Costs spiralling from cask to glass

We often imagine the Scotch whisky industry is the nearest thing to a licence to print money. But two recent visits to distilleries have reminded me just how expensive whisky production is, how many costs affect the industry’s daily operations – and how recent events will hit the industry hard.

Incidentally, the high retail price we pay for Scotch is not down to production or bottling costs but to excise duty and VAT and, in Scotland, the minimum pricing policy – which, trumpeted by Holyrood as a sure-fire way of cutting Scots’ consumption of alcohol, has on balance had minimal effect.

So what are the main day-to-day costs of producing whisky, or rather new spirit? The obvious answers are malted barley, yeast, fuel for the boilers, electricity and staff wages. Plus transport of everything to and from the distillery and, of course, casks. Prices for several of these will rise steeply in the coming months, mainly due to the war in Ukraine.

Ukraine is a big barley exporter and although most distilleries buy Scots or

UK barley, world prices will soar and so will UK prices. With distillery boilers all either fired by gas or oil, fuel costs will also spiral. And as 99% of whiskyrelated transport is by HGVs, amid an acute global shortage of Russian-supplied diesel, Scotch whisky and countless other industries face a very difficult period.

Fuel cost rises will also affect malt, which needs prolonged hot-air drying, and transporting casks. These are already in tight supply, thanks to rising global demand, so distillers are looking ever further afield for them and paying more to buy and ship them.

Some production costs, especially water, tend to be overlooked, but distilleries are huge water users, tapping into streams, rivers, artesian wells, aquifers and mains supply to ensure adequate provision. Often, that water needs de-mineralising, whether by electrodialysis, membrane filtration or other techniques – none cheap.

And rising wastewater standards have long stopped pot ale, used yeast, spent lees and other liquid waste being hosed down the drains. Increasingly, it is tankered away for treatment or disposal. It all adds to the bills.

Daily production costs aside, distilleries require vast capital investment.

But that’s for another day.

PRESSURE: The price of barley is set to soar worldwide due to the war in Ukraine.