The return of the whisky loch?

With rampant inflation, strikes, an energy crisis, and dysfunctional government, it’s starting to feel a lot like the 1970s. Yet the Scotch whisky industry is expanding rapidly. Does this mean, Ian Buxton asks, that we’re heading for a 1980s-style whisky loch?

Here we go again: surging inflation, energy price shocks, strikes, and terrorism. For those of us who lived through the 1980s, it all seems curiously familiar. Even Olivia Newton John is back in the headlines, though sadly for all the wrong reasons.

It wasn’t a happy time for Scotch whisky. What was referred to in polite company as ‘an industry-wide excess of inventory’ (or, more irreverently as the ‘whisky loch’) led to a roll-call of distillery closures that makes dismal reading even today: Banff, Brora, Coleburn, Convalmore, Dallas Dhu, Glen Albyn, Glen Esk, Glenlochy, Glen Mhor, Glenugie, Glenury Royal, Hillside, Linlithgow, Millburn, Moffat, North Port, Glen Flagler, Garnheath and, of course, the long and loudly lamented Port Ellen.  All closed, many demolished; apart from the fortunate Brora and Port Ellen, few will ever work again.

Brora – brought back from the dead

Worse than the 1970s?

And, while I’m wearing Private Frazer’s hat, let’s just observe that things seem a great deal worse today. We can add the Covid pandemic, the sudden growth in nationalist politics, an associated rise in protectionism, a European war, and the consequent collapse of the Russian market for whisky. While I’m at it, you might want to add likely trade problems with China to the gloomy roll-call of my opening paragraph and note that, due to the extravagant use of quantitative easing and ultra-low interest rates by central banks, inflation is taking off, reaching levels not seen in the last four decades. With the world awash with cheap money, asset prices have soared – if you ask me, it’s no coincidence we’ve seen the unwelcome return of whisky investment schemes. On one website, you can even buy shares in rare bottles of Macallan or an assortment of Pappy van Winkle bourbon and gloat as the price soars ever higher (that’s the theory, at least). 

However, we’re beginning to see some evidence that the gloss is coming off the luxury goods market so beloved of high-end whiskies, with the FT reporting that panicked Chinese collectors are dumping their beloved Rolex Submariner watches with near-50% losses.

That’s some massive capacity at Miltonduff. We hope you’re thirsty

The industry is expanding

But, never mind because, despite the economic dégringolade, apparently everything in the garden is rosy as far as Scotch whisky is concerned. Pernod Ricard is planning major expansions at its Aberlour and Miltonduff distilleries. The two Speyside distilleries will receive a total of £88 million (€104m) in upgrades to increase production by 14 million litres of alcohol annually. Dalmore and Kilchoman have both announced major expansion and the huge Glen Turner (Starlaw) grain plant is to construct 11 giant new warehouses, suggesting that production there will be growing substantially.

And at least five new mainland distilleries will open their doors this year, including the Port of Leith (Edinburgh), 8 Doors (John O’Groats), Glen Luss (Loch Lomond), Eden Mills (St Andrews), and the revived Rosebank. Yet more are under construction or in final planning as the growth of the Scotch whisky industry gathers pace and, if the promoters of various investment schemes are to be believed, the purchase of a cask of single malt is a sure-fire bet for your pension plan. Note: I won’t be doing this – draw your own conclusions from that.  

This time it will be different

So that’s alright then. All is for the best in this best of possible worlds, at least as far as expenditure on new production and brands would lead us to believe. However, we’ve been here before: in the 1890s, 1950s, 1970s and briefly following the 2008 global financial crash which rather dampened the industry’s animal spirits. Notwithstanding the Scots’ reputation for prudence, every so often a mood of reckless optimism seems to dominate the whisky business’ thinking, and even the dourest of Glasgow accountants (it’s seldom difficult to distinguish such a figure from a ray of sunshine) becomes possessed by the irrational belief that ‘this time it will be different’. 

Well, as they say north of Hadrian’s Wall, ah hae ma doubts – not least because making whisky needs a lot of water and uses lots of energy which, as you may have noticed, are both commodities currently under some pressure. I’m prepared to wager a generous double that few of the business plans that are now taking physical shape had anticipated either unwelcome development. 

Pernod Ricard’s Chuan Emeishan distillery in China

When Chinese whisky comes on stream

So woe, woe, and thrice woe. Buxton the Soothsayer anticipates troubled times ahead, compounded by the perplexing decision of two industry giants to build single malt distilleries in China of all places. It now seems clear that Western nations face a profound reshaping of trading relationships with the People’s Republic, not least because of that country’s attitude to copyright and intellectual property. Handing over the secrets – such as they are – of whisky production to a fiercely nationalistic and commercially assertive competitor seems quixotic to me, not to mention the moral hazard involved in investing in China. 

While the potential market for Scotch is huge and Scotch retains for the moment a cachet of authenticity it’s not hard to imagine a significant number of Chinese consumers abruptly deciding that a Chinese-made product that looks like whisky and tastes like whisky (and is attractively priced) is preferable to the ‘real’ thing. And, as the Australian wine industry knows to its cost, punitive Chinese tariff barriers can arise very suddenly, destroying years of work and investment. 

However, I don’t mean to play the spectre at the feast so let’s conclude with some good news for the genuine, if increasingly impoverished whisky enthusiast: perhaps some prices will start to fall. Who knows, even as the lights go out we may be able to enjoy a drop of something currently very, very expensive! It’s an ill wind and all that…