Growth puts Scotch whisky sector in high spirits


A stow of bourbon casks from the U.S. are seen at the Speyside Cooperage in Craigellachie in Speyside, Scotland on Jan. 13, 2013. (DAVID MOIR/REUTERS)
January 25, 2013

When Scotland’s self-described “minister for whisky” announced a $3 million government grant for a new distillery on the remote western Isle of Harris this week, he jokingly expressed disappointment at not being offered a celebratory drink.

Scotland’s whisky business certainly looks worthy of a toast. As the nation debates whether or not to leave the United Kingdom, its most iconic industry is on a bender.

Exports have climbed rapidly in recent years, growing 12 per cent to $6.8 billion in the year to last June, and at least $3 billion in new investment is set to flow into the sector over the next four years, according to the Scotch Whisky Association.

The industry’s outlook is “amazing,” says Richard Lochhead, Scotland’s cabinet secretary for rural affairs and the minister responsible for looking after the whisky sector. “Our latest estimate is that there are seven new distilleries in the pipeline. It’s very exciting to see.”

While the bulk of new investment is going into traditional distilling regions dominated by industry leaders such as Diageo, the boom is also giving smaller newcomers a chance to expand Scotland’s whisky map — and throwing a lifeline to fragile rural economies such as that of Harris.

Among the projects under way is a distillery in Thurso that will be the northernmost on the Scottish mainland and another in southern Annandale that will be the closest to the English border.

If all goes well, the Isle of Harris distillery will become only the second to operate legally on the Western Isles, joining boutique producer Abhainn Dearg, which began selling whisky from neighboring Lewis two years ago.

The Harris distillery, to be built in the middle of the small town of Tarbert, will directly employ 20 people and include a visitor center that should make it a stop on Scotland’s increasingly well-traveled whisky tourist trails.

While some locals fret that it could draw custom away from existing restaurants and retailers, officials say the government grant is easily justified given the project’s likely economic impact on an area with scarce employment opportunities.

Harris boasts some of Scotland’s most extraordinary landscapes, from white sand beaches to wildflower-strewn machair meadows and stony, heather-clad heights made of rock that is among the world’s oldest. It has also established one globally recognized brand: Harris tweed, a hand-woven fabric sold worldwide.

Yet thin soil, often harsh weather and distance from the mainland have long made it a challenging place to make a living. At under 2,000 people, the population of Harris is less than half its peak. And authorities are eager to find new industries to end a historic exodus of young people seeking work.

“Depopulation has been a major factor in the Western Isles for generations, and investments such as this can deliver disproportionate benefits,” Lochhead said. “Twenty jobs in Harris might be the equivalent of hundreds of jobs in one of our major cities.”

With the government money promised by Lochhead and $5.85 million in private investment already in place, backers of the Harris distillery are increasingly confident they can soon secure the almost $16 million needed to see it through its first eight years.

One of the biggest challenges with a whisky start-up is the need to age the spirit for at least three years before it is sold, noted Ron MacEachran, the project’s lead adviser. Most premium single malt whiskies are aged a decade or more.

Though some income can be generated from visitor-center operations and sales of unaged gin, lack of cash flow can kill a startup.

The pace of investment and the long gap between production and sale have sparked worries of a bubble in a sector that has seen painful downturns in the past.

But Campbell Evans of the Scotch Whisky Association quoted industry veterans saying “this time feels different” because of the potential of markets such as China and India. “There’s a lot of confidence, but it’s calculated confidence,” he said.

Anderson Bakewell, Isle of Harris Distillers’ founder and chairman, says the new venture will prosper by using careful distilling, pristine local waters and good oak barrels to produce a distinctive drink that captures the spirit of Harris in an “elemental elixir.”

It is too early to know what that might taste like. Malt whiskies made on the similarly remote distilling island of Islay, well south of Harris, tend to be pungent, almost medicinal, with a whiff of sea air, while Highland malts produced from areas closer by are often more rounded in character, though sometimes spicy.

The mysterious chemistry of whisky-making means even expert distillers will not be able to fully control the final Harris flavor.

“We know we can make a really good whisky,” Bakewell said. “Whether it is a great whisky is in the hands of the gods.”

— Financial Times

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