It has been announced that the U.K. has finally secured an extremely important trade deal with Australia: the removal of a tariff on U.K. goods, which will be important in enhancing trade between the Commonwealth nations. The impact that this will have post-Brexit on the U.K. economy is likely to be extremely positive, allowing exports to be traded more freely. This news has been anticipated for many months and looks to encourage global markets of commodities that are sold between the two nations. This deal will likely cause a cascade effect for other nations, allowing more free trade from the U.K. to alternative markets and vice versa.
As with any trade deal, it is extremely important to consider how this will impact exports from the U.K., as well as the general economy. While Brexit may have impacted exports between the U.K. and Europe, allowing freer trade across the world could increase the movement of exports of commodities from the U.K.
Whisky will likely be one such greatly impacted commodity. Data from the Scotch Whisky Association showed that exports of Scotch whisky were worth £4.9bn in 2019, which is 75% of the total Scottish food and drink exports. The removal of a 5% tariff on Scotch whisky will encourage greater exports of whisky from Scotland, with reduced tariffs allowing higher prices to be achieved across commodities. It will therefore mean that British products like Scotch whisky, cars and biscuits will be sold to Australia at lower prices, improving the trade relationship.
In Australia, we will likely see a gradual shift in purchasing demands back to Scotch whisky over other national whiskies. Scottish whisky distilleries will therefore be looking to enhance production once again to meet these increased demands. With the export market mainly driven by supply and demand, increasing purchasing demand would mean that export prices will have the ability to rise again, positively impacting investment power in unison.
Now that this trade deal has been achieved, it will be up to whisky distilleries to ensure they are prepared for changing times ahead. While many distilleries felt the impact of having to close their doors during the global pandemic in order to protect their staff, slow production over this period means that whisky distilled in the previous few years will be in higher demand, especially as it is matured in casks. With access to cash flow through the sale of whisky and visitors to the sites, the distilleries have the ability to invest more in production, which has a positive impact on future production.
As trade to new markets increases, the distilleries should be able to meet the demand while also being able to store whiskies to allow them to mature and develop their flavor profile. It is also important that distilleries continue to establish highly collectible casks of whisky, of which production is limited, as well as maintain their older malts to ensure demand doesn’t overwhelm production and maturation of investable whisky.
To dissipate the impact of Brexit, expect the U.K. to establish more trade deals with non-E.U. states. Although it is relatively unknown how the aftermath of the global pandemic will impact trade, it is extremely important, for the sake of industries throughout the U.K., that international trade is continually encouraged. Market predictions in the whisky industry are optimistic, with returns of between 12%-20% expected to be achievable in the coming years.