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“Star Trek” Economics & Whisky Prices in a Post-Tariff World

Commentary by Mark Gillespie

March 6, 2021 – After the United States reached tentative truces with Great Britain and the European Union this week and suspended its “whisky tariffs,” I started getting questions like this on social media:

“How long before we see whisky prices fall now that the tariffs are gone?”

Before I answer that question, let’s explain just what happened this week. The Biden Administration is still waiting for Senate confirmation of Katherine Tai, President Biden’s nominee to become U.S. Trade Representative. A vote is expected this coming week now that the Senate has completed work on a $1.9 trillion Covid-19 economic relief package. While there is no Senate-confirmed diplomatic in charge of U.S. trade policy, permanent staff in the Office of the U.S. Trade Representative have been working with acting leadership on key trade issues, including the aerospace subsidies dispute pitting the U.S. against Great Britain and the European Union that led to the “whisky tariffs.”

The agreements announced this week only suspend for four months the tariffs both sides imposed on each other’s exports following World Trade Organization rulings that both sides illegally subsidized aircraft makers, with the EU (including Great Britain) helping Airbus and the U.S. backing Boeing. Those rulings allowed each side to impose tariffs on goods equivalent to the amount of economic damage caused by the subsidies. In October of 2019, the U.S. chose to levy a 25% tariff on imports of single malt whiskies from Scotland and Northern Ireland, along with other luxury goods from European Union member nations. Last year, Europe (including Great Britain pre-Brexit) imposed its own tariffs on U.S. made spirits and other goods.

This is a different dispute than the one over steel and aluminum in 2017 and 2018 when the Trump Administration slapped tariffs on those imports on “national security” grounds, which led to the EU’s 25% tariff on Bourbon and other American whiskies in June 2018. That tariff remains in effect, and is scheduled to double to 50% in June unless an agreement is reached on steel and aluminum imports.

Now, I know what you’re thinking…

“Mark, you mentioned “Star Trek” in the headline. How does Star Trek figure into all of this, or were you just playing the “clickbait” game?”

Dear reader…I would never toy with you like that!

Quark owned a bar in "Star Trek: Deep Space Nine" and certainly would never have lowered his whisky prices after the end of tariffs. Image courtesy StarTrek.com.

Quark owned a bar in “Star Trek: Deep Space Nine” and certainly would never have lowered his whisky prices after the end of tariffs. Image courtesy StarTrek.com.

In “Star Trek: The Next Generation,” we met the Ferengi for the first time, but it wasn’t until “Deep Space Nine” that Quark and his interstellar bar introduced us to the Ferengi Rules of Acquisition. Of course, the first Ferengi Rule of Acquisition is:

“Once you have their money, you never give it back.”

That’s the simple explanation why U.S. prices for most single malt Scotches won’t likely be come down with an end to the tariffs, but it’s a bit more complex than that.

The “three-tier” system for alcohol distribution in the U.S. plays a key role in our story, since it was designed after the end of Prohibition to maintain independence between whisky makers and the retail tier, including liquor stores, bars, and restaurants. While they can suggest a “recommended retail price” for whiskies, many states actually make it illegal for whisky makers or their regional distributors to dictate prices to retailers. Essentially, most retailers are free to set whatever price they feel their local market will bear – except in states where governments play a role in setting prices.

This becomes important when we look at how the tariffs are actually imposed. It’s not the whisky company in Scotland that was responsible for paying the 25% tariff, but the U.S.-based import company that actually takes delivery of a whisky shipment once it arrives at the border – and pays the tariff based on the wholesale price listed on the shipping invoice. With larger global spirits companies, that importer is often an internal unit, such as Diageo North America, Pernod Ricard USA, and the like. Most of the time, though, the importer is a small independent company that has a contract with distilleries to be the “exclusive” U.S. importer for their whiskies.

For those larger companies, tariff accounting has been more opaque since a company can juggle its finances internally to account for the tariffs and either pass along the entire cost to their regional distributors or absorb it to keep retail prices low. Most of the major whisky makers have not publicly disclosed their policy on tariff accounting for competitive reasons, and it’s a small enough expense that it doesn’t show up on their quarterly financial statements.

On the other hand, small distilleries have been hit much harder by the tariffs. They’re more likely to work with equally small independently-owned importers who make their purchasing decisions with very sharp pencils, and many of those importers have been cutting back on the number of distilleries they work with or reducing the size of their orders because of the cost of the tariffs. One example (and there are many) where there has been a compromise remains Kilchoman Distillery and Impex, with both agreeing early on to split the cost of the tariffs in order to keep retail pricing steady.

When importers gets shipments after they have cleared Customs, they then sends cases of whisky to regional distributors along with an invoice that may or may not reflect the tariffs. As a distributor drops off a case at your local liquor store, the owner will get an invoice that almost certainly includes its increased cost because of the tariffs. The retailer then takes that higher price into account when figuring the final price you’ll see on the shelf, which is how you wind up paying the final cost of the tariffs.

So…why doesn’t an end to the tariffs mean prices will come down?

Had the tariffs only been in place for a few weeks, they wouldn’t have had much of an impact. However, as the trade dispute has dragged on for nearly 18 months, the cost of the tariffs has become “baked in” to pricing across the tiers, and that’s a disincentive to lowering prices. As shipments make their way from Scotland to your local liquor store, it’s become harder to differentiate between cases of a whisky brand in a warehouse that may or may not have been subject to the tariff…especially once new “non-tariff” shipments hit the warehouse.

While economics has its own laws, we can also look to the one of the laws of physics to see how they might work together in this case. Newton’s First Law of Motion tells us that an object will remain at rest unless it is influenced by an outside force. In this case, the Trump Administration’s whisky tariffs acted as a force to send whisky prices rising. A starship in Star Trek will continue along a trajectory once its engines shut off unless gravity interferes with that motion, and in this case, a four-month suspension of the tariffs amounts to turning off the engine. Unless another force – such as a decision to lower prices – comes along, inertia will probably keep whisky prices where they are.

Of course, that decision would violate Ferengi Rule of Acquisition Number One. Since I have friends at all three tiers of the industry who might bristle at being compared to  the Ferengi, let’s put it this way.

Are you familiar with the concept of the snowball and Hell?

 

 

 

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U.S. Suspends Single Malt Whisky Tariffs During Talks with Great Britain & Europe

By Mark Gillespie

Updated March 5, 2021 – In a surprise early-morning move Thursday, the Biden Administration announced a four-month suspension of tariffs on single malt whiskies from Scotland and Northern Ireland, along with other exports from Great Britain. Those goods have been subject to a 25% import tariff imposed by the Trump Administration in October of 2019 following a World Trade Organization ruling favoring the U.S. in its long-standing dispute with Europe over subsidies to Airbus and Boeing. Friday, the U.S. and the European Union announced a similar four-month suspension in their matching tariffs from the aerospace dispute.

In joint statements issued by the U.S. Office of the Trade Representative and the UK Government, both countries cited the need for a cooling of the trade disputes on both sides of the Atlantic. From the U.S. statement:

“The United Kingdom and the United States are undertaking a four-month tariff suspension to ease the burden on industry and take a bold, joint step towards resolving the longest running disputes at the World Trade Organization. The United Kingdom ceased applying retaliatory tariffs in the Boeing dispute from January 1, 2021 to de-escalate the issue and create space for a negotiated settlement to the Airbus and Boeing disputes. The United States will now suspend retaliatory tariffs in the Airbus dispute from March 4, 2021, for four months. This will allow time to focus on negotiating a balanced settlement to the disputes, and begin seriously addressing the challenges posed by new entrants to the civil aviation market from non-market economies, such as China.”

Great Britain was just one target of the tariffs imposed before its exit from the European Union, with Germany, Spain, and France as the other key targets because of the financial support their governments provided to Airbus. However, Europe’s ongoing opposition to a settlement while awaiting a WTO ruling on its own case against the U.S. for support to Boeing led the Trump Administration to expand the list of good subject to tariffs last year. That list included more spirits and wines from Europe, along with liqueurs such as Irish cream liqueur. Great Britain became a separate negotiating partner for the U.S. after its final exit from the European Union on January 1, 2021, forcing U.S. trade negotiators to work with their counterparts in London and Brussels on the aerospace dispute while also working to solve other trade disputes and negotiate a new free trade agreement with Great Britain.

“I think it really is a step in the right direction, and the Scotch Whisky industry is clearly delighted,” Scotch Whisky Association chief Karen Betts told WhiskyCast in a Zoom interview following the announcement. The tariffs decimated Scotch Whisky exports to the United States, with exports falling by 35% during the 16-month period — and played a significant role in the 23% global decline in Scotch Whisky exports during 2020. While the tariffs only affected single malts, that category has shown significant growth over the decade leading up to the tariffs with single malts peaking at around a third of all Scotch Whisky sales in the United States.

Scotch Whisky remains the UK’s largest food and drink export according to government data, and in the UK Government’s announcement, International Trade Secretary Liz Truss praised the new U.S. Administration for its desire to resolve the differences between historic trading partners.

“This is Global Britain in action: securing new opportunities as a newly nimble nation. The benefits will be felt across our nation, especially in Scotland, where Scotch whisky distillers will be able to sell at lower prices in the United States, their most valuable market. The easier it is for Americans to buy a bottle of Macallan, Talisker or Glenfiddich, the more money those producers will have to invest in their businesses, their staff and futures. Today’s agreement shows that both the UK and the US are determined to work together to build back better and take our trading relationship to new heights.”

However, the UK is retaining for now its 25% tariffs on American whiskies and other U.S. goods stemming from the dispute over steel and aluminum tariffs imposed by the Trump Administration in 2018. Those tariffs were also part of European Union-wide sanctions against the United States, though Prime Minister Boris Johnson had pledged during his most recent election campaign to scrap them as soon as Brexit could be implemented.

Spirits industry trade groups on both sides of the Atlantic have been arguing for those tariffs to be dropped as well. Distilled Spirits Council CEO Chris Swonger compared attempts to resolve the various differences between the U.S., Great Britain, and the European Union to “unwinding a rattlesnake.”

“Nothing’s black and white as it relates to trying to resolve these problems…the best news we have with today’s announcement is that there is a recognition by the U.S. government that the hospitality sector has been greatly pained, and we’ve got four months between Monday and June for the UK and the U.S. to get the Boeing and Airbus case resolved…that’s a great opportunity, but in the meantime, gotta work hard to make sure that the tariffs on American whiskey which are implicated in the steel and aluminum case, that needs to be suspended as well,” Swonger said in an interview.

The “Section 232” steel and aluminum case falls under a different section of U.S. law allowing import tariffs in order to protect American industries on “national security” grounds. The Trump Administration cited the need to protect domestic manufacturing of specialized metals for defense use in imposing the tariffs on steel and aluminum imported from Europe and other key trading partners.

Last week, the Kentucky Distillers Association blamed the tariffs for a 35% global decline in Kentucky Bourbon exports during 2020, with the declines reaching 50% in both Great Britain and the remaining European Union nations.

“We strongly believe this dispute deserves similar priority in finding a resolution before more long-term damage is done,” KDA President Eric Gregory said in a statement. “With a focused settlement to help the aerospace industry now underway, the KDA reiterates its call for an immediate suspension of disastrous tariffs in the steel and aluminum dispute that have ensnared unrelated American whiskey and key agricultural exports,” he said. The European tariffs on American whiskies are scheduled to automatically double to 50% on June 1 unless an agreement is reached between the U.S. and EU.

The success comes even as the Office of the U.S. Trade Representative remains hollowed-out by the transition between the Trump and Biden administrations. Permanent USTR staff members worked out the truce between Washington and London while Katherine Tai, President Biden’s choice to serve as U.S. Trade Representative, awaits Senate confirmation. Wednesday, the Senate Finance Committee voted unanimously to send her nomination to the floor for a final vote expected in the next several days.

Listen to the next episode of WhiskyCast for more details on this developing story.

Editor’s note: This story was updated on March 5 to reflect a similar truce between the United States and the European Union, along with additional information on the European Union tariffs on American whiskies. 

Links: Office of the U.S. Trade Representative | UK Department of International Trade | Scotch Whisky Association | Distilled Spirits Council | Kentucky Distillers Association

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British Government Freezes Spirits Duties in Budget’s Covid Response

By Mark Gillespie

March 3, 2021 – Scotch Whisky makers had been hoping the British government’s response to the economic damage from the Covid-19 pandemic might lead to a cut in spirits taxes. While they didn’t get that, they got the next best thing.

During his budget address to Parliament this morning, Chancellor of the Exchequer Rishi Sunak announced that duties on spirits, beer, wine, and cider will be frozen this year for the second year in a row. The move comes as 2020 was the worst year for Scotch Whisky makers in the last decade, with exports down 23 percent worldwide due to the impact of Covid-19 along with U.S. tariffs on single malt Scotches.

The tax freeze also covers whiskies made in England, Wales, and Northern Ireland, but will have the largest effect in Scotland. Scotch Whisky Association chief Karen Betts praised the move as “good news for hospitality and gives distillers some breathing space in the face of some of the worst trading conditions anyone can remember” in a statement following the budget address.

“We had asked for a cut, but we do understand that firstly, the circumstances, the context in which the Chancellor was doing his budget is very difficult…we’ve seen government finances during the Covid pandemic have been really stretched with the amount of money the government had had to put in to support the economy, so a cut was probably always a stretch,” Betts told WhiskyCast in a Zoom interview Thursday.

Chancellor of the Exchequer Rishi Sunak presents the 2021 Budget to Parliament March 3, 2021. Image courtesy Parliament TV.

Chancellor of the Exchequer Rishi Sunak presents the 2021 Budget to Parliament March 3, 2021. Image courtesy Parliament TV.

In his first post-Brexit budget address, Sunak cited Great Britain’s exit from the European Union as an opportunity to create a “pro-business” tax regime. However, he announced a rise in corporation taxes on profits to 25% effective in April of 2023 for businesses with more than £250,000 in annual profits. The current 19% rate will remain in place for businesses with less than £50,000 GBP in profits each year, while a tapered structure will be set up for businesses that fall between the two thresholds.

While distillers have been investing millions of pounds on expansion projects in recent years, Sunak’s new “Super Deduction” will allow businesses to reduce their taxable income by 130% of the amount they invest in new equipment or capital projects. “Under the existing rules, a construction firm buying £10 million of new equipment could reduce their taxable income, in the year they invest, by just £2.6 million. With the Super Deduction, they can now reduce it by £13 million,” Sunak told Parliament.

Betts also praised the new program as one way the industry will be able to recover from the combined impacts of Covid, U.S. whisky tariffs, and Brexit. “As we recover those things, I hope that investment will pick up…again, one of the things that has really marked our industry out, particularly in Scotland, in the last five to seven years is the amount of investment that has gone into expanded production but also into tourism facilities as well,” Betts said. “As any economist will say, investment today is growth tomorrow, and the most important thing for us is that we can recover and get back into growth…and that will have a knock-on positive effect on the Scottish economy.”

The hospitality business will also benefit from a new “Restart Grant” program to begin in April that will replace current pandemic grants to businesses with grants of up to £18,000, along with a new loan scheme to help businesses recover.

Sunak did not address one issue of importance to the whisky industry – the ongoing debate over alcohol duty reform intended to level the differences in tax rates for spirits, beer, cider, and wine that has been featured in several recent budget addresses. While the issue didn’t “make the cut” for the budget address, as Betts says, the discussion is taking place within government at a lower priority now because of the Covid-19 pandemic.

Editor’s note: This story was updated on March 4 following an interview with the Scotch Whisky Association’s Karen Betts. 

Links: UK Budget | Scotch Whisky Association

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Conor McGregor’s Future with Proper No. Twelve Irish Whiskey in Question

By Mark Gillespie

March 1, 2021 – A little-noticed line in the annual financial statement for Mexican drinks conglomerate Becle could mean the impending end of MMA champion Conor McGregor’s relationship with Proper No. Twelve, the Irish Whiskey brand he helped create. Becle is the holding company for the Beckmann family’s extensive spirits portfolio built around Jose Cuervo Tequila, but the family’s influence has grown in recent years with the acquisition of the Old Bushmills Distillery in Ireland and the Bushmills Irish Whiskey brand, as well as Three Olives Vodka and Kraken Rum.

Here’s the specific line from the Becle news release:

“On February 23, 2021, the Company provided notice of the exercise of its call option to acquire 51% of the equity interests of EBS.”

Proper No. Twelve Irish Whiskey. Image courtesy Eire Born Spirits.

Proper No. Twelve Irish Whiskey. Image courtesy Eire Born Spirits.

EBS is Eire Born Spirits, the company McGregor founded with his manager, Paradigm Sports Management CEO Audie Attar and spirits industry entrepreneur Ken Austin to bring the Proper No. Twelve brand to market in 2018, naming the whiskey after the postal code for McGregor’s neighborhood of Crumlin in Dublin. At the time, Becle held a 20% stake in EBS, and has used its resources and personnel at Bushmills to produce the whiskey. In addition, Proximo Spirits, Becle’s U.S.-based subsidiary, holds the U.S. distribution rights for Proper No. Twelve. According to Wine & Spirits Daily, Becle exercised an option in 2020 to increase its ownership stake to 49% in a deal that valued the company at approximately $235 million at the time.

While the language in Becle’s news release was ambiguous enough to raise questions about whether the Beckmann family was only acquiring enough shares to own a 51% majority interest in EBS or the 51% equity Becle does not already control, a Becle spokesman confirmed to WhiskyCast via email that the option covers the remaining equity in EBS, with the deal expected to close in the second quarter of 2021. The statement did not mention that Becle already owned 49% of the equity in EBS.

In the Becle conference call Thursday following the statement’s release, Proximo Spirits CEO Mike Keyes referred to Proper No. Twelve as the “fastest growing brand in the Irish whiskey category.” McGregor has been extensively involved in promoting the brand through tie-ins with his MMA career and social media as well as traditional advertising.

However, he has also been involved in a number of incidents since the brand’s debut, including a 2019 assault conviction after he pleaded guilty to punching a patron in a Dublin pub after the man turned down a dram of Proper No. Twelve. McGregor paid a €1,000 fine along with compensation and an apology to the victim. 

When asked whether McGregor will have an ongoing role with Proper No. Twelve after the deal closes, given that he will no longer have an ownership stake in the brand, Becle’s spokesman declined to comment, saying only that “we expect to announce further details upon the closing of the transaction.”

McGregor, who lost his last UFC fight January 24 to Dustin Poirier, has not addressed the Becle sale publicly, nor have Attar or Austin. WhiskyCast has contacted the U.S.-based media relations agency for Proper No. Twelve along with Austin and Paradigm Sports Management, but has not yet received responses.

This story will be updated with additional information as necessary.

Links: Proper No. Twelve | Becle | Paradigm Sports Management

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Pandemic Leads to 66% Decline in 2020 Kentucky Bourbon Trail Visits

By Mark Gillespie

February 16, 2021 – Virtually everything whiskey-related has been impacted by the Covid-19 pandemic, with the lone exception of retail bottle sales. Whiskey tourism is yet another example, with the latest data from Kentucky showing a 66 percent decline in visits to the Kentucky Bourbon Trail’s member distilleries from 2019. 587, 307 visits were recorded at the 18 distilleries that make up the main Trail and the 19 distilleries along the Bourbon Trail’s Craft Tour, down from a record 1.72 million visits in 2019.

“We were closed for four months, and we’ve been on 50% capacity pretty much since July…even had to close our tours and tasting rooms again in late November and early December,” Kentucky Distillers Association president Eric Gregory said. “When you look at it, we welcomed still about 600,000 people safely, and that’s an achievement in itself,” he said in a telephone interview.

In addition to the Bourbon Trail’s data, Buffalo Trace Distillery in Frankfort saw its 2020 visitor traffic drop by more than half. The Sazerac-owned distillery is not a member of the KDA and the Kentucky Bourbon Trail, and reported 145,365 visitors during 2020 – down from almost 300,000 in 2019. Sazerac did not announce visitor data for its Barton 1792 Distillery in Bardstown, which is also not part of the Bourbon Trail. There is no way to tell how much overlap exists between visitors to the Bourbon Trail member distilleries and Buffalo Trace, but it is safe to assume a certain level of overlap.

Many of the Commonwealth’s distilleries still have not returned to “full” tourism operations, with distillery tours either not being offered or extremely limited in order to keep guests separated from essential production workers. That means the outlook for 2021 will be equally bleak, though Gregory hopes widespread vaccinations will help bring the pandemic under control by the autumn. “We’re hopeful that by the time we get to Bourbon Heritage Month in September and maybe even October, we can start to fully get engaged again with our tourism community,” he said.

As of now, the Kentucky Bourbon Festival is scheduled for September 16-19 in Bardstown, though two other major whiskey-related events that bring thousands of tourists to the Louisville area each September have already been cancelled. Concert promoter Danny Wimmer Presents has announced that its Bourbon & Beyond and Hometown Rising music and Bourbon festivals will not be held again this year at the Kentucky Exposition Center, but are expected to return in 2022.

In addition, the KDA faces an imminent decision of its own. Last year, the association moved its annual Kentucky Bourbon Affair events from June to September intending to coordinate with Bourbon & Beyond before pandemic-related public health restrictions forced both events to be cancelled. Gregory admits a decision will have to be made soon on whether to try and hold the Bourbon Affair events this year, and that could come at a meeting planned for later this week.

“We have to start selling tickets around March or April for a September event, and that’s a big question that we’re going to pose to all of our events representatives from the various distilleries as to if we have it, and if we have it, what does it look like,” he said. “Bourbon Affair is known for these very intimate, exclusive events at the distilleries themselves, and a lot of those involve special tastings and behind-the-scenes tours of production areas that right now are kind of off limits,” he said.

The fate of this year’s Kentucky Bourbon Hall of Fame induction ceremony is also uncertain. Last year, the pandemic came just as the KDA’s board was about to consider nominees for the Class of 2020, and the entire event was scrapped without selecting any inductees. The ceremony is usually held as part of the Kentucky Bourbon Festival, and attracts an audience of long-time industry leaders – which has Gregory nervous about the risk to an older audience.

“We would never want to take the chance of getting anybody sick,” he said.

Links: Kentucky Bourbon Trail | Kentucky Distillers Association | Buffalo Trace | Kentucky Bourbon Festival | Bourbon & Beyond | Hometown Rising

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Japanese Whisky Industry Defines Standards for “Japanese Whisky”

By Mark Gillespie

February 16, 2021 – It’s been an open secret among whisky connoisseurs for years that not all whiskies labeled as “Japanese Whisky” are actually of 100% Japanese origin. The country has no legal standards that define “Japanese Whisky” in the same way that Scottish law defines Scotch Whisky and United States laws define Bourbon. That has allowed Japanese spirits companies to import whisky from Scotland, Canada, and other countries for blending — either with a small amount of whisky distilled domestically or not — and have the final product legally be called a “Japanese Whisky.”

Now, the Japan Spirits & Liqueurs Makers Association has stepped in to establish a basic standard for “Japanese Whisky,” while not blaming previous generations of their predecessors. In an announcement on the group’s web site, they cited the common practice in Scotland of trading whiskies between distilleries for blending purposes as the original justification for the practice in Japan.

“Japanese whisky makers had to be self-sufficient by developing techniques to create various kind of whiskies at their own distilleries, by acquiring distilleries abroad, or by making use of imported whisky to skillfully blend and to create a product fit for the Japanese market. It goes without saying that these developments are part of the history, tradition, and culture of Japanese whisky-making. The products created through this process has enriched the Japanese drinking culture and is currently supported by many people around the world. We, the members of the Japan Spirits & Liqueurs Makers Association, take pride in that fact and are grateful for the efforts of our predecessors.”

The new standards take effect on April 1, and will require any whisky labeled as “Japanese Whisky” to be mashed, fermented, distilled, matured, and bottled in Japan.. However, existing products will be allowed to remain on the market until March 31, 2024. The standards echo those of Scotland in requiring the use of malted or unmalted cereal grains exclusively, along with a minimum of three years maturation time in wooden casks no larger than 700 liters and a minimum bottling strength of 40% ABV. However, the standard appears to allow the use of wood species other than oak for maturation, and also allows for the use of “plain caramel coloring” while not requiring disclosure on the label.

While the standards are based on self-regulation within the industry and have no legal standing in Japanese law, the association’s members include most of the major whisky producers within Japan, including Suntory and Nikka. Both companies will be affected by the new standards, with Suntory confirming in an email that four of its domestic whiskies do not conform to the requirements. Suntory’s White, Red, and Torys whiskies use imported whisky in the blends. While the domestic version of Kaku-bin is made from 100% Japanese whisky, some of that whisky does not meet the three-year maturation requirement. However, Kaku-bin produced for export sales does conform to the new standards, along with all of the Yamazaki, Hakushu, Hibiki, Chita and Toki whiskies sold worldwide. Suntory AO has always been labeled as a “world whisky” because it is blended from whiskies distilled in Japan, the United States, Scotland, Canada, and Ireland.

Nikka Days Japanese Whisky. Image courtesy Nikka Whisky.

Nikka Days is one of the whiskies that will not comply with the new standards for “Japanese whisky.”

Nikka has already updated its web site to note which of its whiskies do not comply with the new standard, including Nikka Whisky from the Barrel, Nikka Days, Super Nikka, and The Nikka blended whiskies. In a statement on the web site, Nikka executives indicated that they will continue to offer a wide variety of whiskies with unique taste profiles, noting that “we feel this is an important step towards ensuring customers clarity so as that they can reasonably decide which products to buy and information will be updated if the status changes.”

The move is also expected to lead to changes on the retail front. Dekantā, one of the leading online retailers specializing in Japanese whiskies, is praising the new standards. Founder Makiyo Masa told WhiskyCast that she felt offended when traveling in the past and saw bottles with “Japanese Whisky” on the label that she had never heard of in Japan. “If you try to reach out to the producer or go to Google, you could hardly find any information about whether that is a Japanese Whisky,” she said, suggesting that some whiskies sold around the world as “Japanese Whisky” might not have even been bottled in Japan.

Masa saw the new standards as inevitable given the growth of global interest in Japan’s whiskies. Dekantā plans to re-categorize whiskies that can be confirmed as a blend of both Japanese and imported whiskies as “world blends,” while whiskies originating in Japan that cannot be proven to meet the new standards will be designated as of “unconfirmed origin.”

In addition, The Whisky Exchange announced on its web site that it will be re-working its online shop to show which whiskies can be considered “Japanese Whisky” and which ones do not meet the new standards, with a default of “not Japanese Whisky” when a whisky’s origin cannot be confirmed. Paris-based La Maison du Whisky, which is also the European importer for Nikka Whisky, discloses the blending practice in the Japanese section of its online shop, but has not announced how it will address the new standards. Master of Malt outlined the new standards on its blog, but has not yet said how it will handle the new standards in its online shop.

For more on the story behind the practice, listen to our April 2020 interview with Japan-based whisky blogger Liam McNulty in Episode 815 of WhiskyCast.

Editor’s note: This story has been updated to include additional information on Suntory’s whiskies that do not comply with the standards, along with comments from Dekantā founder Makiyo Masa.

Links: Japan Spirits and Liqueurs Makers Association | Suntory | Nikka Whisky | DekantāThe Whisky Exchange | La Maison du Whisky | Master of Malt

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Islay’s 11th Whisky Distillery Gets the Green Light

By Mark Gillespie

February 9, 2021 – It takes three years of waiting before “new make” spirit can legally be called whisky in Scotland. It took almost that long for Elixir Distillers to get the plans approved for what will become the 11th malt whisky distillery on the Isle of Islay. Argyll & Bute Council has now cleared the way for construction to begin this summer on the site just east of Port Ellen along the A846 road that leads to Laphroaig, Lagavulin and Ardbeg distilleries.

The coast of Islay between Port Ellen and the Laphroaig Distillery, where Elixir Distillers has received approval to build the island's newest malt whisky distillery. Image courtesy Google Earth.

The coast of Islay between Port Ellen and the Laphroaig Distillery, where Elixir Distillers has received approval to build the island’s newest malt whisky distillery. Image courtesy Google Earth.

“For me, it’s the holy trinity of whisky distillery roads, but more importantly, the site was perfect…just perfect,” Elixir Distillers co-founder Sukhinder Singh told WhiskyCast in his first interview since planning permission was granted in December. The site is just east of Port Ellen Primary School along the island’s coast, and part of the delay was due to the need to acquire additional land to build a reservoir for the distillery’s water supply. With the island’s infrastructure already at peak demand, Singh and his brother Rajbir considered installing a desalination plant to treat sea water, but their desire to maintain traditional whisky production practices won out in the end.

However, that desire for “old-style” whisky production did not apply to the building’s design. The Singhs and their architects originally submitted plans to the council for a modern facility designed for maximum efficiency. That design did not go over well with the council’s planning team, who insisted on exterior changes intended to make the project fit in with the island’s other distilleries. While the redesign process added more than a year to the timeline, the Covid-19 pandemic also played a part when the council required a public consultation before final approval the design. Given restrictions on public gatherings because of the pandemic, that open meeting was delayed for several months before the council agreed to do it via Zoom last fall.

In the end, the re-design received unanimous support from the council over the objections of some Islay residents. 23 separate objections to the revised project were filed with the council, including one from the Islay Community Council outlining the potential impact on the island’s infrastructure. The island has around 3,000 permanent residents and virtually zero unemployment, leading to newly-created jobs being filled by people moving to Islay at a time when housing is already in short supply. It should be noted that the community council voiced similar objections in 2019 to Diageo’s application for planning approval for its revival of the Port Ellen Distillery.

In an email to WhiskyCast, Islay Community Council Secretary Jim Porteous explained the group’s position:

“We have noted that the distillery project has received planning approval, subject to conditions and have sent our congratulations to Elixir. It is now time for us all to move forward constructively and we have offered to provide any assistance that we can to help ensure that the outcome, so far as may be possible, will ultimately be to the benefit of all. The Community Council has no objections in principle to any such projects but does consider it important that sufficient infrastructure funding provision should be made available by the relevant authorities to keep pace.”

The plan originally called for eight houses to be built at the distillery for workers, but Singh said that commitment will be doubled to 16 houses to help address the island’s housing shortage. While the housing will be reserved initially for distillery workers moving to Islay and guests, Singh is not ruling out making surplus housing available for long-term rentals to Islay residents in the future.

Listen to a segment of Mark Gillespie’s interview with Sukhinder Singh:

 

Singh projected ground work at the site could take several months once it begins this summer, with work on the building itself to begin after that. The building will actually house two distilleries inside: the main facility with two sets of stills that will handle malt whisky production, along with a microdistillery that will be used for experimental projects and other spirits. While Singh had originally expected to distill gin in that microdistillery, the plans have now changed and will likely focus on rum. As of now, the distillery’s name has not been determined, and Singh is in the process of recruiting a distillery manager to help with the final distillery specifications before construction begins.

In addition to the usual visitors center, Singh is considering plans for a small restaurant and whisky bar. The noted whisky collector suggested that the bar would be geared more toward rare whiskies, which are his personal passion. Elixir Distillers is part of the Singh brothers’s Speciality Drinks company, which also owns The Whisky Exchange’s three retail shops in London, and Singh is not ruling out opening a fourth store at the distillery.

Pandemic-related travel restrictions have kept the Singhs from visiting Islay for nearly a year, and Sukhinder Singh is getting the itch to travel.

“I want to go to the island…I think that’s the best way to put it…just to touch the land and say yeah, we’re here, but unfortunately, we can’t at this stage.”

The entire interview with Sukhinder Singh will be part of the next episode of WhiskyCast coming this weekend. We’ll have more on the distillery project, along with updates on how The Whisky Exchange and the collector’s market have fared during the pandemic and the plans for the upcoming virtual Whisky Show: Old & Rare later this month.

Editor’s note: This story has been updated to include comments from the Islay Community Council, along with additional details on housing to be built as part of the project.

Links: Elixir Distillers | Argyll & Bute Council

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Spirit of Speyside Whisky Festival Postponed Until November

By Mark Gillespie

January 29, 2021 – Just weeks before Scotland’s Spirit of Speyside Whisky Festival was to unveil its schedule of events for this spring’s festival following last year’s Covid-forced cancellation, festival organizers have now decided to postpone the event until November. With new variants of the virus raising caseloads and concerns worldwide, the festival’s volunteer board was forced to backtrack on its optimistic plans to proceed with the original scheduled dates of April 28 through May 3.

“In the last three or four weeks with this new (UK) variant arriving which seems to be much more transmissible, and the second peak that we’re having in the UK, maybe even headed toward a third peak, you know…it’s just not going to happen,” festival chairman James Campbell told WhiskyCast in a telephone interview. “It’s going to be several months before all of the adults in the UK are vaccinated, maybe even as late as the 30th of September…with that timetable, there’s absolutely no way that we will be able to…never mind it’s simply not permitted to travel into Scotland at the moment,” he said while noting that travel remains heavily restricted within Scotland right now.

The annual festival draws thousands of tourists from around the world to the Speyside region of Scotland for events ranging from ceilidhs and tastings to exclusive distillery tours, and has been instrumental over the years in expanding the area’s tourism season into early spring. While there will be virtual events during the traditional festival weekend, this year’s festival will have the chance to extend the tourism season into the late autumn months with a schedule from November 3-8.

“Absolutely great whisky-drinking weather,” Campbell said with a chuckle. “You’ll have to wrap up very well, wear lots of warm clothing…we may just catch the end of our autumn season. The trees are all changing colour, but we may be a little too late for that. The key thing is, it’s the friendships, it’s meeting up, it’s being allowed to get access to distilleries, which at the moment is not possible,” he said. The schedule change is a one-time move, with plans already in place to hold the 2022 Spirit of Speyside Festival from April 27 through May 2, 2022.

Listen to Mark Gillespie’s interview with James Campbell:

 

The schedule for the spring’s virtual events will be released March 11, with tickets going on sale March 16. Current plans call for the November schedule to be released in time for ticket sales to begin September 1. Campbell hopes that by that date, government guidelines on social distancing and other public health measures will be clear enough to make a final decision on whether the festival can proceed.

“It’s a tight deadline, it’s only eight weeks until the actual event starts, but there will be accommodations on Speyside…you could provisionally book now, and there will still be time if you leave it for a month or two unlike the normal festival in April and May where you almost have to book a year ahead,” he said.

As of now, the Spirit of Speyside: Distilled festival scheduled at Elgin Town Hall the weekend of September 3-4 is still on the schedule. Campbell and his colleagues will look at the progress of vaccinations in late June and make a final decision around June 30. The festival board has already decided to cancel the annual Gin Experience in July.

The decision follows last week’s announcement that the Islay Festival of Malt & Music has been cancelled for the second consecutive year because of the pandemic. In addition, the organizers of The Whisky Fair in Limburg, Germany have also announced the cancellation of their festival again this April because of the pandemic, with plans to return on April 23-24, 2022.

Editor’s note: This story was updated to include audio from Mark Gillespie’s interview with James Campbell.

Links: Spirit of Speyside Festival | Islay Festival of Malt & Music | The Whisky Fair

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US Spirits Industry Makes Gains in 2020 Despite Covid, Tariffs

By Mark Gillespie

January 28, 2021 – 2020 was not a good year by virtually all measurements, but the U.S. distilled spirits industry managed to squeak out gains despite the economic impacts from the Covid-19 pandemic and the ongoing trade war between the United States and the European Union. The Distilled Spirits Council of the United States reported industry-wide growth of 5.5 percent in revenue and 5.3 percent in growth for 2020 over 2019, with consumers spending more money in the “off-premise” retail sector as many of the nation’s bars and restaurants were forced to close or scale back operations during the pandemic.

Liquor stores and other retailers nationwide showed a 16.3 percent increase in sales during the year ending December 27 over the previous year. The “off-premise” sector usually accounts for about 80% of distilled spirits sales in normal years, and DISCUS chief economist David Ozgo told reporters during the Council’s annual economic briefing that growth helped mitigate some of the impact from a 44% decline in “on-premise” sales at bars and restaurants. “In addition to not spending on spirits at bars and restaurants, they weren’t dining out, we weren’t traveling nearly as much…this gave the consumer a lot of disposable income – if you were still fortunate enough to have a job, of course,” Ozgo said.

Listen to the Distilled Spirits Council’s economic briefing:

 
Overall sales of American whiskies grew by 7% over 2019 to the equivalent of 28.4 million 9-liter cases by volume, with revenue up by 8.2 percent to $4.3 billion. Blended whiskey sales grew by 8 percent, while Canadian Whisky recorded one of its strongest gains in recent years with a 4.4 percent increase and Irish Whiskey sales grew 2.9 percent.

The impact of the trade war becomes clear when looking at Scotch Whisky sales. Between 2010 and 2019, imports of Scotch whiskies grew by 94 percent. However, the Trump Administration imposed a 25% import tariff in October of 2019 on single malt Scotch whiskies, and during 2020, imports of all Scotch whiskies fell by 37 percent over 2019. Blended Scotch sales not subject to the tariff showed a 1.3% gain over 2019, while single malt sales fell by 6.5% during 2020.

On the export side, American whiskey also suffered again in 2020 because of the European Union’s 25% tariff imposed in June 2018. Since that tariff went into effect, overall global exports of American whiskies are down 28.9 percent. The European Union nations account for 52% of total U.S. whiskey exports, while the UK accounts for 16%. Since the imposition of the tariffs, exports to the EU nations are down 53% and UK exports are off by 38%. The situation could become even worse this year, since the EU’s tariff is automatically scheduled to double to 50% this June unless the two sides resolve their differences.

“We do have a new administration that has a new approach to trade, and we are hopeful and we have seen some comments from key officials that they are looking to solve these disputes and hopefully reset the relationship with some of our allies,” DISCUS public policy chief Christine LoCascio told reporters. The council joined with more than 70 other industry groups in the U.S. and Europe Monday in asking U.S. President Joe Biden and European Commission President Ursula von der Leyden to suspend the tariffs on both sides.

This story will be updated with additional information.

Links: Distilled Spirits Council

 

 

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2021 Islay Festival Cancelled on Covid-19 Concerns

By Mark Gillespie

Updated January 28, 2020 – With Scotland in the middle of another lockdown because of increases in Covid-19 cases, one of the country’s largest annual whisky events has been cancelled for the second year because of the pandemic. Organizers of the Islay Festival of Malt & Music (“Fèis Ile) have announced that this year’s event scheduled for May 28-June 5 will not take place, following discussions with the island’s distilleries and community leaders. Non-essential travel between Islay and the Scottish mainland remains heavily restricted, and with many festival attendees used to making travel plans well in advance, the organizers decided to make their decision early.

“Pretty much everything that we do at the Fèis is based around people gathering together, whether it be for a ceilidh, whether it be in a courtyard at Bruichladdich or at Lagavulin, there’s a lot of interaction between everybody drinking…all for the love of the whisky, but we knew that already that interaction and all of those people together wasn’t going to be able to happen,” Fèis Committee spokesman Ben Shakespeare said in an interview for this week’s episode of the WhiskyCast podcast. In addition, there is no government guidance on when travel restrictions might be eased. “There’s lots of talk at the moment about us not being able to travel internationally, certainly people from Australia  already wouldn’t be able to come over, and we had to make a decision about what was best for everybody’s plans as well,” he said.

Fèis Ile traditionally is one of the island’s busiest weeks of the year, with thousands of visitors swelling Islay’s population to nearly four times the normal level of around 3,000 full-time residents. The island has a very limited health care system with no intensive care units, and has been able to avoid an island-wide Covid-19 outbreak so far by limiting travel between the island and the mainland. According to Shakespeare, that was the final deciding factor in the decision to cancel the Fèis. “We have a wonderful NHS, we have wonderful health care here, it’s absolutely perfect, but it can’t cope with four times the amount of people coming perhaps still with an ongoing pandemic,” he said.

“It’s a party for the week, it’s celebrating the amazing culture, the music, and the whisky of Islay, and there’s people that come from all over the world to experience that, and it’s a fantastic thing,” Bruichladdich head distiller Adam Hannett said on a Burns Night Zoom call with whisky writers. “Obviously, there are very good reasons we won’t be doing that this year, we didn’t do it last year, and it just gives us an actual opportunity to try new things and release the special bottlings in a different way…we can connect with more people who can’t make it to the distillery,” he said.

The Fèis Committee and the island’s distilleries are now working on a lineup of virtual events to be held during the traditional Fèis week, and the  distilleries are expected to announce their plans for off-island sales of festival bottlings later this spring. Those holding tickets rolled over to 2021 from the cancelled 2020 festival will be contacted about refunds or using the tickets in 2022.

While the news will certainly be a disappointment to many whisky lovers, the Fèis Committee has already confirmed plans for the 2022 Islay Festival to be held from May 28-June 4.

“Please just keep Islay in your hearts for a little longer: hold on to the love of the island, the music, the whisky and the company, and the embraces when we see you again will be all the sweeter,” the committee said in its Facebook post announcing the decision.

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

Links: Islay Festival of Malt & Music | Bruichladdich

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