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Aussie backstop will safeguard Australian wine exports post-Brexit

Published:  22 January, 2019

Australia will continue to trade with the UK, its biggest export market by volume and third by value, on its current terms post-Brexit.

This was the assurance of Wine Australia CEO Andreas Clark at the opening of the Australia Trade Tasting (ATT) this morning.

He was commenting on an inter-governmental deal struck on Friday between the UK and Australia when it was agreed the two countries will continue to trade wine as they do now, regardless of a no deal scenario between the UK and the EU.

An Australian wine backstop will provide confidence to both Aussie exporters and importers in the UK, Clark said, and means to two countries will continue to recognise each other’s product and labeling laws.

“The current agreement struck back in 1994 and updated in 2006 with the EU has been crucial to our success in the UK. Regardless of what happens next, it means there’s an agreement in place,” he said.

The deal is not an official free trade agreement (FTA), which covers all goods and services between two countries, and does not provide clarity on what tariffs will be put in place after March 29 (in the event of a no deal situation, WTO rules will apply).

The deal is similar to the agreement that Australia currently has with a number of countries, including Japan, New Zealand, the US and Argentina, via the World Wine Trade Group, which also legitimises each others product and labeling laws.

FTAs allow countries to negotiate preferential tariffs, but again, whether or not this is a possible outcome for the UK and Australia depends on what happens between now and March.

At today’s ATT, there is a lot of optimism for this outcome and the future of the two countries together, which – as one visitor put it – doesn’t have obstacles like Trump standing in the way of a future closely aligned trade relationship.

“If the will is there, things can happen very quickly,” Clark added.

The two countries have a vested interest in keep the lines of communication and trade open.

The UK accounts for a third of Australia’s wine exports.

But while it accounts for $389m of Aussie wine sold internationally each year, it is vastly eclipsed by China – now Australia’s top export market by value worth $1.14bn.

Growth in China has been extraordinary over the past few years.

China only eclipsed the US as the second highest export country by value two years ago, when it was responsible for around $500m of Australian wine sold globally.

The vast amount of wine sent to the UK arrives in bulk (80%), while the reverse is true for China.

The average price for the UK for Australian wine is $1.58 per/l for the UK, whiel China is at $6.30.

This figure is calculated when the wine leaves Australia, so it doesn’t include the cost of shipping and bottling to the UK.

However, it is fair to say that the average price per litre is much higher in China, and the UK remains largely a market for commercial wine, with 90% retailing for £7 and under.

“Australia became a bulk wine market in around 2007,” Clark said. “A lot of companies were under financial pressure at that time and had to consider efficiencies.

“However, we have seen significant growth in the higher bottle price over the past year, which is really encouraging. Australia is still the dominant player at the commercial end of the market – we have seen particularly strong growth between £6-7 over the past year. But premium wines are also gaining momentum, with £8-9 per bottle up 23% and £8-9 up 16%.”

“In the past we haven’t been recognised for our quality, but that has changed considerably in the past five years. We have great wine and great stories to tell. It’s a bloody exciting time to be in Australian wine,” he concluded.