What impact will the 25% US Tariff have on Scotch whisky stocks?

WhiskyInvestDirect’s business model is based on helping the Scotch whisky industry to forecast and manage maturing stock levels. Brand owners hold, on average, around 8 years’ worth of stock, although this number can vary up and down by around 10%. According to the Scotch Whisky Industry Review 2018 [SWIR], total industry stocks, maturing in Scotland in barrel, amount to 4.2bn LPA. WhiskyInvestDirect’s share of this, standing at 8.8m LPA at the time of writing, is thus around 0.2% of the overall total.

There are two major categories of bottled Scotch: blended whisky and single malt. Approximately 10% of Scotch whisky sales by volume are single malt.  The remaining 90% is largely made up of bottled blended Scotch sales, as well as exports of Scotch whisky in bulk to a variety of international markets where it is either bottled locally as Scotch or mixed into local whisky brands.

WhiskyInvestDirect specifically targets malt and grain whiskies that are well known as good ‘blending’ whiskies for Master Blenders to use to produce Blended Scotch whisky. It may turn out that some of the whiskies on the WID platform end up being used as single malt but that is not the expected outcome when we buy our stock. The prices on WID’s platform reflect the wholesale market for whiskies that are frequently traded between blenders, brand owners and bottlers of both premium and value Scotch whisky.

The 25% US tariff is specifically on single malt whisky (both Scottish and Irish), not blended whisky. According to HMRC numbers, Scotch exports to America last year amounted to £1.0bn. Malt whisky’s share of this was 33% of value, but only 19% of volume. And while the US accounts for around 20% of all single malt Scotch whisky exports worldwide, the volume of single malt sent to the United States accounts for less than 2% of all Scotch whisky exports globally.

It is hard to predict what impact the tariff will have on single malt sales. When the EU imposed a 25% tariff on the import of US whiskey last year, sales dropped by around 20% and, in the view of the Scotch Whisky Association, the same could be expected for Scotch single malts sales in the United States. This is why The Scotch Whisky Association is righty concerned and is trying to get the tariffs withdrawn.

A slow-down in sales of malt whisky in the US will inevitably have an impact on total Scotch whisky stocks. The stock controllers and accountants will be running their numbers again and again to work out if they need to revise their current distilling programs in the light of possible weaker future demand. For some it may be the trigger to take the foot off the gas; for others it could even be a welcome relief if their mature stocks were already looking rather tight. After all, global malt sales actually declined by 0.4% in volume last year, having risen at an average rate of 5% every year of this decade - and not many of us were brave enough to predict that then. But stock controllers will also be looking at the stocks of malt that they have earmarked for blends as well as malts.

Forecasting 8-10 years ahead is a complex business for both large and small Scotch whisky companies and many lessons have been learnt, and continue to be learnt, in this critical area of the Scotch whisky jigsaw. Over the last twenty years Scotch has extended its reach into a much wider variety of export markets. This breadth, and depth, has made it easier for the industry to adapt and react when unexpected events, such as the imposition of a tariff, occur.