Donald Trump’s trade wars had a devastating impact on Scotland’s smaller whisky producers, combining with Covid-19 travel restrictions to cut revenues by almost a tenth.
While the country’s top 20 independent distilleries can look forward to a better 12 months, their recovery is at risk from a lack of shipping container space, the cost of living crisis, slowing economic growth due to tighter monetary policy and China’s zero-Covid policy. Scotch whisky is a key part of Scotland’s economy and accounts for just over a fifth of all UK food and drink exports.
Sales at the distilleries fell 9 per cent to £1.35bn in the 2020-21 financial year, from £1.5bn in the previous period, according to a report by UHY Hacker Young, a UK accountancy firm. That was mainly due to a 25 per cent tariff imposed by the Trump administration in 2019 as part of a dispute with the EU over subsidies to aircraft producers Boeing and Airbus, which dated back to 2004.
Independent distillers of gin, rum and diversified spirits had a better time, recording 12 per cent revenue growth to £245mn, the firm said.
The tariffs were suspended for five years in June 2021 as the relationship improved after Joe Biden became US president.
The tariffs cut sales to the largest export market for Scotch whisky, which accounts for almost a third of overseas shipments, UHY Hacker Young said, though it did not specify the decline.
Data from the Scotch Whisky Association (SWA) showed that while total sales to the US lagged behind a broader recovery, they still managed to grow 8 per cent in 2021, compared with a 32 per cent fall the previous year, in contrast to the decline recorded by the smaller players.
Anthony Wills, founder of Kilchoman in Islay, a whisky-producing island popular with tourists, said his company maintained market share by splitting the cost of the tariffs with its US importer. Kilchoman, the first new distillery on the island in more than 124 years when it was built in 2005, sent bottles by air freight across the Atlantic to reach clients before the tariffs took effect, the Financial Times reported then.
The outlook for the coming year may be brighter but the company is facing another obstacle to reaching customers in a timely manner, with a shortage of container space in ships that can cause delays of up to three months.
“The main issue is getting the product there,” Wills said.
There is also the cost of living crisis which is hitting customers across the world and the prospect of slowing economies as central banks accelerate the pace of interest rate increases.
“As a small company we will be impacted by the tightening of belts, due to the premium nature of our goods,” Wills said, without providing a forecast.
The industry employs more than 11,000 people in Scotland, mostly in rural areas, according to the SWA. Independent distilleries tend to have average annual revenue of £6mn to £10mn. The biggest one had annual sales of about £600mn, while the smallest ones brought in less than £1mn, according to UHY Hacker Young.
“For someone looking to start a distillery, now is probably not a good time” due to slowing economies and the difficulty of predicting future demand, said Martin Jones, a partner at the accountancy firm.
He predicted that more expensive, premium whisky would withstand the economic slowdown. Scotch “is an excellent brand for Scotland. It’s clearly popular and there is a big market for it in the US,” Jones said.