UK’s overhaul of alcohol duties could hurt SA exports

‘Once wine exceeds 11.5% alcohol by volume, an incremental tax increase will be applied – and the sunnier the region, the more sugar the grapes produce, and the higher the alcohol level once it’s been fermented’: Maryna Calow from Wines of South Africa explains.

FIFI PETERS: New laws governing the taxes on wines that are exported to the UK are set to kick in about a year from now. The changes in the regulatory landscape come after the UK’s exit from the eurozone, or Brexit. The UK government believes the overhaul on alcohol duties is pretty simple, but the wine industry disagrees – and there are fears that the added cost of compliance with the new laws may make foreign wines a bit more expensive and competitive.

We do have Maryna Calow, the communications manager of Wines South Africa, for more on the story. Maryna, thanks so much for your time. What do South African wine producers and exporters think about these proposed – not even proposed – changes that are set to kick in in the UK, and what does this mean for our local industry?

MARYNA CALOW: Good evening, Fifi, and thanks for having me. I think there is some concern, rightly so, from South African producers about the impact that this new taxation will have on our wines and the popularity thereof in the UK. Basically what it means is that, once a wine is over 11.5% alcohol by volume or ABV, then there’s an incremental tax increase that is applied to the wine.

Now countries such as ourselves have warmer climates. That directly impacts on the alcohol levels that the wine makes. So the more sunny it is, the more sugar the grapes produce and therefore the higher the alcohol once it’s been fermented. Obviously this will then feed through to the consumer and the consumer, as we know, is very, very price-sensitive at the moment.

So there are really big concerns on our part and our other counterparts, such as Australia, for these changes.

FIFI PETERS: I see that wine really grew in popularity throughout this pandemic. I read a story to say it was one of the most, if not the most-consumed alcohol beverage in the UK. When you talk about price sensitivity of the consumer, I’m wondering whether the fact that it has become so popular means that consumers may still be willing to stick by their favourite wine, despite the fact that there might be an increase in price. Is that too simplistic a view?

MARYNA CALOW: ‘I hope you’re right’ is the short answer. In essence, I think certainly South African wine has grown in popularity. We saw a 20% increase in our exports by value to the UK specifically in 2021, along with the volume increase. If you think about it, we actually export 92 million litres of wine to that market; last year that was the figure. So it is a very big and a very important market for us. But I think the consumers are very familiar with South African wine, they enjoy South African wine and they really are starting to understand the value that a good South African wine has to offer. If anything, that is potentially what can carry us through.

We are hopeful that the consumer will see past this. The thinking is that perhaps the consumer who does enjoy a slightly heavier alcohol wine is going to understand that this increase is happening through the board, so we are not singled out in that instance. So I think this remains to be seen – the real impact of the price increases – and we remain hopeful that the consumer will see beyond this.

FIFI PETERS: Not to downplay the impact of this and the negative impact it could cause, I understand that, as you mentioned, with alcohol percentage it’s really dependent on how well the sun shines or not, and what impact this does to the alcohol percentage in a bottle of wine. So I’m just trying to understand the complexity of labelling for producers or exporters of wine. What kind of complexity does this introduce, and to what degree will this be an extra headache for producers?

MARYNA CALOW: Not really an extra headache whatsoever. From a labelling perspective we have to put our alcohol volume levels on the labels anyway. It is a prerequisite anywhere in the world, so that’s there already. And when you export your wine it forms part of the standard paperwork that we are already doing. The complex situation actually comes in in the UK when the wine is landed, and suddenly all of these difficult calculations need to be made. So it’s really extra red tape and extra paperwork at that end.

I think there are some importers in the UK that might be impacted by this. There are some who feel that the smaller importers will be harder hit by these increases in taxes. But I think when it comes to alcohol there is definitely a movement towards lighter-style alcohol wines. We’ve certainly seen a bit of a shift in terms of the wine that we produce here in South Africa from the big blockbuster 15% alcohol wines to a gentler 13.5%. But really to get below that is very, very difficult for us here in South Africa, and that’s where the real challenge comes in.

Then do you really want to alter the style of wine that you make that is true to what we do here in our beautiful country, in our beautiful winelands, just to circumvent a taxation issue? I don’t think we want to do that.

FIFI PETERS: Is the UK government open to any further conversations in this regard? South Africa I understand is not the only country that has amazing sunshine, which ultimately does affect the grapes and the alcohol volume; Australia is one as well. Given the fact that these laws come into effect in about a year’s time, is there any room for some alterations, just to make the transition a little smoother?

MARYNA CALOW: As far as I know, Rishi Sunak [the Chancellor of the Exchequer] is definitely not open for any discussion on this front. I actually saw an interview in which he was asked about this specifically, and it certainly sounds like his mind is made up and this is the way they’re going to go.

FIFI PETERS: Okay. All right. Maryna, we will leave it there. Thanks so much for giving us a bit of colour on that story. That was Maryna Calow, the communications manager of Wines of South Africa.

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