Scotch export growth fuels tax label debate

Related tags Cent Scotch whisky

Scotch whisky exports reached their second highest level ever in
2003, confirming Scotland's favourite spirit as one the biggest
sources of revenue for the UK manufacturing sector and the
government's coffers. All the more reason, then, to rethink the
cumbersome tax stamp system proposed by the Exchequer which Scotch
producers claim will put the brakes on future growth.

The duty stamp system is seen by the government as the most effective way of closing tax loopholes and combating the problem of tax evasion and fraud. But obliging Scotch manufacturers to buy the duty stamps before the whisky is sold - and to invest in additional machinery to apply the stamps to the bottles - is a burden which the industry will struggle to bear, argues the Scotch Whisky Association​.

Scotch whisky exports rose 4 per cent to £2.37 billion in 2003, falling just £20 million short of the best ever figure posted in 1997. Importantly, the growth came not only from established export markets such as the US and Spain, but also from strong increases in demand from developing markets, in particular in Asia and eastern Europe, and the SWA is keen to ensure that this momentum is not lost by distillers being forced to tie up capital in implementing the duty stamp scheme.

"These figures highlight Scotch's important contribution to the balance of payments,"​ said Ian Good, chairman of the SWA. "Any damage to the industry's competitiveness will have a knock on effect across the wider economy. That is one of the reasons we continue to oppose the introduction of tax stamps in the United Kingdom, a measure that will tie up companies' capital that would be better spent promoting Scotch around the world."

The importance of promotion is clear from the SWA's figures for 2003. Scotch is not a particularly price-sensitive product - sales of the more expensive malts rose by 13.5 per cent last year to more than £300 million, while cheaper blends showed more modest gains of 3.5 per cent to £1.87 billion - but it is a potentially confusing one for many consumers.

With a plethora of standard blends, premium blends, single malts and vatted malts, many with different 'finishes' and ages, navigating the Scotch market can be a treacherous and confusing task for consumers, especially in those markets where it is a relative newcomer. And it is precisely these markets which the SWA sees as providing further growth in the future - and therefore where distillers need to invest the most in marketing and communication.

"New markets are emerging around the world where consumers are discovering Scotch for the first time,"​ said Good. "Distillers, for example, have been trailblazers in exporting to eastern Europe ahead of the imminent enlargement of the EU, with exports to the 10 [traditionally vodka-focused] accession countries up 32 per cent in value on 2002 to reach £28 million last year.

"And exports are also increasing to key emerging markets, such as India (+47 per cent to £13.5 million) and China (+142 per cent to £9.3 million), where there will be significant commercial opportunities in the future as trade barriers are gradually removed."

The retail networks in many of these countries are also developing rapidly, with the likes of Carrefour moving into China and Metro into India, providing further opportunities to develop the Scotch markets there.

Good also stressed that the increase in sales could have been even higher, if not for tough economic conditions in certain markets - and that these uncertain trading conditions continued to pose a threat to sustained export growth.

For example, key markets in Asia such as South Korea and Japan both saw a fall in export sales in 2003 (of 8 per cent and 35 per cent respectively) which was only partially offset by gains in smaller markets such as Taiwan (41 per cent to £81 million) and Thailand (17 per cent to £44 million).

France, traditionally one of the most important markets in Europe for Scotch and the third biggest overall, saw a 3 per cent decline in sales to £228 million, again due to the low levels of consumer spending there, contributing to a 3 per cent drop in overall EU exports during the year.

Goods call for distillers to be allowed to be invest in promotion rather than duty stamps was lent more weight by figures from Pat Brazzier of PASH Beverage Research. Two of the fastest growing brands in 2003 were 100 Pipers, which saw sales rise 34.3 per cent to 2.4 million cases, and Chivas Regal, sales of which reached 2.9 million cases, up 6.5 per cent - both owned by French group Pernod Ricard and both heavily promoted by the company during the year.

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