Building bridges on whiskey – Drinks International

It’s safe to say that American whiskey has had its fair share of tough breaks in recent years. The steel and aluminum trade dispute under the Trump administration has seen the UK and EU impose a retaliatory 25% tariff on imports of American whiskey. This was followed by the global pandemic which of course devastated retail and forced brands to completely change their business models to survive truly unprecedented times. Then, after face masks were removed and travel opened, a spike in inflation drove up the costs of resources such as barley, corn, glass and other integral materials used to make whiskey. Now, for the first time in years, a nugget of good news has been unearthed for an industry wading through a swamp of trouble – but how long can it relax before the sinking feeling returns?

In June this year, the Biden administration reached a new agreement with the UK and the EU to remove the harsh tariffs originally implemented in 2018. A joyous occasion for both parties. “Now that crippling tariffs have ended, we stand ready to help reset and strengthen the crucial transatlantic trade relationship,” read a joint statement released by the Distilled Spirits Council of the United States and the Scotch Whiskey Association on Tuesday. June 1st. A lasting partnership is key to accelerating recovery from the damaging impact of retaliatory tariffs, the Covid pandemic and increasing pressures on global supply chains.

What made these tariffs particularly bad for both sides was the importance of bilateral trade. According to a report by the Beverage Daily, from 1997 to 2017, when there were no whiskey tariffs between the United States and the United Kingdom, bilateral trade in spirits increased by 212%. Compare that success to the 35% drop in bilateral trade between 2018 and 2021 and it’s easy to see the effects the tariffs have had on both sides.

“The benefits of free trade are clear and we defend it,” the joint statement continued. “We look forward to focusing on bringing our whiskeys to consumers around the world and competing in the market on a level playing field. We strongly support our governments’ efforts to further strengthen US-UK trade through sectoral agreements and the relaunch of negotiations for a bilateral US-UK free trade agreement.

Although the industry feels like it has breathed a huge sigh of relief after four years of pain, it is just a shelter from the storm, which could be swept away again in the near future. The new deal involves a two-year period to negotiate a new deal before the 25% tax returns in 2024. Many believe it is likely that a more permanent solution will be found, but until then small producers are skeptical. are left with a conundrum – Do they go all out on exports to Europe and the UK and risk losing it all again in two years, or do they stand still and risk losing share of the market to the benefit of competitors?

EXPORT TARGETS

For Chris Swonger, President and CEO of DISCUS, the nature of planning inventory years in advance makes assessing export targets even more tricky. On the day news of the tariff suspensions broke, he published a column with Entrepreneur magazine in which he spoke to Chicago-based Koval Distillery, which has been in the UK market for around a decade, about the effects of the tariffs after years of construction abroad. momentum.

“We have noticed a significant decline in distributor and retailer confidence in US brands due to tariffs,” said Koval President Sonat Birnecker Hart. “In turn, the momentum we had gained has slowed. Now that the tariffs are lifted, we have seen increased interest and communication from our overseas partners. »

As small and medium brands face tough decisions, the bigger players are in a more privileged position. Of course, they will have lost more revenue than smaller brands over the tariff period, but their transition to UK and European commerce should be smoother. Greg Mefford, director of international sales at US-based Luxco, which owns Kentucky sites Lux Row Distillers and Limestone Branch Distillery, said the company had absorbed tariffs over the past four years and therefore had no no need to change prices. This means that its American whiskeys will once again be fully promoted in the UK as they were in 2018.

Thomas Mooney, co-founder and managing director of Westward Whiskey – which received an investment from accelerator company Diageo Distilled Ventures the same year the tariffs were introduced – also said his brand had absorbed the tariffs in order to protect 15 years of progress with the UK. market.

“Historically, Europe has contributed over 20% of our sales, and the UK led the way,” Mooney said when tariffs were still active. “It takes years and considerable investment to turn an export market into a meaningful part of our business. We have been investing time and money in the UK for 15 years. For some time, we have been absorbing the cost of the 25% retaliatory tariff in order to be competitive, on top of the already higher costs faced by US exporters.

GEOGRAPHIC IDENTITY

While the vast majority of the US whiskey trade is full of positive energy at the moment, some are unimpressed with Europe and the UK – the scar tissue left over from the four-year conflict. “A product’s strong geographic identity shouldn’t make it a target in trade disputes focused on aircraft, steel, or aluminum,” says Matt Dogali, chief executive of the American Distilled Spirits Alliance, in a statement. Beverage Industry Enthusiast report. “When countries adhere to a zero-duty policy, trade grows on both sides. This is especially true for whiskeys, which have unique and strong brands produced around the world – and whose distilleries often sell whiskeys from abroad alongside their own product.

However, despite the undercurrents of frustration, the tariff suspensions have been unanimously welcomed and now the industry is urging the Biden administration to go further – to build on its victories with the UK and EU. and target countries such as India, which held a 150% tariff on American whiskey for decades, virtually preventing American whiskey from infiltrating the world’s largest whiskey market.

According to Swonger, the future of US whiskey exports lies in duty-free markets, and in his report he states that 86% of US spirits exports go to countries that do not have tariffs in square. “When American spirits are sold overseas,” he says, “they do more than just spread good cheer and enhance cultural exchange. They also create jobs up and down the supply chain, from local family farmers to bottling and shipping facilities.

“If America’s vibrant craft distillers can’t sell their products to the 95% of the world’s population who live outside of our country, their prospects for growth will be limited.

“With the temporary tariff suspension, American distilleries have had great success. Now we hope for a more permanent solution. In the meantime, we’ll toast to this exciting show of progress – and an even brighter future for American whiskey.