Tariffs stir unrest among American whisky producers
MUCH OF the rye whisky ageing in hundreds of barrels at Catoctin Creek Distillery in Virginia could end up being consumed in Europe, a market the nine-year-old distilling company has cultivated at considerable cost.
But an escalating trade dispute has the distillery’s cofounder and general manager, Scott Harris, worried those European sales could evaporate as tariffs drive up the price of his whisky in markets where consumers have plenty of spirits to choose from.
“If Europe dried up, then we’re sitting on inventory we didn’t need,” Harris said by phone. “And that’s a really tough position to be in.”
What American whisky makers have dreaded is becoming reality. The European Union started taxing a range of US imports on Friday, including Harley-Davidson bikes, cranberries, peanut butter, playing cards and whisky. The EU is responding to the US decision to slap tariffs on European steel and aluminium.
Foreign markets have become lucrative for American whisky makers. Export revenues for bourbon, Tennessee whisky and rye whisky products topped US$1 billion in 2017, continuing a strong trend in recent years, according to the Distilled Spirits Council.
Four of the five top growth markets by dollar value for American distilled spirits were in Europe – the United Kingdom, Germany, France and Spain. Total US spirits exported to the EU in 2017 were valued at US$789 million, the distilled spirits trade group said.
American whisky has also been targeted by other countries embroiled in trade tensions with the United States, including China, Canada and Mexico.
In Germany, some whisky retailers predict consumers will probably refrain from buying expensive American whisky and go for cheaper alternatives once the tax is added to US spirits. Volker Rickmann, from the Tabac & Whisky Center in Berlin, predicted his customers would buy Canadian and Irish whiskys once US spirits prices rise. At the Staendige Vertretung bar, supervisor Rowena Strehlow showed a near-empty bottle of imported Wild Turkey Bourbon.
“Germans only order expensive drinks for special occasions,” she said. “Once the prices rise, they will simply drink something else.”
In a recent letter to US Commerce Secretary Wilbur Ross, the Distilled Spirits Council said: “The imposition of tariffs on these products by our major trading partners threatens to seriously impede the export progress that has benefited our sector and created jobs across the country.”
European markets – led by Germany, Italy and the UK – represent about 25 per cent of Catoctin Creek’s overall business, Harris said. The distiller, which makes rye, gin and other spirits, has invested close to US$100,000 in recent years to build its European business, he said. It developed special bottles and labels, built distribution networks and promoted its products.
“We’re continuing on right now, hoping that it will blow over,” Harris said. “But I am not a big fan of these trade tariffs. I think they are ill-thought through. I’ve had certain people say, ‘Well, this would be our
patriotic duty to take it on the chin so that we can normalise the playing field out there.’ But I come from a free-trade background. Let us compete freely, fairly in these markets and our products ... will do well.”
Some of his inventory could be sold in the US if European sales decline, Harris said. But expanding market share in the ultracompetitive US market is tough for a small distiller.
Industry giant Brown-Forman Corp, whose brands include Jack Daniel’s Tennessee Whiskey and Woodford Reserve, tried to hedge against tariff-related price increases by stockpiling inventories overseas. About one-fourth of its revenues are generated in Europe.
Beam Suntory, whose brands include Jim Beam and Maker’s Mark, has “contingency plans in place”, said company spokeswoman Emily York.
But small and mid-sized distilleries often don’t have the luxury to stockpile supplies.
“That’s just not an option. We don’t have that kind of capital,” said Amir Peay, owner of the Lexington, Kentucky-based James E. Pepper Distillery, whose signature bourbon and rye brand is James E. Pepper 1776.
The industry is known for its patience, since whisky takes years to mature. Harris wants to take the long view. But he sees little reason for optimism on the trade front.
“I think we’re digging in deeper with China, we’re digging in deeper with Europe,” he said. “Unless something miraculous happens, I don’t have a lot of hope right now.”