Craft brewers and English wine could be winners as drinks industry is shaken and stirred by the Brexit vote
Craft beer brewers and English wine makers could be some of the drinks industry winners from the UK’s vote to leave the EU, according to research from Rabobank.
The surprise Brexit vote will have "critical implications" for the wine industry, Rabobank said in a report released today. The UK is the world's largest importer of wine, of which most comes from the European Union, and a drop in imports from the weaker pound might mean global wine producers will need to find new markets.
Drinks that carry a geographic indication, such as champagne and prosecco, will also likely suffer too, as they must be imported to the UK from their point of origin.
Read more: Britain is now the "beating heart" of the global wine trade
However, this could be a boost to English wines and sparkling wines, which have flourished over the last decade. English drinks will be well placed to ride out the short-term fall in Sterling and longer term renegotiations of trade deals, in which foreign wine-making regions could lose out if import tariffs were introduced.
“It makes the playing field for English products such as wine more attractive versus imported products,” Francois Sonneville, senior beverages analyst at Rabobank and author of the report, told City PM
“What’s more, the devaluation of the pound has benefits today, but it might have more in two to four years time when new trade agreements have been established, as anything more than zero import tariffs will be favourable to British products.”
The UK's fairly open beer market is currently dominated by international production facilities both at home and abroad, although the vote to leave Europe could change brewers' business models from imported to licensed beer.
Read more: Craft beer prices threatened by hop shortages following heatwaves in Europe last summer
"In the craft segment, British craft brewers would also benefit from the pound's weakness," Rabobank said. However, in the longer term, import tariffs would also be a bane, as the transaction effect of devaluation of the pound is limited.
Most barley and malt, which make up a small proportion of the cost price, are sourced domestically, and although raw material for packaging is often imported, most added value is created in the UK.
Rabobank also warned that the £71bn Megabrew deal between Anheuser-Busch InBev and British drinks giant SABMiller could have been affected by the leave vote.
"The value of SABMiller in British pounds will have gone up, as a large part of the company's earnings are in foreign currencies. AB InBev could have benefited from the currency movement, but has hedged part of the purchase price. For the sellers of SAB, the depreciation of the British pound is bad news, as they could have hoped for a higher price today," Rabobank said.
Read more: Drink up: Brexit could threaten the UK wine industry's export markets
"The bid premium was, however, substantial, and sellers have the option to elect part payment in (restricted) ABI shares at a fixed ratio. In euros, ABI shares currently trade 20 percent higher than at the time of the bid."
Beverage industry players are likely to turn to shifting sourcing, M&A activity, shifting geography for production and moving their market focus.
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