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Annual Review 2014

2 www.scotch-whisky.org.uk Scotch Whisky Association Annual Review 2014

Contents

Page

Scotch Whisky Association Chairman’s Report, from Pierre Pringuet, Chivas Brothers Ltd 3

Foreword from David Frost, Scotch Whisky Association Chief Executive 4

Public Affairs & Communications 6

The SWA works to be a trusted voice in the debate on alcohol and society 8

The SWA works to support a competitive, sustainable and fairly-taxed industry 10

The SWA works to protect the Scotch Whisky category around the world 12

The SWA works to ensure Scotch Whisky has fair access to all markets worldwide 14

– The EU and wider Europe 14

– Americas 15

– Asia and Australasia 16

– Africa and The Middle East 17

Annual Review – Management 18

2014 Export Statistics 19


Chairman’s Report, from Pierre Pringuet, Chivas Brothers Ltd

As your new chairman of the SWA – and the first Frenchman to hold the position – it is my pleasure to report that Scotch Whisky continues to enjoy massive popularity around the world, especially in developing markets. Scotch Whisky now dominates Scottish food and drink exports and makes a phenomenally positive contribution to the UK’s trade balance.

Of course, it is true that 2014 marked a decline in the value of Scotch Whisky exports by 7%. However, this development must be viewed within the context of our strong global growth over the past 10 years, with the total value of our exports up 74% since 2004 and Single Malt exports up by 159% in the same period.

I would also point out that our global exports performed better in the second half of last year – only a 4% decline - than in the first six months when exports fell by 11% in value compared to the same period in 2013. This improving situation suggests that the longer-term fundamentals are sound and that Scotch is well-placed to return to growth as export market economies strengthen.

As I begin my tenure as chairman, I am very pleased to have David Frost as the chief executive of the Association. The organisational changes that David has been mandated to put in place are well underway and I am confident that this will enhance the Association’s overall effectiveness and efficiency. This is absolutely imperative, particularly given the constant demands and challenges made on the SWA as it works to support and protect the Scotch Whisky category in over 200 countries.

During the past year, the SWA has advanced our interests on a number of issues, including improving market access, protecting the Scotch Whisky geographical indication, the promotion of the responsible consumption of alcohol, and the updating of our industry environmental strategy. I would like to take this opportunity to commend David Frost and his team on the recent decision of the UK Government to reduce UK excise duty on spirits by 2%. This was a remarkable victory for our sector and the SWA played an instrumental part in securing this decision.

Finally, I would like to thank the SWA staff for their continued dedication and professionalism during this challenging year. Changing the way we do things is never easy, but in today’s business environment change is the one constant that we must adopt to meet the 21st century demands of our consumers. I know that we can continue to rely on the entire SWA staff to deliver the excellent support and service to the SWA’s member companies.


Foreword from David Frost, Chief ExecutiveMy first year and more as CEO of the SWA has been exciting, challenging, and demanding in equal measure. We have had a number of successes and I believe the Association is in good shape for the challenges to come.

In 2014 our activities were dominated by the politics of the independence referendum. The SWA’s position, on the back of detailed consultation of our members, was essentially to highlight the potential business risks of independence, but without advocating a particular vote. It had impact and I believe brought us respect if not agreement from all sides. We have welcomed the economic stability that has followed the vote. But Scottish politics remains turbulent, and developing relationships and impact in this fast-changing environment will be a vital task for 2015.

For the first time in many years, we can look back on two Budgets that strongly supported our industry. In 2014 the alcohol duty escalator was abolished and excise duty frozen, and this year the Government went further and cut duty by 2%. The Association played a central role in both campaigns. I am quite sure that our ability to communicate the huge economic impact of our industry through a new report, and to get the tax message in front of both new and well-known stakeholders, made a big difference to the outcome.

Internationally, 2014 was challenging. Political and economic headwinds meant our exports fell for the first time for many years and we are having to work harder to keep global markets open. But the underlying trends are still strongly in our favour and emerging markets continue to grow, which means we can be confident about future demand for Scotch Whisky. That confidence has driven investment in Scotland and in 2014 we saw six new distilleries open, as well as expanded capacity at existing sites.

The social aspects of alcohol policy remain at the centre of debate and our positioning here is perhaps our biggest strategic challenge. We remain committed to close partnership working with the Scottish and UK Governments, and also wherever possible with the public health community. We did our bit in 2014 by delivering the first round of funding under our own Scotch Whisky Action Fund, to support innovative and scalable projects across Scotland dealing with alcohol-related harm. It was ten times over-subscribed in the first round of bids and interest remains strong. In the background to all this, the Minimum Unit Pricing legal case is now with the European Court of Justice. With luck we will have a ruling before I write next year’s foreword, though 2015 will give us some straws in the wind about the Court’s thinking.

For the Association itself, 2014 was a year of change. We announced our intention to move from our long-standing office at Atholl Crescent to a new modern office in the Quartermile development in Edinburgh. We also unveiled plans to open a small satellite office in London, under new leadership, so we can get the most out of our strong partnership with the UK Government and work even more effectively with the London-based politicians and media. Indeed it is my view that only by building up


a strong constituency for Scotch Whisky outside as well within Scotland will we be able to maintain a supportive environment for the industry as a great Scottish and British asset.

We have also seen staffing changes. Two long-standing directors, Campbell Evans and Nick Soper, have left us. Both have been central to the Association’s work over many years and I wish to thank them for their long and distinguished service. New staff will be joining us in the months to come, into a new structure, and I look forward to welcoming them. And for the first time we have created a deputy CEO role, and I am delighted that Julie Hesketh-Laird was appointed to that position.

I am also delighted to welcome Pierre Pringuet, vice president of Pernod Ricard, as our new chairman, and Peter Gordon, from William Grant & Sons, as our new vice chairman. Both bring a real depth of experience as well as different perspectives to our work and all of us look forward to working with them closely.

Finally, in 2014 the Association decided to focus its activities around four broad priorities, to bring more coherence to our work. This decision is reflected in way this Annual Review, and the supporting material on our website, is structured. Do read on to learn more of the SWA team’s achievements, on behalf of you all, our members, over the last twelve months. And meanwhile, thank you to all of the SWA team, and to all of you, for your help and support.

“ For the Association itself, 2014 was a year of change”

Strategic Priorities for SWA

By building strong relatioships with all levels of government and opinion-formers and by making a visible impact on the public debate......

Be a trusted voice in the debate on

alcohol and society

Safeguard the Scotch Whisky

category

Support a competitive,

sustainable & fairly-taxed industry

Ensure fair access to all markets

world-wide

Manage ourselves professionaly so that everyone can make a contribution

Ensure an in-depth understanding of members’ businesses and needs


Public Affairs & CommunicationsPublic affairs and communications runs through everything the SWA does. We aim to advance the global interests and profile of Scotch Whisky, of our member companies and the industry, and to do so by engaging with the full range of industry stakeholders and all levels of government, at home and abroad.

In 2014, the Scottish independence referendum dwarfed most other issues. The SWA’s position was set out in last year’s Annual Review and was based on detailed consultation of all member companies. It reflected the potential business risks of constitutional change and the need for reassurance that the current level of government support in a range of domestic and international policy areas would be maintained. The SWA’s position attracted much attention and politicians generally welcomed the Association’s positive engagement in the referendum process, whatever their views on the substance. The campaign generated significant media exposure for the SWA and we conducted a wide range of domestic and international press and broadcast interviews, including for the BBC, CNN, and China TV. Since the referendum, we have continued to engage proactively in the discussions around further devolution to Scotland.

The SWA remains constantly engaged with political opinion at Holyrood and Westminster, on a wide range of issues, and notably this year on our campaign to reduce excise duty. We represent the industry at most of the Party Conferences, both in Scotland and nationally.

In Scotland, we had high level meetings with the First Minister, the Deputy First Minister, and the Cabinet Secretary for Finance, with contacts with most other Scottish Ministers and political figures. The Cross Party Group on Scotch Whisky was an important focus for our work. We also gave evidence to Scottish Parliamentary inquiries on exports and EU-US trade negotiations, the Scottish Food Bill, and improving the Islay ferry service.

At UK level, there were meetings with a range of Ministers and their teams, including the Deputy Prime Minister, Treasury Ministers, and the Scottish Secretary. The then Secretary of State for Environment, Food & Rural Affairs was the keynote speaker at the annual SWA Members’ Day in 2014. The All Party Group on Scotch Whisky was an important force for rallying interest in the industry. Looking forward, we intend to develop our engagement with political opinion outside Scotland, particularly focused on those politicians with a local interest in suppliers to the Scotch Whisky industry.


Public communications are equally important and the Association is often in practice the public face of the Scotch Whisky industry. The referendum and the arrival of a new chief executive made 2014 a particularly busy year. The CEO and SWA staff gave a large number of interviews on the full range of issues, notably excise duty, exports, minimum pricing and alcohol policy, as well as the Association’s legal protection work. We also hosted a group of prominent US journalists in Scotland, organised in partnership with colleagues at the US Distilled Spirits Council.

Finally, we secured significant media coverage – both in the UK and overseas – for our report into the economic impact of the Scotch Whisky industry, published in January. This revealed that the industry adds £5 billion to the UK economy every year, invests around £1.8bn across its domestic supply chain, and supports over 40,000 jobs. It also made clear that annual exports of £4bn made Scotch Whisky the second largest net contributor to UK goods exports, and that the UK trade deficit would have been 16% higher last year without Scotch Whisky.

By building strong relatioships with all levels of government and opinion-formers and by making a visible impact on the public debate......

19

Scotch Malt Whisky Production from grain to glass

BLENDING & BOTTLING

MANUFACTURING

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CEREALS

January 2015

The Economic Impact of Scotch Whisky

Production in the UK


The SWA works to be a trusted voice in the debate on alcohol and society

The Association collaborates closely with other trade bodies and member companies to promote responsible attitudes to alcohol. We work where we can to overcome the polarised nature of the debate, in pursuit of the “new consensus” in this area, which our chairman called for in last year’s review.

Within Scotland, the SWA works to tackle alcohol-related harm through the Scottish Government Alcohol Industry Partnership, on projects such as a 125ml wine measure awareness campaign and support for Best Bar None.

At UK level, the SWA continues to help deliver the UK Alcohol Responsibility Deal. We worked to implement key pledges, notably the commitment to ensure that over 80% of products have labels with clear unit content, sensible drinking guidelines and a warning about drinking when pregnant.

Core funding was provided by the SWA along with other industry partners to support development of local alcohol action areas, as well as to help establish a foundation that will deliver life skills and alcohol education in schools.

The SWA launched a major initiative, the Scotch Whisky Action Fund, in 2013 with the first projects awarded grants last year. We are supporting £100,000 worth of projects each year until 2018 to support innovative initiatives working to reduce alcohol-related harm in Scotland. The programme is managed by Foundation Scotland, an independent charity. The first round of applications was ten times over-subscribed, with nearly 80 applications received. Eight innovative, new projects across Scotland were selected by the independent awards panel. Professor Dame Joan Stringer has been appointed as chair and will lead this year’s judging panel.

During 2014, the SWA’s Code of Practice for Responsible Marketing of Scotch Whisky was reviewed to reflect the increased use of social media and digital marketing. The new version will come into force from July 2015, will be global in scope, and will have increased sanctions against any member who breaks the Code.

International alcohol policy remains important to us, given our dependence on overseas markets. During 2014, much of the focus was on Brussels, with the SWA participating in the EU Alcohol & Health Forum and seeking to ensure a balanced European Parliament resolution on alcohol. We are closely engaged in the early stages of the design of the EU’s new alcohol strategy and gave evidence to a House of Lords Committee on this subject in November 2014. We also continue to play a co-ordinating role with other UK alcohol trade associations on discussions of alcohol


policy within the WHO and the OECD, and we work to ensure the UK Government is supportive of the industry in those discussions.

Finally, the Association’s challenge to Minimum Unit Pricing (MUP) in Scotland remains in progress. During 2014, the Inner House of the Court of Session (the Scottish appeal court) referred a number of questions about the compatibility of MUP with EU law to the Court of Justice of the European Union. We expect the oral hearing and the Advocate-General’s Opinion during 2015, with a final European Court ruling in 2016.

“ supporting £100,000 worth of projects each year until 2018 to support innovative initiatives working to reduce alcohol-related harm in Scotland”

GUIDANCE

CODE OF PRACTICE FOR THE RESPONSIBLE MARKETING AND PROMOTION OF SCOTCH WHISKY

March 2015The Scotch Whisky Association

CODE OF PRACTICE FOR THE RESPONSIBLE MARKETING AND PROMOTION OF SCOTCH WHISKY

THIRD EDITIONMarch 2015

Matured to be Enjoyed Responsibly

3rd Edition 2012


The SWA works to support a competitive, sustainable and fairly-taxed industryThis has been another year of success in supporting our industry’s competitiveness.

Our major achievement this year was the Government’s decision in the March 2015 Budget to cut excise duty on spirits by 2%, the first cut since 1996, and as the Chancellor put it, “to back one of the UK’s biggest exports”. With last year’s duty freeze, this means that a bottle of Scotch Whisky is now 70p cheaper than it would have been, and UK turnover £30m-£40m higher.

There is continued growth in production capacity. Six new Scotch Whisky distilleries saw their first spirit flow in 2014. Existing distilleries continue to expand. And we are aware of about 30 more potential entrants with plans to build distilleries and brands. The Association is working closely with potential new entrants and the new Scottish Craft Distillers’ Association, including through an SWA-organised New Distillers Forum last June.

This increased production has created demand for new maturation capacity in Scotland. In this context, one particular problem was the inappropriate EU-driven standard for sprinklers in maturation warehouses that was introduced without consultation. Thanks to the SWA’s efforts, the Scottish Government has issued guidance that the current standards will prevail, allowing investment in new warehouse facilities to continue in line with distillery expansion.

Increased production is also creating extra demands on the industry’s upstream and downstream supply chain, in raw materials, environmental impact, energy, and transport and export capacity.

On raw materials, the Scotch Whisky industry uses Scottish barley whenever it can and in practice around 88% of the malted barley used is Scottish. Ensuring long-term supply of barley is vital to us and that is why the Association has encouraged the emerging plans for a UK Centre for Barley Excellence. If established, this should provide a unique platform for the translation of barley research into commercial results and establish the UK as an internationally recognised centre for skills in barley research.

Our Industry Environmental Strategy reached a five-year milestone in 2014. The Strategy set stretching, voluntary, industry-wide targets that members have invested significantly in meeting. This year we have been reflecting on the sector’s achievements and checking our progress against stakeholder expectations and our ever-evolving operational environment. We will be publishing our 2014 performance report later this year alongside refreshed targets to ensure that the strategy continues both to stretch and future-proof the industry.


As part of this strategy, at distillery level, there has been big investment in renewable energy, either by using distillery by-products to generate heat and power, or through biomass, with a number of biomass boilers installed in the industry last year. The SWA’s Distillers Renewables Tool was refreshed in 2014 to offer an accessible, practical way of establishing feasibility of renewables at any given site.

World-class transport infrastructure to transport raw materials, packaging and spirit to and from the industry’s sites, as well as efficient routes to overseas markets, is key to the industry meeting its ambitious export and environmental goals. One area of work was the Hitrans-led Lifting the Spirit project, which looked at the feasibility of shifting some travel within Scotland from road to train, reported in March 2015. While a positive development, it is clear that the industry’s specific transport requirements need to be fully appreciated by all transport partners, if rail transport of spirit is to become a more viable option.

Another important areas is ferry links to island distilleries, which need to be regular, resilient and efficient in order to bring in raw materials and to transport spirit and finished goods to market. Ferries also bring visitors to the distilleries. As the Scottish Government procures future ferry provision, we are working to ensure that the new service can handle increased demand for more modern and reliable ferry services for both freight and passengers, all year round.

Finally, it remains vital to the industry’s reputation that our strong compliance record is maintained. The Association works closely in a range of areas with members, for example health and safety and food hygiene, with a range of best practice guides available on our website. We also work closely with HMRC and other partners to tackle alcohol fraud, which costs the UK taxpayer millions of lost revenue each year, damages legitimate businesses and potentially harms human health. We are working to refresh our Memorandum of Understanding with HMRC to ensure anti-fraud measures are well targeted.

“ Our Industry Environmental Strategy reached a five-year milestone in 2014”

SWA Budget Submission 2015

The Scotch Whisky Association20 Atholl Crescent, Edinburgh EH3 8HFt: 0131 222 9200 e: [email protected]: www.scotch-whisky.org.uk@scotchwhiskySWA

Future Energy Opportunities:

A Guide for Distillers

Published by: The Scotch Whisky Association20 Atholl Crescent

EdinburghEH3 8HF

Tel: 0131 222 9200Email: [email protected]

September 2012 The text of this guide was written by WSP on behalf of the SWA and Carbon Trust.

Scotch Whisky IndustryEnvironmental

Strategy Report 2013


The SWA works to protect the Scotch Whisky category around the worldThe Association has continued its constant efforts to safeguard the description “Scotch Whisky” and to prevent unfair competition against the category. We also aim to secure a quality definition of ‘whisky’ in our main export markets.

Identifying potential problems is a priority. Members and their distributors remain the primary source of intelligence, but during the year the Association also developed its relationship with Europol, Interpol and oriGIn.

The Association will usually try to resolve any disputes by negotiation, but in the last resort litigation may be necessary. During 2014, new proceedings were authorised in respect of 19 different brands covering Belgium, China, Curacao, Ecuador, France, Germany, India, New Zealand, the Netherlands and Scotland. Court cases may take several years to come to a conclusion and the SWA manages 60 to 70 cases at any one time.

CLAN WHISKEY is an example of a product which the Association believed was likely to be passed off as Scotch Whisky. First reports of the brand were received from South Africa in 2010 and the case was finally settled in 2014 after proceedings were instituted in the High Court of Pretoria.

HIGHLANDER is another example of a long-running case. It first came to the Association’s attention in Bulgaria before it joined the EU, and as a result was very difficult to tackle. With EU membership the prospects of success improved dramatically and a settlement was achieved in 2014.

Most of the legislation protecting the Scotch Whisky category is set at EU level. We expect proposals to change the fundamental piece of legislation, the Spirit Drinks Regulation (110/2008), within the next year or so, and are closely engaged with the Commission and the UK Government to avoid any changes that make the


existing Geographical Indication (GI) regime more difficult to manage. We have been closely involved in the development of the new EU food labelling rules, which entered into force in December 2014, and in supporting members on their implementation. We also expect Commission reports before too long on origin marking for foodstuffs and on ingredient and nutrition labelling for alcoholic beverages. Eventual legislation in this area is a possibility.

Finally, the Verification Scheme for Scotch Whisky, which stems from EU-level requirements, has now been in force for 15 months. The SWA has been supporting members through this process. It has thrown up some technical issues which may in the end require amendment of the Scotch Whisky Technical File, the detailed rules at EU level.

More detail on most of these issues can be found in the separate Legal Report, available online at www.scotch-whisky.org.uk

“ Court cases may take several years to come to a conclusion and the SWA manages 60 to 70 cases at any one time”


The SWA works to ensure Scotch Whisky has fair access to all markets worldwideWith 90% of production exported, the modern Scotch Whisky industry depends critically on access to overseas markets. The Association’s unique selling point is its close working relationship with the UK and Scottish Governments, the EU Commission and the WTO to ensure fair access for Scotch Whisky. We work to open markets where they are restricted or closed and to deal with market access problems as they arise. Increasingly this is not just a question of tariffs and taxes but of a wide range of behind-the-border rules, often justified on health or social grounds, that can discriminate in practice against our product.

In 2014, the exports picture was mixed. We saw consolidation in many developed markets, underlying strong growth in most emerging markets, but at the same time weaker economic conditions and political volatility in some important countries. All this saw the value of Scotch Whisky exports decline by 7% to £3.95 billion, and volume decline by 3% to 1.19bn 70cl bottles.

This comes after many years of record-breaking growth, with exports up 74% since 2004 and single malt up over 150%. We remain confident that the long-term fundamentals remain strong, with big interest by consumers in emerging markets, and significant investment in Scotch Whisky production.

THE EU AND WIDER EUROPE – 34% of exportsThe EU as a whole, excluding the UK, is the biggest single market for Scotch Whisky. But it remains segmented to a large extent into national markets because Member States retain the right to regulate in many areas. This can generate market access difficulties from time to time and it is an important part of the SWA’s role to encourage the Commission to take action against the most egregious breaches of single market rules.

In 2014 the European Court of Justice ruled that Hungary’s legislation giving tax preferences to Palinka, the national fruit spirit, was illegal. However, the Hungarian response has been to recreate favourable conditions for domestic spirits by imposing a health tax on most imported spirits. The SWA is pursuing another complaint with the Commission. In Bulgaria, the Association has negotiated an extension to the validity of ‘old’ strip stamps, until June 2015. In France, the SWA has lobbied on the new recycling ‘Triman’ logo and it has been agreed that glass bottles will be exempt and that the logo for other recyclable products can be displayed on the website only.


Outside the EU, the Association does not have the same levers to achieve change.

Much attention has gone to Turkey. We continue to work on various ways to get the Turkish authorities to reduce the frequency of analysis of Scotch Whisky before it can enter the market, though progress is slow. We also succeeded in getting an exemption from the application of the new track and verification label. One other positive sign was the significant cut in the tax differential between whisky and the local spirit Raki in early 2015. Serbia’s EU accession negotiations present opportunities and we have presented a formal submission to the Commission seeking the early removal of Serbian excise discrimination against Scotch Whisky.

Finally, the picture in Russia has been difficult. Although Scotch Whisky was not caught by the Russian measures against imported foodstuffs in 2014, economic sanctions and political turbulence have nevertheless severely affected the market, and prospects for improvement seem low. The SWA’s application to register the Scotch Whisky GI in Russian law is still pending.

AMERICAS – 32% of exportsThe EU’s Free Trade Agreement with the Andean Community, comprising Colombia, Peru, and soon Ecuador, entered into force in 2013. It will deliver tariff liberalisation, and should address the long-standing issue of tax discrimination and the anti-competitive practices of certain state monopolies. However, there remains a question-mark about timely Colombian implementation of the FTA in these areas and the SWA remains engaged in pressing for the best deal possible.

The EU/Canada FTA (CETA) was finally agreed in September 2014, though it is not likely to come into force until 2017. The gains for our sector will be the resolution of certain technical issues and increased transparency in the way that Provincial Liquor Boards operate.

In Chile, the SWA took action to prevent the introduction of a new discriminatory tax system in July. Our campaigning ended in the Government confirming a shift to a flat rate, which should save the industry almost £9 million over a five year period when compared to the proposed hybrid system.

The SWA continues to pursue the registration of Scotch Whisky as a GI in Brazil. In recent months, Brazil has engaged with the EU on understanding the EU’s system on GIs. In December 2014, a draft law changing the Brazilian definition of a GI was on its way to Congress and we hope it will be debated during 2015.

“ We remain confident that the long-term fundamentals remain strong, with big interest by consumers in emerging markets”


At a ceremony in June attended by the British Ambassador to Mexico, the Association signed a co-operation agreement with the Consejo Regulador Del Tequila (CRT: Tequila Regulatory Council). The agreement provides a framework within which both of us can share information on best practice and work together on areas of mutual interest.

Finally, we support the EU/US Free Trade Agreement negotiations (TTIP), which are important in delivering confidence in the global trading system, and we are ready to push back against those who argue that TTIP might threaten EU Members’ right to regulate. Since we already have zero-tariff access to the US, the main benefit from TTIP would be the “Spirits Annex”, a proposal by EU and US spirits industries aiming to enshrining best regulatory practice into TTIP and thus become a point of reference for other deals.

ASIA AND AUSTRALASIA – 22% of exportsThe Association was again active on a range of issues in India, the industry’s top trade priority.

The 150% Basic Customs Duty (BCD) remains the biggest impediment to Scotch Whisky’s growth in the market. Encouragingly, the BCD is also increasingly seen by domestic spirits producers as an unnecessary cost to their businesses where Scotch is a key input in many Indian-Made Foreign Liquor brands. In 2014 for the first time the domestic industry association, the Confederation of Indian Alcoholic Beverages Companies (CIABC), called for a cut in the BCD to 30% over five years, as did the importers’ body, the International Wine and Spirits Association of India (ISWAI). Nevertheless progress in this area seems unlikely to be rapid unless the stalled EU/India FTA negotiations can restart soon.

The major market access issue in India in 2014 was the significant disruption caused by the Food Safety and Standards Authority of India’s (FSSAI) sudden decision in February to require imported spirits to carry ingredient labelling. This came despite our many years of discussions with FSSAI to advocate international best practice, namely that Scotch Whisky, as a single-ingredient product, should not have to list ingredients. The Association and ISWAI worked with members to bring labels into compliance with the new regime, and imports of Scotch Whisky and other spirits had returned to near-normality by the end of the year.

Finally, we have been working to secure the inclusion of alcohol in the new Goods and Services Tax (GST), currently expected to be introduced in 2016. This would bring some predictability to the industry’s tax burden while also enabling operators to offset GST levied on their products against GST already paid on their inputs. Unfortunately, success now seems unlikely, given opposition from many Indian States, and we will need to work to mitigate the consequences.

Conditions in China remained challenging, principally because of the effect on imported spirits of the Chinese government’s austerity campaign. We continued to remain in contact with Chinese regulators to try to achieve improvements in the legal definition of ‘whisky’ and to mitigate the lingering effects of the requirement to test imported spirits for phthalates content. We are also monitoring the likely changes to China’s consumption tax, which could have considerable impact on the Scotch Whisky market and on members’ costs.


Elsewhere in the region, the industry continues to see measures to protect powerful local producers disguised as public health initiatives. Two examples are Thailand’s continued tax discrimination in favour of local white spirits and the Korean proposal to tax products over 30% alcohol (all of which are imported) at a higher rate than domestic products. Also in Thailand, a dormant proposal to require alcoholic beverages to carry graphic health warning labels re-emerged. The Association worked hard to oppose the measure, including in the WTO, and the proposal appears for now to have been rejected by the Thai government. In Vietnam, we hope to see the EU FTA negotiations conclude this year. The main immediate benefit for Scotch Whisky will be staged tariff elimination after entry into force, probably from 2017. Finally, in 2014, in both Australia and Myanmar we achieved registration of Scotch Whisky as a collective trademark, which will give us an additional weapon to ensure fair treatment of Scotch Whisky in both markets.

AFRICA AND THE MIDDLE EAST – 11% of exportsAn expanding middle class, increased urbanisation and overall GDP growth that continues to exceed global levels means Africa is a region of high region for Scotch Whisky exports. Exports have increased to all but one of the Association’s eight priority markets – Ghana, Angola, Kenya, Tanzania, Ethiopia, Cameroon and Gabon – with the exception being Nigeria, where political and economic difficulties, the Ebola outbreak, and declining oil prices have contributed to a gloomier climate.

The Association is gradually developing networks in all these markets. An SWA visit to Kenya, Ethiopia and Tanzania last year was followed up by meetings with delegates from Kenya, Tanzania, Rwanda, Uganda and Burundi earlier this year, focused primarily on ensuring a high-quality whisky definition in the East African Community.

Trade agreements in Africa are largely concluded on a regional basis and in 2014 the EU concluded multi-regional trade liberalisation agreements (EPAs) covering South, West and East Africa. Unfortunately, spirits were excluded from the West and East Africa deals. However, the agreement with the Southern African Development Community (SADC) provided for immediate liberalisation of some countries’ spirits tariffs and graduated liberalisation of others.

In South Africa, the SWA is engaged on a range of potential regulatory difficulties that could affect the market. The overall market is also affected by economic slowdown but it remains by far the industry’s largest market in Africa.


Annual Review – ManagementThe SWA is committed to managing itself professionally and rigorously so that everyone can make a contribution, and to having an in-depth understanding of members’ businesses and needs.

SWA 2015Last year was one of important change at the SWA. The Council agreed that the Association had huge strengths, but it needed to make an even bigger impact, in particular to influence a wider range of political and professional opinion in London; to restructure its staff and skills mix, with some departures and new recruitments; and to give a fuller opportunity to its many capable staff to develop.

We are therefore:

• opening a small permanent office in London, focused on the core SWA activities of European and international trade lobbying and UK public affairs more broadly, and run by a new Global Affairs Director.

• changing our structure and skills mix. We have reduced our staff cadre at both director and support staff level, enabling new recruitment at the mid-range manager level. We are also employing a dedicated professional economist for the first time.

When this process is complete, the SWA will have 37 staff (formerly 38). They will continue to be mostly based in the Edinburgh HQ, with a team of around six in London. Five out of six will be core non-support staff, as opposed to three-quarters in the old structure.

These changes are cost-neutral.

We will also be moving offices in Edinburgh. After 40 years as the SWA’s home, 20 Atholl Crescent is no longer ideal as a modern office building and would require around £1 million to renovate. We have chosen to sell it and move, instead, into a new modern rented office in the Quartermile development in Edinburgh over the summer. This will enable us to showcase our industry to best advantage and provide a modern working environment for our team.

FinanceThe SWA’s accounts for the year ending 31 December 2014 have been recommended for approval by the Council at the members’ General Meeting on 27 April 2015.

The income of the Association in 2014 from membership subscriptions in 2014 was £6.8 million. There was also a small amount of further income from legal recoveries and sundry sales income.

The Association is a non-profit-making organisation. Income is matched to expenditure targeting the smallest possible surplus. Very broadly, 50% of the Association’s expenditure is on salaries and related costs, 20-25% on legal protection of Scotch Whisky overseas and on the minimum pricing case, 15%-20% on other campaigning, government relations, and operational and technical affairs, and 10% on finance and administration.

Given the tougher climate in the industry, the Association has undertaken the challenging task of operating within a zero increase for subscription income in 2015.


2014 Export Statistics

Exports were worth £3.95bn in 2014.

Single Malt is growing in popularity in many markets.

Around 31% of the value of exports are to EU countries.

The equivalent of 1.19bn bottles was shipped worldwide.

The USA remains the largest market by value with exports worth £750m.

The value of Scotch Whisky exports was £3.95 billion in 2014. The industry remains one of the UK’s top exporting sectors.

The Scotch Whisky Association20 Atholl Crescent, Edinburgh EH3 8HFt: 0131 222 9200 e: [email protected]: www.scotch-whisky.org.uk@scotchwhiskySWA

scotch whisky association 2014 yıllık raporu

Data & Analytics