Tar­iffs put whiskey on the rocks

Amer­i­can ex­ports hurt by trade war in last half of 2018

Baltimore Sun Sunday - - MARYLAND - By Bruce Schreiner

LOUISVILLE, Ky. — Re­tal­ia­tory tar­iffs caused a sharp down­turn in Amer­i­can whiskey ex­ports in the last half of 2018 as dis­tillers started feel­ing the pain from global trade dis­putes, an in­dus­try trade group has an­nounced.

Ex­ports to some key over­seas mar­kets gy­rated wildly last year for pro­duc­ers of bour­bon, Ten­nessee whiskey and rye whiskey. Over­all, U.S. spir­its ex­ports in 2018 stayed on an­other record-set­ting tra­jec­tory, due in part to surg­ing whiskey sales in the months lead­ing up to the tar­iffs as larger dis­tillers stock­piled sup­plies, the Distilled Spir­its Coun­cil said. Other cat­e­gories in­clud­ing vodka, brandy and rum also had strong over­seas sales.

But ex­ports would have been much higher with­out the trade war, it said.

“For the first time, data can demon­strate the neg­a­tive im­pact of re­tal­ia­tory tar­iffs on what had been a boom­ing ex­port growth story,” said Chris­tine LoCas­cio, the coun­cil’s se­nior vice pres­i­dent for in­ter­na­tional af­fairs.

“The tar­iffs are mak­ing it more dif­fi­cult to be com­pet­i­tive in key mar­kets,” she added.

The ex­port fig­ures con­firmed fears among in­dus­try lead­ers that tar­iffs would de­press over­seas sales. But whiskey in­dus­try of­fi­cials have been muted in blam­ing Pres­i­dent Don­ald Trump and oth­ers for the ex­port headaches.

Amer­i­can whiskey ex­ports to the Euro­pean Union — the in­dus­try’s big­gest ex­port mar­ket — fell by 8.7 per­cent from July through Novem­ber of last year, com­pared to the same pe­riod in 2017, the group said in its an­nual re­port re­leased in New York.

In the first half of 2018, Amer­i­can whiskey ex­ports to the EU surged by 33 per­cent, it said.

Over­all global Amer­i­can whiskey ex­ports grew by 28 per­cent in the first half of 2018, then fell by 8.2 per­cent from July to Novem­ber — com­pared to a year ear­lier — once tar­iffs took ef­fect, ac­cord­ing to the trade group’s ex­port fig­ures, based on num­bers sup­plied by the U.S. govern­ment.

“That sug­gests that the tar­iffs are start­ing to have a mea­sur­able im­pact on Amer­i­can whiskey ex­ports,” LoCas­cio said.

De­spite the volatil­ity, ex­ports for all U.S. spir­its recorded an­other record at al­most $1.7 bil­lion through Novem­ber, the coun­cil said.

“It would have been a lot stronger if we hadn’t had these tar­iffs” said coun­cil spokesman Frank Cole­man. “If not for the tar­iffs, we would have been pop­ping the corks on the best bot­tles in our liquor cabi­net.”

Amer­i­can whiskey mak­ers face re­tal­ia­tory tar­iffs in Canada, Mex­ico, China and Turkey as well as the EU. Those du­ties amount to a tax, which pro­duc­ers can ei­ther pass along to cus­tomers through higher prices or ab­sorb, shrink­ing prof­its.

Some large Amer­i­can dis­tillers gained a short­term cush­ion from trade dis­putes by stock­pil­ing whiskey sup­plies in coun­tries ahead of the tar­iffs. But as the trade dis­putes con­tinue, they are be­ing hit, too. Smaller dis­tillers didn’t have the lux­ury of stock­pil­ing.

Ca­toctin Creek Dis­tillery in Vir­ginia has a cou­ple hun­dred cases of its rye whiskey sit­ting in a Euro­pean ware­house. The in­ven­tory was built up in an­tic­i­pa­tion of grow­ing Euro­pean sales in 2018. But since the tar­iffs took ef­fect, Ca­toctin Creek’s sales in Italy and Ger­many have plunged and its plans of ex­pand­ing to the United Kingdom are on hold, said its co-founder Scott Har­ris.

About 11 per­cent of its over­all 2017 rev­enue came from Europe. The dis­tillery hoped its Euro­pean business would in­crease to one­fourth of to­tal rev­enue in 2018, but “that part just never ma­te­ri­al­ized,” Har­ris said in an in­ter­view.

“If we were able to get the tar­iffs re­moved, I think we’d be in good shape to re­ally just take off,” he said.

For now, Ca­toctin Creek is absorbing the costs of tar­iffs for the scaled-back Euro­pean sales it’s able to make in hopes of main­tain­ing re­la­tion­ships with dis­trib­u­tors and stay­ing com­pet­i­tive, Har­ris said.

“For Euro­pean sales, it means we’re los­ing money on ev­ery bot­tle,” he said.

Asked how long his dis­tillery can af­ford to do that, he replied: “I don’t even want to think about it. We might do it for an­other half of year and see.”

While ex­ports were a glar­ing con­cern, do­mes­tic sales of distilled spir­its were strong in 2018.

The coun­cil re­ported an­other year of record spir­its sales and vol­umes in the U.S., re­sult­ing in con­tin­ued mar­ket share growth. Sup­plier sales were up over 5.1 per­cent, ris­ing $1.3 bil­lion to a to­tal of $27.5 bil­lion, while vol­umes rose 2.2 per­cent to 231 mil­lion cases, it said.

“These ro­bust re­sults show adult con­sumers are con­tin­u­ing to fa­vor spir­its over beer and wine, par­tic­u­larly among mil­len­ni­als,” coun­cil Pres­i­dent and CEO Chris Swonger said.

Com­bined U.S. rev­enue for bour­bon, Ten­nessee whiskey and rye whiskey rose 6.6 per­cent, or $224 mil­lion, to $3.6 bil­lion in 2018, coun­cil said. Do­mes­tic vol­umes rose 5.9 per­cent to 24.5 mil­lion cases.


Ca­toctin Creek Dis­tillery is absorbing the costs of tar­iffs for its scaled-back Euro­pean sales as U.S. whiskey ex­ports fell by 8.2 per­cent in 2018’s last half.

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