Posted by: waterworks | December 31, 2007

12. Water of life (1)

The word “whisky” derives from uisge beatha – Gaelic for “the water of life”.  Thanks to globalisation, the “whisky futures” market is increasingly worth watching.  Heavily-populated Asian nations are becoming major consumers of Scotch whisky. Tariff barriers have recently been softened in India, reflecting the drink’s rising popularity amongst Indian middle-classes.  Record volumes of over one billion bottles were shipped from Scotland in 2006, with 90% destined for overseas markets.  Can Scotch manufacturers keep meeting rising demand in China, India and Japan?  And what about in Brazil and Russia?  In the long-term, the answer may be yes, provided that (i) new distilleries are built and (ii) existing major distillers invest in additional stills.  But in the short-term, with industry-wide production already close to capacity, global demand may soon outstrip supply.  Key brands take at least ten years to mature, resulting in a major lag time between market trends and any changes made to distillery output.  

Multi-coloured whisky casks covered with snow.

Ownership of the key branded malts – such as Laphroaig and Talisker – increasingly lies in the hands of large drinks conglomerates such as Diageo or United Distillers.  However, the Islay distillery of Bruichladdich still operates as an independent producer in which small investors can gain a stake.  For between £1,100 and £1,450, a new cask of whisky can currently be purchased (around 250 litres).  Ten years hence, the distillery will require the cask owner to pay several thousand pounds in Excise Duty before bottling can commence.  But by the late 2010s, the cask should have acquired considerable market value and it should be possible to sell at a good profit – either directly back to the distillery or to a third party.  Leaving the cask to mature for a further period of time is always a tempting course of action for cask-owners.  Market demand for rare super-premium editions (aged for 17 years or over) is growing at 15% a year, pretty much in line with growth rates for Indian and Chinese economies.  However, globalisation is beginning to impact upon whisky production costs and not just sales; the Bruichladdich website regretfully notes that the “increased cost of bourbon barrels & barley prices” has recently pushed up purchase prices.

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Responses

  1. very interesting.
    i’m adding in RSS Reader


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