does it matter to Australia or Australian wine if the UK withdraws from Europe? The good and not so good folk of Britain have a referendum on the 23rd of this month to determine whether they will stay or leave.

The folk at Wine Australia (WA) have had meetings on the issues for and against the UK leaving or staying, and released a short paper on the subject.

At the time of composing the paper the opinion polls had “Leave” at 43 per cent, with “Remain” at 39 per cent. On June 1 The Guardian newspaper published the results of a poll it had commissioned:

“In the phone poll of more than 1000 adults, 45 per cent said they favoured leaving the EU, and 42 per cent remaining, with 13 per cent saying they did not know. Once the ‘don’t knows’ were excluded, that left 52 per cent in favour of Brexit, against 48 per cent for remain.

“Using online polling, 47 per cent said they would like to leave and 44 per cent remain, with 9 per cent saying they were undecided. Excluding the latter, the result was the same as the phone method – 52-48 in favour of leaving.”

Depending on how many bother to cast their vote on the day, it’s looking very close.

About a third of all Australian wine exports go to the UK. Volume is not an issue, but profitability is. Our reputation has suffered, with Australian wine having lost its quality image to one of sound but uninteresting.

Where Australian wine would benefit if the UK withdrew would be through the removal of the Common Customs Tariff (CCT). It’s a tax on non-EU wine entering the EU:

Alcohol strength Bottled wine (litre) Bulk Wine (litre)
<13% €0.131 ($0.20186) €0.099 ($0.15255)
13-15% €0.154 €0.121
15-18% €0.186 €0.154
18-22% €0.209 €0.209

The majority of Australian wine falls between €0.099 ($0.15255) and €0.186 ($0.28662). As it changes with the exchange rate this is a movable amount, but rounding brings it to between 15 and 29 cents a litre.

With the UK out of the EU, this tax would not apply. WA estimated it worth a total $42 million in 2015. It makes the mistake of saying this would “level the playing field. Our main competitors in the UK market are other states within the EU, namely France, Italy and Spain, and these countries are not currently charged duties.”

True, EU countries do not pay CCT, but they still pay UK duty of £2.78 ($5.62) a litre and value added tax (VAT) at 20 per cent. There is a naivety in assuming this saving of $42 million would go into the pockets of producers. The UK supermarkets would be after price reductions.

The bigger issue is free trade agreements (FTA). Australia currently has 10 FTAs or similar agreements in force:

  • ASEAN-Australia-New Zealand FTA
  • Australia-Chile FTA
  • Australia-New Zealand Closer Economic Relations
  • Australia-United States FTA
  • Japan-Australia Economic Partnership Agreement
  • Korea-Australia FTA
  • Malaysia-Australia FTA
  • Singapore-Australia FTA
  • Thailand-Australia FTA
  • China-Australia FTA

Australia does not have an FTA with the UK or Europe. Though discussion of an EU-Australia FTA was agreed in November 2015, this could take years. Some facts from the Australian Department of Foreign Affairs and Trade:

“As a bloc, the EU is Australia’s largest source of foreign investment and second largest trading partner. In 2014, the EU’s foreign direct investment in Australia was valued at $169.6 billion and Australian foreign direct investment in the EU was valued at $83.5 billion. Total two-way merchandise and services trade between Australia and the EU was worth $83.9 billion.

“The EU is Australia’s largest services export market, valued at nearly $10 billion in 2014. Services account for 19.7 per cent of Australia’s total trade in goods and services and will be an important component of any future free trade agreement.”

There is nothing in the pipeline re the UK. Can ancient ties be relied upon? Chile has an FTA with the UK, therefore doesn’t pay CCT, but is this much of an advantage to Chile?

Wine Australia: “If the UK were to leave the Union, new trade agreements with EU countries and also those outside the EU would very likely be negotiated. The ‘Brexit’, however, could remove a significant cost to trade for Australia as WTO rules would prevent the UK from favouring one country over another except in the context of free trade agreements (FTAs).

“Concerns about new agreements have also been raised by the UK trade body, the Wine and Spirit Trade Association, who reported that 90 per cent of its members favour remaining a part of the EU. 

“There is abundant uncertainty surrounding the ‘Brexit’, most notably in the greater economic sphere. However, this may be counter-balanced by potential upside for Australian exporters if the current tariff disadvantage was eliminated.”

TKR comment: Possibly, but what would be received in one hand via the removal of CCT would be pounced upon by UK retailers looking for price reductions.

Arguing for the UK to leave the EU is Tim Martin, CEO of the 900-plus pub chain, JD Wetherspoon, which has printed 200,000 beer mats carrying reasons why the UK should leave. Top of Martin’s concerns are governance issues at the International Monetary Fund. He asks why UK voters should trust the views of its managing director, Christine Lagarde, who has voiced her support for the UK to remain in the EU.

Health lobby hits the campaign trail

While the Winemakers’ Federation of Australia (WFA) battles wine equalisation tax (WET) issues, the health lobby heats up the alcohol tax debate.

Catholic health provider St Vincent’s Health Australia fired a broadside this week, arguing for increased taxation by calling for the Coalition, Labor and Greens to commit to reducing alcohol-related harm by 20 per cent by 2025.

St Vincent’s CEO, Toby Hall: “The policy on reducing alcohol-related harm and violence we’re launching today should be the same policy put forward by each of the parties this election campaign – we’ve done the job for them.”

St Vincent’s is asking for:

  • An end to all alcohol advertising on free-to-air TV sporting broadcasts.
  • The phasing out of alcohol sponsorship of music events.
  • Removal of all alcohol sponsorship from sporting merchandise (particularly topical given the alcohol advertising and promotion associated with the State of Origin and its first match Wednesday night).

None of the above would affect wine to any large degree, but this would:

  • An increase in the price of alcohol to reduce consumption and related harms – including alcohol products to be taxed on the basis of alcohol content/greatest level of harm (volumetric tax).

TKR agrees with the St Vincent’s request for the better collection of alcohol-related information, “including sales data and data around emergency department presentations, hospital admissions, emergency services (eg: police, ambulances), and justice and community services (eg: family’s attendance at a homeless shelter)”.

But it has to be balanced. At the moment it appears to TKR the loose ticking of boxes if one has drunk any alcohol in the past X hours, or if one drinks alcohol at all, is biased towards the argument that alcohol is a major contributor to poor health, violence and traffic incidents.

What St Vincent’s wants is “Pictorial health warnings on all alcohol products and packaging and an independent study into the benefits of alcohol-plain packaging laws similar to those introduced for tobacco in Australia.”

TKR agrees with an independent study but it would really have to be independent. Better still if several studies were carried out commissioned by health, wine, beer and spirits and then independently combined. St Vincent’s says:

“The 20% target for 2025 we’ve announced today is achievable. Our recommendations are based on interviews with 80 Australian experts – internal and external – in healthcare, alcohol treatment services and public health policy.”

And therein lies the problem: the 80 Australian experts are all biased towards the health lobby. It really doesn’t provide a true picture and point directly to where the real issue lies.

St Vincent’s media release: “We’re not prohibitionists. We’re not wowsers. We recognise the majority of Australians exercise restraint when it comes to alcohol and can enjoy it responsibly.

“But such is the scale and depth of the problem we need more than self-regulation and well-meaning awareness campaigns to restore balance.”

Fine, the wine industry needs to accept some responsibility, but it also needs to find out how much of that responsibility is wine’s and how much belongs to beer and spirits.

Is there an alternative, and if so, what is it?

According to a CBS news program on May 19, it could be cannabis. The number of US cannabis users over the age of 55 has increased from 2.8 million to 4.3 million in the past three years.

The over-55 cohort are big wine drinkers, but as age often brings on various illnesses, a big spliff to ease the pain looks a reasonable substitute

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