Last month, when voters in the U.K. decided to exit the European Union, the pound plummeted and market chaos ensued. The media speculated as to which companies might pull out of the country. And everyone wondered how the referendum would impact the flow of immigration. But there’s an even graver concern: Could Brexit cause a spike in the price of Scotch whisky?
A recent statement by Christine LoCascio, senior vice president of international trade at the Distilled Spirits Council, reads, in part, “As the result of a 1994 treaty, the vast majority of spirits exports and imports between the U.S. and the EU have entered both markets duty-free. The U.K.’s decision certainly generates significant uncertainty.”
There’s no bigger market for U.S. spirits exports. According to data from the Distilled Spirits Council, in 2015, our spirits exports to the British Isles totaled more than $230 million—almost 89 percent of it whiskey. Indeed, sales of Jack Daniel’s have now outpaced The Famous Grouse Scotch whisky in the U.K.
As noted in the London Guardian, “Sales of Jack Daniel’s in shops and supermarkets have risen by 9.3 percent, according to trade magazine The Grocer, while The Famous Grouse’s sales have tumbled by 14.3 percent in the same period.” On the flipside, British spirit imports to the United States came to a whopping $1.55 billion last year—74 percent of it Scotch whisky. (I’m willing to bet another 25 percent is gin and 1 percent is Pimm’s!) We remain the largest consumer of Scotch in the world.
And who doesn’t love Scotch? Except that when it comes to price, its fellow brown spirit bourbon is, in many cases, cheaper. I’ve found good Scotch to hover near $60 a bottle. (During WhiskeyFest in D.C., I tasted from a bottle of 25-year-old Laphroaig that would normally cost you between $400 and $500.) Of course Chivas Regal costs less but—would you believe?—it is still a popular brand in the United States and, as an executive at parent company Pernod Ricard once told me, it is the leading brand of Scotch in China. Apparently it goes well with green tea.
Meanwhile, Diageo, the world’s largest producer of spirits, is remaining calm amid the turmoil. “We respect the views of the British people in the EU referendum,” reads their official statement. “As one of the U.K.’s leading exporters, Diageo remains committed to the long-term prosperity of the Scotch whisky industry and will now work closely with our industry bodies to seek clarity on the transition process. It is a priority that the U.K. continues to benefit from open access to the EU as well as favourable international trade agreements to protect the U.K.’s important export industries, including Scotch whisky.”
Seeking “clarity” and calling it a “priority” is an understatement. Diageo’s interests are considerable—it owns a vast assortment of blended and single malt Scotches, including the Johnnie Walker family, Talisker, Cardhu, Caol Ila, Dalwhinnie, and my two favorites, Oban and Lagavulin.
According to one industry insider, “I know there is some concern about the process of having to renegotiate hundreds of trade treaties, but Scotland is still trying to figure out if there is a way for them to stay in the EU. Also given the rise in popularity of American whiskey in the British market, I don’t think either side wants to start a trade war between the two whiskey markets.”
Rosemary Gallagher, who heads communications for the Scotch Whisky Association, assured me that Scotch “will not face a tariff on exports to the EU. Zero percent is the current EU tariff and World Trade Organization rules mean it won’t change. In many markets Scotch will also continue to benefit from existing zero tariffs, for example in the USA, Canada, and Mexico, as these are offered to all countries already.” She also adds that “Brexit won’t happen that quickly—it will be at least two years—so there is hopefully time for negotiation to ensure Scotch exports will not be adversely impacted.”
Let’s hope officials on both sides of the pond can agree to keep the booze duty-free. After all, who doesn’t like to stop at the duty-free shop?
Author’s note: You will notice I made a spelling distinction between American “whiskey” and Scotch “whisky,” which is how both sides prefer it. As a Scotch ambassador once explained to me, they drop the “e” because “We Scots get right to the point!”
