Whisky industry faces a bleak mid-winter as tariffs bite and exports stall

Douglas FraserScotland enterprise and financial system editorAFP by way of Getty ImagesScotch whisky is going through a pointy downturn in manufacturing because it adapts to robust market situations around the globe.Tariffs for export to the USA, launched underneath the Trump administration and including 10% to importers’ prices, have hit gross sales within the business’s greatest export market.American tariffs on single malts, which had been suspended 4 years in the past, are heading in the right direction to return subsequent spring with an additional 25% cost, until a deal will be achieved with the Trump administration. Single malts, which promote at premium costs, are a very essential a part of exports to the US.Nonetheless, the downturn isn’t solely within the American market. There’s additionally weakening demand in different markets attributable to squeezed development and shopper spending, elevated tax and prices, together with packaging regulation, and due to commerce disruption.Shipments to China final yr fell by 31%, shifting it from THE fifth greatest market to the tenth greatest. The primary half of this yr exhibits a 1% improve within the worth of Scotch exports, to £2.5bn, whereas volumes had been down practically 4%.And the destructive results of US tariffs could not develop into clear for some months, as distillers moved swiftly to construct up shares within the nation forward of the frontier tax being launched.Getty ImagesThe full impression of Donald Trump’s tariffs isn’t but clear as shares had been constructed up within the US earlier than they took impact. One of many brightest prospects for distillers is the sharp tariff reductions in India, the world’s greatest whisky market which final yr changed France as the most important importer of Scotch by quantity.Presently at 150% of the worth of every bottle, the commerce deal between the London and Delhi governments features a staged discount to 40% tariffs. However with ratification in each international locations anticipated to take time, that’s seen as too far off to keep away from the hunch being felt within the shorter time period.Corporations that offer the business are additionally feeling the strain. Distillers’ demand for malted barley has slumped. Expectations for subsequent yr are of a minimize from the vary of 900,000 to 1 million tonnes to the decrease vary of 600 to 700,000 tonnes.Grain farmers are discovering it exhausting to safe contracts for his or her barley harvests subsequent yr. Many are planting different crops resembling wheat and rapeseed, or plan to take action.In response to Jack Stevenson, chair of the crop committee of the Nationwide Farmers Union in Scotland, who runs Brangan farm between Portsoy and Banff: “A number of the retailers are struggling to search out contracts. The top customers are reducing them again vastly.”It is the identical story the size and breadth of Scotland. We’re attempting to maintain the dialogue open with the Scotch whisky business, and it will come again. It is an enormous marketplace for Scotland.”However for now he says: “There’s doom and gloom within the cereals sector. And prices have been getting uncontrolled on the equipment aspect of issues.”Getty ImagesThe downturn impacts not simply distillers however their suppliers together with farmers who develop barleyHe says the break-even level for barley is greater than £200 per tonne, and round half of it’s bought in contracts for future supply. However the spot value, with no future contract, fell throughout September to £160 per tonne.In response to knowledge compiled by market intelligence company AHDB, use of barley for distilling and brewing throughout July to October was down 14% on final yr.One farmers’ co-operative in Aberdeenshire is going through a halving of its 70,000 tonne barley contract this yr with Chivas Brothers, one of many largest whisky distillers, owned by French drinks big Pernod Ricard.A maltings plant, supplying distilleries with processed barley, is being completely closed at Pencaitland in East Lothian, with the lack of round 20 jobs.Julian South, govt director of the Maltsters’ Affiliation of Nice Britain (MAGB), says that’s partly as a result of the sector has grown its processing capability elsewhere lately, with plans for extra enlargement.”Whisky has its ups and downs, whereas brewing is extra constant,” he says. “Some persons are fairly stunned how shortly demand dropped off. Maltsters are having to have a look at their very own manufacturing and contracts for barley within the coming season.”A key sign to farmers is the business’s forecast of its demand for all malted barley, together with round 40% of it used for brewing beer. The MAGB estimated demand subsequent yr is down from 1.8m tonnes to 1.4m.Some corporations are forecasting decreased demand and are adjusting productionDiageo, the most important producer of Scotch whisky, has halted work at one in every of its essential maltings, at Roseisle in Moray, till a minimum of subsequent June.A Diageo spokesperson mentioned: “We’ve got briefly paused manufacturing at Roseisle Maltings as we glance to stability capability in opposition to present demand. We proceed to evaluate manufacturing volumes and can talk future plans as a part of the traditional planning cycle.”The agency has decreased manufacturing in some distilleries and has paused distilling at Teaninich, close to Alness in Easter Ross.Glenmorangie, at Tain in Easter Ross, is amongst distilleries the place manufacturing has been halted for a number of months. Together with Ardbeg, it’s a subsidiary of French luxurious items agency LVMH.A spokeswoman says this can be a “quick time period adjustment” to manufacturing based mostly on forecast demand for Glenmorangie: “There was a brief pause in distillation early in the summertime and one other pause over the winter, with manufacturing scheduled to renew in spring 2026.That is a part of the technique to develop the worth of the model, she mentioned. That displays the chance that over-production may pressure down costs, and never solely the revenue margins however the premium standing constructed up over years.Man distilleries mix manufacturing with some form of customer expertise that provides workers different rolesIn most circumstances, the small variety of folks required to run a distillery are being redeployed, and customer centres stay open, although there are knock-on results for hauliers and different suppliers.The big US distilling agency that owns the smaller Glenglassaugh and Benriach distilleries in north-east Scotland has been working solely one in every of them because the begin of this yr, shutting down Glenglassaugh till autumn. Because it began up once more, Benriach was closed for 2 years.Brown-Forman, based mostly in Kentucky and proprietor of Jack Daniels whiskey, additionally operates the Glendronach distillery close to Huntly, and says it has slowed manufacturing there, “based mostly on demand planning”.That’s regardless of its output of single malt having to attend a minimum of 12 years earlier than it’s bottled and obtainable on the market. The entire business has to forecast the place demand will likely be a minimum of three years from now – the minimal size of time for Scotch whisky to mature in casks.Bourbon barrelsA current replace for buyers from Brown-Forman warned about international markets: “We proceed to anticipate the working setting to be difficult, with low visibility attributable to macroeconomic and geopolitical volatility as we face headwinds from shopper uncertainty and decrease non-branded gross sales of used barrels”.The primary buyer for used bourbon barrels is the Scotch business, which has been importing round £200m-worth annually.The downturn suggests the forecast is for a chronic downturn in demand, although it could even be attributable to warehousing, or whisky bonds, being full from excessive manufacturing ranges lately.There’s criticism within the business at sluggish planning choices holding again funding in further capability.Brown-Forman’s international model director for malts, Adip Agarwal, emphasised that slowing manufacturing, and the two-year closure of Benriach, doesn’t alter availability of its Scotch produce.”This strategic resolution aligns our manufacturing with the present market, permitting us to handle our sources successfully and optimise operations,” he mentioned.No cheer from the Autumn BudgetThere have been indicators of the downturn in pricing of whisky. The super-premium whiskies, which might usually be present in airport outlets, have been coming down in value, and there may be elevated grocery store discounting of premium single malts.Some distillers declined to touch upon the downturn, referring inquiries to their commerce physique, the Scotch Whisky Affiliation (SWA).A spokeswoman there mentioned: “There is no such thing as a doubt that the business is going through vital challenges each at house and on the world stage, together with the ten% tariff in our greatest export market and a fall in international shopper demand.”The business has been crucial of the UK Treasury’s responsibility on alcohol, which covers round 7% of Scotch output that’s bought within the UK, in addition to different spirits together with vodka, gin and rum.SWA chief govt Mark Kent mentioned one other rise in responsibility introduced within the Westminster Price range final month places “large extra strain on a sector struggling job losses, stalled funding and enterprise closures”.He added: “Put merely, the federal government can’t count on the Scotch whisky sector to simply preserve delivering development, each at house and on the world stage, if the situations which assist development usually are not nurtured”.The SWA has been underneath strain from farmers to develop extra dependable and regular contracts for barley.The spokeswoman commented: “The soundness of the Scotch Whisky provide chain is of important significance to our sector, and challenges that impression us will after all impression everybody from the farmers who develop our cereals, by means of to the hospitality venues who serve our merchandise.”Rising prices will impression Scotch Whisky producers’ margins, their long run planning and in some circumstances the viability of their companies, and we’re seeing the reverberating results of that throughout our provide chain.”She added: “We stay in common communication with our colleagues within the farming sector to handle our industries’ shared challenges and enhance the resilience of the Scotch Whisky provide chain from grain to glass.”