Scotch whisky-makers were among the most fervent industry advocates for staying in the European Union, but if Britain has to leave, they prefer a clean break.
The industry, already busy preparing for transport and logistical challenges, says it would be happy to stay in the EU single market and the customs union after Britain leaves the world’s largest trading bloc if it had a say in regulations and a right to make bilateral trade deals.
If that’s not possible, then it would be better to have no deal and default to World Trade Organisation rules, which mandate a zero per cent tariff on Scotch imports into the EU, said Karen Betts, chief executive officer of the Scotch Whisky Association (SWA).
“When we think it through, there are real risks, if you stay in the single market, of continuing to be bound by the EU’s rules but not being able to influence them,” she said. The industry would keep an open mind as long as negotiations with Brussels are going on, however, she said.
The industry position matters: Scotch exports were worth £4.36 billion in 2017, more than one fifth of all of Britain’s food and drink exports and 40,000 jobs.
To some extent, its position is unique.
For one thing, there’s the advantageous tariffs under the WTO, which apply to almost all spirits.
For another, while its supply chain is almost all UK-based, exports account for 90 per cent of output, meaning it has seen big benefits from the post-Brexit weakness in the pound.
Protected by a UK law which means it can only be made in Scotland, Scotch is dominated by multinationals like Diageo and Pernod Ricard and has been an export sector for centuries. Distillers are skilled in cross-border trade and able to absorb logistical challenges and extra costs.
What the industry wants now is clarity
What the industry wants now is clarity about the terms under which Britain will leave the EU and how much time it has to get ready for it.
“We play the cards that we are dealt. We kind of just want to know what the cards are,” Betts said.
A big concern, shared by other goods exporters, is how transport to the EU will be affected by a change in IT systems for trade with non-EU countries agreed before the Brexit vote.
If the agreed transition is not long enough following Brexit Day on March 29, 2019, the system may have to be used for all exports, including to the EU, just months after it has been introduced. The volume of declarations processed annually in that case will rise to 255 million from 55 million now, the government says, so it needs to be running glitch-free by then.
Whisky-makers are making contingency plans for alternative routes and storage in case border delays affect sales or costs.
France, Spain and Poland are among the top 10 global destinations for Scotch, together accounting for 19.3 million nine-litre cases in 2016, or 21 per cent of the total, according to drink industry researchers IWSR.
By far the world leader with 13.6 million cases, France is led by Marie Brizard, which ships William Peel Scotch from Scotland but also French spirits and cognac into Britain. The company’s Scotch travels to France via Belgium, using ships and trains instead of trucks.
Chief Executive Jean-Noel Reynaud believes logistical disruptions will be manageable.
“We will just have to adapt to the new supply chain rules,” he said. “If we have to account for another one or two weeks in the supply, we’ll do so. When we export to China it takes much more time than just importing from the UK.”
If there are bottlenecks, producers can build regional stocks, taking advantage of the fact that Scotch is not perishable, said Duncan Swift, who runs the food advisory group at business consultancy Moore Stephens.
Pernod Ricard, which has 20 per cent of the French market with its Clan Campbell and Ballantine’s brands, already operates via 85 distribution centres around the world and could easily use one in Europe or rent more space, chief executive Alexandre Ricard told Reuters this month. The next few months will be key.
“What is absolutely critical for our business is to be ready to adapt swiftly,” Ricard said.