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There is a wave of euphoria going the rounds of some vineyards about how Britain’s wine industry will benefit from Brexit. I hope this is right but it won’t happen if we only look at the benefits and not at the other side of the balance sheet. Sure it will make our exports cheaper as long as it lasts. But remember, the reason the pound has gone down is that the financial markets think Brexit will be bad for economic growth partly because foreign-own industries such as motor manufacturing and financial services – which came here to be inside the tariff barriers – will switch new investment and people to Europe. This will lead to higher unemployment in the UK and a big blow to confidence and spending power which may lead to fewer purchases of the more expensive domestic wines.
Devaluation makes exports cheaper but also imports more expensive. Virtually all of the machinery to pick and process grapes – like the massive press that arrived at Rathfinny this week – comes from abroad as do the vines themselves and many of the gangs that pick them.
It is all very well to presume that Brexit will lead to the Government reducing tax on English and Welsh wines but this is unlikely at a time when there will almost certainly be a rising deficit that the Government is pledged to eliminate albeit over a longer perion than previously thought.
In these circumstances the Chancellor would have to be barmy to reduce the duty on wine when 98% of the proceeds would go to importers who dominate the market. And if he decided to reduce the duty on UK made wines alone in a discriminatory way then that would be sure to trigger a retaliatory trade war abroad.
There could be unexpected benefits. If agricultural subsidies are eventually reduced sharply then that might persuade more farmers to invest in a growing indigenous industry rather than farming subsidies.
I remain bullish about the revival of the UK wine industry and it will be improved by a lower pound. But the irony is that if Brexit succeeds (very unlikely in my view) then the pound will once again strengthen thereby removing a competitive advantage that arose from expectations that it would fail.