The whiskey industry is going through some tough times right now. U. S. Government tariffs have decimated the export markets and the high inflation caused by these policies is hurting domestic sales on the more expensive brands. Historically, the industry has dealt with tough times in the same manner they are dealing with it today – they shut down production to deal with over production and lay off workers. I thought I would look at the economic aspects of the industry in this blog.
First of all, high fuel prices have driven up production costs. High fuel prices have a ripple effect on the cost of grain, barrels and bottles. It also costs more now to ship out the final products. High fuel prices also cause the distillery to pay more to make the whiskey. Natural gas is used by most distilleries to heat their stills. The distillery shutdown will negate some of these costs, but the distilleries still are bottling and shipping whiskey to consumers. The war waged with Iran has had an adverse effect on the industry.
The export markets have been damaged. Tariffs and the alienating of America’s allies have caused retaliation by foreign governments, placing high tariffs on American whiskey. The cost of American whiskey has skyrocketed in the overseas markets, making consumers look to alternative whiskeys. Then there is Canada. Canada was one of the largest consumers of American whiskey before the current change in policy. Now they are not purchasing American whiskey because of Trump’s threats against Canada. This is a consumer-led boycott of American whiskey and does not include the retaliatory tariffs placed on whiskey by the Canadian government. Canadian liquor stores have pulled American whiskey from their shelves and encouraged consumers to purchase Canadian whisky. The net loss is that thousands of cases of American whiskey are not being sold in Canada.
Finally, there is the domestic market. It is in decline. Higher costs have caused consumers to think twice about purchasing whiskey when they have to fill their gas tanks and put food on the table. The choice of paying $60.00 for a bottle of whiskey or putting gas in the car is made by consumers every day.
The distilleries are coping with the economy. The whiskey tourism business is still strong, bringing in income from their tours and hopefully selling a bottle or two to the tourists. The smaller craft distilleries, who depend more upon local markets than exports, are still selling their bottles to local people. Many of them have a very loyal fan base who will purchase their bottles over the larger distilleries’ products. Many of them have cut back on their production, but are still making whiskey. Some of the larger distilleries have shut down production completely and those who have not have reduced the amount of whiskey they are making. It is a tough time for the American whiskey industry.
Image by Gerd Altmann from Pixabay