What’s in store for the EU spirits sector?
Europe’s spirits producers recently gathered to discuss the major challenges facing the industry – we joined the meeting to learn where the sector stands in the wake of lockdowns and economic hardship.
*This feature was originally published in the January 2022 issue of The Spirits Business magazine.
The spirits industry is a crucial player in the economic health of the EU‐plus region, a tidy term for the 27 member states of the European Union, as well as the United Kingdom, Norway and Switzerland.
The numbers don’t lie: in 2019, the consumption and production of spirits contributed €60 billion (US$67.8bn) in gross value added (GVA) to the region – 0.4% of the EU plus’s total GVA, and equivalent to the GVA of Latvia. That same year, the European spirits sector employed 1.2 million people, about 0.5% of all jobs there, and its turnover totalled €26.5bn.
These figures were published in The economic and ecological footprint in the EU, the UK, Norway and Switzerland, a report from trade body Spirits Europe, in collaboration with the Institute of Advanced Studies in Vienna. Spirits Europe clearly highlights the strengths and contributions of the industry through its research – but it also recognises that much has changed since the data was gathered. “Unfortunately, the Covid‐19 crisis has had a massive negative impact on the numbers presented in this report, given the far‐reaching restrictions in the hospitality sector, the dramatic drops in spirits tourism and declining sales, for instance, in the travel retail segment in airports,” explained Christian Porta, managing director, global business development at Pernod Ricard, and the former president of Spirits Europe.
“What Europe’s distillers and our value chain partners in hospitality and tourism now need is structural support and a favourable policy environment to become once again engines for jobs and growth during the recovery,” he said.
With this in mind, in November Spirits Europe hosted its Spirits Summit 2021. The hybrid event distilled the findings of the 182‐page report into key takeaways, and drew attention to the issues at the forefront of the sector now.
Ulrich Adam, Spirits Europe’s director general, underscored the “very heavy tax burden” that the spirits industry faces in the EU‐plus region. He noted that the sector contributed €25.4bn in excise and VAT in 2019, and with income, profit and other taxes factored in, it paid €46.8bn – equivalent to a quarter of the EU budget. “The report calls for a fairer, better and non‐discriminatory approach in terms of taxation versus the other [drinks] categories,” Adam said.
Complications with international trade have added to the industry’s challenges over the past few years as well – namely the dispute between the EU and US, which began in 2019 as part of the ongoing Boeing‐Airbus feud. Throughout the trade war, the US placed eye‐watering duties on spirits produced in the EU, and vice versa.
“For spirits producers on both sides of the Atlantic, the past three and a half years have been nothing short of horror in terms of tariff burden, political uncertainty and investment planning uncertainty,” Porta said.
The end of tariffs
However, recent developments have brought relief. In June 2021 the US and EU agreed to a five‐year suspension of tariffs on certain goods, including a 25% duty on particular Cognacs and other EU‐made spirits in the US. Finally, in October, it was announced that the EU’s 25% tariff on American whiskey would also be dropped from 1 January 2022.
“We clearly hope that this will represent a permanent resolution of disputes and address any future differences, without resorting to tariffs ever again – especially disputes that have absolutely nothing to do with the spirits business,” Porta said.
“We clearly are here to support the EU and its role to promote open, fair and rules‐based international trade, and fight protectionism and trade barriers around the world more than ever.”
The Summit stressed the pivotal role of comprehensive sustainability in the European spirits sector, encompassing economic, environmental and social health. Adam noted that the European Commission will present a new proposal on the sustainability standards of geographical indications (GIs) – signs used to protect products corresponding to particular locations or origins – in 2022. However, he was optimistic about the current sustainability practices of the 250 spirits GIs in Europe.
“Some of the companies that are members in Spirits Europe are among the oldest private operating companies in the world – companies founded in the early 18th century or in a similar age range,” Adam said.
“If you are in the same place, producing the same product from the same locally sourced agricultural material, I think you can only do that for 300‐plus years if you operate in a manner that is highly sustainable. That means you really take care of your environmental resources in the long run.”
In 2021, Spirits Europe signed the European Commission’s Code of Conduct for Responsible Business and Marketing Practices – part of the latter group’s Farm to Fork strategy to improve the sustainability of food systems. “The objective [of Farm to Fork] is to inform the consumer about the choice they are making, to enable them to make a healthy and sustainable choice when buying a product,” said Nathalie Chaze, director for food sustainability, international relations in the Directorate General for Health and Food Safety, European Commission.
To coincide with this commitment, the spirits organisation launched a digital labelling platform called U‐Label this autumn. The tool allows spirits brands to provide consumers with product information through scannable QR codes. “[The e‐label] is in the consumer’s own language, and it [includes information on a spirit’s] energy, its ingredients, its sustainability and responsible drinking,” said Michael Clancy of Ireland’s Lough Ree Distillery, which uses the U‐Label platform for its Bart’s Irish Whiskey brand. He said the e‐label can help producers go “over and above what is mandatory information” for spirits packaging, noting that on Bart’s miniature bottles, the QR code format allows the brand to include more information than would fit on a traditional label.
As a second pledge under the Code, Spirits Europe has promised to introduce responsible drinking campaigns in all of its member states by 2030.
“It will be of critical importance to maintain a degree of openness and flexibility between ambitious self‐regulatory initiatives, such as the Code of Conduct on the one hand, and new EU legislative and regulatory initiatives on the other,” Porta stated.
In November, Porta handed over the reins as president of Spirits Europe to Manuel Giró, chief executive of MG Destilerías. However, his call for a “balanced approach” will remain as critical as ever in the months and years ahead, as producers in the EU‐plus region strive to look beyond recovery and build a thriving, sustainable landscape.