The vote on 23 June 2016 in favour of the UK leaving the EU took many politicians and media representatives by surprise. The polls showed a clear lead for Remain supporters (no exit) for many months. However, the Leave camp (in favour of leaving) gained support. We were surprised that it was enough in favour of leaving in the end. We assumed that the result would be close, as in the Scottish referendum in autumn 2014. We never believed in a Brexit!
What impact will Brexit have on the price?
Leaving a community always means an increase in uncertainty. However, as with a broken marriage, sometimes the chances of breaking up seem greater than the disadvantages. You only ever know whether this is really the case afterwards. And that is precisely what makes it so uncertain.
The financial markets reacted immediately. While the pound had been getting stronger and stronger since 2013, making our whisky more expensive, the pound plummeted after the result was announced. But it wasn't as bad as the press made it out to be. It is still moving at exchange rates against the euro that we last saw in 2013. Falling exchange rates always mean a hindrance to imports. This makes it more expensive for the UK to buy goods from abroad. In return, exported goods, such as our whisky, become cheaper in the target markets. You can export on better terms. A falling pound should help British exports considerably.
Customs problems and trade barriers
Now comes the big question of tariffs. Will the EU impose tariffs, especially on Scotch whisky? It's a legitimate question, because quite a lot of people in Brussels are angry and will probably want to make an example of it. But when a country has a tariff 'imposed' on it by a trading partner, it is a double-edged sword. This is because the disadvantaged country will in turn levy import duties on the imported goods.
And at this point it is worth taking a look at the European trade balances. And here we have seen a negative balance in the UK for over a decade. It currently stands at -150 billion euros. And the most important export country in the EU is Germany with a surplus of 250 billion euros. The UK imports goods worth 90 billion, primarily from Germany, followed by the Netherlands, France, Belgium and Italy. The UK would also impose tariffs on these. And that hurts the EU more than the UK, as the UK's trade balance is negative. The likelihood of tariffs on our whisky is therefore small.
A figure of EUR 550 per hectolitre (1 hl = 100 litres) of pure alcohol as excise duty in the EU can be found in the literature. This has nothing to do with customs duties. This is a value for the member states as to how high the minimum excise duty should be in a country. Germany is at EUR 1,303 per hectolitre of pure alcohol. Whisky is delivered to each country exempt from domestic excise duty. Only there does each country add its own excise duty to the whisky. As this excise duty is levied by the customs authorities, there are often misunderstandings here.
New trade agreements
As a result, the EU negotiated the withdrawal with the UK in the following years and concluded corresponding trade agreements.
There are several examples. Norway is part of the European Economic Area EEA (EEA). In contrast, there are a number of bilateral agreements with Switzerland. Canada has negotiated the CETA agreement with the EU and Turkey and the EU are in a customs union in which no customs duties are levied. What all these agreements have in common is a far-reaching reduction or avoidance of customs duties in order to promote trade. And these will also apply to our whisky. After all, whisky is one of Britain's biggest exports after oil. But even if customs duties were levied. On average, these are between 2.5-3.5% for imports into the EU. Nothing that could not be compensated for by a weaker pound sterling exchange rate.
Initially, import prices for whisky fell as the pound fell and the UK was still in the EU. However, the difference did not affect our whisky price. As the majority of goods are only moved between subsidiaries of groups, their internal fixed exchange rate comes into play. This is an important internal financial parameter. They don't like to change it because it would make automatic internal invoicing much more complicated. Typically, this exchange rate is only adjusted annually. This means that nothing happens to our whisky prices within a year.
Our tip on whisky and Brexit
However, cautious people should stock up on whisky very soon. Change always means risk. Customers willing to take risks, on the other hand, can wait a little longer, as a further fall in the exchange rate offers the opportunity for price reductions.
Conclusion
We are not very worried about Brexit. People in the UK are just as friendly and open-minded as people in Germany. And people like that always come together to trade. Because trade is the only way to create prosperity. And on this basis, we can enjoy the fruits of each other's labour. For us, that's whisky!
Supplement autumn 2023
Brexit finally took place on 31 January 2021. However, the major irritations caused by changes to trade processes did not materialise. Nevertheless, there were delivery delays of several weeks. As this was all known, we at Whisky.de were able to fill our warehouses with a safety buffer in advance. The importers and distributors did exactly the same, so that the feared 'major supply crisis' did not materialise.
However, some bottles were in short supply and the increasing bureaucracy caused additional costs that had to be passed on to prices. 2021 was also the year in which food inflation rose significantly to around 5%. However, this had less to do with Brexit than with the rise in energy prices. In 2022 and 2023, food inflation continued to rise to levels between 15% and 20% per year. Fortunately, this development has only partially affected our whisky. There are still high-quality whiskies whose prices have changed little or not at all compared to 30 years ago.
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