Business

Why a row over jets could raise the cost of whisky

Patricia Dillon is managing director of Speyside Distillers in Scotland Image copyright Speyside Distillers
Image caption Patricia Dillon is managing director of Speyside Distillers in Scotland

Scotch whisky should, in theory, have little do with planes - except perhaps as a mid-flight tipple.

Which is why independent distillery boss Patricia Dillon wants to know why the Scotch whisky industry has been "dragged into" a row about aeroplanes.

The US has been given the go-ahead to impose tariffs on $7.5bn of EU exports because of illegal subsidies Europe provided to jet-maker Airbus.

Top of America's tariff list is Scotch whisky, which faces a levy of 25%.

"We're being dragged into a trade dispute," says Ms Dillon, managing director of Speyside Distillers in the Scottish Highlands. "It's about aircraft and it is nothing to do with us or Scotch whisky consumers."

The US is big business for the Scotch whisky industry. The value of exports from the UK has grown from £280m in 1994 to more than £1bn last year, according to HMRC.

And for the last 25 years, selling Scotch whisky to the US has been tariff-free.

This means that US businesses have not had to pay an import tax on Scotch shipped from the UK.

For Ms Dillon, America was the next major market Speyside Distillers wanted to conquer.

The maker of Spey single malt currently exports about 10% of its whisky to the US.

Its biggest market by far is Asia where the majority of the 600,000 litres of single malt it produces each year is sent.

"The plan was that the US was an emerging market for us to enter," says Ms Dillon.

She says the company has spent the last two years "travelling backwards and forwards" looking for the right importer in the US.

Image copyright Speyside Distillers
Image caption Speyside Distillers is based in the Scottish Highlands

"And now because of these tariffs, we have to reposition ourselves to decide whether after the years that we've spent working on this and appointing an importer, do we want to grow this market when our margins are going to be getting eaten up by a 25% tariff?" she asks.

The levies are not due to come into force until 18 October.

Ms Dillon says: "The UK government must now work with both sides to urge a negotiated settlement and to ensure that these damaging tariffs do not take effect."

'Difficult'

For Simon Cotton, chief executive of Johnstons of Elgin, a producer of cashmere and fine wool knitwear, the tariffs have tipped his industry in favour of the UK's biggest rival, Italy.

He points out that while 25% tariffs are proposed on cashmere knitwear produced in the UK, no such levies have been imposed on the Italian industry.

"It makes the playing field a little more difficult," says Mr Cotton.

Image copyright Johnstons of Elgin
Image caption Johnstons of Elgin makes knitwear made from cashmere and fine wool

The 222-year-old Scottish company, which employs just over 1,000 people, has been selling its knitwear to the US for more than a century.

It is Johnstons of Elgin's third biggest market after Europe and Japan.

Despite the advantage potentially being handed to Italy's knitwear industry, Mr Cotton is hoping that his customers will remain loyal.

However, he admits that if the 25% tariff does come into force later this month, some of the cost will be passed on to consumers.

"We certainly won't be able to able to absorb all of it," he says.

On the upside, prices will not rise before Christmas because the company has already shipped its good for the festive period.

But Mr Cotton says things could be different when it comes to its orders in January.

In the meantime, he says: "We are still hoping there will be some sort of postponement or reversal."

Wider impact

It is not just UK businesses potentially facing tougher times ahead.

The US is also planning to implement 25% tariffs on EU goods such as pecorino, prosciutto and parmesan.

The US Specialty Food Association says the move will impact 14,000 specialist food retailers across the country.

Salvatore Di Palo knows his family's Italian food store can withstand a lot.

It has survived in New York City for more than 100 years through the Great Depression, both World Wars, and a devastating 2012 hurricane.

But he says the new tariffs "will be another disaster".

"It won't put us out of business but it will make it that much more difficult," he adds.

Image caption Salvatore Di Palo's family has run their New York City shop for more than 100 years

Mr Di Palo estimates that his family imports 95% of the products in the store.

The higher duties will not apply to everything such as Italian wines and olive oil.

But the tariffs will hit the shop's many varieties of meat and cheese, which are the main draw for so many Di Palo Fine Food customers.

Mr Di Palo says he expects he - and the producers in Italy - will absorb some of the hit, sparing buyers a full 25% price increase.

But a modest rise is likely, and deciding to disdain fancy European imports won't solve the problem, he warns.

Image copyright Getty Images
Image caption Imports of Italian prosciutto into the US are facing a 25% tariff

As demand shifts to American cheese, he predicts those producers will take the opportunity to raise prices also.

"It doesn't just affect me. It's going to affect everyone," he says.

Like Ms Dillon in Scotland, Mr Di Palo says he hopes officials work out the issue - about airplane subsidies - and stop turning the dispute into a food fight.

"What does it prove to hurt another industry?" he asks.

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