What Happens to Scotch if Scotland Leaves the U.K.?
Today, Scotland is voting in a referendum to decide if they will stay a part of the United Kingdom or secede and become their own nation again. There's a lot that could change if Scotland decides to leave the UK, everything from flags to banks to politics are at risk, but let's focus on what is really important: scotch.
A brief history of scotch
Scotch is whisky made in Scotland. It absolutely has to be made in Scotland, otherwise it cannot be called scotch. The Scotch Whisky Association, based in Edinburgh, Scotland, works very hard to make sure of this. (There's even a long-running debate about the proper spelling. Scotch aficionados generally insist on spelling "whisky" without the e, to distinguish it from Irish or American "whiskey.") The first record of distilling in Scotland was in 1494, but this record notes production of about 1,500 bottles, so it was likely underway well before that year.
In the 16th and 17th centuries, scotch production became more refined, and monks were expert distillers. At that time, they were making what we would consider malt whisky, not scotch. In 1707, the Act of Union with England was passed — bringing the two nations together, but also sending taxes on whisky skyrocketing. (And we wonder why Scotland wants to secede.)
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The high taxes created an underground liquor trade, similar to what occurred with bathtub gin during the Prohibition period in the United States. Smuggling went on in Scotland for 150 years; even churches served as hiding cellars. In the early 1820s, about half of the whisky served in Scotland was acquired through smuggling and therefore avoided taxes. In 1823, taxes were lowered under the Excise Act and smuggling slowed down.
In 1831, grain whisky comes into production—not quite as strong as malt whisky. As the Scotch Whisky Association explains, "The lighter flavoured Grain Whisky, when blended with the more fiery malts, extended the appeal of Scotch Whisky to a considerably wider market." The 1880s helped scotch even more: France's grape crop was devastated by a beetle infestation, halting production of wine and brandy. Scotland swoops in, offering scotch as an alternative. From there, the market grew. Today, exports are around the $7 billion mark.
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So what does the scotch industry think of the referendum?
Well, they aren't thrilled about it. The Wire spoke with a number of scotch companies. The Edrington Group, which produces The Famous Grouse, Cutty Sark, Macallan, and Highland Park, told us that they are not discussing the referendum until after the results.
Diageo, which makes a variety of scotch, most notably Johnnie Walker, offered this statement to The Wire:
Our position on Scotland has not changed. We remain firm in our view that any decision on Scotland’s constitutional future is a matter for the people of Scotland. However, there are many questions to be answered in relation to the implications of potential constitutional change on our industry.
Naturally, we would have concerns about any developments which could add cost, complexity or uncertainty to our business in areas such as the currency, EU membership, access to the Single Market and international trade, as well as official support for exports. We still have no clarity in these areas.
We, together with the SWA [Scotch Whisky Association], continue to seek the reassurance we need in areas of critical importance to the future success of our business, and of the industry.
Diageo's spokesperson stressed to The Wire that production facilities will remain open no matter what occurs with the referendum. Bacardi, which makes Dewar's, deferred to the Scotch Whisky Association as well.
The Wire reached out to the Scotch Whisky Association, which provided a lengthy statement. While they did not overtly say they were against the referendum, they pointed to a number of questions that remain unanswered for their industry if Scotland is to gain independence. Their concern is in large part economic. The United Kingdom provides the scotch market with a number of economic benefits (making up for those 150 years of unfair taxing):
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At the UK level, we are fortunate to have - on the whole - certainty in our domestic business environment. Monetary and fiscal policy is predictably managed. We benefit from the fact that our domestic market is the sixth biggest economy in the world, large enough to support broad and balanced growth and provide a pool of relevant skills. In contrast, as of now, the nature of an independent Scotland's currency remains unclear, and self-evidently this could affect our exports, management of supply chains, pricing, and competitiveness. The taxation regime also remains to be developed, and any regulatory divergence between Scotland and the rest of the UK may increase costs to business. In all these areas, we need further information and reassurance before we can assess whether we can mitigate these potential risks.
The United Kingdom's membership in the European Union also allows added protection for the scotch industry, as the association explains:
The 'Scotch Whisky' geographical indication is protected in EU law. We are able to export tariff-free across the single market, use EU mechanisms to eliminate market access problems, and benefit from the EU's clout in trade negotiations. Of course, not everything in the EU is perfect and, in my view, many areas need reform. But even a temporary interruption of EU membership involving exclusion from the single market or the customs union, if this were a consequence of independence, would be damaging and difficult to manage.
The scotch market in Scotland survives entirely on exports, mainly to India and United States. Overall, they have 200 markets with whom the U.K. supports meaningful, economically beneficial relationships. "A diplomatic network with the necessary geographic footprint, expertise, and influence to provide commercial and political support globally will continue to be essential," said David Frost, the association's chief executive.
No matter what, the scotch market is going to stand by the nation's decision. Afterall, over 300 years of tradition says scotch can only be made in Scotland.
Is the price of scotch going to go up?
The Wire spoke with Jim Meehan, renowned mixologist and founder of the New York City cocktail lounge Please Don't Tell, to best understand the future of scotch prices. Meehan, overall, is not worried about the quality of scotch. He tells us, "Nothing should change. The Scots are fierce about protecting their whisky and production traditions." That being said, a major influx in demand could affect costs, "Prices are always going to go up as demand increases — and it is."
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In the long term, we could potentially see scotch prices fall if Scotland leaves the U.K. It all depends on the strength of their currency. Then again, if the currency gets too weak, distilleries would close and the remaining vendors could sell their scotch for top dollar.
But in the meantime, don't worry, scotch won't suddenly start costing an arm and a leg.
This article was originally published at http://www.thewire.com/business/2014/09/what-happens-to-scotch-if-scotland-leaves-the-uk/380462/
