Triple trouble

Scotch is caught in the crossfire of a trade war that seems to be escalating rather than abating They say bad things come in threes, and with US tariffs, Covid and Brexit, the Scottish whisky industry doesn’t have its troubles to seek, says Blair Bowman

An ever changing vortex of difficult circumstances is pummelling the whisky industry in Scotland. Scotch whisky is the golden goose of UK exports – it accounts for 21% of all UK food and drink exports, bringing in £5.5 billion to the national coffers – but it is now being violently buffeted by a three-pronged attack from Covid, Trump and Brexit.

Speaking via Zoom, Karen Betts, the chief executive of the Scotch Whisky Association (SWA) recently told MPs at the Scottish Affairs Committee that ‘export sales of Scotch whisky were down by £190 million in the first three months of the year, a fall of 17%’.

This was partly because of a decline in sales in Asia due to the impact of Covid-19 at the start of 2020. ‘From April to June, it could mean a drop in sales of £500 million,’ said Betts. A loss of revenue on such a scale from just one quarter is a serious dent in Scotch whisky sales.

But there may be worse to come. Betts stressed that the long-term impact of the ongoing trade dispute between the EU and USA over Airbus and Boeing subsidies, which has resulted in a targeted attack on Scotch whisky, could in the long term produce an even more profound impact than Covid-19.

The war of trade tariffs between the USA and EU is hitting whisky hard, which seems unfair given that whisky has nothing to do with the original reason for the tariff being implemented.

Yet after the EU imposed a 25% tariff on American whiskey and bourbon being imported into the EU in July 2018, three months later Donald Trump responded with a tit-for-tat 25% import tariff on single malt whisky, scotch whisky and scotch whisky liqueurs being imported into the United States.

Scotch whisky remains caught in the crossfire of a trade war that seems to be escalating rather than abating. When the tariff first came into effect the SWA predicted that whisky exports to the USA could drop by around 20%, but Betts’ report to the Scottish Affairs Committee was apocalyptic: ‘Exports to the US were down 25% between October and March and there was a 47% decline in April,’ she said.

This is genuinely alarming. The United States has long been the biggest market for Scotch whisky, with Americans consuming £420m of single malt in 2018. Including blended whiskies, the total value of Scotch whisky exported to the US in 2018 was £1.04bn, which is leaps and bounds ahead of France, the second largest drinks exporter to the US with £442.1m.

The US imports an equivalent of four bottles of Scotch whisky per second, making up around 22% of global whisky exports by value. Nor is it just about liquid imports and exports – Scottish distillers import £70m worth of bourbon barrels for maturing whisky and about 60% of all casks imported for maturing come from the US.

After decades of ‘zero for zero’ Transatlantic tariffs, this has come as a real bodyblow to whisky and whiskey producers on both sides of the Pond. This unfair tariff is seriously affecting Scotch whisky producers.

To make matters worse the Office of the United States Trade Representative announced in June the possibility of an increase to the current 25% tariff on single malt whisky as well as adding other products, such as gin, to the tariff.

Around 70% of gin distilled in the UK is made in Scotland so this would have a serious impact, especially for smaller producers. The SWA is working hard behind the scenes to de-escalate this trade war situation but it is only compounded by the lack of on-trade sales in recent months due to Covid-19.

Finally, the ongoing uncertainty around Brexit and a looming no-deal scenario on 1 January 2021 – which raises the spectre of tariffs on exports to the EU – could further hammer Scotland’s drink sector. James Withers, of Scotland Food and Drink, told the Scottish Affairs Committee that ‘absolutely nothing has happened for the last four months on Brexit’ and that ‘Brexit was going to be a huge hurdle to be overcome, anyway, if we don’t get a tariff-free trading regime on the back of Covid, there’s no glossing it, it’s a huge concern.’

After years of growth, Scotland’s whisky industry has hit the buffers thanks to the triple whammy of Covid, Trump Tariffs and Brexit. With worries about over-production and the number of smaller distilleries which have taken on large debt to launch themselves, in a year’s time the ‘new normal’ for gin and whisky may look radically different from the previous status quo.

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