Each week, we bring you the latest whisky news on WhiskyCast. Now, we’ll be bringing it to you as it happens here on our News Updates page!

China Joins Whiskey Trade War With New Tariffs on US Exports As Distillers Pay the Price

June 18, 2018 – The list of countries scheduled to impose import tariffs on Bourbon and other American-made whiskies has grown again, with China becoming the latest nation to challenge the Trump Administration’s hard-line stance on global trade. Over the weekend, Chinese officials announced plans to retaliate for new US tariffs on Chinese exports of electronics and other products announced Friday by US President Donald Trump. Beginning July 6, China will slap a 25 percent tariff on imports of American whiskies, along with automobiles and a range of agricultural products including beef, pork, and soybeans.

As with similar tariffs on whiskey and other exports previously announced by Canada, Mexico, and the European Union, the list of targets is designed to create political pain for the Trump Administration by hitting products from so-called “red states” led by Republicans. For instance, almost all of the American-made whiskey exported to China comes from Tennessee and Kentucky, the home state of Senate Majority Leader Mitch McConnell.

I do worry about — and a lot of my members worry about — the impact on, let’s say, Kentucky bourbon, for example, or Kentucky farmers,” McConnell told the Washington Examiner last week. However, McConnell blocked an attempt by Tennessee Senator Bob Corker to restrict the president’s ability to impose tariffs on imports without Congressional approval. “I don’t think it makes sense to try to impair what President Trump’s doing.” McConnell said in an interview for the Examiner’s “Behind Closed Doors” podcast. “The best thing is to continue to engage with the administration, make our arguments, and hope that this doesn’t continue.”

While the whiskey tariffs could begin to take effect as early as Wednesday, when the European Union plans to start phasing in its list of targeted exports, most will not take effect until July 1. Brown-Forman executives confirmed earlier this month that they increased export shipments of Jack Daniel’s and their other whiskies earlier this year to countries likely to be affected by a trade dispute in anticipation of potential tariffs. Like many of the larger American whiskey distillers, Brown-Forman controls much of its global distribution and has warehouses available to stockpile several months worth of whiskey to minimize the impact of a trade dispute.

“We are just innocent little bystanders in a game being played way above our pay grade,” says FEW Spirits founder Paul Hletko. His distillery in Evanston, Illinois exports between 15 and 25 percent of its annual production overseas, and took a major hit two years ago when the UK’s Brexit vote sent the British pound plunging against the US dollar and other world currencies, raising the cost of his and other American-made whiskies significantly.

“FEW exports one-half of one percent of US spirits exports to China, and we expect that to evaporate,” Hletko said during an interview at the New York Independent Spirits Expo. Hletko is a former president of the American Craft Spirits Association, one of the trade groups lobbying Trump Administration leaders to explain the larger impact of the steel and aluminum tariffs. Those groups have been working for years to remove tariffs on distilled spirits, along with other barriers to trade, and the results of that work appears to be evaporating almost as quickly as whiskey evaporates from barrels in a hot Kentucky rickhouse. That evaporation is called the “angel’s share,” but for distillers, the devil is in the details of market access worldwide.

“Any time, and I mean any time, that we have constraints on market access is a big deal for us, and this is just one more instance of inability to move product because of yet another restraint of some sort,” said ACSA executive director Margie Lehrman. Her team has been meeting with members of Congress and their staffs, and has been trying to meet with administration trade officials “to make sure that they understand the overall impact on a burgeoning industry that is reliant on this market access.”

The industry cheered December’s tax reform legislation, which included a two-year cut in the federal excise tax on the first 100,000 proof gallons of spirit distillers produce each year. While distillers large and small benefit from that cut, the biggest impact was projected to be on small-scale distillers, and many had already started reinvesting their savings from the tax cut in expansion projects and hiring new workers. Adam Spiegel of California’s Sonoma County Distilling Company has already started expanding his facility from around 6,000 square feet to 21,000 square feet, with additional room for barrel storage and expand his annual production by up to five times current levels when the expansion is completed this fall.

For Spiegel, the trade war is a double whammy. Not only will his export sales be affected by tariffs in the European Union, where Spiegel exports around 25 percent of his annual production, but the US tariffs on imported steel and aluminum have blown up his construction budget.

“I have a bunch of new stainless steel tanks that are on their way here that I just so happened to purchase apparently at the wrong time, Spiegel said as he rolled his eyes during an interview. He estimates the tariffs could add as much as $60,000 to the cost of his expansion, but admits that he has no clear guidance from his suppliers. “Everybody’s just kind of on hold…they’re saying ‘listen, all of our pricing was good up until a certain point, we’re going to have to see what happens when it lands…we’ll know what tariffs are assessed the day it lands,” he said.

Spiegel’s tanks and other equipment are being fabricated in the US from imported stainless steel. “The welders are here in the States putting together all the bits and pieces for us, so they may have rolled it four or five thousand miles away, but we’re actually hurting American jobs by what they’re doing…as a small business trying to get some traction here, I think it’s really unfortunate,” he said. Spiegel estimates the money he will pay in higher costs for his steel could have covered the cost of hiring one or two new full-time employees.

FEW’s Hletko also points out the collateral damage from the escalating tariffs. “It hurts our farmers, it hurts our truck drivers that are moving the grain, it hurts our truck drivers that are moving the bottles, it hurts all of us, and it’s really, really unfortunate that small American businesses are being toyed with in this fashion,” he said.

Links: Brown-Forman | FEW Spirits | American Craft Spirits Association | Sonoma County Distilling Company

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Independent Stave Adding New Kentucky Cooperage

June 8, 2018 – Independent Stave Company, the largest supplier of barrels to the American whiskey industry, is expanding its cooperage operations in Kentucky. The Missouri-based company will invest $66.5 million dollars to build a new cooperage in Morehead, Kentucky, with construction to begin in 2019. The new cooperage will be largely dedicated to Bourbon barrel production, and the move follows ISC’s opening of new stave mills in Morehead in 2015 and last year in Benton, Kentucky.

In a news release, CEO Brad Boswell praised the success of both new stave mills as setting the stage for the new cooperage. “The two new stave mills continue to outperform our expectations. Our ISCO engineering team, the incredible local work force and an increase in log supply has paved the way for cooperage expansion.” The project is being supported by economic development incentives from the Commonwealth of Kentucky.

The family-owned company is also investing $28 million to expand its existing cooperages in Lebanon, Kentucky and Lebanon, Missouri with new equipment and other improvements. The Kentucky cooperage supplies barrels to almost every major Kentucky distiller, with the exception of Brown-Forman, which owns its own cooperages in Louisville and Alabama. In addition, ISC supplies barrels for winemakers, brewers and craft distillers, and also operates cooperages in France, Australia, and Chile.

You can listen to our September 2017 interview with Independent Stave CEO Brad Boswell in Episode 660 of WhiskyCast.

Links: Independent Stave Company

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Whiskey Trade Barriers Going Up as Trade Dispute Escalates

June 6, 2018 – This weekend’s G7 Summit in Quebec with heads of state from the world’s largest industrialized nations is likely to be one of the most uncomfortable in recent memory, with US President Donald Trump facing his angry – and unified – counterparts from six of the nations facing his tariffs on their steel and aluminum exports. With the sole exception of Japan, every other G7 leader has now signed off on retaliatory tariffs targeting US exports to take effect in July. Those tariffs specifically target Bourbon and other American whiskies, along with other consumer goods and US-made steel products.

The European Commission formally endorsed its list of tariffs today, dashing the hopes of Irish Whiskey industry leaders who had been lobbying Brussels to keep whiskies out of the trade dispute. The move follows Mexico’s imposition Tuesday of a 25 percent tariff on Bourbon, Tennessee, and other American-made whiskies effective immediately, while Canada’s 10 percent tariff will take effect on July 1 along with the EU tariffs.

“This is a measured and proportionate response to the unilateral and illegal decision taken by the United States to impose tariffs on European steel and aluminium exports. What’s more, the EU’s reaction is fully in line with international trade law. We regret that the United States left us with no other option than to safeguard EU interests,” EU Trade Commissioner Cecilia Malmström said in a statement.

Brown-Forman's Woodford Reserve Distillery in Versailles, Kentucky. File photo ©2018, Mark Gillespie/CaskStrength Media.

Executives of Brown-Forman, the maker of Jack Daniel’s Tennessee Whiskey and Woodford Reserve Bourbon, addressed the issue during a conference call with analysts following the release of the company’s annual earnings report today. Jack Daniel’s is the most-widely exported American whiskey brand, and overall export sales account for 53 percent of Brown-Forman’s annual sales.

<em>Brown-Forman Chief Operating Officer and incoming CEO Lawson Whiting. Image courtesy Brown-Forman.</em>

Brown-Forman Chief Operating Officer and incoming CEO Lawson Whiting. Image courtesy Brown-Forman.

“Look, it’s a tough, tricky situation that we’ve been watching for months,” said Lawson Whiting, Brown-Forman’s chief operating officer and the incoming successor to retiring CEO Paul Varga. “It seems like every day we wake up and the thing takes a little bit of a twist and turn including even last night…so it’s a dynamic situation, it’s one that we’re obviously watching closely. It’s one where it’s very dangerous, I think, to make sort of generalistic statements or broad statements across large quantities of markets,” he said.

The company has been preparing for possible tariffs by moving products into Europe and other regions where it controls its own “route-to-market” distribution networks, but admits that there may be an impact in countries where it relies on a third-party importer or distributor. “Know that we’ve lived through these sort of dynamics before, whether they’re rapid excise tax increases which have happened periodically, we’ve had supply shortages, maybe you get big FX (foreign currency exchange) swings, something like that. All these dynamics that can move pricing around in a pretty quick moment, we’ve experienced before and we think we’ll fight through it again,” he said. Chief Financial Officer Jane Morreau maintained the company’s current sales and profit forecasts for the current fiscal year, but noted that the tariff dispute and other economic factors “make it difficult to accurately predict future results.”

The Brown-Forman executives are among the few corporate executives within the U.S. whiskey industry to publicly address the potential impact of the tariffs. Other companies have either declined to comment on the issue or referred questions to either the Distilled Spirits Council or the Kentucky Distillers Association. Neither trade group has issued a statement since May 31, when the US sanctions were announced, and both groups expressed the hope that negotiators could reach a compromise on the steel and aluminum tariffs that would avoid the economic damage from tariffs on US-made whiskies.

The 28 EU member nations, Canada, and Mexico rank among the most important export markets for Bourbon, Tennessee, and other American-made whiskies, with nine of the top ten export markets now subject to 25 percent tariffs. While American whiskey sales have shown strong growth in those markets, adding the costs of those tariffs to the retail price of a bottle of Bourbon could put US-made whiskies at a competitive disadvantage to competing brands from other countries.

A chart showing comparable prices for Evan Williams Bottled in Bond Bourbon at retailers in the US, Canada, and Europe. ©2018, Mark Gillespie/CaskStrength Media.

So far, the Trump Administration has not responded to the joint retaliation by the key US allies and trading partners, after previously pledging that any retaliation would be met with even tougher sanctions. Tariff-free trade in whiskies and other distilled spirits is included in the North American Free Trade Agreement, which the administration has been trying to renegotiate with Canada and Mexico or scrap altogether.

This story will be updated with additional information as necessary.

Editor’s note: This story was updated to reflect that the Canadian tariff on imported American whiskies will be set at 10 percent.

Links: European Commission | Brown-Forman | Distilled Spirits Council | Kentucky Distillers Association

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“PappyGate” Ringleader Sentenced to 15 Years

June 2, 2018 – Gilbert “Toby” Curtsinger, the admitted ringleader of Kentucky’s most infamous whiskey thefts since Prohibition, was sentenced Friday to 15 years in prison in Franklin County Circuit Court. Last September, Curtsinger pleaded guilty to charges stemming from the thefts of more than $100,000 worth of whiskey from Wild Turkey and Buffalo Trace, where he worked as a warehouse supervisor. He was one of ten people indicted by a grand jury in 2015 after sheriff’s deputies recovered stolen Wild Turkey barrels in his back yard following an anonymous tip, and detectives later linked the ring to the 2013 theft of approximately 65 cases of Pappy Van Winkle whiskies from a Buffalo Trace warehouse.

“I am very pleased to be seeing the end of this road,” Franklin County Assistant Commonwealth’s Attorney Zachary Becker told WhiskyCast in a telephone interview following the sentencing. Becker successfully prosecuted eight of the ten suspects indicted in the case, while charges were dropped against Curtsinger’s father-in-law in exchange for his cooperation and one case remains yet to go to trial. Former Wild Turkey truck driver Mark Sean Searcy still faces charges that he stole barrels he had been assigned to deliver from the distillery to a maturation warehouse and gave them to Curtsinger to sell in exchange for a cut of the profits. No date has been set for a trial in that case.

Curtsinger and his accomplices sold bottles of stolen whiskey out of their car trunks at area softball games, and also sold several full barrels of whiskey as well. Depending on the outcome of the Searcy case, Curtsinger is the only one who will serve time in prison as the other defendants all pleaded guilty and will receive probation for cooperating with the investigation.  His attorney, Whitney True Lawson, told reporters after the hearing that she will consider filing a motion to have Curtsinger’s sentence reduced to “shock probation” at an appropriate time. According to Becker, that could allow Curtsinger to be released after serving as little as 30 days in prison, and under normal circumstances, Curtsinger would be eligible for parole after serving 20 percent of his sentence.

Listen to Mark Gillespie’s interview with Zachary Becker:

https://whiskycast.com/files/Zachary_Becker_interview_20180601.mp3

 

“Pappygate” received worldwide attention following the announcement of the 2013 theft at Buffalo Trace, in which cases of Pappy Van Winkle whiskey had been rearranged on pallets to hide the missing cases from view. The Van Winkle family and Buffalo Trace have declined comment on the thefts ever since then, except for a brief statement thanking authorities after the indictments were returned in April of 2015. Wild Turkey issued one brief comment on its Twitter feed at that same time.

Wild Turkey's April 2015 reaction to the indictments. Image from Twitter.

In addition to the pending Searcy case, there remains one final question for Frankin County Circuit Court Judge Thomas Wingate to resolve: the fate of the stolen whiskies seized as evidence during the investigation – and held in a secured evidence locker until all of the cases have been tried. While a “Pardon My Pappy” campaign briefly went viral in 2015 seeking to have the whiskies auctioned for charity, the most likely outcome is that the whiskies will be destroyed, including:

  • 21 wooden barrels of whiskey – according to Becker, “some full and a few empty”
  • 1 stainless steel barrel of Eagle Rare 17
  • the contents of three barrels that had been bottled by purchasers, and
  • 28 bottles of various Van Winkle whiskies.

Zachary Becker indicated that he will eventually file a motion with Judge Wingate asking for a ruling on what should be done with the evidence “in a manner consistent with the wishes of the Van Winkles, Buffalo Trace Distillery and Wild Turkey Distillery.” However, he declined to disclose what those wishes were at the present time.

In an email, Buffalo Trace CEO Mark Brown declined to comment on the Curtsinger sentencing, but repeated the distillery’s previous position that the whiskies should be destroyed.

“Consistent with our past position on the stock we believe that from a food safety perspective (it could easily contain counterfeit liquid) the product should be destroyed, unfortunate, but since it has been out of our custody for so long destroying the stock is the only safe and prudent course of action.”

WhiskyCast has also asked Wild Turkey for its position on the fate of the stolen whiskies. This story will be updated with additional information as necessary.

Links: Old Rip Van Winkle | Buffalo Trace | Wild Turkey

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Trade War Expands with Whisky as a Weapon

Updated June 5, 2018 – Mexico has now joined the whiskey trade war of 2018, imposing new 25 percent import tariffs on Bourbon imported from the United States in retaliation for the Trump Administration’s new tariffs on imported steel and aluminum. Reuters reports the tariffs were announced in the government’s official gazette, and will take effect immediately along with new tariffs on a wide range of other agricultural products.

Mexico now joins Canada and the European Union in targeting Bourbon with new tariffs of 25 percent, while the EU will impose that tariff against all types of American whiskies. The EU’s tariffs could take effect as early as June 20, while the Canadian tariffs will take effect July 1 following a 15-day consultation period for its citizens to comment on potential changes to the list.

After weeks of posturing by all sides, the United States moved forward Thursday with its steel and aluminum tariffs on imports from the European Union, Canada, and Mexico. Thursday’s announcement in Washington both surprised and enraged leaders in Brussels, Ottawa, and Mexico City, and the tariffs are expected to be a point of contention when U.S. President Donald Trump attends the G-7 Summit this weekend in Quebec.

“The United States now leaves us with no choice but to proceed with a WTO dispute settlement case and with the imposition of additional duties on a number of imports from the United States,” European Commission President Jean-Claude Juncker said in a statement released after the U.S. announcement. The EU also intends to file a case against the U.S. at the World Trade Organization seeking to have the tariffs ruled a violation of international trade regulations.

While the Trump Administration’s sanctions are intended to help the struggling U.S. steel industry, the American whiskey industry stands to pay the price. Bourbon, Tennessee, and other American-made whiskies accounted for 68 percent of U.S. spirits exports during 2017, according to U.S. Commerce Department data compiled by the Distilled Spirits Council. 2017’s American whiskey exports added up to more than a billion dollars for the first time, but a look at the leading spirits export markets explains why American-made whiskies are being targeted for retaliation.

The top U.S. spirits export markets by value in 2017. Graphic ©2018, Mark Gillespie/CaskStrength Media.

Canada is the largest single export market for U.S. spirits, while six of the top ten countries are EU member nations. Whiskey exports to Canada rose 7.3 percent during the first quarter of this year compared to the same period in 2017, according to Commerce Department export data supplied by the Distilled Spirits Council. According to the trade group, American-made whiskies accounted for 85 percent of 2017’s spirits exports to the 28 European Union member nations, with a value of $667 million. In a prepared statement, Council executives expressed hope for a quick resolution.

“We hope the United States and its trading partners can resolve their differences without subjecting U.S. whiskey exports to retaliatory tariffs.  A trade war will harm consumers, the hospitality sector, small businesses and U.S. farmers that grow the grains used to produce iconic U.S. whiskeys that are enjoyed around the world.”

The retaliatory sanctions were designed to create political pressure on the Trump Administration, with products selected for their links to politically sensitive regions. Kentucky is the largest producer and exporter of Bourbon, and Senate Majority Leader Mitch McConnell addressed the dispute during a speech Friday in Louisville.

“I don’t think anything good will come out of a trade war, and I hope we pull back from the brink here,” he said. “These tariffs will not be good for the economy, and I worry that it will slow, or impede significantly, the progress we’re making economically,” McConnell said in a quote by Louisville Business First.

The state’s distillers have an $8.5 billion annual impact on Kentucky’s economy, and Kentucky Distillers Association president Eric Gregory called on politicians from all sides to reach a common-sense solution. “We remain hopeful that continued negotiations will avoid a costly trade war and protect our allies and partnerships around the world, which will continue to benefit spirits producers and consumers for years to come,” he said in a statement posted on the KDA’s web site.

The other shoe has yet to drop. President Trump has threatened to impose additional tariffs on imported products from Europe, Canada, and Mexico to return fire for their retaliatory tariffs, setting up the potential for even more damage to the global whisky industry. The United States is the largest export market for Canadian Whisky and Irish Whiskey, and is the largest export market for Scotch Whisky by value (France is the largest by volume). Should the Trump Administration choose to impose “like-for-like” tariffs in response to the Canadian and EU tariffs, whisky makers in those countries could face significant price increases in the U.S. market.

Irish Whiskey Association president William Lavelle told WhiskyCast that his group is urging the Irish government and EU officials in Brussels to consider the potential economic impact of its proposed tariffs before imposing them, while defending the need to respond to the US actions.

“Irish Whiskey is the fastest-growing spirits category in the world. We’re selling in 135 markets globally, but the US remains our biggest single market, so anything that threatens free trade with the United States is something we’re wary of, something we’re very cautious about and concerned about, and we are hoping we can avoid slipping into a trade war between the EU and the US on whiskey,” he said. The entire interview with William Lavelle can be heard in Episode 703 of WhiskyCast, available at WhiskyCast.com.

This story will be updated with additional information as necessary.

Editor’s note: This story has been updated with new details on Mexico’s tariffs and additional information.

Links: Distilled Spirits Council | Kentucky Distillers Association | Irish Whiskey Association

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Diageo Juggles Distillery Managers Ahead of Port Ellen & Brora Revivals

May 24, 2018 – As thousands of whisky lovers descend on Islay for the annual Feis Ile, the Islay Festival of Malt & Music, Diageo’s Lagavulin Distillery will likely be one of their early stops. Lagavulin traditionally hosts the first distillery day of the festival on its opening Saturday, but this will be the final open day for distillery manager Georgie Crawford. After the Feis ends next weekend, the native Ileach will step aside at Lagavulin and move a couple of miles down the road to Port Ellen, where she will become the project manager for Diageo’s revival of the Port Ellen Distillery.

When we interviewed her 18 months ago, Crawford expressed a desire to become Lagavulin’s longest-serving manager. “One of them had actually over 40 years of service, and so at my tasting we had (in 2016 for the distillery’s 200th anniversary), 200 of us did the tasting together…one of them was the head of distillation and maturation for Diageo Scotland, so I maybe made a point about him being 40 years and doing his job, and you know, you don’t really need to keep rotating managers,” she said with a laugh.

Georgie Crawford photographed on Islay in October, 2016. Photo ©2016, Mark Gillespie/CaskStrength Media.

That man was Keith Miller, who selected Crawford to head up the much-anticipated revival of Port Ellen announced last autumn. The distillery was dismantled after it closed in 1983, and a number of the buildings have been demolished since then. However, the malt kiln and many of the maturation warehouses are still intact and will form the basis for the revival of production expected in 2020.

With all of the work ahead of Saturday’s opening day for the Feis, Crawford was unavailable for an interview. In a Diageo news release, she said “It has been a real privilege to be the Lagavulin Distillery Manager and to work with the fantastic team there for so many years. However, the opportunity to bring Port Ellen Distillery back into production truly is a once in a lifetime opportunity and I am thrilled to take it on.”

Colin Gordon photographed at the Port Ellen Maltings in October, 2016. Photo ©2016, Mark Gillespie/CaskStrength Media.

Crawford will be succeeded at Lagavulin by Colin Gordon, who moves over from his present role managing the Port Ellen Maltings next to the old distillery. This will be Gordon’s first assignment as a distillery manager – as it was for Crawford when she moved back to Islay several years ago after more than 20 years on the Scottish mainland. In the Diageo statement, Keith Miller touted Gordon as one of the company’s rising young managers.

“Running Lagavulin Distillery is one of the most highly prized jobs in Scotch whisky and I am delighted to appoint Colin Gordon to the role. Colin is one of our most promising young whisky-makers and he has built up terrific experience and skill in his time with Diageo. I know he will do a great job leading the team at Lagavulin.”

In addition to the moves on Islay, Diageo also announced that Stewart Bowman will become the project manager for the Brora Distillery revival. Bowman is currently part of the management team at Clynelish Distillery, located just across the road from the Brora site in the Highlands. Like Port Ellen, Brora was closed in 1983, and the remaining whiskies from both distilleries have become highly sought after by whisky lovers. Bowman will make his first public appearance as the project manager during a community meeting scheduled for June 5.

Links: Diageo

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