Britain’s overhaul of alcohol tax will ‘wipe out FTA gains’ for Australian wine exporters

The country’s largest winemaker says a proposed overhaul of British alcohol taxes will all but ‘wipe out’ the benefit of the new free trade agreement.

According to the latest figures from Wine Australia, exports to Britain hit $460m in the year to September 30, up 7 per cent.

The country’s largest winemakers says a proposed overhaul of British alcohol taxes will all but “wipe out” the benefit of the new free trade agreement and “significantly impact” local producers.

The change – which is expected to leave Australian red wines, which have an alcohol content of more than 11.5 per cent, worse off – will swamp the $50m benefit from the FTA with $150m in new costs, a spokeswoman for ASX-listed Treasury Wine Estates said.

The proposal would “diminish future growth prospects in the largest export market for Australian wine growers,” she said.

The warning from Treasury is significant, and the company has been reticent to wade into a looming stoush between the industry and the British government.

The company produces some of the highest-profile Australian wine brands, including Penfolds, Wolf Blass and Lindeman’s.

Treasury’s view is shared by Craig Garvin, chief executive of ASX-listed Australian Vintage, who said the change “means our wines will go up in price, which will make us less competitive in the UK market”. It would “essentially cancel out the benefits of the newly signed FTA”, he said.

Australian Vintage’s portfolio includes McGuigan Wines, Tempus Two and Nepenthe.

On Thursday, The Australian reported that British foreign secretary Liz Truss, who is in Australia for defence discussions, had hit back at criticisms of the proposal and declared that domestic tax ­arrangements were a matter for the UK.

Britain, the largest importer of Australian wine, is proposing to replace a complicated excise duty system with new rules based on the amount of alcohol in each drink. Any beverage with an ­alcohol by volume level above 11.5 per cent would pay more tax.

“We retain our sovereignty over our taxes,” Ms Truss told The Australian this week.

“And one of the reasons that the UK left the (EU) is that we didn’t have sovereignty over decisions on things like taxes.”

British foreign secretary Liz Truss. Picture: Annabel Moeller

Under the newly signed FTA, tariffs on wine will be cut by 20p a bottle – but the sector expects the increase in costs from the new alcohol duty to lift the cost of wines by £70m ($131m).

“The proposed new alcohol duty system in the UK will significantly impact the Australian wine industry,” a TWE spokeswoman said on Thursday.

“UK retailers have indicated that the proposal is complex and difficult to implement given wine alcohol volumes are dependent on each year’s unique vintage and this will create significant wine distribution challenges in the UK … As one of the world’s leading premium winemakers, TWE is disappointed that our business and other Australian wine brands won’t be able to benefit from the (FTA).”

According to the latest figures from Wine Australia, exports to Britain hit $460m in the year to September 30, up 7 per cent.

That compared to $482m to China (including Hong Kong), which fell 62 per cent in the ­period. Australian wine is seen as a lower-cost product in Britain, with its easy access to premium French and Italian regions.

In a paper for the Adam Smith Institute in London, polling conducted by CT Group found that Australian wine was the most popular selection among people in Britain when asked what product they would buy if it was stocked more frequently. Some 57 per cent of those surveyed said they would buy more Australian wine, compared with 52 per cent who said they would buy more beef, and 50 per cent who would buy lamb.

TWE does not break out specific sales figures for Britain but has in recent investment updates noted growth in its Europe, Middle East and Africa business division has come from an increase in premium sales in the UK.

TWE shares fell 6c on Thursday at $11.52, but have climbed 24 per cent over the past year. Australian Vintage shares fell 1c to 78c.

While TWE’s export business is exposed to the UK, the sector is concerned about the outsized impact the tax change will have on smaller producers that cannot ­diversify their exports as easily.

According to industry lobby Australian Grape and Wine, 700 local producers export to the UK.

The British government is consulting with the industry and health experts on the new tax.

In a paper released in October, winemakers told the government they were “worried that this would interfere with business decision-making, as for practical and regulatory reasons wine makers were limited in their ability to regulate the alcohol content of their products”. One said: “The final alcohol content of wine is largely dictated by grape sugar content, which is dependent on the hours of sun received when growing and cannot be controlled exactly. This makes it impossible for wine makers to hit a consistent (alcohol level).”

“While public health groups, economists and some industry members (predominantly distillers) argued alcohol should be taxed solely according to ethanol content, other industry members felt the duty system should take into account the specific characteristics of different products,” the consultation paper reads.

“Public health groups strongly advocated for the duty system to incentivise reformulation of products (and) made the point that high-risk drinkers would be more likely to switch to low alcohol alternatives than to stop drinking altogether.”