A mixed cocktail of American fickleness, Japanese ingenuity and French chauvinism has given the scotch whisky industry its worst hangover since Prohibition.
Worldwide sales of bottled scotch whisky, Scotland's best known product and one of Britian's most lucrative exports, have been falling alarmingly for more than a year. Distilleries "throughout the industry" in Scotland have recently cut back production for the first time in years, according to David Campbell, an industry analyst for the investment house of Wood, MacKenzie and Company in Edinburgh.
"Sales are very depressed, particularly in the United States," Campbell said. "There is quite a bit of concern in the industry about how long this is going to last."
Americans, who have been gradually switching to lighter spirits used in popular mixed drinks, are now buying even less high-priced imported scotch during the current recession. A quarter of the whisky produced in Scotland is sold in the United States
The Japanese, whose taste for scotch is more recently acquired, are now second only to Americans in the amount of whisky they buy from Scotland. Most of Japan's scotch supply, however, is not bottled in Scotland. It is made in Japan by blending locally produced grain spirits with the key ingredient in scotch -- malt whisky bought cheaply in bulk from Scotland. Increasing amounts of this Japanese-made whisky are being exported in competition on the world market with scotch made in Scotland.
The French, far and away Europe's best customer for scotch, probably would buy still more from Scotland but for the tax and other barriers the French government has put up to hold down imports of alcoholic beverages in favor of home-produced wines and cognac.
France and three other European Economic Community members -- Ireland, Italy and Denmark -- have been successfully sued by Britain in the European Court for violating Common Market free trade rules, but only Denmark has so far moved to lower its barriers against scotch.
All this has unsettled the tradition-steeped and conservative-run whisky industry in Scotland. There are fears about whether a long downhill trend has begun after years of unparalleled prosperity. There also is talk of asking the British government to impose retaliatory import duties on French spirits or to ban the export of the bulk malt whisky to Japan.
Whisky was first developed from fermented grains in Scotland several centuries ago. The term whisky comes from the first half of the Celtic word uisque-beatha, meaning water of life.
Scotch has been especially popular in the United States despite stiff competition from the bourbon and rye whiskies developed in America by Scottish settlers. During the past decade, howeever, these "brown spirits" have been steadily losing ground to "white spirits" -- rum, gin and vodka -- used in mixed drinks, and to wines and trendy mineral waters.
Campbell said this shift in tastes is aggravated by the comparatively high price of scotch, on which distillers take much larger profit margins than on the white spirits that some of them also bottle.
The scotch whisky industry loses the lion's share of these profits, made mostly at the bottling end of the business, when the malt whisky used in making scotch blends is exported to Japan for its growing whisky industry.
A few foreign-owned distilleries in Scotland trade mostly with the Suntory Company in Japan, which manufactures two deluxe whiskies for export -- old Suntory and Suntory Royal. These brands are described on their labels as "a blend of rare, selected whiskies, distilled and bottled by Suntory."
"The continuation of these exports is likely to lead to further development of distilling, blending and bottling operations overseas and to a reduction in Scotland's share of the world whisky market," according to a recent report made for the Scottish Council, the lobbying group for Scottish industry. "The Japanese whisky companies provide the main threat to scotch whisky sales in the future."
Following tremendous growth in scotch sales from the end of Prohibition to the late 1970s, scotch still accounts for 35 percent of the world's whisky. More than 80 percent of what is produced in Scotland is exported, with last year's exports totaling more than $1.5 billion.
"No other distilled drink is more popular or more prestigious worldwide than scotch whisky," industry analyst J. K. Thomson insisted in his report to the Scottish Council. "No other major industry in [Britain] has been so consistently successful throughout this century."
However, Thomson warned, "There are many people both inside and outside the whisky industry who believe this success story could now change and become the familiar depressing tale of so many other traditional industries, like steel and shipbuilding."
Although he said there is "major disagreement" within the industry about what should be done, Thomson suggested as possibilities a ban on all bulk sales -- including fully blended scotch shipped in bulk to America, bottled there and sold more cheaply than the same scotch imported from Scotland -- or strict government standards on quality and production methods in Scotland similar to those protecting the uniqueness of cognac produced in France.
"The climate and water of Scotland provide an ideal environment for malt distilling," Thomson said, "and when combined with the skills and technology of this traditional industry, they cannot be matched by other countries."
Campbell and a spokesman for the Scotch Whisky Association said the industry was waiting to see if business grew worse or improved during the second half of this year. "It's hard to say which way it will go," Campbell said.