Whiskey price

EU tariffs on whiskey are lifted, but the industry is still on the rocks

The whiskey market is eagerly awaiting a return to form. In 2018, in response to US steel and aluminum tariffs targeting the EU and ordered by former President Donald Trump, the European Commission imposed a 25% retaliatory duty on certain key US products, including American distilled bourbon and whiskey. The popular Aged American Spirit has a healthy sales base in the states and overseas, and is still growing year over year, reaching $4.3 billion in revenue in 2020. Even so, the industry as a whole is based on a stable synergy between the United States and the EU. markets. Of the top 10 importers of American whiskey, five are EU member countries; of the approximately 116 million liters represented in the top 10, these countries accounted for more than 50% of this export volume. A tariff on whisky, of course, is a blow.

Due to the 2018 tax, the industry experienced a more tense business environment; US whiskey exports rose from 278 million liters to 190 million liters from 2018 to 2019. In 2020, they fell further to 147, according to the UN Comtrade database. Mimicking the export trend, revenues also fell 5.4% to 16%, according to Statista.

Fortunately for distilleries and whiskey connoisseurs, 2022 brings positive changes. With the lifting of the 2018 European tariff, American distillers are resuming their business with Europe. However, the market reality is more complex. Many distillers across America are still feeling the effects of the tariffs on whiskey, and even though the tariffs targeted U.S. exports, the entire ecosystem of professional trade relations between the two markets was disrupted, leaving all distillers with question marks for the future.

“In spirits, American craft distillers and European craft distillers are moving in pretty quickly…looking to jump across the Atlantic, just because both markets are a huge market, they’re high-end markets” , said Ulrich Adam, Managing Director of spiritsEUROPE, the leading organization representing the European spirits industry. “It’s not that you have to be a big distiller to start exporting…it’s an integral part of a premium craft whiskey producer’s business model to start exporting transatlantic.”

The downstream effects of the tariff

BarterHouse Imports CEO and Harlem Standard founder Brian DiMarco is still working to regain his place in the international marketplace. For him and other craft distillers, the consequences of the whiskey tariffs are higher prices and a more cautious market.

“While this may have been a boom for the taxman, it certainly hurt anyone looking to make the middle margin,” DiMarco said.

For example, although an overseas importer can still purchase products from their usual supplier, the volume of whiskey purchased will not be as abundant. In fact, Adam explained that whiskey orders have fallen by 80%, which has serious implications for businesses.

“The immediate and terrifying nature of tariffs for producers is that you will have to eat into your margin; it will really hurt your bottom line, and that’s what we’ve seen,” Adam said.

Although international producers have seen a greater impact on production demand simply due to scale, craft distillers have shouldered the brunt of the burden. Adam described the reason for the phenomenon as follows: Craft distillers, from the start of their business, aim to market their products in overseas markets as a specialty drink featured in major cities and high-end bars. However, once the tariff was imposed, overseas orders and/or expansion plans were almost immediately canceled. Gallet Dreyer & Berkley partner Asher Rubinstein, an offshore asset protection and compliance lawyer with expertise in food, wine, restaurant and hospitality law, also noted the significant drop in international orders.

“US whiskey exports to Europe are down 1/3 to ½,” Rubinstein said. “Unfortunately, the problems don’t end there either now that the tariff has been revoked.”

Can’t businesses just get back to normal?

Since smaller distillers have had to pivot and focus on growing domestic sales, getting back into international markets won’t be easy. The reasoning, according to Rubinstein, is simple: Companies have stocked their shelves with domestic versus international products due to tariffs on whiskey, and still have that inventory to prioritize and sell.

The solution will have to be a multi-pronged approach of maintaining domestic sales, buying out old international businesses, and seeking additional foreign products. However, building relationships and solving global logistics issues will be the biggest hurdle for companies to regain their ROI.

“There may be a decrease in the cost of paying tariffs now, but that seems to have been overshadowed by the increase in transportation costs and shipping costs,” Rubinstein said.

Factors affecting international trade in 2022

DiMarco agreed that the shipping crisis is preventing the world from getting back to business as usual. He explained that before the pandemic, a container would have typically cost between $2,200 and $3,000, but now it’s $8,000 to $10,000.

“If my glass costs me more, then the product costs more, the tariffs go away, it doesn’t change the fact that shipping is always messed up,” DiMarco said.

These two facts alone are just two reasons why the world is experiencing such drastic price increases. Moreover, this is also why it is not easy for distillers to go back to the same operations as before. Further, Rubinstein warns that while the original tariff has been lifted, there are still underlying trade disputes regarding steel, aluminum, airlines, digital services, and more that need to be resolved. Most of them were what Rubinstein called “tick-for-tick tariffs” where country B responds to country A’s tariff with another tariff, and so the cycle continues.

On top of that, he agreed with DiMarco that logistical issues still need to be resolved and added that in the next presidential election in 2024, there is a possibility that tariffs will even be reimposed. Rubinstein ultimately advises his clients to proceed with caution and take advantage of the absence of tariffs on whiskey today, but prepare for the possibility of reactionary tariffs happening again.

The future of the whiskey industry

Bourbon and whiskey are hugely popular across Europe, leading Adam and market analysts to believe the market will rebound over the next five years. Consumer preferences, premiumization, purchasing power and demographics are all reasons for this prediction of a shift to older spirits like whiskey.

“One country where we are seeing a broader shift in spirits drinking preferences is, for example, Poland, which traditionally, like many Eastern European countries, is primarily a vodka market. There, there is a growing appetite for aged spirits, and in particular whiskey

Adam considers American bourbon and whiskey to be prominent at the table, especially due to their lower price ranges.

“There is a free market; everyone is welcome to come sell, rise and shine… This is what previous experience with fair trade has taught us,” Adam said.

Overall, the industry expects to see a period of positive growth in whiskey demand over the next five years, as shown in the chart below provided by Statista.

US whiskey revenue growth

It is clear that detailed planning is needed in the face of these issues, especially with the unpredictability of global trade relations. For now, a multi-pronged market approach seems to be the resounding advice.

“We want to maintain robust domestic sales in the wake of the pandemic…we also want to buy back the European market we had before the tariffs were imposed, and we want to expand into new markets, whether it’s India, in Asia or the Americas,” Rubinstein said. “To do that, American distilleries are going to need the right relationships and they’re going to have to overcome the shipping and logistics issues that are the products of two years of COVID.”