Comment: Whisky | US banks | Chocolate

Whisky exports were headlined this week in a way that would drive you to drink: “China buys less Scotch”, “Yes campaign derailed by collapse in whisky exports to Beijing”. But a more forensic look at the data tells a different story.

'Scotch will bounce back from slump in Asia'. Picture: PA
'Scotch will bounce back from slump in Asia'. Picture: PA

True, China has dropped out of the top 20 most valuable export markets for Scottish whisky for the first time in a decade. Diageo sales were particularly affected. But this is less the result of the slowing Chinese economy and more because of the Beijing government’s latest anti-bribery drive.

In China, business deals are often “smoothed” with the gift of expensive whisky. Periodic crackdowns on corruption therefore reduce demand for high-end brands – albeit temporarily.

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Market leader Pernod Ricard witnessed a similar drop in whisky sales to China in 2008-9, as a result of a change in Communist Party leadership and the usual initial anti-corruption drive. Things soon got back to normal.

The potential for whisky sales in China remains vast. Western spirits account for less than 2 per cent (by value) of the total Chinese beverage market of £42 billion.

Domestic sales are dominated by baiju, or rice wine. Diageo already owns half of the company producing China’s upmarket baiju brand, Shui Jing Fang. A decade ago, when the Chinese were still developing a taste for whisky, it was common to see green tea being poured into an expensive malt. Not so today.

Yet single malts are still a niche product, accounting for about 5 per cent of imported whisky by volume. Which means Scottish distilleries will be exporting a lot more malt whisky to China.

US banks still paying for past misdeeds

DESPITE continuing upbeat news from the US economy, American banks reported dull first-quarter results this week. As a result, US bank shares fell in a rising market. Why the seeming contradiction?

One obvious problem, as in the UK, is that US banks are still paying the legal price of past misdeeds.

Bank of America, the US number two, posted a Q1 loss equivalent to £165 million after agreeing to settle four lawsuits filed by the US regulators. However, the bank also saw a decline in revenues, as did its competitors.

The explanation seems twofold. First, a sharp decline in revenues from fixed-income markets following a decline in clients’ appetite for more complex, riskier trades.

Perhaps this is the residue of last summer’s Federal Reserve tapering panic – which suggests the revenue dip might bottom out now the Fed is anxious to turn off the monetary tap.

The second problem is lower mortgage refinancing activity. That’s more worrying if it means US consumers aren’t refinancing mortgages to draw down equity.

Growth markets taste for chocolate eggs

I TRIED buying Cadbury’s chocolate Easter eggs this week and found they had disappeared. My local Tesco appeared to be out of several brands of chocolate eggs, while Asda had to stop selling them online due to a shortage.

I blame discounting plus a sweet tooth in emerging markets. Demand from these markets (as in everything else) has sent the price of cocoa surging. Beans have risen 7 per cent in price this year on the London exchange.

Happy Easter readers.