Talk of trade wars and tariffs has largely focused on issues such as steel, auto manufacturing, and American farmers. One overlooked industry imperiled by the ordeal is that of American spirits, and in particular, American whiskey.
This has a far more widespread and powerful impact than many initially realize. The American spirits industry is both big business, while today thanks to the craft spirits boom, also represents thousands of small, family-run businesses. Meanwhile, American whiskey is not only a valuable export, but is also one of the key cultural exports we send across the world. As such, it’s left particularly vulnerable as politicians pull their retaliatory strings.
For drinkers overseas, a diminishing supply of craft whiskey alongside dramatically raised prices for staple American whiskey brands has resulted. Domestically, there’s a different picture. On the one hand, producers large enough to be flexible with supply and bottling—American bottle sizes are different from international ones—may theoretically be able to move more supply of coveted limited releases to the American market. More realistically though, producers are struggling to battle off lost profits from reduced export sales, which ironically could also mean raised prices at home, too.
Damage to American Whiskey Exports
In 2017, there were $1.645 billion in spirits exports, according to data from the Distilled Spirits Council of the United States (DISCUS). The bulk of that comes from whiskey, with over $1.1 billion in export sales.
When the first retaliatory tariffs were imposed, a clear and direct negative impact was seen in U.S. whiskey exports. In the first six months of 2018, American whiskey exports were up 28% year-on-year compared to 2017. After the tariffs, whiskey exports nosedived 8.2% from July through November.
Narrowing the field of focus, the EU was the recipient of well over half of all American whiskey exports in 2017. Exports from January to June 2018 were up 33%, a 25% tariff was then imposed on June 22, and exports fell 8.7%.
Harmful to Small Spirits Businesses, Too
In the political-economic drama in America, it’s the prototypical small business owner that is most often discussed and expounded upon, and they exist to a strong degree in the spirits sector. In 2018, there were over 1,800 active craft distilleries in the U.S., according to the American Craft Spirits Association (ACSA). That’s 1,800 family-run businesses, with over 18,000 employees.
Perhaps only a fraction of these has grown to the point of participating in the export market, but it’s a huge milestone for those who have been able to make the leap. Export growth was up 5.7% for craft distilleries in 2017 compared to the year prior. Those gains are going to be wiped out, and while a company the size of Brown-Forman can ultimately brush off such a hit from tariffs, painful as it may be, the math is more difficult for a small business.
Consider the case of Catoctin Creek, a Virginia distillery known predominantly for its rye whiskey, Roundstone Rye. When Constellation Brands acquired a minority stake in the business in 2017, founder Scott Harris told this reporter at the time, “People will be asking us why we did this deal, and they have to understand how difficult it is for a small company like ours to expand and continue to grow.”
Now, he’s feeling the brunt of a trade war he wanted no part of. “The tariffs came at the worst possible time for our business expansion,” Harris says. “The competition here domestically is very tight. About five years ago, sensing this, we looked to Europe to expand our business.”
Harris says that his company has directly spent $100,000 on export promotion trips to the EU in the years since. The result was that in 2018, Catoctin Creek expected a full quarter of its revenue to come from the European market. Right before the tariffs hit, he says another trip overseas netted a dozen handshake deals he was eager to finalize.
“Upon our return, when the tariffs went into effect, our distributor dropped us, and our sales in the U.K. never materialized,” Harris says. “That 25% revenue we expected from Europe was about 1%.”
Harris points to other distilleries such as FEW Spirits, Sonoma Distilling Company, Journeyman Distillery, Death’s Door Spirits, and Widow Jane, as others he knows were also directly, negatively impacted by tariffs as Catoctin Creek was.
Next time you raise a glass of whiskey, perhaps to ease the stress from another day spent hearing about politics and tariffs, elections and Brexit, take a moment to realize that the whiskey you’re holding isn’t immune from the ills of the same system.