Wine trade reacts to duty hikes - Prowein analysis
Many conversations at this week’s Prowein turned to the latest UK duty announcement, as the wine trade braces for a double whammy of duty reform and inflation-related tax increases.
As part of the latest budget, the government said that duty rates on alcohol will increase in line with the retail price index on August 1, coinciding with the introduction of a new duty regime, which will see products taxed according to alcoholic strength rather than drink type.
As part of duty reform, wine between 11.5% and 14.5% abv will be treated as if it is 12.5% abv for the purposes of calculating the charge to alcohol duty from August 1 2023 until February 1 2025.
While there were flecks of optimism among some sparkling wine producers at Prowein, most companies are deeply concerned that an already embattled industry is facing another enormous challenge. A challenge that will see many producers seek to lower abvs to come in under the 11.5% tax tier.
“We've had a lot of extra costs and problems that were caused by not being in the European Union,” says Philip Cox, co-owner of Romania's major exporting wine producer, Cramele Recas.
He also points to the rising costs of dry goods, the war in Ukraine, continued recovery from the pandemic and the cost-of-living crisis.
“This is absolutely the worst possible time for the government to come and increase tax. Frankly, for us producers, it’s something we find really distressing.”
The Wine & Spirit Trade Association reports that the duty hikes, combining regime change and the RPI increase, would bring a rise in shelf prices of around 44p for a bottle of wine, which Cox says can be “more than we make on a bottle of wine”.
“The government is making us into sort of tax collectors for them,” Cox adds. “And this doesn't happen in other countries, so it makes the UK less attractive to European producers like me, and it makes it harder for people in the UK to consume wine.”
Richard Cochrane, managing director of Spain specialist Felix Solis also highlights the many challenges the trade has faced, adding that there are two main issues with the new duty regime: the complexities linked to the new model and also “the rate of duty being applied”.
“The model hasn’t suddenly arrived,” he says. “I think as an industry we should’ve been – and should be - more concerned about the amount applied, more than the model.”
Cochrane reminds us that prime minister Rishi Sunak announced the model in 2021 when he was chancellor, pointing to the strong likelihood of its implementation.
Speaking about the temporary 11.5%-14.5% abv tier, Cochrane says that this measure will bring “a little bit of stability” in the short term, though he questions: “What happens next? Clearly there’s a timeline attached to that.” He says trying to extend that measure will be important.
Elsewhere, he flags up opportunities for wines under the 11.5% abv tier. And Cochrane says the company has been working to bring down the abvs of certain products for the last two vintages, working on the assumption that duty reform would happen, and also looking to wider trends around health and wellness.
“The real question every business has to ask is: does any form of reduction in alcohol reduce the quality of the product?” he says.
In terms of methods used to bring down alcohol strength, he says: “We looked at picking dates, we looked at lazy yeasts, we looked at the ways we could just nudge down .1 or .2% – we looked at arresting fermentation to leave in sugar, rather than finish the wine dry and add sugar. There are ways to succeed.”
At Cramele Recas, Cox also says the company is producing lower alcohol wines and has recently launched a 10.3% abv Sauvignon Blanc with Virgin Wines.
He says that while there is a wider trend towards lighter styles for health reasons, “the tax thing is a big impetus to do more”.
Meanwhile, for grape variety-focused Vin de France, the changes to duty could spell an opportunity for French wine that isn’t from the famous regions.
Valerie Pajotin, director of trade association Anivin de France, says that while the duty rises are a major concern, the business model, which allows blending from all over France, means “we have a very good price/quality ratio”. She says that while the “sweet spot” of £7.99 for a French Chardonnay, for example, might go up, “we’re going to continue to be well positioned in terms of price/quality for France’s famous grape varieties”.
But Pajotin also warns that bringing down alcohol levels is "tough" in the context of climate change.
At the same time, there was a little measured optimism from Cava producer Raventos Codorniu, as the company sees an opportunity in the UK market.
Matteo D’Imporzano, Europe & Asia sales director, says the vast majority of the company’s exports to the UK are sparkling and the WSTA reports that the new regime will mean a bottle of sparkling wine at 12% abv will drop in price by 19p.
“The new duty will be beneficial for sparkling and so there will be an opportunity to grow. But overall there will be a decline in consumption for the consumer because of the double impact, which will put a lot of pressure on the market.”
On the still wine side, he too says the company is looking more at alcohol reduction, and studying new technology. He again mentions the “double need” in terms of both consumer trends and duty reform.
