Sterling weakness gets Scotch exports moving

THE WEAKNESS in sterling following the Brexit vote is helping push exports of Scotch whisky back into growth after three successive years of decline.

The value of whisky sales grew by one per cent in the nine months to September, according to the most recent figures which extrapolated for the full year would result in annual sales of £3.9 billion.

Sterling’s weakness, combined with a returning strength to mature markets and growth in emerging markets means Scotch whisky producers will sidestep the ongoing fall-out from Brexit, with 2017 likely to be dominated by a push for global growth and hope of UK trade deals.

For the same nine month period, volume sales are up 2.9 per cent, with exports to European Union countries up 7.5 per cent.

Industry analyst Alan Gray said the figures he had obtained showed that the market was beginning to move in the right direction.

“There will be a bit of a boost from the weakness in sterling, but overall the 2.9 per cent is a good increase; it’s certainly above what it’s been for a number of years. And for the whole year, I think we’ll see growth of at least 2.5 per cent.”

Mr Gray, who publishes The Scotch Whisky Industry Review annually, added: “There is a quiet optimism that things are looking better than they were a few years ago. There is probably a while to go with a competitive currency, but it won’t go on forever. The short term benefit will help end the year on a good note and go through to 2017.”

Rosemary Gallagher, head of communications at the Scotch Whisky Association, said: “Things are better for us than they are for a number of other sectors the way things are shaping up.”

Under World Trade Organisation rules Scotch will continue to benefit from zero tariffs in a number of territories – including the European Union, the US and Canada. “That will be a boost,” said Ms Gallagher.

Scotch exports first past the £4bn milestone in 2011, peaking at £4.27bn, before dropping back. In 2015, sales were £3.85bn. For the first six months of 2016 value sales were down one per cent to £1.7 billion, but market dynamics have changed enormously in the second half of the year with producers encouraged by recent performance.

Laurent Lacassagne, chairman and chief executive of Chivas Brothers, said the company has seen “solid and satisfactory” growth in the last year, leading to an increase in market share.

“In our last financial year, Scotch whisky returned to growth and remains well-placed to continue this trend by appealing to consumers in both mature and emerging markets,” said Mr Lacassagne

Diageo too has seen positive signs. “We have seen growth in both Europe and North America, which are our biggest and most valuable markets,” said David Cutter, president of Diageo’s global supply & procurement. “We’re working hard to drive further growth in these markets.”

This push will see further investment in the sector in 2017, with the likes of Diageo and Chivas Brothers committed to long-term plans in the Scotland.

Diageo has committed more than £1bn in the last six years to growing its Scotch production, and at Chivas, around £60 million is invested every year, illustrating the confidence global players have in the market.

And a concentration by the UK Government on new trade deals with a number of countries may bring further benefits – particularly in India, where a 150 per cent import tariff continues to stifle sales.

“The EU has been in negotiations with India for a few years, with no deal,” said Ms Gallagher. “It’s holding back the market. It’s a big market and we’re doing well, but a lot of people can’t afford to buy Scotch whisky because of the tariff.

“Hopefully the UK Government can press ahead with that more quickly than the EU has been able to, which will benefit Scotch whisky.”

Mr Cutter, who is based in Scotland and is responsible for all of Diageo’s global production business, said: “For us, the most important thing is for the UK, and for Scotch in particular, to continue to benefit from open access to the EU and favourable international trade agreements.”

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