Scotch export experts ready to ride out the Brexit storm

Scotland's whisky distillers are ready for the short-term disruption of Brexit, believes Karen Betts. Sandra Dick reports

Last year, 39 bottles of Scotch were exported every second.
Last year, 39 bottles of Scotch were exported every second.

Cereals, yeast and water. Just three ingredients but add in a massive dollop of heritage and centuries of craft and care, and you have a whisky cocktail that’s a global success story.

There is, of course, much more to whisky than just that. For a start, the hard work of thousands of people across the country and shrewd marketing and export skills are vital mixers for a spirit that finds its way into glasses from Tokyo to Mumbai, Sao Paulo to Addis Ababa.

Step into just about any bar in any country in the world – a smoky parrilla bar in Uruguay, a swanky New York cocktail haven, a Japanese karaoke bar or beach bar in Goa – and there’s a good chance you’ll be raising a dram and savouring that familiar, warming glow that can only really come courtesy of Scotch.

With 500 years of history behind it and with each distillery offering its own unique take on how to distil and nurture perfectly those three ingredients, the world has developed a taste for our national drink.

“One of the wonderful things about Scotch is that you can go to the other side of the world, to somewhere remote, and meet someone who has an encyclopedic knowledge of Scotch,” says Karen Betts, chief executive of the Scotch Whisky Association, which has supported the industry for more than 100 years.

“I am always impressed by the amount that many people from places a very long way away know about Scotch.

“People often spend a long time telling me about which distillery is their favourite and why.

“For some, Scotch is an almost religious experience.”

Throughout 150 years of export success, Scotch has carefully distilled its own unique worldwide success story to make it Scotland’s biggest food and drink export success.

Last year alone, the equivalent of 39 bottles were exported every second; 1.2 billion bottles in all – a 1.7 per cent increase in volume on the previous year – to 180 markets in all four corners of the globe.

Scotch Whisky now accounts for 70 per cent of all Scottish food and drink exports and 20 per cent of the UK’s, with exports valued at £4.37bn in 2017 – an 8.9 per cent rise in value on 2016 – and with massive potential to drive further exports to emerging markets in India, China and Africa.

While the temptation might be simply to sit back and toast such impressive success, the industry is instead driving forward with significant investment in distilleries, products and marketing – interestingly, at a time when Brexit uncertainty is causing many others to sit tight and wait for the storm to pass.

New distilleries are springing up – 130 in all, 15 of them in the past five years.

And despite the rising challenge of international whisky producers, the Scottish whisky industry would appear to remain unshaken and relatively unstirred.

“This export success has been hard won, and has taken 150 years to achieve,” says Betts, who joined the SWA after a 16-year career in the Foreign & Commonwealth Office which included a stint as British ambassador to Morocco.

“The endeavours of Tommy Dewar, James Buchanan, James Chivas and others in the 19th century took Scotch Whisky from local spirit – enjoyed by many in Britain but Scotch at that stage was by no means dominant elsewhere – to global superstar.

“That entrepreneurial spirit is alive and well today, with the SWA’s

70 member companies constantly beating back barriers to trade in established markets and seeking out new markets to enable Scotch to thrive for another five centuries.”

Of course, there’s no escaping the “B” word. Brexit, and the risk of US trade wars, send a shiver down the spine of most exporters.

The sector’s 150-year long export success story, says Betts, is key to weathering whatever storms may lie ahead.

“We are expert traders, and we try to look at Brexit in that context,” she insists.

“That’s not to say that we won’t suffer some disruption, but our companies are reasonably flexible and know how to export to Europe, countries that the EU has trade agreements with, or to other parts of the world where no trade agreements exist, like India.

“Brexit will no doubt have its challenges – 30 per cent of our exports go to Europe – but we expect to be able to work through them.”

While the Brexit clock ticks, a new EU-trade deal with Japan signed last month, means Scotch distillers stand to benefit from further access to a flourishing market that hit £82m last year, as well as enjoying new legal protection for their “whisky” name and heritage.

The risk of trade wars, and the use of whisky as a political weapon, however, raises a host of other issues.

What Scotch might gain from China’s 25 per cent tariff on American whiskeys, it could well lose as a result of the EU’s decision to impose a similar bourbon tariff.

First Minister Nicola Sturgeon has expressed her concern that the situation could erupt into a “full-blown trade war” and has spoken of the situation’s “seriousness” for the whisky sector.

“Going into trade restrictions with any overseas market would have implications for the Scotch Whisky industry,” says Betts.

“However, our raison d’etre as an organisation is to try to overcome trade barriers around the world.

“Every day we work to level the playing field and give our companies as competitive an environment as possible in each of our overseas markets.

“We have urged the UK government and the European Commission to keep negotiating with the US and to de-escalate the current dispute.”

Staying ahead of the game, identifying emerging markets – where thriving economies are creating a new “middle class” of consumer seeking a luxury product – and developing existing market through shrewd marketing, have long been the key to the industry’s export success, she adds.

“Companies invest an enormous amount of time and energy understanding their markets and what attracts consumers to Scotch and why.

“So in Japan marketing is around hi-ball cocktails (Scotch and soda), in Spain it’s popular with Coke and it’s Scotch on the rocks in America.

“Companies’ deep understanding from inside out is what makes a good Scotch market.”

Meantime, the industry has forged ahead, retaining that same entrepreneurial spirit that has written Scotch whisky’s international success story.

Without losing the innate heritage and provenance, Scotch Whisky producers are using new technology to take Scotland’s national drink into the digital age, becoming more environmentally sustainable and increasingly using by-products to fuel production.

“Robotics are now helping to reduce the heavy lifting required in cooperages, QR codes now help us track product from grain to glass.

“Everywhere the industry looks to the future and at embracing innovation,” she adds.

“There are challenges to overcome. The spirit laid down the day UK voted to leave the EU will not be Scotch until next year, and by the time it is bottled it could emerge into a market with rules that are quite different to the ones we have operated within for the last 40 plus years.

“If we are to crack the big markets of tomorrow, we need to invest here at home. Scotch is just 1 per cent of the Indian spirits market and only 0.1 per cent of the Chinese.

“If Scotch’s share of these markets were to grow even to 5 per cent, then that would represent a massive expansion in exports and these markets would the rival the US and France.

“A nice problem to have. Although to service these markets, the boom in new distilleries and the expansion of existing ones that we have seen over the last five years, we also need a competitive home market.

“The tax burden on the average priced bottle of Scotch here in the UK is 74 per cent; £3 in every £4 spent on Scotch goes directly to the Treasury.

“This does not help new distilleries start-up, nor existing ones scale-up; in fact, it’s a barrier to their success.

“So we are calling on the Chancellor to support the industry and those whose livelihoods it supports in the autumn budget. After all, it’s a tremendous global success story.”

Spirited market

- Scotch Whisky accounts for 70 per cent of all Scottish food and drink exports, and 20 per cent of the UK’s.

- It supports 40,000 jobs.

- Exports are valued at £4.37 billion in 2017, presenting an 8.9 per cent rise in value on 2016 figures.

- Scotch was exported to 180 markets last year – the product earns the UK £127 every second.

- In total, 1.2bn bottles were exported, with volume up almost 5 per cent.

Almost 39 bottles are exported every second. The growing Chinese market sees 25 bottles of Scotch exported every minute.

For more information, visit article is taken from The Scotsman's Annual Food & Drink Supplement which can be read in full here.