It’s known colloquially as “Who Hit John,” “The ‘Crature’,” and “John Barleycorn.” It’s name is derived from the Gaelic for “Water of Life” — for which those of us who imbibe the elixir from time to time (or more often) heartily agree.
Whatever you want to call it, Scotch Whiskey is Scotland’s proudest achievement. In a nation of 5 million people, $6.5 billion in Scotch is exported annually. That accounts for fully 20% of all exports in the country. It’s the third biggest industry in Scotland behind financial services and oil.
But the industry operates in a global marketplace where more mundane concerns than achingly smooth taste and a complex bouquet are of paramount importance. Cheap credit, trade barriers, and a reliance on the UK to help promote their product have most distilleries in Scotland worried about the vote on independence.
Members of Scotland’s best-known industry are watching the vote for independence with serious trepidation.
Lack of certainty about Scotland’s currency, interest rate levels and membership in the European Union—which eliminates trade barriers in its largest market—all compete for the top of the list of worries.
Mike Younger, one of the few Scotch executives who will speak to the media, is finance director for Macleod Distillers, makers of Glengoyne Single Malt. He is solidly in the “no” camp. “I’m nervous,” he said, “because the results could be quite difficult for business.”
Scotch whisky is the third-largest contributor to Scotland’s GDP after the oil industry and financial services. And it acts as perhaps the No. 1 ambassador for Scottish culture. Nine out of 10 bottles are sent overseas.
Scotch can only be made in Scotland, just as Champagne can only be made in the Champagne region of France. In Scotland, it’s officially called Scotch Whisky (no “e” at the end!).
And precisely because it is an export, Scotch is particularly vulnerable to the unknowns that will come about if the Scots vote yes for independence.
David Williamson is the spokesperson for the Scotch Whisky Association. Officially, the group is not taking a side, but Williamson said that “At the moment, the consensus within the Scotch industry is that the potential risks outweigh the advantages.”
Back on the factory floor of Macleod, Younger said he’s worried because he thinks credit will become less available, and more expensive, in what will be a much smaller country, “simply because the full scale of the Scottish banking system at that point will be much smaller and less well defined and less capable than the much richer system that we have across the UK in its entirety.”
The potential rise of trade barriers is another concern. Currently, Scotland, as part of the United Kingdom, is part of the European Union, and faces no trade barriers in member states. The leaders of the “Yes” campaign have promised that Scotland would remain in the European Union, but just today, Spain said it would block Scotland’s membership.
The US imbibes more than twice as much Scotch as any other nation — $1.32 billion to France’s $600 million. If the distilleries are worried, so should be Scotch drinkers. There’s not much danger of an interruption in supply, as much as there may be significant price increases and availability issues for some of the more popular brands.
In its latest report, “Going Scot-free”, the bank notes that while many have argued independence has the “potential” to boost sales of Scotch, it believes the “overall short-term impact on the industry will be negative.”
The bank highlighted five key areas which will be impacted, one of which would be the industry’s ability to access EU export markets, which currently account for 37% of Scotch sales, as a result of its temporary loss of EU membership and free trade agreement with member states.
While Scotland would be expected to re-apply for EU membership, the country would likely to shut out until at least 2018, leaving the Scotch sector at risk of seeing higher import tariffs in its core markets for at least two years, competition from other spirits categories and its competitiveness in key EU markets.
“The Scottish government would also have a mountainous task in procuring new trade agreements with non EU export markets following independence,” warned the bank.
It has been suggested that Scotland could instead join the European Economic Area (EEA) and the European Free Trade Association (EFTA), giving it full access to the EU market without required membership to the EU, however foregoing any influence on it which could prove uncomfortable for a newly independent country.
The loss of the British pound would also raise uncertainly with a change in currency likely to lead to an “increase in foreign exchange risk for Scotch exports”, according to the bank.
Should independence be established, the Rabobank warned it was likely interest rates would rise which could create a “serious challenge” within an industry built on inventories stored up for decades with smaller companies likely to be hit hardest.
The pro-independence leaders have dismissed the concerns of the distilleries, saying that Scotch has been around for at least 800 years and it’s not going anywhere. That may be true. But it looks like Scotch makers are in for a rough ride if the “yes” vote wins tomorrow.