makers would be happy to stay in the EU
single market and customs union after
Brexit but if that isn't possible they
would prefer a no deal clean break.
As I am sure many of you recall, that
in the run up to the Brexit referendum
Scotch whisky makers were among the most
fervent industry advocates for staying
in the European Union, but it now
appears that if Britain has to leave,
they would prefer a clean break.
Scotch whisky industry is already busy preparing for
transport and logistical challenges
which it could face due to Brexit,
says it would be happy to stay in the EU
single market and the customs union
after Britain leaves the world’s largest
trading bloc if it had a say in
regulations and a right to make
bilateral trade deals.
If that’s not possible, then it would be
better to have no deal and default to
World Trade Organisation rules, which
mandate a zero percent tariff on Scotch
imports into the EU, said Karen Betts,
chief executive officer of the Scotch
Karen Betts went on to say: "When we think it through, there are
real risks, if you stay in the single
market, of continuing to be bound by the
EU’s rules but not being able to
"The industry would keep an open mind as
long as negotiations with Brussels are
going on, however the industry position matters: Scotch
exports were worth 4.36 billion pounds
($6.10 billion) in 2017, more than one
fifth of all of Britain’s food and drink
exports and 40,000 jobs.
"To some extent, its position is unique.
For one thing, there’s the advantageous
tariffs under the WTO, which apply to
almost all spirits.
"For another, while its supply chain is
almost all UK-based, exports account for
90 percent of output, meaning it has
seen big benefits from the post-Brexit
weakness in the pound.
"Protected by a UK law which means it can
only be made in Scotland, Scotch is
dominated by multinationals like Diageo
(DGE.L) and Pernod Ricard (PERP.PA) and
has been an export sector for centuries.
Distillers are skilled in cross-border
trade and able to absorb logistical
challenges and extra costs.
"What the industry wants now is clarity
about the terms under which Britain will
leave the EU and how much time it has to
get ready for it. “We play the cards
that we are dealt. We kind of just want
to know what the cards are,"
A big concern, shared by other goods
exporters, is how transport to the EU
will be affected by a change in IT
systems for trade with non-EU countries
agreed before the Brexit vote.
If the agreed transition is not long
enough following Brexit Day on March 29,
2019, the system may have to be used for
all exports, including to the EU, just
months after it has been introduced. The
volume of declarations processed
annually in that case will rise to 255
million from 55 million now, the
government says, so it needs to be
running glitch-free by then.
Whisky makers are making contingency
plans for alternative routes and storage
in case border delays affect sales or
France, Spain and Poland are among the
top ten global destinations for Scotch,
together accounting for 19.3 million
9-litre cases in 2016, or 21 percent of
the total, according to drink industry
By far the world leader with 13.6
million cases, France is led by Marie
Brizard (MBWS.PA), which ships William
Peel Scotch from Scotland but also
French spirits and cognac into Britain.
The company’s Scotch travels to France
via Belgium, using ships and trains
instead of trucks.
Chief Executive Jean-Noel Reynaud
believes logistical disruptions will be
manageable. "We will just have to adapt
to the new supply chain rules, if we
have to account for another one or two
weeks in the supply, we’ll do so. When
we export to China it takes much more
time than just importing from the UK."
If there are bottlenecks, producers can
build regional stocks, taking advantage
of the fact that Scotch is not
perishable, said Duncan Swift, who runs
the food advisory group at business
consultancy Moore Stephens.
Pernod Ricard, which has 20 percent of
the French market with its Clan Campbell
and Ballantine’s brands, already
operates via 85 distribution centres
around the world and could easily use
one in Europe or rent more space, chief
executive Alexandre Ricard told Reuters
this month. The next few months will be
"What is absolutely critical for our
business is to be ready to adapt
swiftly," Ricard said.
Most of the growth opportunities for
Scotch whisky comes from outside the EU,
in places like Latin America, Asia and
the United States, which means the
bilateral trade deals that Britain
negotiates will be important.
Among the fastest-growing markets for
single malt Scotch in 2016 was the
United States - also the world’s most
valuable market - but also China and
India, from a much lower base.
Overall Scotch sales in India grew 14
percent in 2016 and single malt sales
grew 31 percent, despite a 150 percent
tariff. “It’s the biggest whisky market
in the world but only 1 percent of what
is consumed there is Scotch,” said Dan
Mobley, corporate relations director at
Trade deals come down to economic
muscle, however, and Britain’s economy
is roughly 15 percent of the EU‘s. Such
deals are also notoriously slow to
cement; talks between India and the EU
are stalled after a decade so far.
"I don’t think there are any reasons to
believe that a UK-India free trade
agreement could be pulled off quickly,"
said Ingo Borchert, senior lecturer in
economics at the UK Trade Policy
Observatory at the University of Sussex.
Diageo, which makes 37 percent of the
world’s Scotch, is keen that Britain
copy-and-paste advantageous EU trade
arrangements with countries like South
Korea and South Africa.
Chief Executive Ivan Menezes believes
Brexit disruptions and costs are "not
material" for a global company with 12
billion pounds ($16.8 billion) in annual
sales. He said the company and industry
were working "very forcefully" with
government to make their concerns clear.
"We don’t want things that would make
moving a case of Johnnie Walker into
Europe or a truck crossing the Irish
border slow down. It makes no sense," he
said at a news conference in London in
SPIRIT OF ADVENTURE
Brexit comes at a time when the market
for all kinds of spirits is expanding
and consumer tastes are becoming more
adventurous, with upsides and downsides
"When I started in the business (in the
1990s) people were loyal to a drink.
They’d be a whisky or a gin drinker,"
said Ewen Mackintosh, managing director
at independent whisky maker Gordon &
People aren’t category-loyal any more,
they want to try new things," he said at
the firm’s Speyside distillery, which
dates back to 1898.
Exports of single malt whisky rose 14.2
percent in 2017, making up a quarter of
total exports and driven by demand for
unique tipples. Investment has poured
into distilleries over the past five
years, unabated by Brexit.
Diageo, which has spent about 1 billion
pounds on facilities in Scotland since
2012, is due to reopen two rural
distilleries that enjoy cult status
among enthusiasts, in Port Ellen and
Brora. Pernod will spend 40 million
pounds to expand its Scotch bottling
facility in Dumbarton this year. More
than a dozen smaller whisky distilleries
have opened in Scotland since 2013.
Ian Macleod Distillers bought Rosebank,
a collector’s favourite whose spirit
goes for up to 2,500 pounds a bottle, in
October 2017. With turnover of 65
million pounds, Macleod’s has an
80-million-pound loan facility, backed
by whisky stocks, to expand further.
"Brexit did not come into our decision
(to buy Rosebank). We discussed it and
dismissed it," said Neil Boyd, UK
Idled since 1993, the distillery is due
to reopen in 2019, along with a
visitor’s centre in Falkirk, a growing
visitor destination between Edinburgh
Tourism is also helping bigger players.
Over the past year, the number of
tourists visiting Diageo’s 12 visitor
centres across Scotland rose 15.2 pct.
Spending per visitor is up 13 percent in
Whisky makers’ general confidence may
come from decades of working with a
product that only gets better with age.
"If I don’t need (the Scotch) as a
5-year-old, you keep it and it becomes a
10-year-old, and then again later it
will become a 15-year-old. So if you
have the confidence to ride out the hard
times, well, actually you can end up in
a better place." said Gordon
& MacPhail’s Mackintosh.
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