A Scotch perspective

Gavin Hewitt spoke at the World Whiskies Conference, held for the first time in the New World – an acknowledgement, he said, of the exciting developments in the American whisky business

Gavin Hewitt Scotch Whisky Association

I have been intrigued and fascinated, but I keep coming back to one of the truths about whisky – its global success has been built on the very strong traditions of Scotch, Irish, Bourbon and Tennessee whiskies, and the many master distillers who have laboured over the years to produce great whiskies which have entranced and delighted our many whisky connoisseurs. And in the case of Scotch, the recipe for well over a century has been blends, one of the real arts of whisky production.

For those who might not know me, I am the chief executive of the Scotch Whisky Association, the trade body which promotes and protects the interests of the Scotch Whisky industry. Unlike the Cognac and Armangnac makers, it is not mandatory to be a member of the SWA to make and trade in Scotch. Nonetheless we have well over 90% of the Scotch Whisky industry in our membership and we can truly claim to represent the industry.

Unfortunately, that does not give us the right to frame the laws for Scotch Whisky, the latest iteration of which is the Scotch Whisky Regulations of 2009. That was ground-breaking law, establishing for the first time in regulation the various categories of Scotch and prescribing their presentation.

Let me remind you of some of the history and success of the Scotch Whisky industry and its representative Association and make a few comments about new trends and challenges.

Last year the SWA celebrated its hundreth birthday. So we have some history. The Wine and Spirits Brand Association was founded on 3 October 1912. The concerns of the time were remarkably similar, if of a different degree, from the very concerns with which we still grapple today. The Association was reformed in 1917 to become the Whiskey Association (whiskey with an 'e'), representing both Irish and Scottish producers. It was re-established in 1942 to become the Scotch Whisky Association (this time without the 'e') and to assume its current role.

During its hundred year existence, the Association has tackled war, and cereals shortage as a result of war, prohibition in America and many similar challenges – not least from our own governments at home. It has fought against tax and tariff discrimination at home and abroad, and more recently the very serious threat of minimum pricing justified on spurious health grounds.

But above all the Association has protected its product from imitation, and unfair competition from whiskies that are not whiskies, and certainly not Scotch.

It is, indeed, to the credit of my legal team at the Association and their predecessors that Scotch Whisky has never once been ruled to be a generic product in any administration around the world where Scotch is sold and where we have had to challenge wrongful practice. The same cannot be said for many other familiar products, even such well known French cheeses as Brie and Camembert. We came to the job of protecting our product well before others, such as the Champagne producers.Our reputation for zero tolerance is well known.

Let me come to more recent times.

Last year we celebrated yet another record export success. In money terms Scotch Whisky exports were valued at 6.5 billion US dollars (at customs valuation). That translates into around 17 billion dollars at sales value, excluding  tax and tariffs levied locally. Scotch truly is a big industry and it matters hugely to the Scottish and UK economies. At the same time we have nutured and maintained our reputation as a craft industry, not just another industrial complex.

Most of the jobs in the Scotch Whisky industry are in socially and economically depressed rural and urban areas of Scotland where alternative employment is scarce. The attachment to the communities in which the industry's is embedded is very close.

Just let me quote some staggering statistics. Scotch is now Scotland's largest manufactured export, even bigger than processed oil and gas. It represents 80% of Scotland's food and drink exports, and 25% of the UK's food and drink exports. It is the most productive industry in the UK, earning over 200 dollars a second, yes a second, for the UK balance of payments with an annual gross value added per employee of some 450,000 dollars.That is greater than the productivity of the employees in the great financial centre of the City of London.

Scotch is the largest segment of the global whisky category, outselling Bourbon and Tenessee and Canadian whiskies by a factor of four. More strickingly, unlike Bourbon and Canadian whiskies which largely appeal to their home or near markets, it has a global footprint much larger than any other whisky. Go to any decent bar anywhere in the world and you will find a Scotch on offer. It is the one global drink which, I must acknowledge, our American friends have done much to promote around the world.

I am delighted that other whiskies bask in the halo effect of Scotch. I genuinely believe that the more competition that we have from genuine whiskies, the better for the whisky category as a whole. When I talk about genuine whiskies, I mean whiskies that meet the global standard of the five tests or hallmarks of whisky – a minimum strength of 40%, made exclusively from cereals and distilled below 95% alcohol strength, with no additives and flavourings and matured in oak casks for a minimum of 2 to 3 years.

From the vast array of whiskies on offer, we can be confident that our consumers will find a whisky that they like. And they will go on to try others, Japanese, Welsh, English or even Swedish. There is indeed a whisky which will suit everyone's palette.

But Scotch will still lead the way. At the last count, and I gave up counting, there are at least 3,000 brands and expressions of Scotch. So do not tell me that Scotch is boring, lacking innovation and caught in its own tight and traditional rules. There is more innovationion the industry than ever before. There has been a flowering of Scotch whether in blends or malts. It has been a renaissance. But greater things are still to come.

All that said, I am worried about some of the trends in whisky production on this side of the Atlantic. Craft distilling is interesting, but what is the point of making white whisky! Whisky has traditional characteristics; and those characteristics need to be cherished and promoted. One of the major hallmarks is the colour of whisky which comes from the casks in which it is matured.

We are successful in advancing the consumption of whisky in markets such as Brazil, Mexico, Russia, Poland and China because it isn't a white spirit. Consumers in these countries want to express their difference from what their fellow nationals drink - because they want to say, in what they choose to drink, that they are aspirational, newly affluent and global – and the global drink is Scotch.

If you doubt that, just look at our export statistics which we published this week – another record for exports in 2012 even in these hard economic times. That is a growth of nearly 100% in ten years. And to show that it is not only emerging markets where we find our success, just look at exports of Scotch to the United States. They have grown by 130% over the last decade and now total, again at customs valuation, over a billion US dollars from a base in 2003 of US dollars 450.

And to drive home the point, our global audience is expanding massively. There are some 500 million middle class consumers currently in Asia. By 2030, there will be 3.5 billion. That's the market we are targetting. Our ambition and appetite for that new market is being shown in the huge investment being made into new production facilities in Scotland. Diageo has announced an investment into a new malt distillery at Teaninich with a capacity of 13 million litres a year. That is only one of 12 new malt distilleries of which I am aware being planned or developed in Scotland.

Let me finish on an encouraging note. I am delighted that the SWA has the support of DISCUS in working with us to open up markets around the world and to secure better and fairer market access for whisky.

One of the requirements of that market access work is to ensure that, hand in hand, we endeavour to deliver in those newer markets a quality definition of whisky – a definition that embraces the five essentials, the five markers of whisky that I set out earlier.

There is no reason why producers in new emerging markets should not produce whisky, even if it is for now seen as an imported Western spirit drink with considerable cache. But it would be disastrous for all our businesses in China if the Chinese started to produce a drink called whisky that did not meet the five essentials. That would be unfair competition and a massive distortion of the market which we have worked hard to create. The good news is that the Chinese already have a reasonable definition to protect the whisky category; we are working with them to revise the standard to introduce a maximum distillation strength and a ban on additives.

What is whisky is exactly the issue we face in India. We are not going to persuade the Indians to change their definition of Indian whisky (usually unaged neutral alcohol with flavourings or additives to make it taste and smell like whisky). But let us make sure that, wherever we can, we work together to protect and promote genuine whisky and ensure that in our own markets we insist that whisky sold in our markets meets our own stringent definitions.

That means we have to go further than just securing recognition of our GIs or standards of identity in third countries. It means that we must try to persuade as many jurisdictions as possible to enshrine in their local laws a defintion of whisky that meets a quality standard of whisky.

The transatlantic trade and investment partnership which is now being mooted and promoted is a real opportunity for us all. Fortunately we don't face punitive tariffs or other serious market distortions, but there is an opportunity for to bring our regulatory frameworks closer and more compatible. I hope that industry both sides of the Atlantic will make sure that our influence is brought to bear on our respective governments to conclude a deal as soon as possible.

Finally, in conclusion. As I said, the United States remains by far and away the largest market by value for Scotch. Long may it remain so.

I am delighted that our United States consumers are increasingly attached to the one and only true water of life.

22 April 2013