NEW AMERICAN WHISKEY TARIFFS WON'T BE HELPFUL
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New trade tariffs implemented by the Trump Administration combined with the retaliatory reactions of several trading partners mean the reality of a deepening global trade war has been top of mind in recent weeks. Through Beverage Marketing Corporation's DrinkTell™ database, this edition of DrinkTelligence looks at how exported American whiskey has performed in recent years and creates some context for how much volume could be lost if trends turn negative due to the impact of tariffs.
The new 25% tariff on U.S. whiskey imposed by China (July 6th) on top of those already levied by Europe, Mexico and Canada means that a material amount of volume and revenue is likely at risk. China is not an important export market, however Europe is and export volumes there look susceptible to losses as manufacturers take up prices to the consumer to offset tariffs. Additionally, we also see a possibility that aging inventory originally intended for export will find its way into the domestic market, raising the possibility of a domestic price war in the middle and lower price segments of the American whiskey category.
Over the past decade, the free trade agreements and lowering of tariffs aided in leveling out the playing field and American whiskey makers have taken advantage. American whiskey export volumes have been booming since 2009, growing at a rate of nearly 7% annually since. Export whiskey now stands at 43.5 million proof gallons and $1.1 billion wholesale versus the total US domestic market of 55.0 million gallons and $4 billion wholesale. Export wholesale dollars have increased in step with proof gallons, increasing from $751 million in 2009 to $1.1 billion in 2017, a CAGR of +5%. |
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Although new Chinese tariffs got significant attention in the media, realistically China does not matter much for American whiskey exports. China represented just 0.1% of overall Bourbon export volumes and dollars in 2017 and high-end whiskey on whole in China is struggling due to changes in gifting regulations. This negative trend is not new as volume and dollars in China have been declining at double-digits rates since 2009; the anti-corruption push in China merely accelerated the declines.
Europe however presents a significant challenge. Currently, the top 15 countries in Europe represent about 20% of American whiskey export volumes at roughly 8.6 million proof gallons. At $150 million wholesale dollars, Europe represents 13% of exports. If Europe were to lose 1/4 of volumes, that would represent roughly 5% of all American whiskey export volumes and probably 3-4% of wholesale dollars. That number is material. |
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As for our NAFTA partners, Mexico and Canada aren't nearly as big as Europe, but are material. Whiskey exports to Mexico represent just below 400,000 proof gallons and about $6.7 million in wholesale dollars, both just below 1% of total whiskey exports. Canadian exports, now at about 450,000 proof gallons or about 1% of volume, have been shrinking at double-digit rates since 2009. However, Canadian wholesale dollars are significantly higher than Mexico at just below $37 million, about 3% of total exports. Canadian wholesale dollars have been growing at 5%, a healthy rate. That's material for the overall industry.
For more key data on both the alcohol and non-alcohol markets in the U.S. and globally, take a closer look at BMC's DrinkTell™ database.
For more information on alcohol beverage trends:
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