Relief at the announcement of a last-minute Brexit trade deal on Dec. 24, 2020 has proved short-lived for the U.K. brewing industry. The overnight change in laws has added mountains of paperwork—and, in some cases, hundreds of pounds in new costs on shipments—to an industry still dealing with the financial fallout of COVID-19.
The new trade deal between the U.K. and EU, which was signed less than a week before it came into force, leaves no part of the brewing supply chain untouched. Since the new laws came into effect on Jan. 1, malt and hop suppliers, breweries, and distributors have reported missing beer pallets, delayed shipments and canceled orders. All this comes despite an increase in transport costs—one hop supplier says shipment fees jumped 400%—that are squeezing already-strained profit margins.
The problems all result from one major issue: red tape. Pre-Brexit, as part of the EU’s single market, sending supplies and products to continental Europe as part of a free-trade agreement was simple, involving little more than booking transport and attaching a declaration to the shipment. The new trade rules now require more detailed paperwork from importers and exporters, as well as logistics companies. Most notably, every single line item in every shipment must be detailed—right down to each bottle in a mixed case—and every variety of hop or malt. This results in extra time and cost for every shipment made, as well as delays at the border.
Although the U.K. voted to leave the EU in 2016, the fact that it was given just one week following the December trade deal to prepare for Brexit has left British industries in dire straits. The beer industry in particular has seen a perfect storm of damaging scenarios play out. On top of Brexit delays and costs, COVID-19 is severely suppressing beer sales, there’s the annual slump in volumes during “Dry January,” and preparations for an increase in taxes for small breweries has begun.
The government has claimed delays and other issues will be resolved in the longer-term and that it would “redouble its efforts” to streamline paperwork and communications, but it could already be too late for some. In 2020, for the first time in over a decade, more breweries closed than opened—and both the Campaign for Real Ale (CAMRA) and the Society for Independent Brewers (SIBA) have warned that without further support, that downward trend is going to accelerate.
Martyn Railton, founder of speciality beer importer Euroboozer, brings Mikkeller, To Øl, and Stiegl to the U.K. He says his logistics costs went up by £400 (around 20%) per shipment overnight following Brexit, on top of around £2.50 in fees for each individual product he brings over. On a container of mixed pallets from Mikkeller, that could mean another £100 or more.
Agreeing on a fee with the logistics company is one thing—finding a driver willing to deal with the new customs procedures and related delays at U.K. ports is another. Railton has also been forced to pay extra money to convince drivers to take U.K. shipments over simpler, quicker, and more profitable journeys within the EU.
“There’s an additional cost for the drivers because they don’t want to touch the U.K. with a barge pole,” Railton says.
He expects those costs to come down once the systems are bedded in and COVID-19 restrictions are reduced, but has received no firm indication of when that will be. He is still preparing for at least a 5% rise in transport costs long-term, in addition to the paperwork fees.
Rising logistics costs will also apply to the return of all metal kegs, meaning these additional expenses hit twice—once on beer coming into the country, and once on kegs going back out. Despite this, Railton says none of the breweries he works with intend to stop exporting to the U.K. or to reduce the number or range of products they send. He says the U.K. is still attractive to European breweries, which want their beer seen in a “respected” market.
Railton says he will swallow the additional costs while things shake out. However, the logical conclusion is that the price of imported beer will have to rise at some point soon—the question is how much of that 5% will be passed on to consumers, and how that will affect demand.
As a dedicated importer, Railton has little room to maneuver, but many other companies have been forced to change their business models entirely. Most online beer shops in the EU have ceased sending beer out of or into the U.K. due to the cost and burden of having to declare each product. Popular websites, including Omnipollo’s webshop and Beers of Belgium, have suspended U.K. deliveries, potentially forever, while the Mikkeller Webshop has raised its shipping rates to the U.K. from around £10 to £30. With the fate of international beer festivals still in the balance this year, the niche culture at the center of the beer industry—responsible for much of its creativity and spread of new ideas—is being strangled.
Brexit is exerting new pressure on wholesale exports, too. Around one-third of the U.K.’s breweries sent beer to the EU in 2020, but the additional costs and experiences of those who have tried to do so since the transition period ended may soon hamper that trade.
ORA Brewing is based in London but owned by three Italians. Around 40% of its beer is exported to Italy, equating to around £60,000 of the brewery’s £150,000 turnover. Before Brexit, co-founder Daniele Costa Zaccarelli says he could simply use a courier to send consumer and wholesale orders to EU customers in a matter of days. His couriers, DHL and DPD, assured him this could continue after Brexit, but both immediately stopped shipping alcohol when the new laws came into effect. Reluctant to give up any margin to local distributors, he tried three different couriers to get shipments through with no success. A fourth is currently attempting a delivery, but nearly a month in and no beer has yet made it to the continent. Zaccarelli says even the government isn’t sure why his parcels aren’t getting through.
“I spent three days on the phone to [Her Majesty’s Revenue & Customs],” he says. “The system kept going down, the login credentials didn’t work, and they gave me several different phone numbers and people to talk to. It sounds like they don’t have a clue how it works now either.”
A further complication for breweries looking to export is that the EU requires all exporters to publish on each can or bottle an address within the EU for complaints and queries about products. That means a company now needs a business address within the EU, or for its importers to take on this role—something they are unlikely to do for free. It also means redesigning every bottle, can, and keg that could be destined for the EU, and potentially having different designs for domestic and exported batches.
The likelihood of that being necessary will increase if the U.K. deviates from the EU’s food labeling rules after an agreed-upon grace period ends in October 2022. While no new rules have been announced yet, there are areas of concern. For example, lactose is an animal product and if used in a Milk Stout, for instance, it’s unclear if that beer would then fall under different importing and labeling rules versus beers with only agricultural ingredients. It’s hoped it will be considered an exception as a “composite” product.
Despite the fact—or perhaps because—Northern Ireland was caught in the middle during many of these negotiations, it has escaped as the region least affected by recent and potential rule changes. It can still operate under the old EU trading rules, while also having open trade with the mainland U.K. Willy Mayne, founder of Bullhouse Brew Co. in Belfast, says Brexit might even present an opportunity for Northern Irish brewers.
“We were really worried before,” he says. “But we’ve spoken to Irish distributors who are struggling to get English beer in and we hope we can fill that gap there and maybe even places like Spain, too.”
The scale of this opportunity for the 30 small brewers of Northern Ireland is big. Their local market is hugely restricted by the domination of macro breweries, tied pubs, and licensing laws that prevent them from selling beer directly to consumers. Greater demand from the Republic of Ireland could make finding growth much easier.
For some brewers, though, the issues start much higher up the chain. Reece Hugill, founder of Hartlepool’s Donzoko Brewing Company, was recently told by his supplier that the company will stop selling the malts he uses for his core beer, Northern Helles, and all his Lagers.
Hugill says he has enough malt to last until April, and is using the intervening time to try to source it elsewhere. However, his German malt producer does not intend to sell directly to U.K. customers because of the new red tape and associated costs. (Hugill declined to name the malt producer because he does not want them taking any blame for the U.K.’s border and trade issues.)
Hugill has spent four years dialing in his recipes, including creating his own lactic acid culture and sourcing hops from specific farmers and fields in Bavaria. Despite being a young company and producing just 700 hectoliters (600 U.S. barrels) per year, the brewery’s Northern Helles is rated in the top-10 for Lagers in the U.K. Hugill says his malt is vital to the character of his beers.
“I could switch maltster, but that’s not really what I’m about,” he says. “I need the same ingredients if I’m going to keep making the same beer.”
Most ingredient suppliers seem to be scrambling to adapt. John Willetts, director of Barth Haas’ U.K.-based subsidiary Simply Hops, spent a year preparing for trade talks to fail. Until this year, all his American and Australian hops were delivered to and distributed from his U.K. warehouse. Brexit has made that impossible, because hops from outside the EU must be imported directly from their place of origin. To get around this, Willetts built a warehouse in Germany to receive those hops and send them to the U.K. In doing so, he has kept American hops—which represent 70% of his sales—flowing throughout Europe. However, with Northern Ireland technically still part of the single market, he now has to supply Northern Irish brewers from that European warehouse—thousands of miles further away than his U.K. one.
“The problem is that the rules changed about 48 hours before they came into force,” he says. “This is fixable, but it can’t happen overnight.”
That journey is significantly more expensive, but it’s not the biggest new cost Simply Hops faces. Willetts says he has seen container transport prices rise from around £1,600 to as much as £10,000 per shipment, and with all hops now coming into the EU first, he has additional miles to cover for U.K. brewers.
“Instead of the U.K. warehouse being one of the main points of distribution, it’s now just a delivery point,” he says.
The extra costs don’t stop there. Willetts must now pay value-added tax (VAT) on all new processing equipment bought from the EU. With no U.K. manufacturer making such equipment, that means an unavoidable 20% price increase. He also says the cost of installing new cold storage at his warehouses has risen because demand has rocketed as U.K. food distributors stockpile to avoid supply issues.
Even with these additional costs and a new distribution hub, Willetts says that his businesses’ ability to cater to the needs of brewers has been diminished by Brexit, especially in the wake of COVID-19.
“The main thing our small brewers need right now is flexibility,” says Willetts. “But where Brexit is going to affect hop supply is in spot purchases and suppliers’ ability to be flexible with contracts.”
Willetts says that in 2020 he was able to help breweries that over-estimated volumes and over-contracted on hops by re-allocating those stocks to breweries around Europe. The new rules around product origin, however, mean that once hops are in the U.K. they have to remain there, and he can’t re-allocate them to EU breweries. This creates a stock allocation issue for him, and a greater financial risk for breweries. “No one gains anything from this,” he says.
Simpsons Malt vice chairman Richard Simpson agrees. In 2019 he set up an internal committee to look into the impact of Brexit on his business and how to prepare for it, but was still caught off-guard. He feels relief that earlier fears of tariffs and a flood of cheaper rival ingredients didn’t come to pass, but Simpson says he has seen the same rise in logistics costs as breweries, and has had to redesign his IT systems to fit the government’s—all of which has led to delays in orders going to the continent.
The result of new Brexit rules has been great frustration throughout the industry. It’s clear that having just a week between the new policies being announced (Dec. 24) and coming into force (Jan. 1) has caused chaos—effectively making a year-long transition period redundant. There are concerns that the amount of paperwork and related costs could reduce the diversity of beer coming in and going out of the U.K., as well as hamper the flow and availability of speciality ingredients for British breweries. All these factors could hurt a brewing and pub industry increasingly predicated on offering unique and exciting new experiences to drinkers.
That said, having a trade deal is still preferable to the no-deal scenario which seemed likely up until just over a month ago. Avoiding that worst-case situation has prevented a further fall in the value of the pound (currency fluctuations caused serious financial issues and funding gaps just after the Brexit referendum in 2016). Several industry professionals expressed to GBH that they expect these issues to improve once they are used to the new system and COVID-19 restrictions start to lift.
What is most concerning is the timing. Brexit could not have come at a worse moment for the industry, and is squeezing profit margins when sales of beer are already at historic lows. The U.K. was put into a third national lockdown on Jan. 4, and pubs are expected to remain fully closed until March at the earliest.
As Hugill puts it: “COVID meant we were having enough issues selling things. We didn’t need issues buying things as well.”
Words by Jonny Garrett