June 24, 2016 – Thursday’s stunning victory for supporters of the United Kingdom’s exit from the European Union means the one thing Scotch Whisky industry executives despise almost as much as tax increases – uncertainty. With long lead times for everything from new distillery construction to maturation of new spirit, industry leaders want as much stability as possible – and “Brexit” threatens to throw a giant monkey wrench into the works at a time when growth in Scotch Whisky exports has been hampered by existing global economic uncertainty.

Scotland's InchDairnie Distillery received European Union funding for its construction. Photo ©2016, Mark Gillespie/CaskStrength Media.

Scotland’s InchDairnie Distillery received European Union funding for its construction. Photo ©2016, Mark Gillespie/CaskStrength Media.

“We’ll have to wait and see now how that plays out,” said Scotch Whisky Association spokesman David Williamson Friday morning, describing the “Brexit” vote as a “seismic” political event. Prime Minister David Cameron’s resignation following the referendum adds political flux into the mix as well. Cameron is likely to be joined by Chancellor of the Exchequer George Osborne, who had warned before the election that a “Leave” victory would likely mean significant tax increases on spirits and other goods. Cameron’s successor will likely be the one to trigger Article 50 of the European Union bylaws and begin the process of withdrawing the United Kingdom from the EU in a process expected to take at least a minimum of two years.

Williamson said the SWA’s main priority will be to minimize the potential impact from “Brexit”, since EU member nations account for around a third of overall Scotch Whisky exports. The trade body’s primary goal is to maintain as much access as possible to the European single market, which acts as a free-trade zone with no tariffs on exports between member nations. The industry also benefits currently from the EU’s trade treaties with other countries and geographical protection status for Scotch Whisky, and Williamson said the SWA will seek to keep as much of that in place as possible. The association had cited all three factors in its support for the “Remain” campaign leading up to the election, and Diageo chief executive Ivan Menezes spoke out in favor of the campaign

Adding to the political flux: Scotland’s future. Scottish voters overwhelmingly supported the “Remain” campaign, and Scottish National Party leaders are criticizing the outcome. First Minister Nicola Sturgeon told reporters that the “Brexit” vote could lead to a second Scottish independence referendum. “Scotland voted to stay in the EU. It is democratically unacceptable to be taken out of the EU against our will,” Sturgeon said. In 2014, Scottish voters rejected an independence referendum, but a number of opinion polls since that election have shown growing support for a second vote. 

“We’ll take one referendum at a time,” Williamson said.

Scotch Whisky isn’t the only segment of the overall industry lamenting the vote. In Washington, the Distilled Spirits Council also expressed disappointment, noting that a trade treaty in place since 1994 allows duty-free exports of US-produced spirits to both the UK and the European Union. That treaty is one of many that will be affected by “Brexit”, and the trade group pledged to work with both the US and UK governments to ensure continued duty-free access to the UK market. According to Commerce Department statistics, the UK is the largest export market for American spirits with 2015 exports valued at $226.1 million. Approximately 86 percent of those exports are of American whiskies.

In addition, the US remains one of the two major export markets for Scotch Whisky.In terms of volume, the US is second only to France in Scotch Whisky exports. However, 2015 exports to the US were valued at £749 million, making the US the largest export market by value. To put the aftermath of the “Brexit” vote in comparison, that £749 million was worth $1,082,305,000 when the SWA released its report on May 17, based on that day’s exchange rate of $1.445 to the pound. When converted using Friday’s closing rate of $1.374 to the pound, the value of those exports drops to $1,029,440,000 – a decline of $52.8 million dollars.

Editor’s note: This story was updated with additional information. 

Links: Scotch Whisky Association