SWA highlights collaboration with US industry body to deal with common problems
05 Feb 2015
David Frost, CEO Scotch Whisky Association
Speech to Whiskies & Spirits Conference, 24 February 2015
It is a real pleasure to be back in New York City again.
Those of you who have looked at my biography will see that I was a
diplomat and Ambassador for twenty years before taking over the
Scotch Whisky Association. In that capacity I spent a few
very happy years here working at the UN and this is actually my
first time back since then.
One thing all British diplomats have in common is that part of
their job, and which I did when I lived here and am doing again now
- is to promote that great product and that great industry - Scotch
Why Scotch Whisky matters to Britain
Now obviously Scotch Whisky is a product that is known world
wide. But it is particularly important to us in
Scotland and in Britain because it's one of Britain's small number
of really visible products.
As a country we are an exporter of services, which by definition
are invisible. We also make what are known as intermediate
goods - parts that go into other products and therefore
aren't well-known to others. Engines for Ford cars for
example. But Scotch Whisky is quite unusual in being a
product that not only has to be made in Britain and is 90% from
products sourced from Britain, but carries its origin in its very
name, can be put on the table at a party, given as a present, and
which symbolises aspiration and success across the globe.
That's part of why the relationship between us and the British
Government is so strong. We provide a visible, reputational,
iconic product, and they help us knock over trade barriers across
the world so we can sell it better.
The Trade Environment
And recently that has been a big success. Over the last 10
years the value of Scotch Whisky exports has doubled, in the latest
figures to around $7bn. Within manufacturing, we are
actually the second biggest net contributor to Britain's trade
performance. And that determination to get behind exports has
meant that this Association, the SWA, has had to develop an
expertise in trade issues that is second to none and which is
pretty unusual among trade associations.
And that expertise is really important. Great
products can only be marketed and sold if a country allows it onto
its market at a reasonable cost, doesn't discriminate against it,
doesn't make it impossible to advertise, and so on. So
it is governments' job to clear international trade of unnecessary
tariffs, rules, and discrimination - and it is our job as an
Association and industry to be able to tell them how.
Doing that is not just a benefit to Scotch Whisky alone.
That expertise is, we think, valuable to the whole whiskies and
spirits industry, globally not just in Europe, and we share it
readily. We all have an interest in free markets and open
trade for our products. In particular, we collaborate very
closely with DISCUS (Distilled Spirits Council of the United
States) on a huge range of issues and we have some big collective
successes to our name.
For example, a few years back we worked closely with DISCUS in
getting the Chinese authorities to remove limits on fusel oils in
whiskies - a problem that affected Bourbon as well as some Scotch
Whiskies, so a collective issue of principle.
A more recent example is our very close cooperation on
collectively drafting and putting to the US and EU authorities a
proposed "Spirits Annex" for the TTIP agreement - a document that
would enshrine best practice in this huge new trade
Fighting this battle for open markets for our product is a
continuous one. But it won't always be easy. Indeed it
may get more difficult in the immediate future and here I have two
The Global Economy
First, the global economy is slowing. It's true that here in
the US things seem to be going pretty well. Economic growth
seems to be strong and the spirits market is growing strongly
But out there in the rest of the world things look less
good. Scotch Whisky is unusual in that so much of our success
depends on global markets. We export 90% of our
production. So economic problems hit us quickly. Indeed
Scotch Whisky is perhaps a bit like the proverbial canary in the
coalmine, one of the early indicators of economic problems in
particular countries or indeed in the global economy.
That is why, from our industry's perspective, I am concerned at
the growth of geopolitical risk - most obviously in the
consequences of the Russia / Ukraine crisis, but there are plenty
of other risk areas around the world too. I am also concerned
by the effects of bad governance in many countries - notably, the
persistently poor economic management in the Eurozone which has had
dreadful effects in big markets like Spain and Greece, the even
worse economic management in places like Argentina and
Venezuela. There are many bright spots too - India, Taiwan -
but it is clear we are going to have to work harder to keep exports
growing in future years.
There isn't much our own governments can do about this - bar one
thing. They can treat us well in our home markets.
- Don't tax us excessively. In Britain we have to put up
with 80% of the price of an average bottle of Scotch Whisky being
taxation. You're lucky that America doesn't like heavy
taxation and you've been able to stop things getting this bad -
though 54% still sounds bad enough.
- Treat us fairly as a product. Don't stigmatise us, don't
restrict us unreasonably, don't make it harder for us to get our
And this is my second area of concern - the whole debate around
alcohol and health.
Alcohol and Health
It is of course economic difficulties like the ones I've mentioned
which often lead to an increase in protectionism. We see this
now in the spirits industry. The current trend is that many claimed
public health measures in fact hit imported spirits to the benefit
of powerful domestic spirits producers.
Here, internationally, we rely very much on DISCUS's unrivalled
knowledge base and expertise. Sharing information helps us
debate with those who would like to restrict alcohol's availability
unreasonably or push up the price in a way that is unfair to the
average person who drinks responsibly and always will. In
bodies like the World Health Organisation - much of whose work I
should say we support - there are plenty wanting to go down a
restrictive neo-prohibitionist route. We need to push back,
not because it's in our interest, but because such policies have
always failed historically, generate more problems than they solve,
and will do so again.
But we need to do this in the right way. I see getting on
the right side of this argument as perhaps the biggest long-term
issue for this industry. It is vital in everything we do that
we do not make the mistakes other industries have made. We
have to recognise that our product does have harmful consequences
if consumed in a particular way, and our marketing and behaviour
must reflect that - as it does, and as our various Codes of Conduct
require. It is reasonable that government gets involved
in these areas and we have to acknowledge that and work in
partnership with governments to help deal with those who drink
anti-socially, irresponsibly, or just dangerously. The
major CSR programmes of our big multinational members like Diageo,
PR, Beam Suntory, or Bacardi, are doing just that and they are
right to do so.
At the same time we have to make clear that there is no point in
governments taking actions that won't work and are
counterproductive. As many of you will know, we have
taken the Scottish Government to court over its wish to introduce
minimum unit pricing for alcohol. That case is now in the
European Court and we should get a ruling later on this year.
If we lose it, I would expect that we will see MUP and similar
health-justified schemes introduced not just in Scotland but,
eventually and gradually, in many places around the world.
Many of them will discriminate in practice against Scotch Whisky
and US Whiskey alike, so all of us here have a collective interest
in the outcome.
So there are risks. But let's not get too gloomy. The
fundamentals are strong. The global demand for Scotch Whisky
remains powerful. Currently, 45% of emerging market consumers
have an income of $5,000 per year. That may not sound much
but it's the income level at which you can hope to buy a bottle of
Red Label. By 2020 that figure will have gone up to
60%. That is a big opportunity for all of us and that is why
we are confident the fundamental drivers of growth remain in
In other words, we are successful because we make a great
product. Indeed, if we didn't, nothing else I've spoken about
would matter. And global demand for that product has enabled
our industry to expand so that it is not just the biggest single
whisky industry globally but actually bigger than Britain's iron
and steel, computer, or shipbuilding industries, and half the size
of our aerospace industry.
That matters not just because it adds $8bn to British GDP every
year and supports 110 distilleries, six opening in the last year
alone. It matters also because with size goes heavy
investment from home and from overseas, goes specialisation, goes
the ability to make a wider and wider range of Scotch Whisky
catering for a huge range of tastes, to the highest quality
standards, at high levels of productivity. Indeed the average
productivity of a worker in our industry is half a million dollars
A great product
For me this is very much what "craft" in whisky making is
about. It is with some trepidation that I tread into this
controversial area. But "craft" can mean many
things. It obviously means "skill" or "ability". But it
also originally meant "strength" or "power" [as the German word
still does]. The modern Scotch Whisky industry exemplifies
that. Indeed for me there is no greater demonstration of it
than our ability:
- to make the equivalent of 2.4bn bottles of Scotch Whisky every
- to control accurately the nature of the spirit so that when it
emerges from casks in 3, 5, 10, 20 years' time we can be absolutely
confident of its style and taste;
- and to produce a range of styles and products that, whether
single malt, grain, blend, meet any consumer need worldwide.
That is an incredible scientific and technological achievement
and one of which I and the whole of our industry is incredibly
proud. And that performance is generated by big and small
distilleries alike. By big and small firms. By
established incumbents and new entrants. All contribute
in their own way to this amazing collective achievement.
But what is true for Scotch Whisky is also true for all the
whisky industries represented here today. The excitement and
the buzz around whiskies globally is really palpable. The
boom in Bourbon / Tennessee whiskies and in Irish whiskies is a
good example of this. Together we are all part of a great
industry and the more we can collaborate on the issues that cause
us difficulties, the more successful we will be.
It is this ability to continue to innovate on the back of a
rigorous quality definition, this ability to spot evolving tastes
and respond to them, and this determination to stay in the lead in
the range of products we produce, that makes me confident of the
future, for Scotch Whisky and for all of us.