Scottish Affairs Committee
Wednesday 11th November 2026
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09:24
Speaker 1
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Speaker 1
Acting, supply chains, energy prices and prices of goods, and for contracts in which the UK has little to no influence in terms of determining the outcome. The impact , like the UK that is roughly two thirds of its GDP, comes via international trade. Changes in this environment are actually incredibly significant for a sector like Scotch, which is even more export oriented. Restrictions such as tariffs, technical barriers to trade behind the border are incredibly damaging. They can have long lasting effects long beyond the length of the tariffs themselves. The US is a very good case study of that.
And so what businesses like that really need is a reliable, consistent environment which they're not getting at the moment.
And so what businesses like that really need is a reliable, consistent environment which they're not getting at the moment.
09:25
09:25
Speaker 2
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Speaker 2
Yes. So I think when I'm looking at the global economy at the moment, I think the two biggest shocks we need to keep in mind are on the one hand the high energy prices. And on the other, there has been kind of one bright spot for the global economy recently, which is the boom in all trade. That's in some way related to AI, kind of all the hardware that's needed for the AI build out. And the consequence of that shocks is we've kind of got a bifurcated global economy where countries that either are energy suppliers or suppliers of AI hardware are actually growing relatively strongly because there's strong demand for what they're producing.
But other countries that are energy importers and that are exposed to the high energy prices and don't supply AI hardware are struggling. And unfortunately, the UK does fall more into that latter category of countries that are growing relatively slowly and, as Will said, are facing a very challenging economic environment at the moment.
But other countries that are energy importers and that are exposed to the high energy prices and don't supply AI hardware are struggling. And unfortunately, the UK does fall more into that latter category of countries that are growing relatively slowly and, as Will said, are facing a very challenging economic environment at the moment.
09:26
Speaker 3
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Speaker 3
Thank you so much. I think I'll give some numbers here. To provide context, in my opinion, the global outlook is very challenging. It's a very uneven kind of a landscape that countries are operating in. And why I say this is when we look at the numbers, we see that global GDP is actually around just around three 3%, expected to be 3.4% next year. Inflation rates are quite high comparatively. If you look at it around four four plus 4%. Having said , this, world trade has grown and as you rightly mentioned, there's been a boom in AI and energy exports.
But having said this, given that Scotch whisky is is a hugely is an export oriented product which is hugely exposed to the fluctuations globally, the business. And given that the landscape is the trade landscape is fragmented. Global supply chains are under stress. The Scotch whisky sector has not really done as well as it should have. If we contextualize this within the context of the UK, we see that the GDP of the UK is 1.2%, expected to go down to 1% next year. And these are all IMF estimates that I'm giving. And if we further start looking at the business business investment outlook, we see that at the moment it's growth is around 0% and expected to be -0.5%.
So this clearly tells us that the business climate they are navigating is hugely challenging and can have a hugely detrimental impact on a sector that's hugely linked to exports. And why I say this is because Scotch whisky as a sector is facing demand and supply side challenges. And you've rightly identified demand and supply side challenges. So I would go back and say, well, in addition to that, why I say they are demand and supply side challenges is because the pattern of consumption is also changing the amount of disposable income. Given that the economy is slowing down, the the disposable income levels with consumers is also lower.
And plus, I would also say that there has been a global shift in the consumption pattern, plus high energy costs, trade fragmentation, geopolitical conflict, increasing transport costs. They all are making the landscape extremely difficult to operate in. Thank you.
But having said this, given that Scotch whisky is is a hugely is an export oriented product which is hugely exposed to the fluctuations globally, the business. And given that the landscape is the trade landscape is fragmented. Global supply chains are under stress. The Scotch whisky sector has not really done as well as it should have. If we contextualize this within the context of the UK, we see that the GDP of the UK is 1.2%, expected to go down to 1% next year. And these are all IMF estimates that I'm giving. And if we further start looking at the business business investment outlook, we see that at the moment it's growth is around 0% and expected to be -0.5%.
So this clearly tells us that the business climate they are navigating is hugely challenging and can have a hugely detrimental impact on a sector that's hugely linked to exports. And why I say this is because Scotch whisky as a sector is facing demand and supply side challenges. And you've rightly identified demand and supply side challenges. So I would go back and say, well, in addition to that, why I say they are demand and supply side challenges is because the pattern of consumption is also changing the amount of disposable income. Given that the economy is slowing down, the the disposable income levels with consumers is also lower.
And plus, I would also say that there has been a global shift in the consumption pattern, plus high energy costs, trade fragmentation, geopolitical conflict, increasing transport costs. They all are making the landscape extremely difficult to operate in. Thank you.
09:28
09:29
09:29
09:29
Speaker 3
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Speaker 3
So I think the most important risks we should be looking out for is to ensure that businesses continue to invest. The risk is businesses may not invest as much, given that the sentiment is quite low generally within businesses. Now , risks that are further we can see down the line are high energy costs. In the UK, energy costs are actually 63% higher compared to the average median. So if energy costs continue to rise and given that Scotch whisky is a huge is quite an energy intensive sector, there are going to be risks to competitiveness for the industry.
09:30
Speaker 2
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Speaker 2
Because the Scotch whisky industry is so dependent on global demand. Anything that leads to a kind of downturn in the global economy is a big risk factor for the industry. And I think there are kind of two potential downside risks that I would point to there. One would be any escalation of the conflict either between Russia and Ukraine or or in the Middle East. That would be an obvious risk. And then the other one would be if the current AI boom, if it's a bubble that pops at some stage and leads to a global downturn, in both those cases, you would see declines in global demand, and that would reduce Scotch whisky exports.
09:30
Speaker 1
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Speaker 1
I would I think there is an enormous question about where global trade policy and global economic policy goes in the next 5 to 10 years. US tariffs and the approach that President Trump has taken on US trade and tariff policy take a lot of headlines, and rightly so. But actually, you don't need to look very far away from the UK to see other countries and other jurisdictions really putting up other types of barriers. So, for example, the EU's Made in Europe initiative is a brazen and very open attempt to. Bring back supply, bring back manufacturing into the EU and make support and public support contingent on manufacturing within the EU.
Now, all countries and all jurisdictions are fundamentally looking for ways to build out their economies, reduce exposure to risks such as the China shock. And I think we are likely to see in the future an increasing proliferation of measures like this that look to protect domestic manufacturers. It's not deglobalization that word gets thrown around quite a lot, but I do think we are going to see a shortening of trade relationships between more closely aligned geopolitical blocs, rather than the large scale globalization that has existed arguably since the end of the Cold War.
Now, all countries and all jurisdictions are fundamentally looking for ways to build out their economies, reduce exposure to risks such as the China shock. And I think we are likely to see in the future an increasing proliferation of measures like this that look to protect domestic manufacturers. It's not deglobalization that word gets thrown around quite a lot, but I do think we are going to see a shortening of trade relationships between more closely aligned geopolitical blocs, rather than the large scale globalization that has existed arguably since the end of the Cold War.
09:32
Dave Doogan
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Dave Doogan
Yeah, just on that point, Mr. Howarth. What what is the impetus behind that? Is it about creating economic growth and employment and reducing some of the social cost challenges within jurisdictions such as the EU? Or is it about reshoring manufacturing capacity and having manufacturing capacity at a level which would allow that manufacturing capacity to pivot to something else in extremis, such as, say, defence?
09:32
Speaker 1
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Speaker 1
I think it's all of the things you just mentioned from totally honest. The West in particular has for a number of years relied on cheap inputs, cheap commodities, cheap goods predominantly from China, but from also other global economies. And for many years, that was a fantastic thing. Consumers and businesses had access to cheap goods and cheap inputs that they could then turn into expensive, high end end products. That global dynamic is now shifting. China is the obvious case study. If you look at the way the Chinese automotive sector is now keeping track with, if not outpacing, most Western automotive sectors.
Now, large multinational companies that have for decades relied on those cheap inputs to make a better product are no longer able to do that. Jobs are at risk. The cost of those products is now higher than competitors, and the way the political response is often is. But also the economic response is often to think, well, how can I stop that happening? How can I bring that impetus back into my home jurisdiction to create the jobs, create the investment that we need?
Now, large multinational companies that have for decades relied on those cheap inputs to make a better product are no longer able to do that. Jobs are at risk. The cost of those products is now higher than competitors, and the way the political response is often is. But also the economic response is often to think, well, how can I stop that happening? How can I bring that impetus back into my home jurisdiction to create the jobs, create the investment that we need?
09:33
09:33
Kenneth Stevenson
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Kenneth Stevenson
Yeah. Please. You mentioned the energy costs. I'm assuming the whisky firms aren't stupid, so I'm assuming they would have seen this coming or have seen a gradual progression, a rise in prices. They must have moved towards being an electric economy at some point. What's what's holding them back from being an electric economy and maybe having a wind turbine or solar panels on about, is it connections from NSO or have they just not moved quickly enough with what's happened with the energy sector?
09:34
09:34
Kenneth Stevenson
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Kenneth Stevenson
It's to everyone because you brought it up and mentioned it and I just thought, well, surely whisky companies are, you know, large corporations. They must see what's happening. Obviously they're hurting with energy prices, so they must I know companies that have moved to have their own wind turbines or solar panels to help their energy supply. Do you know why? Why they haven't done that? Or maybe they have just not been quick enough. Have they got problems with NSO with connections from the grid? It's just just a question because that would obviously help.
Their costs.
Their costs.
09:35
09:35
09:35
Speaker 1
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Speaker 1
I wouldn't be able to answer with a huge amount of accuracy. Obviously, the UK's energy problems are down to a range of factors, including international factors like the conflict in the Middle East and the conflict in Ukraine. There are domestic factors. The. The speed of grid connections is a persistent issue across all sectors in the UK, but I wouldn't be able to discuss in detail why the Scottish sector hasn't cottoned on.
09:35
09:35
09:35
09:35
09:35
Speaker 3
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Speaker 3
But as I understand the infrastructure, as I've been reading, the infrastructure seems to be quite old. There are issues with the grid and Scotch whisky is consumes a lot of energy in distilling and in various, for example, glass manufacturing as well. So given that a lot of energy is being consumed, prices have gone up as a result of the shock in the Middle East and lack of updating of infrastructure grid in in inefficiencies, all this has contributed essentially to higher energy prices.
Yeah. The government has a role to play.
Yeah. The government has a role to play.
09:36
09:36
09:36
John Cooper
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John Cooper
Thank you, chair. The picture you're painting obviously is a difficult one globally. There are lots of shocks and lots of storms, and Scotch whisky feels a little bit sometimes like a cork in a storm tossed sea. It's not really in charge of events. But having said all that, it is a unique product. It can only produce in Scotland and global demand in many places is dipping. But if we take India as an example, India is the outlier. The Indian demand is absolutely enormous. So I just wondered, professor, you touched on the fact that you thought that this is a moment for investment.
That might be counterintuitive, I think, to a lot of people. I think people would think facing shocks like this, that people would be pulling their horns in and not spending money. You think the opposite. You think that the company should be doubling down as best they can.
That might be counterintuitive, I think, to a lot of people. I think people would think facing shocks like this, that people would be pulling their horns in and not spending money. You think the opposite. You think that the company should be doubling down as best they can.
09:37
Speaker 3
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Speaker 3
Well, if you look at the patterns of how trade has evolved and between different types of Scotch whisky, you will see that in India, trade has. With India, trade has increased hugely. And it's essentially not in the single malt. If you look at if you break up, then you see in the single malt category, exports have not really increased as much. But when it comes to. If I recall, bulk blended malt, bottled blended malt there. That is where the increase has actually happened. So in India, we see a very interesting dynamic where we are seeing that not the premium brand, but the.
In terms of volume, it has grown. But in terms of value, trade has not increased as much. And if you see this, the same holds for Turkey as well. But if you look at America, you find that the value that in terms of value trade has dipped. It's a very interesting dynamic. We are seeing.
In terms of volume, it has grown. But in terms of value, trade has not increased as much. And if you see this, the same holds for Turkey as well. But if you look at America, you find that the value that in terms of value trade has dipped. It's a very interesting dynamic. We are seeing.
09:38
09:38
Speaker 3
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Speaker 3
Absolutely, absolutely. And I think this is a point when a lot of emphasis has to be placed on doing the right kind of promotion, especially for high value blends, because in India, you see the emphasis, the demand is essentially for the lower value. So a lot of promotion has to be done. Well, we know if there is no investment, the returns are going to be very limited. The more you invest, the more you.
09:39
Speaker 3
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Speaker 3
And I said, I suppose the government has a very important role to play here because access to finance should be should be enabled for businesses in the Scotch whisky sector. If you look at and the the British Chamber of Commerce survey that has been done, we find that smaller Scotch whisky, especially SMEs and MSMEs who are involved in the lower end of the supply chain for Scotch whisky productions are the ones that have been hugely impacted as a result of this downturn.
09:39
John Cooper
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John Cooper
This is a common story in Britain, isn't it? We've got lots of start ups, but when we go to scale ups, we struggle and it's access to finance that you bump against all the time. And so many companies talk about the valley of Death, where they reach a point where they're just big enough, they need capital to then grow further, but in fact, they can't access that and they dip down at that point. So Scotch is caught in that, you think?
09:40
09:40
John Cooper
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John Cooper
Okay. Can I come to you, Mr. Horwath? You talked about Europe, and we've just been talking there about the potential in India. And that's possible, obviously, because of the new deal that's been done with India. Is there a concern that closer relations with the EU and the new SPS deal that's coming in , the sanitary and phytosanitary deal , that that might impact on trade deals around the world that are in things like the Cptpp? We've got I keep saying this. We've got to come up with a better name than the AI to come up with something that's easier for me to pronounce.
But that's Cptpp deal, which is a bloc of countries around the Pacific Rim. There's never really been a trade deal like that. There's never really been a bloc like that that offers, I think, tremendous opportunities there. Is that likely to be impacted? If we were to to to do more deals with the EU?
But that's Cptpp deal, which is a bloc of countries around the Pacific Rim. There's never really been a trade deal like that. There's never really been a bloc like that that offers, I think, tremendous opportunities there. Is that likely to be impacted? If we were to to to do more deals with the EU?
09:40
Speaker 1
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Speaker 1
It's it's a slightly. How long is a piece of string question. So the SPS deal that's currently envisaged as part of the upcoming UK EU summit is not super extensive, and it doesn't take us back to what the UK's relationship was when it was inside the EU. Immediately what it does commit the UK to do is what's called dynamic alignment, which means that over time , the UK agrees and commits to maintain light standards with EU standards to allow the movement of those goods between the border frictionless. It doesn't necessarily mean that you have to adapt those EU regulations word for word.
It does create obvious issues. So the one that always comes up is US dissatisfaction with UK food standards in relation to things like chlorine treated chicken and hormone treated beef. Those products haven't been allowed in in the UK or EU for decades. Now, I don't expect that the UK government is going to walk into a closer relationship with Europe at the expense of what an obvious growth opportunities in other markets. India is a fantastic example. There are lots of others in Southeast Asia. There are also lots of others in South America. The Mercosur Customs Union is another one that the UK is looking at, and the EU itself has actually just signed a free trade agreement with.
That's in force as of this year. So there is a risk, I don't think, in the immediate to near term. It's an open risk that will immediately prohibit the UK from expanding its trade policy beyond the EU, though.
It does create obvious issues. So the one that always comes up is US dissatisfaction with UK food standards in relation to things like chlorine treated chicken and hormone treated beef. Those products haven't been allowed in in the UK or EU for decades. Now, I don't expect that the UK government is going to walk into a closer relationship with Europe at the expense of what an obvious growth opportunities in other markets. India is a fantastic example. There are lots of others in Southeast Asia. There are also lots of others in South America. The Mercosur Customs Union is another one that the UK is looking at, and the EU itself has actually just signed a free trade agreement with.
That's in force as of this year. So there is a risk, I don't think, in the immediate to near term. It's an open risk that will immediately prohibit the UK from expanding its trade policy beyond the EU, though.
09:42
09:42
Speaker 2
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Speaker 2
I mean, so my reading of the SPS deal that's under negotiation with the EU is that it's not going to have direct impact on the Scotch industry. Scotch is, for the most part, outside the scope of what's being negotiated there. It might benefit on the margins from some reductions in the frictions at the border. So there might be a slight boost to scotch trade with the EU because of that. I think the bigger question, which is what Will was discussing, is if we go beyond just the SPS deal and there is a more a bigger movement back towards closer relations with the EU, how would that affect our trade relations with the rest of the world?
And the key question there is, do we end up at some point re-entering a customs union with the European Union? Because if we do at that case, at that point where we become part of the EU's common external trade policy, which means essentially we give up our own independent trade deals and we inherit all the trade deals the EU has. So there are going to be trade offs there. I mean, we were talking about India. Both the UK and the EU have a trade deal with India. So it probably doesn't make a huge difference there though.
I think the EU deal phases out or reduces tariffs down to 40% more quickly than the UK deal. And likewise, the EU currently has a deal with Mercosur, which the UK doesn't. So it's it's a difficult it's a complicated trade off. And it's not entirely clear that inheriting the EU's deals necessarily would leave the Scotch industry worse off. It depends. It's going to differ market by market.
And the key question there is, do we end up at some point re-entering a customs union with the European Union? Because if we do at that case, at that point where we become part of the EU's common external trade policy, which means essentially we give up our own independent trade deals and we inherit all the trade deals the EU has. So there are going to be trade offs there. I mean, we were talking about India. Both the UK and the EU have a trade deal with India. So it probably doesn't make a huge difference there though.
I think the EU deal phases out or reduces tariffs down to 40% more quickly than the UK deal. And likewise, the EU currently has a deal with Mercosur, which the UK doesn't. So it's it's a difficult it's a complicated trade off. And it's not entirely clear that inheriting the EU's deals necessarily would leave the Scotch industry worse off. It depends. It's going to differ market by market.
09:44
09:44
Dave Doogan
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Dave Doogan
Thank you chair. Professor Sangita, the you highlighted earlier on some of the significant changes in consumer behaviour with Scotch whisky. Could you elaborate a little bit on them insofar as you can see into the future, any better than the rest of us can? Can you elaborate on what that horizon looks like and and what the Scotch whisky industry is trying to reconcile about what may or may not happen? And particularly, I was interested to hear, and we'd like you to expand upon the value end of the product in terms of the single malt , high value, but much lower volume versus the sort of more substantive product of blended Scotch and how that might pan out over the coming decade, subject to global events, of course, which is what we're driving.
09:45
Speaker 3
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Speaker 3
Thank you so much. So what I have been noticing is that there has been a general change and shift in consumer pattern when it comes to consumption of Scotch whisky. It may be triggered as a result of the campaigns that are run about the consumption of alcohol. I really don't know what is the underlying factor or is it as a result of disposable income? I guess it's a it's a combination of these factors. If you see the the emphasis, if you look at how drink sector is performing, you will see that there is an increase in the sales of no alcohol or zero alcohol drinks at the moment.
Plus, we also see a shift in drinking neat whisky to using whisky in cocktails. And hence we find. You know, I hope I have been able to give you an answer about the changing pattern of consumer habits. It's essentially being driven by this.
Plus, we also see a shift in drinking neat whisky to using whisky in cocktails. And hence we find. You know, I hope I have been able to give you an answer about the changing pattern of consumer habits. It's essentially being driven by this.
09:46
Dave Doogan
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Dave Doogan
Okay. Thank you. And Doctor Samson, when it comes to the international market for Scotch. How much of a potential challenge is it. Scotch is always exported into a number of really important markets like Japan and India and the United States that have a domestic industry market, but they are not Scotch. So that's a different thing. And they are not single malts. So that's a different thing. And but interestingly, there's going to be English single malt coming on the international market quite soon. How much of a threat to Scotch and how how confident are you in the international markets ability to differentiate between Scotch and single malt and English single malt, which will both have a sort of UK, a provenance to them?
How. How big a threat would that be to the Scotch Whisky Association, to the Scotch whisky industry rather?
How. How big a threat would that be to the Scotch Whisky Association, to the Scotch whisky industry rather?
09:47
Speaker 2
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Speaker 2
Yeah. I mean, I think that's a really important question going forward. Clearly, Scotch is a very strong brand that is known around the world, and that does help consumers to differentiate the products that the Scotch whisky industry is offering from whiskies coming from other countries. And that would include whiskies that would come from England. So I think they are in a strong position in terms of kind of the brand equity and the recognition that is there. At the same time, if we look over the last decade, Scotch is share of global whisky trade has been falling only slightly, but it has declined.
Put numbers on that. You know, it's down from 54% in 2016 to 51% in 2025. So there has been this global markets have substituted away to what is coming from the Scotch whisky industry over the past decade to a small extent. So that indicates that there is that competition there. Consumers don't necessarily see Scotch as being one product and other types of whiskies as separate products, but they're considering, should I buy scotch? Should I buy bourbon? Should I buy Japanese whisky? And the Scotch whisky industry is clearly the market leader there. But it has been losing its its sales shares.
And that's a concern. If that trend continues. That is clearly a concern for the industry. And it's something they're particularly the kind of marketing branding teams in conjunction with the UK government will need to focus on.
Put numbers on that. You know, it's down from 54% in 2016 to 51% in 2025. So there has been this global markets have substituted away to what is coming from the Scotch whisky industry over the past decade to a small extent. So that indicates that there is that competition there. Consumers don't necessarily see Scotch as being one product and other types of whiskies as separate products, but they're considering, should I buy scotch? Should I buy bourbon? Should I buy Japanese whisky? And the Scotch whisky industry is clearly the market leader there. But it has been losing its its sales shares.
And that's a concern. If that trend continues. That is clearly a concern for the industry. And it's something they're particularly the kind of marketing branding teams in conjunction with the UK government will need to focus on.
09:48
Dave Doogan
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Dave Doogan
Thank you, Mr. Harris. Given what Doctor Samson has just said and what we've heard already this morning, what are the priorities for the industry beyond just sort of binary growth. I understand the growth imperative. But in terms of accessing markets, in terms of product positioning and in terms of the sort of the the desirability that surrounds premium Scotch in particular, and the effect that that has on volume, Scotch by association. What is the what is the what is the future looking like? What should the industry be pursuing in terms of that global growth in quite uncertain economic times?
09:49
Speaker 1
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Speaker 1
Well, we know and we discussed earlier that Scotch sector relies on export and global trade for about 80 to 90% of its performance. And in a very blunt way, the more access that Scotch and Scotch distillers have to international markets, the better the the better position they are. So if we look at the UK's trade policy at the moment, it's signed a number of free trade agreements post its EU exit. India is a great example. Obviously Cptpp. We've mentioned the Gulf Cooperation Council is another one that was signed this year and is yet to enter force.
There are other markets the UK is considering Indonesia, the Philippines, the UAE on a bilateral basis, and Uruguay. And that's in a recent consultation that the government released seeking input from businesses. And those those are positive things. It is good that the UK is looking to continue to expand its trade policy and market access for businesses, including the Scotch sector. There are a number of different drawbacks or difficulties of that approach. The first is that it isn't just a question of in absolute terms of what the UK's market access is to these markets is. It's also, what is it relative to their competitors?
So all of those markets that I've just listed, the EU, I think by Uruguay, either already has a free trade agreement or is pursuing a free trade agreement. And so to some extent, and Mercosur, whether EU already has a free trade agreement, the UK is in no position to actively negotiate at the moment. So already there is a risk that the UK is falling behind its competitors with regards to market access to big growth markets, particularly in South America and the APAC region. So in my view, the priority for the Scotch sector, what the Scotch sector should be pushing for is for the UK to be moving ahead as quickly as possible on this, securing terms that are, at a minimum, a replica and match the terms that competitors like the EU have achieved.
And also beyond the tariffs, which are very important agreements that that address other things like technical barriers to trade. So health certification labelling requirements, those often really fly under the radar when we're having discussions about global trade. And actually they can be as important, if not more important than the tariffs themselves.
There are other markets the UK is considering Indonesia, the Philippines, the UAE on a bilateral basis, and Uruguay. And that's in a recent consultation that the government released seeking input from businesses. And those those are positive things. It is good that the UK is looking to continue to expand its trade policy and market access for businesses, including the Scotch sector. There are a number of different drawbacks or difficulties of that approach. The first is that it isn't just a question of in absolute terms of what the UK's market access is to these markets is. It's also, what is it relative to their competitors?
So all of those markets that I've just listed, the EU, I think by Uruguay, either already has a free trade agreement or is pursuing a free trade agreement. And so to some extent, and Mercosur, whether EU already has a free trade agreement, the UK is in no position to actively negotiate at the moment. So already there is a risk that the UK is falling behind its competitors with regards to market access to big growth markets, particularly in South America and the APAC region. So in my view, the priority for the Scotch sector, what the Scotch sector should be pushing for is for the UK to be moving ahead as quickly as possible on this, securing terms that are, at a minimum, a replica and match the terms that competitors like the EU have achieved.
And also beyond the tariffs, which are very important agreements that that address other things like technical barriers to trade. So health certification labelling requirements, those often really fly under the radar when we're having discussions about global trade. And actually they can be as important, if not more important than the tariffs themselves.
09:51
Dave Doogan
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Dave Doogan
Thank you. So just very briefly, because I know others want to come in on this. None of us can see the future and none of us knew what was going to happen years ago. So I'm very interested to hear about the progress you've said that the EU have made in terms of their repositioning themselves in the global market in the last decade, with events and the net position that the UK has, of course, struck trade deals since since Brexit as well. But the net position specific to Scotch whisky, if the UK was still in the EU, would it be in a better international trade position than it is now?
Having come out of the EU and struck its own trade deals in various different jurisdictions? Is the net position positive or negative on trade alone?
Having come out of the EU and struck its own trade deals in various different jurisdictions? Is the net position positive or negative on trade alone?
09:52
Speaker 1
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Speaker 1
So you'd have to look at the numbers for that. I would say on the surface it currently appears so, yes. What appears though that the EU, if the UK remained in the EU, it would be in a better net position vis a vis access to the global markets that we've been speaking about for the Scotch sector. Thank you.
09:52
09:52
09:52
09:52
09:53
Speaker 2
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Speaker 2
I think that's a tough question to provide a definitive answer to. I think it is certainly important for the kind of continued ability of Scotch industry to sell premium products at premium prices, that there is a clear kind of distinction between Scotch that is kind of considered premium scotch and bulk scotch. I think the kind of whisky companies are aware of the importance of maintaining this distinction and, and not cannibalizing their own sales by providing kind of cheaper bulk exports that could then substitute for premium products. But it clearly is a consideration that needs to be taken into account that you from you want consumers to view premium scotch as a separate product from scotch or Scotch that is exported and then turned into other whisky products overseas.
And I think they have done a reasonably good job of that so far. But it's something that you need to be aware of on an ongoing basis. Thank you.
And I think they have done a reasonably good job of that so far. But it's something that you need to be aware of on an ongoing basis. Thank you.
09:54
09:54
Angus MacDonald
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Angus MacDonald
We were talking about the economic opportunities for the Scotch whisky industry. Mr. Howarth, would you address this? What countries would you say offer the biggest opportunity in, say, a five year horizon for the Scotch whisky or a ten year horizon for Scotch whisky industry, if you were running one of the major companies?
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Speaker 1
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Speaker 1
So my company colleagues of mine, we've done some quite deep analysis on this. The one that stands out by some distance is the UAE. And that is possibly surprising given the cultural sensitivities towards alcohol there. But actually the the international dimension of its inhabitants and its place as a business hub in the region actually means that the demand for alcohol and premium alcohol, such as Scotch, is very high. And we, you know, our modelling would estimate that an FTA with UAE, where there is currently a 50% tariff on Scotch, if that tariff were to be removed immediately over a period up to roughly 2040, you're looking at possibly growth of over £1 billion for the UK sector in revenue and hundreds of jobs.
Mercosur, which is the South America Customs union block that I mentioned, is another significant market, obviously slightly different in terms of its consumer base and the tastes over there. But that is another market where we'd estimate there to be an opportunity of hundreds of millions of pounds, if not closing on a billion as well. There are there is a difficult question here. So in Indonesia, for example, is an interesting case study because official statistics would show a very low level of alcohol consumption for cultural reasons. Actually, it's quite well known that the rate of illicit alcohol consumption is extremely high.
And therefore the unofficial statistics and the unofficial numbers, and therefore the unofficial growth opportunity is a lot higher as well. So if I had to pick out a small number of markets, those would probably be the three at present.
Mercosur, which is the South America Customs union block that I mentioned, is another significant market, obviously slightly different in terms of its consumer base and the tastes over there. But that is another market where we'd estimate there to be an opportunity of hundreds of millions of pounds, if not closing on a billion as well. There are there is a difficult question here. So in Indonesia, for example, is an interesting case study because official statistics would show a very low level of alcohol consumption for cultural reasons. Actually, it's quite well known that the rate of illicit alcohol consumption is extremely high.
And therefore the unofficial statistics and the unofficial numbers, and therefore the unofficial growth opportunity is a lot higher as well. So if I had to pick out a small number of markets, those would probably be the three at present.
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Speaker 3
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Speaker 3
Thank you. So I think the other growth markets but in not high value Scotch are India and Turkey because there we've seen a substantial growth over the years. But then and we know that trade deals that the UK has a trade deal with India. Now interestingly enough, we know that tariffs were as high as 150. They've gone down to 75 after the implementation with India, with the trade deal with India. And actually they will be reduced over a phased over the next few years to 40%. Having said this, we should not rejoice that tariffs reduction in tariffs per se will lead to an increase in market access, because we have to look at country specific factors which have an impact on the growth potential of the Scotch whisky industry.
To put this into context, if you look at India, there are a combination of factors that that continue to have an impact on Scotch whisky exports to India. One, there are regulations which are there at the centre which are by the central government. Scotch whisky industry has to adhere to that. In addition to that, there are also state level levies, excise duties which exist, and they vary between different states. So that adds on an additional layer of burden. In addition to that, there are pricing and distribution costs which have an impact. And finally it is the licensing regulations as well.
So it's a host of other factors which are sitting behind the border that have an impact. And these have not these have these cannot be addressed through the trade, through the FTA, but they have to be done at a bilateral level. And this is where the government has to play a very important role in making sure that the implementation of the trade deal is done in a manner that it supports the Scotch whisky industry.
To put this into context, if you look at India, there are a combination of factors that that continue to have an impact on Scotch whisky exports to India. One, there are regulations which are there at the centre which are by the central government. Scotch whisky industry has to adhere to that. In addition to that, there are also state level levies, excise duties which exist, and they vary between different states. So that adds on an additional layer of burden. In addition to that, there are pricing and distribution costs which have an impact. And finally it is the licensing regulations as well.
So it's a host of other factors which are sitting behind the border that have an impact. And these have not these have these cannot be addressed through the trade, through the FTA, but they have to be done at a bilateral level. And this is where the government has to play a very important role in making sure that the implementation of the trade deal is done in a manner that it supports the Scotch whisky industry.
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Kirsteen Sullivan
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Kirsteen Sullivan
With tariffs. I wonder if we can just talk about the experience of US tariffs. Because obviously tariffs come in in 2019. And then there were suspended in 2021. And then they came back again as part of the Liberation Day tariffs in 2025 and then came off again in 2026. So there's clearly a lot of uncertainty and change that must make it quite difficult for companies when they're looking at investment decisions. I just wonder if you could give me a bit of insight into what you think we can learn from the experience of those US tariffs , and how that uncertainty can create additional challenges for exporters.
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Speaker 1
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Speaker 1
I'd be happy to start. So the US trade posture, as you say, has been incredibly uncertain, makes it very difficult for investors in any sector. The Scotch sector is actually one of the ones that has not got away with it, but has probably been slightly better treated. President Trump removed Scotch tariffs as a result of a state visit. He was very clear that that was a favour to the king rather than any like of UK trade policy. But it is, for whatever reason, a net benefit. I think there are a number of important reasons. I'll start with the context of US trade policy.
I don't think we should expect US trade policy to change significantly from what it is now, and I don't think that the midterm results significantly change US trade policy. They certainly don't change the president's ability to exercise authority over the imposition of tariffs. And then from a broader political perspective, there is no real bipartisan consensus within the US for a return to global open markets. If you look at the actions of President Biden, you know, arguably very different to President Trump in much of his politics. He actually maintained a number of Trump first term era tariffs, mostly on Chinese goods.
But those 2019 tariffs that you were talking about there came in under him as well. So I think if you're a Scotch exporter or any exporter, frankly, looking at the US, I think the baseline expectation has to be that market access will come at a higher cost for the near future. And the lesson to be learned from that, and this is where the EU has pivoted very quickly in some regards, is if that is going to be more difficult market for you to access, how do you diversify market access opportunities for your businesses away from that, which is where this stream of free trade agreements, some of which admittedly have been many years in the making, has come from and for the UK, as I said earlier, looking at a proactive trade policy in response to a US that is going to be harder and more expensive to access, maintains and gives you that flexibility and your business is the opportunity to access markets to offset the higher costs and difficulty of accessing the US.
I don't think we should expect US trade policy to change significantly from what it is now, and I don't think that the midterm results significantly change US trade policy. They certainly don't change the president's ability to exercise authority over the imposition of tariffs. And then from a broader political perspective, there is no real bipartisan consensus within the US for a return to global open markets. If you look at the actions of President Biden, you know, arguably very different to President Trump in much of his politics. He actually maintained a number of Trump first term era tariffs, mostly on Chinese goods.
But those 2019 tariffs that you were talking about there came in under him as well. So I think if you're a Scotch exporter or any exporter, frankly, looking at the US, I think the baseline expectation has to be that market access will come at a higher cost for the near future. And the lesson to be learned from that, and this is where the EU has pivoted very quickly in some regards, is if that is going to be more difficult market for you to access, how do you diversify market access opportunities for your businesses away from that, which is where this stream of free trade agreements, some of which admittedly have been many years in the making, has come from and for the UK, as I said earlier, looking at a proactive trade policy in response to a US that is going to be harder and more expensive to access, maintains and gives you that flexibility and your business is the opportunity to access markets to offset the higher costs and difficulty of accessing the US.
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Speaker 2
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Speaker 2
I mean, let me start by just saying I fully agree with the assessment that I don't think we should expect to see major changes in US trade policy, either as a result of the midterms, or if there is a Democratic administration in 2028. There is a broad bipartisan consensus in Washington at the moment in favour of more protectionist measures than the US has traditionally imposed. So I think it's right to expect harder access to US markets going forward. The other thing I think we can learn from that tariff experience with the US is looking back at the 2019 tariffs.
I mean those tariffs were they hit Scotch as kind of collateral damage as part of the Boeing Airbus dispute. And the point to note there is that when countries get into a trade dispute and impose retaliatory tariffs, they tend to place them on industries that have kind of a high degree of salience, whether that's cultural salience or political salience. And for better or worse, that is a good characterization of the Scotch industry. So I think a a risk factor for the Scotch industry going forward will be that in the event the UK has a trade dispute with other countries, placing retaliatory tariffs on the Scotch industry is a fairly likely outcome.
So in the event that there is a UK India trade dispute or perhaps more likely a UK China trade dispute in coming years, I think the Scotch industry needs to be prepared for losing market access, at least temporarily. In that case.
I mean those tariffs were they hit Scotch as kind of collateral damage as part of the Boeing Airbus dispute. And the point to note there is that when countries get into a trade dispute and impose retaliatory tariffs, they tend to place them on industries that have kind of a high degree of salience, whether that's cultural salience or political salience. And for better or worse, that is a good characterization of the Scotch industry. So I think a a risk factor for the Scotch industry going forward will be that in the event the UK has a trade dispute with other countries, placing retaliatory tariffs on the Scotch industry is a fairly likely outcome.
So in the event that there is a UK India trade dispute or perhaps more likely a UK China trade dispute in coming years, I think the Scotch industry needs to be prepared for losing market access, at least temporarily. In that case.
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Speaker 1
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Speaker 1
May I just quickly add one point on to Thomas's. So the UK China risk I think is very real. If you look at the way that the UK is posturing towards the EU, part of that is now becoming conditional on the UK aligning more closely to the EU's economic security agenda, which is becoming more restrictive towards China. And so there's a very real possibility in the near term. And I mean, in the next 12 to 18 months that the UK move towards the EU results in it having to impose or matched tariffs that the EU has imposed on certain Chinese goods.
So electric vehicles are a very good example. And there is a very real case study of this. When the EU introduced those tariffs in 2023 2024, one of the sectors that the Chinese government retaliated against was the French cognac and brandy sector. And they did that because a the French government was one of the strongest proponents of a tougher economic stance on China. And B, as Thomas said, politically and economically salient sectors and culturally salient as well that they knew would hit hard, would hit voters hard, and would hit the sort of the local population in a difficult way.
So I think the UK China dynamic is potentially a big risk for the Scotch sector in the coming years.
So electric vehicles are a very good example. And there is a very real case study of this. When the EU introduced those tariffs in 2023 2024, one of the sectors that the Chinese government retaliated against was the French cognac and brandy sector. And they did that because a the French government was one of the strongest proponents of a tougher economic stance on China. And B, as Thomas said, politically and economically salient sectors and culturally salient as well that they knew would hit hard, would hit voters hard, and would hit the sort of the local population in a difficult way.
So I think the UK China dynamic is potentially a big risk for the Scotch sector in the coming years.
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Speaker 1
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Speaker 1
To some extent? And Scotch, as we said, is it is a bit unavoidable, and they are caught as collateral in larger trade disputes that don't have anything to do with the alcohol sector or the Scotch sector. I would I would go back to my previous point that recognising that the risk of access to certain markets or the cost of accessing certain markets is going to increase the US and China, for example, the push for diversification of the UK's access to other markets to offset those higher costs is, I believe, should be a priority for sectors like Scotch to ensure that when if these higher costs do come in, they're able to pivot quickly to other markets and look at expanding into other markets rather than having to address higher costs and then lose revenue in the long run.
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Speaker 3
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Speaker 3
Thank you so much. I really wanted to pick up on this point, so thank you for asking the question. So we know tariffs the ongoing tariff landscape is creating or has created a lot of uncertainty for businesses, no matter whether it's Scotch whisky or any other business sector. Now we know generally, we know in general that whenever there's uncertainty, business sentiment takes a hit. And that's precisely been the case with Scotch whisky as well as it has been with other sectors. What is very interesting about the Scotch whisky sector is that they plan very well.
They plan much in advance because the the the maturity period for Scotch whisky is roughly on average around three years plus. It can be five. It can be ten. So the planning begins much earlier. And given that there are there is there are tariffs , the threat of tariffs. There's this ongoing global uncertainty generally low business sentiment. It does not look very good when you look at how it will pan out in the next few years.
Because planning for the next five years, 3 to 5, seven, ten years has to be done by businesses today. And most importantly, I think if you look at we know that the Scotch whisky
They plan much in advance because the the the maturity period for Scotch whisky is roughly on average around three years plus. It can be five. It can be ten. So the planning begins much earlier. And given that there are there is there are tariffs , the threat of tariffs. There's this ongoing global uncertainty generally low business sentiment. It does not look very good when you look at how it will pan out in the next few years.
Because planning for the next five years, 3 to 5, seven, ten years has to be done by businesses today. And most importantly, I think if you look at we know that the Scotch whisky
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Speaker 1
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Speaker 1
Which again had a very negative impact. So giving a you know, in response to your question, how long does it take? It's actually a long term horizon. It's not a button you can switch on and switch off. It takes time because the. market reacts and reacts to the. changes in the global landscape. And that can be really you are looking at this medium to long term.
Not in the short term.
Not in the short term.
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Speaker 2
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Speaker 2
Okay. So maybe building on that kind of another reason why the reactions can often be quite sluggish is that if you think about the investment decisions that. producers are making, they're making those decisions not based necessarily on what the tariff is today, but on their. expectation about future tariffs. And as we've already talked about, there is a lot of. uncertainty in the trade policy environment generally at the moment and particularly over US trade policy. So even if there's a kind of today the US tariff or in July, the US tariff was removed on Scotch whisky.
To the extent that there is a risk that that is a a temporary reduction. And obviously, we have seen a lot of volatility in US trade policy over the past year. The potential of higher tariffs will also be influencing.
To the extent that there is a risk that that is a a temporary reduction. And obviously, we have seen a lot of volatility in US trade policy over the past year. The potential of higher tariffs will also be influencing.
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Speaker 3
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Speaker 3
The tariff was gone forever. Thank you. I agree with with both of those inputs. The only thing I would add is that, you know, one of the responses that companies exposed to higher tariffs can make is that they can change production methods or supply chains to try and reduce costs for Scotch. That isn't really an option, given the limitations of its geographic production and production methods. And for that.
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Speaker 3
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Speaker 3
Trade policy? I'm happy to kick off. I so one question, 1.1 answer to that question is the market access thing that the more the more access that the UK has for its businesses, the more. diverse that pool is, the better protected businesses are from changes that are unilaterally made by governments like the US or China, for example, to increase costs. I think there is also greater support that UK could give.
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Speaker 3
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Speaker 3
More business. promotion as well. So the Department for Business and Trade or Business innovation, Science and Trade is it now is has a very good and very well established function beyond trade policy of trade promotion. Those are enormously helpful, particularly for smaller companies and smaller distillers in the Scotch sector. And I would argue that greater funding, greater focus on that, in addition to the trade policy issue as well,
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Speaker 2
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Speaker 2
The less exposed you are to that shock. At the moment, the US and the EU are the biggest markets and together they're close to. 50% of Scotch exports. If there are. opportunities to. diversify and to increase exports to new markets, some of the countries we talked about earlier, that would make the industry less exposed to a shock to US or EU market access. And then the second thing, building on the point will made about the export promotion function of the UK government. I agree that that's very important and can be very valuable for the industry.
I think we have slightly. underinvested in. understanding which types of export promotion methods work best. There is a tendency to undertake export promotion, but not necessarily to evaluate the success of those export promotion methods. And I think a kind of high. return investment would be more evaluation of what.
I think we have slightly. underinvested in. understanding which types of export promotion methods work best. There is a tendency to undertake export promotion, but not necessarily to evaluate the success of those export promotion methods. And I think a kind of high. return investment would be more evaluation of what.
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Speaker 1
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Speaker 1
Industry is most successful. Thank you. Thank you so much. I think I would like I completely agree with what both of you have said. I would however, like to add one point. The UK has come up with its industrial. policy and if we look at the kind of. contributions Scotch whisky makes to the economy in terms of. job employment, in terms of exports, in terms of value added contribution.
I think it has, in my.
I think it has, in my.
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Speaker 1
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Speaker 1
In the industrial policy, Scotch whisky has not been highlighted and flagged as an important sector which it rightly deserved to have been done. There are eight sectors and none of them actually talk about the Scotch whisky. So that is an aspect and an area the government can focus on and revisit and see what can be done to a really. premium and brand of Scotch whisky as to how they can integrate it into the fabric of the industrial policy. Maybe it could be through supporting their industries, through supporting them, through lower energy costs, through supporting them, through.
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Dave Doogan
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Dave Doogan
Thank you. Thank you very much for that. Thank you very quickly. Doctor Sampson, Mr. Howarth, you both talked about you don't foresee a particular a U-turn on tariffs as either as a result of the midterms or a change in administration in 28. But it's not about tariffs or no tariffs is it. It's about the type of tariffs you apply and the way that you apply them. And it's safe to say that some of the US tariffs are strategic. I would say that the cars are strategic because there is a domestic industry at serious existential threat from those products.
And some of them are tactical. And that's to flatter them. And they've backfired spectacularly in US agriculture. And to the point on Scotch whisky. Bourbon casks only get used once except by the Scotch whisky industry, who then take them in. Has that been factored into the thinking anywhere, and is that a lever that the industry can pull to say, well, it's probably best not to have tariffs on Scotch whisky because of the effect it will have on your domestic bourbon industry. I know you can't make. Any administration make a decision, but I mean, were those points made previously or is that just naive?
And it's way above that. And it's just it's all about posturing, as you say, on on a totemic.
And some of them are tactical. And that's to flatter them. And they've backfired spectacularly in US agriculture. And to the point on Scotch whisky. Bourbon casks only get used once except by the Scotch whisky industry, who then take them in. Has that been factored into the thinking anywhere, and is that a lever that the industry can pull to say, well, it's probably best not to have tariffs on Scotch whisky because of the effect it will have on your domestic bourbon industry. I know you can't make. Any administration make a decision, but I mean, were those points made previously or is that just naive?
And it's way above that. And it's just it's all about posturing, as you say, on on a totemic.
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Speaker 2
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Speaker 2
Brand and industry. I mean, I don't know whether those specific points were made in negotiations. Obviously, what we do know is the UK was successful in getting the tariff on Scotch whisky removed. So to some extent there the, you know, the the. status or the kind of iconic, slightly iconic nature of the Scotch whisky industry has probably there been helpful in getting President Trump to agree to remove the tariffs? More broadly, I think it is very difficult to. influence US trade policy, particularly as an. overseas US group, because there are so many different interest groups that have a stake in how US trade policy is is made.
They're probably, you know, if there is a Democratic president after.
They're probably, you know, if there is a Democratic president after.
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Speaker 2
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Speaker 2
There probably will at least be some kind of. re-evaluation of what US trade policy is going to look like going forward. And there may be scope at that. point to influence kind of changes on the margin. But I think our baseline. expectation should very much be that we're not going back to a pre. 2016 world. We've entered an era of certainly from the US perspective, higher.
permanently higher tariffs. And we want to kind of be starting from that point .
permanently higher tariffs. And we want to kind of be starting from that point .
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Douglas Lumsden
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Douglas Lumsden
Think about what might be possible. Thank you. Did you want to. Yeah thank you chair. Doctor Samson I want to go back on something you said earlier about export promotion. And there's no evaluation done on what really works. And I sort of I'm confused by by that. So what's taking place just now. Is it almost like a scattergun approach by by the government .
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Speaker 2
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Speaker 2
So rather than kind of we run a marketing. campaign and then we commission someone to write a report on how. successful this was. Right. Imagine you're introducing a new medical drug, right? That is not how you would evaluate the effectiveness of the drug. Right. The gold standard of evidence. evaluation in the pharmaceutical industry is you run some kind of randomized. trial where some patients get access to the drug and others don't. And that gives you a very clean way to understand the effects of the drug. Now, those kind of methods are. increasingly being used in policy evaluation.
And I think there is scope to build them into how we evaluate our export. promotion strategies. So for.
And I think there is scope to build them into how we evaluate our export. promotion strategies. So for.
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Speaker 2
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Speaker 2
You know, what could one do there? Suppose you are. considering a number of markets in which you could run an export promotion strategy for Scotch whisky. Perhaps you can randomize which markets you actually pick to be the target for that strategy. And then that will give you a cleaner way of. understanding how.
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Douglas Lumsden
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Douglas Lumsden
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Speaker 1
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Speaker 1
Whisky industry? Maybe start with you, Professor Gharana. Thank you so much. It's it is hugely significant for the Scotch whisky, the trade deal, if you look at it from that perspective, because India is one of the largest consumers of Scotch whisky and export, and they are importing more and more. Having said this, I'll give some numbers. So the market size there is 286,000,000 in 2025. That was the estimated market size in India, and the growth was roughly around 5%. The value had grown by nearly 5%. But if we look at look at in terms at exports, Scotch whisky exports, in terms of value, we find that it was.
16% growth in terms of 5% in value, but. 16% in terms of volume. So India is a market that is growing, as is Turkey, as is UAE, as is Indonesia. So these are markets that are really the hot spots where Scotch whisky. promotion can could benefit. The growth rate in India is roughly around.
16% growth in terms of 5% in value, but. 16% in terms of volume. So India is a market that is growing, as is Turkey, as is UAE, as is Indonesia. So these are markets that are really the hot spots where Scotch whisky. promotion can could benefit. The growth rate in India is roughly around.
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Speaker 3
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Speaker 3
Market sector. How important is that trade deal? I mean I. Professor Khurana has the numbers. I don't have any numbers to add to that. What I would say is it is hugely significant. There is a big. question over the implementation of the agreement itself. And this exists for all FTAs. And we've actually already seen some issues with the implementation of the FTA, as Indian. authorities have questioned the applicability of tariff reductions to bulk whisky imports versus bottled. And both governments are currently negotiating on that and making sure that it's seen through. But it's a really good.
example of where a big policy. announcement and don't take this away, it is a significant FTA for the UK is somewhat undermined by the.
example of where a big policy. announcement and don't take this away, it is a significant FTA for the UK is somewhat undermined by the.
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Speaker 3
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Speaker 3
The whisky industry going forward, do you think? I can speak previously, having been in the Department of Business and Trade? I think there is. There has always been a question over resourcing. particularly in the. post-Brexit flurry of the UK looking to expand its market access through a wide range of FTAs. And that question has never really gone away. And that potentially places limits on the UK's ability to negotiate. multiple FTAs at the same time. I wouldn't be surprised. I mentioned the consultation earlier that the UK had done on potential trade agreements with a range of markets.
I wouldn't be surprised if the outcome of that is a. prioritisation of 1 or 2 out of the four, whilst not saying it explicitly, but implicitly implying that there is a.
I wouldn't be surprised if the outcome of that is a. prioritisation of 1 or 2 out of the four, whilst not saying it explicitly, but implicitly implying that there is a.
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Speaker 2
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Speaker 2
Actually getting the benefits is something else. Yeah. No, absolutely. And I fully agree with what both my colleagues here have already said. And this dispute that's. ongoing over the bulk whiskey imports into India is a good example. Now, I believe the UK government has been fairly. proactive in. negotiating with its Indian counterparts to try and resolve that dispute. And some of the initial signs that we might be going to reach a positive outcome are over that. But, you know, it's an indication that once you have negotiated the deal, you can't just disband the team and not worry about India anymore.
You need to keep a staff dedicated to. monitoring the deal within DBT.
You need to keep a staff dedicated to. monitoring the deal within DBT.
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Speaker 2
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Speaker 2
But it can help the Scotch. industry kind of increase its share of that demand. And that's through you know, there's kind of three things it can be doing for that. One is negotiation of trade deals. Two is the as we've just been talking about, the kind of implementation of existing trade deals and making sure that kind of market access commitments that have been made are actually stuck to. And the third is through helping to.
promote the industry and to kind .
promote the industry and to kind .
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Patricia Ferguson
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Patricia Ferguson
Morning and welcome back to this meeting of the Scottish Affairs Committee and to our second panel this morning , where we're going to be looking more at the the practical rather, realities of operation for. producers and distillers. And could I just ask each of our witnesses to tell us their name and very briefly, their role? I'll start with Mr. Willis, who's .
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Speaker 7
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Speaker 7
The Scotch whisky was. experiencing rapid growth, especially in the single malt sector. And since then, it's it's been a little bit of a challenging time post Covid and the challenges around all the economies around the world, all sort of facing their own challenges. And, you know, it's attracted quite a lot over the last three and a half, four years we have seen a little bit of green shoots in the last six months, which is encouraging.
But whether that's sustainable, we're not sure.
But whether that's sustainable, we're not sure.
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Speaker 8
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Speaker 8
Marketplace at the moment. Thank you, Mr. Thomas. Yeah, I think I would echo what Anthony said. I think we only started selling our single malt in 2020. So we have relatively little history to go on. But certainly the first couple of years there was a lot of growth. Since then, it has definitely been more challenging. It varies a little bit by market, but I think the lack of consumer purchasing power in all of the major developed markets around the world, which are the key ones for us, is making it really hard. You know, combined with cost pressures, it's it's tough.
I think we have continued to grow. We've seen double digit growth most years, but we're starting from a small base. So it's a different we're in a slightly different part of the market to the larger producers. But, you know, even delivering that .
I think we have continued to grow. We've seen double digit growth most years, but we're starting from a small base. So it's a different we're in a slightly different part of the market to the larger producers. But, you know, even delivering that .
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11:16
11:16
Speaker 1
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Speaker 1
Something that can be managed out over the years? I'll start with Mr. Brenton. I think it's both medium and long term. We I mean, Scotch is really resilient product. We are a world champion industry. The UK is the world's biggest exporter of spirits. We should be proud of that 20% of the global market. But these. challenges I think are here to stay. We'll probably see a increase in demand for Scotch. We hope that touching wood. But if you look at our cost base, I don't think anybody expects energy costs to come down soon. We hope the UK excise will come down, but that doesn't seem to be very likely.
So those costs aren't going to go away. And I think that trend.
So those costs aren't going to go away. And I think that trend.
11:17
11:18
11:18
11:18
Speaker 3
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Speaker 3
Industry, we have to adapt to it. As Thomas, is that your view too? It is. I think, you know, Scotch is in a fantastic position. I think we as an industry have a. responsibility to. continue to drive that demand and the. historic work of the industry to do that of which I was not part has been fantastic. But I think the thing that we haven't mentioned is that there is increasing competition.
There is whisky, and I think probably at the smaller end of the market, we maybe see this more, but there are.
There is whisky, and I think probably at the smaller end of the market, we maybe see this more, but there are.
11:19
11:19
Speaker 3
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Speaker 3
Now in every single country. And that. impacts us when we're trying to get space on shelf in retailers around the world. And I think as an industry, we have we are responsible for. continuing to drive the demand for Scotch and make sure that we. maintain our position as as the leading whisky in the world. And that, I think, requires a concerted effort and, and, and support from the government.
And .
And .
11:20
11:20
11:20
11:21
Speaker 3
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Speaker 3
And I'll ask you that first, Mr. Thomas, and then of course, Mr. Rose. Yeah, I think I think there are differences. I think that competition is one difference, because you can't just start a distillery and be a competitor to us overnight. But you can start a distillery in Denmark or London or France or wherever and be a competitor to Ninian pretty quickly. I think the other. difference is that as smaller distilleries, we rely on smaller bars and independent retailers more to build the brand. and to help. educate consumers who might be new to the smaller distilleries proposition.
We are not negotiating with Tesco or Asda for space on shelves. We're talking to independent retailers and and bars, and those independent retailers and bars are under exactly the same cost pressures that the industry is under. In particular, thinking about national Insurance contributions and rising duty. That's really causing them a hard time. And I think .
We are not negotiating with Tesco or Asda for space on shelves. We're talking to independent retailers and and bars, and those independent retailers and bars are under exactly the same cost pressures that the industry is under. In particular, thinking about national Insurance contributions and rising duty. That's really causing them a hard time. And I think .
11:22
Speaker 4
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Speaker 4
That's very interesting. Mr. wills, would you want to add anything to that? No, I think I concur with what has been said. I think unlike Annabelle and Nickname, we got underway a bit earlier in. 2005 and had product on the market in 2009. So we've experienced some of the the growth that has come through over the last 18, 19 years. And look, I think that the smaller distilleries have different challenges to the larger distilleries. We're not competing head on with. pricing as, as Annabelle mentioned in supermarkets and what have you. And I think the pressure we we're seeing is, is our pricing has had to be adjusted to, to keep the volume moving in the right direction.
But we can't play the same game as the larger. distillers who , who at the moment consumers are seeing prices on the shelves that are, you know, 20. £25 for 10 or 15 year old single malt. Well, you know, the smaller distilleries can't compete with that. And then obviously the added pressures of, of, of fuel and the other challenges we have on a small island like Isla is getting our products on and off the island. And, you know, we're having to deal with fuel. surcharges from our haulage companies because of the crisis. With the fuel prices going up and down like a yo yo.
So, you know, those are the sort of pressures we're having and we're having to, to look, innovate and be .
But we can't play the same game as the larger. distillers who , who at the moment consumers are seeing prices on the shelves that are, you know, 20. £25 for 10 or 15 year old single malt. Well, you know, the smaller distilleries can't compete with that. And then obviously the added pressures of, of, of fuel and the other challenges we have on a small island like Isla is getting our products on and off the island. And, you know, we're having to deal with fuel. surcharges from our haulage companies because of the crisis. With the fuel prices going up and down like a yo yo.
So, you know, those are the sort of pressures we're having and we're having to, to look, innovate and be .
11:25
11:25
11:25
John Cooper
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John Cooper
Sell kilchoman around the world. Thank you very much, John Cooper. Thank you chair. We're hearing this morning about quite difficult conditions for for for Scotch right around the world. And obviously, one of the difficulties, one of the cornerstones of Scotch whisky is the fact that you've got to mature it for a minimum of three years. Now that's very difficult then, because who of us sitting here can imagine what's going to be happening in three years time? So that's a big, big problem I think. We have had sort of anecdotal evidence, if you like, of distilleries cutting production and pausing operations, building up stocks of whisky.
What is your experience of that first and foremost? I think perhaps from one of the .
What is your experience of that first and foremost? I think perhaps from one of the .
11:27
11:27
11:27
11:28
John Cooper
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John Cooper
We reduced production. Yes we have. And for the smaller distillers, I mean, obviously you would presume we're trying to match the amount that you can get a product out there. You're trying to build a name, you're trying to build the product. You've got to be out there and be on the shelves or in the bars, wherever you happen to be. But do you think there's a situation arising now with the change in the market, that sadly, some of the .
11:29
11:29
Speaker 3
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Speaker 3
Think there's going to be a contraction in the industry? Well, that's already happened. There are already smaller distilleries that have gone into administration in Scotland or have stopped production entirely, or have cut production. That is definitely happening. I think it's both not as important as the smaller producer, but also far more valuable in some sense. You know, our our production is so small that changes here or there are not going to make a huge difference overall to the levels of employment in Scotland, for example. But on the other hand, as a new business, forecasting sales growth and a new business is notoriously difficult.
But to need to do it 5 to 10 years out in an uncertain market is even harder. So I think we can confidently say that whatever my forecasts are, they will be wrong. But that's also the reality of forecasts. I mean, I think of all the challenges we face, figuring out how much stock to lay down and where the market is going to be, I would say is for a small producer, fairly low down, you've got to always make your best estimate and, and go with it and be flexible and adjust. And we have, in our short history, increased production and decreased production and brought it back up again.
But to need to do it 5 to 10 years out in an uncertain market is even harder. So I think we can confidently say that whatever my forecasts are, they will be wrong. But that's also the reality of forecasts. I mean, I think of all the challenges we face, figuring out how much stock to lay down and where the market is going to be, I would say is for a small producer, fairly low down, you've got to always make your best estimate and, and go with it and be flexible and adjust. And we have, in our short history, increased production and decreased production and brought it back up again.
11:31
11:31
Speaker 4
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Speaker 4
Sort of thing. Do you think you're going to see consolidation in the industry? I mean, undoubtedly, as Annabelle says, it's already happening. And I think we've reached saturation point with the number of distilleries just talking about Scotland. You know, when we started there were. 96 working distilleries in Scotland. I believe they're now closer to 160. So there's an enormous number of distilleries that started to launch their brands around about sort of.
11:32
11:32
Speaker 4
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Speaker 4
And, and clearly, you know, they were. forecasting sales because there was growth and now we've got this downturn. So that's obviously going to have a huge. impact on their financial position. Look, I think as an industry we've never got it right. And it's impossible to get it right in terms of production against sales, because we're having to forecast so far ahead and who knows what's happening three years down the road, let alone five. 10 or 15 years. So, you know, we're producing a reasonable quantity now. 650,000l is is still relatively small in the industry, but it's probably larger than a lot of the smaller distilleries.
And, and, you know, we're trying to forecast what we need. And therefore we're probably producing more than we need to. And the problem about doing that is that every time you you fill a warehouse, you have to then build another one. And I think if sales aren't matching your.
And, and, you know, we're trying to forecast what we need. And therefore we're probably producing more than we need to. And the problem about doing that is that every time you you fill a warehouse, you have to then build another one. And I think if sales aren't matching your.
11:34
11:34
Speaker 4
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Speaker 4
Then you're going to slow down because the costs of. increasing production and filling warehouses means financially that it's it's getting a bit out of kilter. So, you know, I think in this downturn, we're terrible at forecasting. So when the industry is on fire and we were selling whisky around the world very.
11:35
11:35
Speaker 4
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Speaker 4
Turned on the taps and produced more than they probably should have done. And we should probably learn from that, but we don't, and that we should just produce steadily. And that's across the industry, from large distilleries to the small ones that we shouldn't be. producing huge quantities because there will become a .
11:36
11:36
11:36
Speaker 4
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Speaker 4
That's the top top number now? Well, there's still new distilleries being built. And you you could argue that simply because of the shelf space, as Annabelle mentioned earlier, you know, shelf space in, in shops and bars, you know, they don't have the space to, to take on new brands. So they either have to delist or take on new brands. And at the moment, if you talk to distributors around the world, then they're getting calls and emails from new. distillers every day about wanting them to take their product on for distribution. And they can't because they have their portfolio is is at max maxed out.
So, you know, it's a very challenging time for,
So, you know, it's a very challenging time for,
11:38
11:38
Speaker 1
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Speaker 1
Indication of how that is dropping or whether it's dropping significantly? I'd have to. I'm not sure I could share those details with you. I need to come back to you on that. But they're clearly up. But as I'll go back to what I said, that this is not the first time we've seen ups and downs in the industry. And we need to we need we we need to prepare for an increase in .
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11:40
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11:40
Speaker 9
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Speaker 9
Thank you. Susan Murray please. Thank you. We've been hearing very much on the business side of whisky production, but I'd like to think a little bit more about the important part that distilleries play in local economies, particularly in rural and island communities and the jobs that they provide, and perhaps the grain that they source locally. How are the current economic conditions. affecting .
11:40
Speaker 3
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Speaker 3
Investment and recruitment? From our point of view. So one of the reasons that I set up nickname was to create employment on Morven, which is a very remote community. We in drumlin, which is our village, we have 50 houses. There's 200 people living at the end of the road, half an hour away in Loch Island. The overall business pressures are to some extent impacting employment there. I think the biggest impact, honestly, in the number of people we can employ. There is a combination of national insurance costs going up. We employ 18 people in total, roughly half or more than half elsewhere.
And that increase in national employment that was put through was the equivalent of a whole person. So we've actually reduced employment as a result. The second pressure, which is more of a practical one, is housing. I should though, say that on Morven Mcdc, who are our local community trust, have done an amazing job of. creating housing on the peninsula. It's still in progress. So we're not seeing any of the benefit of that. But they have organised the funding for it and the bill. You can see the buildings going up, which is really, really encouraging because for us that is a huge challenge because there is almost full employment locally, but we would .
And that increase in national employment that was put through was the equivalent of a whole person. So we've actually reduced employment as a result. The second pressure, which is more of a practical one, is housing. I should though, say that on Morven Mcdc, who are our local community trust, have done an amazing job of. creating housing on the peninsula. It's still in progress. So we're not seeing any of the benefit of that. But they have organised the funding for it and the bill. You can see the buildings going up, which is really, really encouraging because for us that is a huge challenge because there is almost full employment locally, but we would .
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11:44
Speaker 4
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Speaker 4
You know, there was no. unemployment driven by the whisky industry and whisky tourism. You know, we've been in a very fortunate position, but then we've had our issues and our problems as we grew. And that is through. transport and housing. And, you know, we were in the situation where we had to offer. accommodation to people that were coming to, to work on Isla, because there was no. accommodation for them to either buy or to, to rent. So there have there now it's flipped on its head now. And unfortunately, and sadly, some of the distilleries are have made.
redundancies recently and a fair number of redundancies. And that has a huge impact on the local economy. There are only 3000 people living permanently on on Islay, and where we've come from a position of full.
redundancies recently and a fair number of redundancies. And that has a huge impact on the local economy. There are only 3000 people living permanently on on Islay, and where we've come from a position of full.
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11:47
11:47
Speaker 4
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Speaker 4
People were leaving to to seek. employment on the mainland. So it's sort of a role reversal at the moment. And one of the challenges is that, you know. infrastructure and transport hasn't kept up with the the growth of the island. And there always has always been a big input into employment on a small. communities and in the Highlands and Islands. And, you know, we've done that very successfully on Islay, but we haven't had the, the, the. investment to, to keep up with that. So I think there is now going to be a slight rejig in terms of, of employment on the island.
But, you know, we're very proud of the fact that we were employing on the island , the we're the third biggest employer on the island. We employ 36 people. And and, you know, that was we always employed locally. That was the big thing employ locally. And then when it became difficult to employ locally because the. There weren't the people to take the jobs we had to, to go to the mainland and to, to do that, we had to then offer them.
But, you know, we're very proud of the fact that we were employing on the island , the we're the third biggest employer on the island. We employ 36 people. And and, you know, that was we always employed locally. That was the big thing employ locally. And then when it became difficult to employ locally because the. There weren't the people to take the jobs we had to, to go to the mainland and to, to do that, we had to then offer them.
11:49
11:50
Speaker 1
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Speaker 1
Brenton, how does that. compare with a larger organization? Well, I mean, I'm not going to comment on the situation because we don't have a an operation either. We do have we do have a distillery in Scapa, for example, employing 8 to 10 people, which so far doesn't have the same challenges that you spoke about, Annabelle or you on housing or on transport. And when we were in touch with them this week, they said they always had two weeks of supplies in just in time is not really a kind of the model is not really a kind of an option for.
For, for, for the whisky business in remote locations. I think we are if you look at the way we source our barley from. It's almost entirely from Scotland, some from the north east of England. We're very conscious of the value that we we give to local supply chain. And in terms of the wider impacts you're talking about, we are continuing to.
For, for, for the whisky business in remote locations. I think we are if you look at the way we source our barley from. It's almost entirely from Scotland, some from the north east of England. We're very conscious of the value that we we give to local supply chain. And in terms of the wider impacts you're talking about, we are continuing to.
11:52
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11:52
Speaker 1
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Speaker 1
We've prioritized, for example. investment in health and safety at our bottling plant in Kilmuir outside of Glasgow, where we needed to improve the road network. But clearly we have to adjust for straitened times and similarly with staff that we are doing what we can to protect staff numbers. We're move from seven seven day production to five day.
11:53
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11:54
Speaker 1
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Speaker 1
Understand that the government needs to raise money, and we understand that any business has to make a social contribution. But we what we we are obviously very. frustrating decision for the industry because it. dampens demand. And for the high street, it's pushing up prices and it actually. raises less government money for government. If you look to the example of Gordon Brown, he froze excise for ten years and the government raised. 800 million more in excise. And that's what we would like to see. It is if you look at international comparisons with the highest now in the.
11:55
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11:57
Speaker 3
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Speaker 3
Okay, Annabelle, can we come to you or. Yeah, I think I mean, I agree with absolutely everything you have said. I think from our point of view, the UK is our biggest market. So it has an outsized impact probably on those smaller distilleries for whom who will start selling at home. We have fewer export markets, so we've got less ability to juggle and put more. resources elsewhere. It is very hard for us to manage our costs, and we talked a bit about that before, but it's hard for us to put prices up in the current market because there is no consumer appetite for paying more for whisky right now.
We can't manage our other costs as easily.
We can't manage our other costs as easily.
11:58
11:58
Speaker 3
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Speaker 3
We have to absorb these. increases and as Jonathan rightly said, we don't see it getting, resulting in a higher tax take for the government, which at least would have a good outcome. I think the only other thing I would say is that we we used to. self-distribute in the UK, so we would sell directly to shops and wholesalers. We have just moved to a distributor. But for other distilleries who still.
11:59
11:59
Speaker 3
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Speaker 3
I don't know if anyone thinks through the. administrative burden of a tax change. If you have a line of only ten products, but each of them have a different ABV, you've got three price points for those products. You can imagine the pricing matrix that you need to change every single year, and then communicate to every single one of your hundreds of customers every time there is a duty increase. It's actually a very big.
administrative and bureaucratic burden, both for the producers or the.
administrative and bureaucratic burden, both for the producers or the.
12:00
12:00
12:01
12:01
Speaker 4
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Speaker 4
Are you going to be pushing that on to the consumer or trying to absorb it yourself? No, we're we're trying to absorb. We are going to absorb it ourselves as and and as Annabelle pointed out, there is an appetite to to increase the prices on, on single malt. I think that would have a very adverse effect as. So, you know, with all the costs going up anyway, fuel malt, you know, National.
12:02
12:02
Speaker 4
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Speaker 4
And now duty, you know, we have to absorb all that. So yes, it's a huge burden. And, and clearly, you know, over the last number of years, government hasn't listened to the trade bodies that have lobbied on our behalf, that this is unfair and unjust, and it doesn't raise any more money. We get the social point of view. We understand that completely, but it it makes it very hard for, for , for distilleries in Scotland to continue to grow in the UK. When we're putting all these barriers in our in our way. So yes, we export a huge amount.
and I reckon it's about. 85% of what we sell is .
and I reckon it's about. 85% of what we sell is .
12:03
12:03
Speaker 4
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Speaker 4
Although the UK is still a very important market and we. We do our own distribution in the UK and you know, it's becoming more challenging and, and clearly the independent. retailers are finding it very, very tough at the moment. You know, the specialist whiskey retailers that have always been around for the last 25 years or so. And we're having to shift our strategy to more.
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12:12
Douglas Lumsden
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Douglas Lumsden
Thank you. Thank you chair. Something that did come out of the budget was a small producer relief, which was for beer and cider makers. So, you know, there was something that the, the, the chancellor did for, for those industries, but would have really liked to have seen something. similar for small .
12:13
Speaker 1
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Speaker 1
Distillers as well. Maybe Anthony will come to you. Well, I mean, I think if you're going to, to give some sort of tax relief, it should be for the whole industry. I don't think you can just pick out the the small what is small and what is medium sized and what is large. So I don't. necessarily think that would be a good idea, but I think that, as has been pointed out before, I think we should have been treated in a similar way to the other alcoholic drinks. And we haven't over a number of years.
And it's a sad to see that the Scotch whiskey industry isn't being supported in the way it should, as the number of jobs in rural areas around Scotland that it employs is massive, and the impact it has on on the whole of the country. So, yes, we would like to think that the government would listen a little bit more to to our case and understand .
And it's a sad to see that the Scotch whiskey industry isn't being supported in the way it should, as the number of jobs in rural areas around Scotland that it employs is massive, and the impact it has on on the whole of the country. So, yes, we would like to think that the government would listen a little bit more to to our case and understand .
12:14
Douglas Lumsden
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Douglas Lumsden
12:15
Speaker 1
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Speaker 1
Within the industry? Maybe start with you, Anthony, and then we'll go round the table. Yes. I mean, we we've had to reduce the number that we employ because of the. increases to the minimum wage, to national insurance. And, and yes, the downturn in the industry has had also has had an impact. But yeah, I mean, I think that it has more impact. These these things that have been brought forward have have had an impact on, on rural areas, much more so than, than city areas.
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Speaker 3
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Speaker 3
Communities up and down Scotland. Okay. Thank you. Annabelle. Same question to you. Yeah, I think the in particular, the, the national insurance piece has impacted how much we're able to grow our workforce. We had forecast to grow it more than we did in the end, because we had a whole wage wiped out by the national insurance increases. And added to that, obviously, if we were able to grow the top line faster, we could also grow employment faster. We do all of our bottling on site in Morven. specifically to try and increase that employment. So we .
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12:15
Speaker 2
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Speaker 2
Which Anthony touched on, I think is really important. Why it is that Scotch is paying. roughly 50% more per unit than beer. And what's the impact? Well, it's clearly unfair on Scotland because the bulk of UK spirits production comes from Scotland. It's bad for the on trade because 30% of the value and 38 of the profits in the entry come from spirits, which are high margin. That's really important for pubs and I defer to Annabelle on this, but I think it's actually unfair to female. drinkers because when you look at the the latest polling, women tend to prefer wine and spirits.
12:15
12:15
Speaker 2
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Speaker 2
For wine and spirits for women as opposed to men, 39%. So it does feel like quite a laddish excise policy. So I think that and in terms of those costs, how they affect our business, it's clearly having an impact. And I think there's sometimes a danger for people to say, well, if we help the the sector on trade.
12:15
12:15
Speaker 2
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Speaker 2
That's enough. Well, as Annabelle was saying that the UK is the biggest market for some smaller distillers. UK still the fourth largest market by value. Csaba was saying last time I spoke to you. So you can't pick up the cost from your fourth largest market and some of the costs you have in the UK affect you globally. So the energy costs will affect every bottle of scotch you, you, you sell around the world. And energy costs is, I argue, is an area which is obviously outside of government control given geopolitical conditions. But there are things that government can do , and giving access to the industry, to some of the energy support schemes and something like.
12:16
12:16
Speaker 2
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Speaker 2
Something like EPR. Yes, it's more UK focused, but it also has it's a precedent around the world. So when I talk to trade attachés about their work tackling high excise taxes, other markets, they'll say, but of course, every other foreign government says to us, well, if your tax is a. 74% in your country, what are you, you know, what have you got to say? And they have a knock on effect. So some of these costs aren't just affecting our industry. You know, I've talked about excise affecting the high street, high EPR fees on glass, which are three times the European average, are also threatening the UK's glass industry, which is often foreign owned.
And they look around and they look at the cost base in the .
And they look around and they look at the cost base in the .
12:16
12:16
Speaker 2
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Speaker 2
Beer and cider industry? Why is there suddenly a huge disparity? I think this this was developed under Rishi Sunak, but there is. occasionally a an argument given to us that higher strength equals higher harm. And I think that's a. really bad argument. And it's worrying for our industry. I think it needs to be pushed back on.
12:16
12:16
Speaker 2
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Speaker 2
We champion responsible consumption. And I would argue that Scotch actually typically is a drink, which is, as the Scotch whisky says, made to be measured. But if you look at the all the evidence, it's the amount of. alcohol units you drink, and there is more alcohol units in a pint of beer. 4.5% ABV, around 2.3 than there is in a double scotch and more calories. So I've got nothing against beer. But you can't pretend that beer is the safer option. And I think we need to push back about that. The. And we occasionally hear that from Treasury officials.
They will deny it in sort of official letters, but in private they'll say. But of course, higher strength is higher harm. You know, you should take the same approach to excise. You take to a breathalyzer. It's the units of .
They will deny it in sort of official letters, but in private they'll say. But of course, higher strength is higher harm. You know, you should take the same approach to excise. You take to a breathalyzer. It's the units of .
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12:16
Douglas McAllister
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Douglas McAllister
Or the most significant rise to duty came under the conservative government in August 2023. That was the huge increase, was it not, under Rishi Sunak's government? Was it the fact that previously alcohol duty. The excise duty was on a flat rate and we moved to that ABV strength? So is an industry. Why are you. Why are you not calling for that to be reversed? Rather than continually looking at the modest increases over the past couple of years, the budget which, as I understand it, were in line with.
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12:17
Dave Doogan
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Dave Doogan
Another supplementary from Dave Doogan. Thanks, chair. Whichever government over the years , the UK applies double the duty to whisky that France does triple the duty that Germany does four times the duty on whisky that Italy does, and seven times the duty on whisky that Japan does. And the UK applies the highest duty of any country in the G7 onto whisky. And what do you suppose the motivation is behind that? And given the sort of opaque, let's call it relationship between increased duty levels and .
12:17
12:17
Speaker 3
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Speaker 3
I. I either the motivation is to reduce drinking and consumption or it's to raise more money. We know that it doesn't raise more money. At least that's the evidence that has come out over the last couple of years. It may decrease drinking of spirits, but as Jonathan so eloquently put, people are just going to drink beer instead. And I'm not sure that achieves any health or responsible drinking benefits in the round.
And what it does is unfairly. disadvantage spirits producers and in .
And what it does is unfairly. disadvantage spirits producers and in .
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Speaker 2
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Speaker 2
The risk. There's a category of discrimination based on dubious health arguments. I think there's also a tendency of of. inertia within government. And I have to recognise the huge stresses and strains of government at this time that you get. You get into a track on. taxation and you just carry it on because you're, you know, the Treasury is so overwhelmed with so many other things going on, so many challenges in the UK economy. We'll just put it in the increase by RPI will give them an inflation rate. increase and that's it. And in the past, I think they also said, oh, maybe we'll get a headline by a penny off a pint.
But luckily they've kind of worked out that that doesn't really work. I'm talking more, less likely, more.
But luckily they've kind of worked out that that doesn't really work. I'm talking more, less likely, more.
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Speaker 2
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Speaker 2
When you talk to a tax expert, which I'm not, they will talk to you about the way in which the Treasury mindset and approach and the OBR approach makes it very difficult to adjust the dynamic effects of taxation. And if you deal, I'm sure you do deal with Dave with the offshore oil industry, they will talk to you about this, that to get a cut the bar within Treasury. methodology is quite high in OBR.
methodology to. demonstrate that that will raise income. So that often we will say to the.
methodology to. demonstrate that that will raise income. So that often we will say to the.
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Speaker 2
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Speaker 2
Here are the historic figures here the. Often done via the. SWA they show that if you tax us less, you raise more. And they'll say, well, actually in our when we put it down in the red book, we cut for you, that would be seen as expenditure. So there's definitely a question to tax experts about how you get Treasury to adjust for the dynamic effects of.
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Kirsteen Sullivan
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Kirsteen Sullivan
With exports to the US falling by. 4% in. 2025 compared to 2024. So just be keen to hear from each of you as to how your business responded to the tariffs. And did you have to increase prices? Did you. absorb additional costs or did you accept lower profit margins whilst they were in place? And what difference did the removal of tariffs make?
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Speaker 2
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Speaker 2
The support we get on trade is first class. And I think that the efforts to reduce or remove that tariff tariff on Scotch and that came from UK government. The First Minister was involved. UK officials were remarkable. It's also important to remember that the. When people are asked. So it must be great. Now the UK. The US market was already soft, so we're still to see the benefits of that tariff cut because demand is down. So it's very welcome. But it's still a very difficult market. And in you know we just we have to absorb.
If we have something like that, we have to absorb the tariff cut and try and avoid passing it on to our .
If we have something like that, we have to absorb the tariff cut and try and avoid passing it on to our .
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Speaker 3
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Speaker 3
New entrant and we've been growing very fast. So I don't think it's specifically impacted our growth. It merely reduced our profit margins for the period it was in place. I'd also echo what Jonathan said about trade support. I think the support we as smaller distilleries receive from SDI and DBT around the world has been fantastic, and I think that was particularly the case actually for us in the US, which is a notoriously complex market to enter.
And we've had good support in terms of introductions to the right .
And we've had good support in terms of introductions to the right .
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Speaker 1
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Speaker 1
Thank you. And Mr. Bowles. Yeah, exactly what has been said. We've absorbed the the cost, as we did in. 2019 when they were 25%. So, you know, having them again after the. 2019 tariffs was another big blow. But yes, it's a soft market. But we've absorbed those costs. So you you know, the trend through this these discussions is that we're absorbing .
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Speaker 1
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Speaker 1
Selling whisky in overseas markets? The main barriers I mean I think. We've actually found it relatively straightforward. The s a give us a lot of support. And through the government and the trade missions that are also organized, the barriers, I think for us now having more paperwork to deal with and the entry into the EU.
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Speaker 1
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Speaker 1
That costs us more money. Getting our products into market takes longer than it did. We used to ship stuff out prior to to the Brexit and it was on in on the shelves within five days. Now it takes up to 2 to 3 weeks to clear. customs and get all the paperwork in order. So yes, there's just an. administrative cost that we've had to bear as well.
And those are the main barriers. But and then, you know, monopoly.
And those are the main barriers. But and then, you know, monopoly.
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Speaker 3
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Speaker 3
Parts of the world. Thank you, Miss Thomas. I would echo what Anthony said about Brexit. That was a particularly big issue for us because everything we produce is organic. So that is yet more paperwork to go with the already high level of paperwork of exporting goods. Number one, exporting alcohol, number two. In fact, it got so complex that a lot of our export markets would no longer collect from the UK. And we have had to take on warehousing in Europe to get around it. I know there is work going on behind the scenes to try and reduce the.
paperwork on organic goods going into Europe, and if that gets over the line, which I believe is expected early next year, that will make a huge difference to us and our trading partners in Europe. I mean, I think in general, you know, I do think we're very well. supported for exporting. I think we touched on competition earlier. I think that is probably the future challenge that we might face as small producers. Distributors only have so many places in their books to take on brands, and retailers only have so many spaces on their shelves. And I think as local competition increases around the world, that may that may be a bigger challenge in future, but it's not something we see.
specifically now. But as Anthony mentioned,
paperwork on organic goods going into Europe, and if that gets over the line, which I believe is expected early next year, that will make a huge difference to us and our trading partners in Europe. I mean, I think in general, you know, I do think we're very well. supported for exporting. I think we touched on competition earlier. I think that is probably the future challenge that we might face as small producers. Distributors only have so many places in their books to take on brands, and retailers only have so many spaces on their shelves. And I think as local competition increases around the world, that may that may be a bigger challenge in future, but it's not something we see.
specifically now. But as Anthony mentioned,
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Speaker 2
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Speaker 2
Even if even in tough times. But there will there are. myriad obstacles to negotiate. And I agree with Annabelle. We get great support. Tariffs is obviously a headline one and tariffs. There's still a number of countries out there with high tariffs. You know I think the we talked to you about the importance of Mercosur deal where the tariff is 18 to 20%.
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Speaker 2
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Speaker 2
Market for Scotch and competition, which I remember commented on is not just from other whiskeys, it's from other. jurisdictions who might get a better deal. So the EU has a trade deal with Mercosur. So within four years they might have a zero tariff. We'll have 18 to 20%. Then you have the. paperwork which Anthony referred to. You know, some. markets we will still be asked for a signed original document per consignment. You know, there's a lot of work to be done, price controls. And then global issues like health restrictions. It's really important that the UK champions an evidence.
based approach to health regulation. You know, the World Health. Organization is pushing a line that there is no safe level of alcohol that doesn't actually match with the evidence. It feels a bit of a kind of policy wonk subject. I can understand. People's eyes glaze over when you talk about.
based approach to health regulation. You know, the World Health. Organization is pushing a line that there is no safe level of alcohol that doesn't actually match with the evidence. It feels a bit of a kind of policy wonk subject. I can understand. People's eyes glaze over when you talk about.
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Speaker 3
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Speaker 3
Challenges remain? Can I ask yourself, Miss Thomas, to start? Yes. So we're not exporting to India yet. And that's really for I guess, three reasons. One is the were high tariffs. Two is it's a very complex market. And three, as a relatively new business, it makes sense for us to tackle the more mature markets first. The reduction of tariffs definitely poses an opportunity.
But I think for us India is still a little way off in terms of driving the future growth of nickname. It's I think we have lots of. opportunity .
But I think for us India is still a little way off in terms of driving the future growth of nickname. It's I think we have lots of. opportunity .
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Speaker 2
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Speaker 2
Then 40% over ten years, the world's largest market by volume and the fourth largest by value is obviously huge. I hope very much it will be bring in more and more producers as well. But as Annabelle said, it's a complex. It's a complex market. And as your previous panel remarked. implementation is key. But it's absolutely vital that those tariff bridges are observed. We're getting good support at the moment because there are issues and the UK government is giving it, as ever, great support. And then. beyond the tariff, there are a number of issues at state level.
For example, in Maharashtra, there's a tax privilege for. Maharashtra produced liquor, something that UK ministers in the First Minister have recently raised with Maharashtra authorities.
For example, in Maharashtra, there's a tax privilege for. Maharashtra produced liquor, something that UK ministers in the First Minister have recently raised with Maharashtra authorities.
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Speaker 1
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Speaker 1
And I think even with the. reduction in the tariff, there is still not a level playing field for for Scotch whisky. And unless you're prepared to pay the the, the race to the bottom in terms of price, then we're not going to really be taking it too. seriously yet, although we do. recognize that it's a huge opportunity for the industry as a whole .
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Speaker 1
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Speaker 1
The way we run the business. We don't keep on being knocked off. And now we have a relatively good connection. And and when I go through to we got a small office in Edinburgh, they then they, you know, I can't believe how much quicker. It still is a bit quicker connectivity over in Edinburgh than here. But we're, we're delighted that this is it's , it's changed the way we.
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Speaker 1
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Speaker 1
Ask the other two people. Yeah. I mean, we had to rely more, more on 4G, which we had, but we're now have a much faster connection to the internet. That means that we can go to our. warehouses and we can barcode everything, and we can take up an iPad and do all the work from those places, which we weren't able to do before. We'd have to note down every position of the cars that we were putting into the warehouses and come back and then put that into the system.
So you look, in many.
So you look, in many.
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Speaker 1
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Speaker 1
What it is made is, is made us far more efficient as a business than we were. And, you know, as an island, you know, we welcome it hugely. And I think it does help bring tourism because Isla is, is, is very important. The tourism industry is very important, and it does bring more people to the island. And I just had to put that bit in about CalMac.
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Speaker 3
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Speaker 3
That has. installed extremely fast Wi-Fi to all the homes in drumlin. And to do that, we rely on a team of six. volunteers and the local Scottish Sea Farms business who helps us with funding and expertise and infrastructure. So that has provided us for the whole of our whiskey making operation period , with very good digital connectivity, which has been a complete godsend because it means, as Anthony referred to, we can actually communicate properly with the team there. With the rest of the team aren't present. It means that visitors have connectivity. You know, it has a huge impact.
It's not straightforward, though. And the fact that we are having to run this network as.
It's not straightforward, though. And the fact that we are having to run this network as.
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Kenneth Stevenson
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Kenneth Stevenson
I wondered whether you wanted to come back to your earlier question. I did have an earlier question for the three people who were in before, and they raised the cost of energy, as you have asked them, you know, with their insight being analysts really into the fuel industry, you know, is there anything that's going on in the industry just now that's helpful? You know, whether you're trying to stick up a wind turbine or solar or anything like that, and if there is that you're trying to do that, and I would imagine you're looking at it, then, you know, are you having problems with connections through NSO or is it very easy to .
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Speaker 3
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Speaker 3
Get that? And that's to everyone. So from our point of view, we actually already use renewable energy that we have on site for almost all of our production. So the the rise in energy costs has impacted everything outside the distillery, haulage, glass production, you name it. But it hasn't impacted our on site production as much we have. We import a tiny amount of electricity and we have looked at solar, but we are really hampered on that because we're at the end of a single phase connection.
So the lack of.
So the lack of.
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Speaker 1
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Speaker 1
And we continue to look at other ways of running our. production other than red diesel. But, you know, being an island, it's a bit more challenging to, to, to do that in a way that makes sense. I think I'm very keen on. using boilers that, you know, woodchip is, is a route that 1 or 2 of use, but I'd rather we don't have many trees on Isla. So you'd have to bring in the woodchip from the mainland. And, and that goes. against what I believe is, is being sustainable. You know, you're hauling them in from wherever you are on the mainland.
So, you know, we we're looking at wind, windmills. The other issue we have here is the. conservation lobby would are now wanting to go through a two year study of the area that we want to put the windmills on to make sure that we're not. disturbing ground nesting birds and other other animals. So we're going through that process at the moment and hope to put some turbines on to .
So, you know, we we're looking at wind, windmills. The other issue we have here is the. conservation lobby would are now wanting to go through a two year study of the area that we want to put the windmills on to make sure that we're not. disturbing ground nesting birds and other other animals. So we're going through that process at the moment and hope to put some turbines on to .
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Speaker 2
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Speaker 2
And something like MVR actually depends on electricity to drive the fans. I think that problem that my worry on that is the problem will become more. acute as industry production levels increase again. So we are storing up a problem for later unless it's dealt with now. And I would also emphasize what this morning's panel said about energy support. You know, we are an energy.
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Dave Doogan
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Dave Doogan
Wonder how it's affected profitability. I don't I mean I don't have data on that I'm afraid. I wonder if you could forward that on to the committee if it's not commercial in confidence afterwards. Because I think what many of us understand is that it doesn't have we've heard it doesn't have an effect on Mr. Will's product or Mr. Thomas's product. It doesn't have effect an effect on on sales. It doesn't have an effect on mid level or high level products on off sales. It only has an effect on cheap off sale products, which is specifically the products that are the source of problem domestic drinking, which the policy is designed to challenge.
So I don't think I think I think there's a yes. The question well, the question was what the impact on profitability is. And I think we're going to get back to that. I'll come. I'll come. Are you concerned at the reputational damage that standing against minimum unit pricing might have on the .
So I don't think I think I think there's a yes. The question well, the question was what the impact on profitability is. And I think we're going to get back to that. I'll come. I'll come. Are you concerned at the reputational damage that standing against minimum unit pricing might have on the .
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