Diageo voices concern over tariff impact on smaller Scottish distillers

3rd February, 2020 by Nicola Carruthers

Johnnie Walker owner Diageo has warned the US tariffs on single malt Scotch will have a “serious” impact on smaller distillers in Scotland, and could cause thousands of job losses across the sector.

Scotch is Diageo’s largest category and represents 26% of net sales for the group

In October 2019, the US slapped a 25% tariff on imports of single malt Scotch whisky to the US over an ongoing dispute regarding EU and US subsidies to Airbus and Boeing.

Last week, Johnnie Walker owner Diageo released its financial results for the final six months of 2019, which saw an organic net sales increase of 4% to £7.2 billion (US$9.3bn).

Speaking at a press briefing for its financial results on 30 January, Diageo’s chief executive, Ivan Menezes, said: “We clearly don’t like the tariffs and are working very hard with the support of the UK government, with the US and EU, to ensure our category does not get impacted in a negative way with the tariffs and to reverse the existing tariffs.”

Menezes said the group has communicated to its customers the tariff impact and will be monitoring the effect over the next few months.

He said the “major concern” for Diageo was its “position in the US”.

“We’ve got a big Tequila business, an American whiskey position, a vodka business, a rum business. So we can handle it to some extent”, he said.

“It’s the smaller distillers in Scotland that we’re really concerned about. And the farmers, and the supply chains.

“That impact is serious. It’s hundreds, if not thousands of jobs; so we really need to ensure both ways that the sector keeps the condition for trade as they’ve always been, very favourable. We’re working very hard to get them reversed.”

According to the Scotch Whisky Association (SWA), more than 10,000 people are directly employed in the Scotch whisky industry in Scotland and more than 40,000 jobs across the UK are supported by the sector.

Scotch performance

During H1, Diageo’s Scotch portfolio was “flat” due to Johnnie Walker Black Label and Johnnie Walker Red Label, which “softened globally” as a result of “challenging trading conditions in Mexico; volatility in travel retail and the Middle East; and political and economic disruptions in Peru and Chile”.

The firm said Johnnie Walker’s performance was offset by its single malt portfolio, which grew organic net sales by 17%. Malts witnessed “broad-based double-digit growth” across all regions, driven by core variants Game of Thrones

Six Kingdoms, prestige Scotch in China and Singleton innovation in Taiwan. In the US, single malt brands Oban and Lagavulin witnessed “strong growth”.

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