LEXINGTON, Ky. – Kentucky distilleries produced a record amount of bourbon in 2020. Kentucky Distillers Association president Eric Gregory said that even with a more than 8% increase in sales, nearly 10.5% million barrels aged in warehouses across the Commonwealth.
What would you like to know
- 2020 was a record year for production
- Glass shortage is also hampering distribution
- Bourbon is an $ 8.6 billion industry in Kentucky
- Tariffs lowered exports
The 2.5 million barrels produced in 2020 and the 10.5 million barrels currently aging are record highs, eclipsing what was manufactured and aging in 2019. Gregory said the stock, which is enough for 2.5 barrels of bourbon for 4.51 million people in the Commonwealth, results from unprecedented levels of production and demand, pandemic disruption and ongoing trade wars.
Kentucky bourbon production has been booming since the turn of the century, increasing 436% since 1999. The Commonwealth’s aging bourbon inventory has increased by 200% during this period while the total number of all barrels has almost tripled, according to the Kentucky Distillers Association (KDA).
KDA Statistics Show Kentucky Bourbon Is An $ 8.6 Billion Industry Employing Over 20,100 People with an annual payroll of over $ 1 billion. Distillers are also in the midst of a $ 5.1 billion investment drive to meet global demand for Kentucky Signature Spirit.
Gregory said retaliatory tariffs and ongoing trade wars pose serious threats to global exports. The European Union (EU) imposed a 25% tariff on US whiskey and other products in 2018 in response to a US tariff on steel and aluminum. As a result, Kentucky’s bourbon exports to the EU and the UK – the state’s largest whiskey export market – have been cut in half, according to data from the Kentucky Cabinet for Economic Development. Overall bourbon exports to the UK, America’s fourth largest whiskey market, fell 53% from $ 150 million in 2018 to $ 71 million in 2020. It could get worse, Gregory said, as the tariff of the EU on American whiskey is expected to double. at 50% on December 1st.
“Our industry is collateral damage in trade disputes that have nothing to do with bourbon,” he said.
Another reason for the high number of aging barrels is the lack of glass required. Katie Farley, of Brown-Forman’s public relations department, owner of Woodford Reserve, Old Forester and several other brands, said using glass to bottle bourbon was a problem.
“There are only two suppliers in the country that supply the type of glass used for food and drink,” she said. “We can’t get this glass because of the global demands of the food industry. “
Farley said Versailles-based Woodford Reserve, which houses 5,000 barrels in its historic C warehouse and 256,000 barrels in four other warehouses, is currently building more storage space on a property in Midway.
“Everyone is in a construction wave right now,” said Gregory. “Contract storage is also booming right now, as everyone is trying to find the bridge between where to store it now and how long it will take to build a warehouse, especially with the price of lumber. and construction supply chain issues. days.”
Gregory said the overall Commonwealth bourbon stockpile is more the result of expansion and demand than supply chain issues related to COVID. Gregory cited free trade agreements passed in the 1990s that took the bourbon industry down a tariff-free path and leveled the playing field with scotch and other whiskeys around the world.
“We have experienced major global expansion since then,” said Gregory. “In the 10 years leading up to 2018, global exports grew by almost 100%. Many distilleries have started to increase production, build warehouses and expand bottling lines to meet growing global needs.
Gregory said the EU tariffs on American products, including whiskey, “put the brakes on the freight train that was Kentucky bourbon.”
“We’ve been three years with these tariffs, and our exports have dropped 30-40% to many world markets and 50% to the UK,” he said. They’ll be making announcements here soon. to sort out those tariffs, hopefully, so that we can get back to our business of making great whiskey and sending it out for the world to enjoy. “
Gregory said he is often asked why production has increased when tariffs hurt the export market. He said the Kentucky Bourbon “blessing and curse” cannot be created overnight.
“You envision four, six, eight or 10 years before that barrel gets emptied and bottled,” he said. “The hope is, and if we still have tariffs in six or eight years, we’re going to really suffer, but the hope is that policies change, administrations change, and by the time this bourbon matures and is ready. to be bottled, these tariffs and trade wars will be over. ”
Distillation remains Kentucky’s most taxed industry, paying more than $ 300 million each year in state and local taxes, according to the KDA. Economic impact studies show Kentucky leads the country in federal alcohol excise taxes, paying $ 1.8 billion a year, almost all from distillers.
Since aging bourbon barrels are considered property, they are subject to an annual property tax in Kentucky. Every year a barrel ages, it is taxed. An 18-year-old Elijah Craig bottle was taxed 18 times before bottling and taxes on a barrel have increased 140% in the past 10 years, Gregory said.
“No other place in the world does this,” he said. “They don’t do it for Japanese whiskey, Canadian whiskey, Scotch whiskey, Irish whiskey, or even Tennessee whiskey. We are the only place in the world that tax aging barrels as spirits.
The assessed value of all aging barrels is now $ 4.4 billion, the first time it has passed the $ 4 billion mark and represents an increase of $ 589 million from the previous year. Kentucky distillers will pay a record $ 33 million in taxes on aging barrels in 2021, which have risen 140% in the past 10 years, Gregory said.
“It’s harder for Kentucky to attract new artisanal distillers because other states trying to build their distillation monopolies are using these taxes against us,” he said. “It’s like recruiting into basketball or whatever. Why do you want to go there when they charge you a tax on all your aging barrels when you can come here without that tax and go automatically? [The tax] has been around for 100 years. It is just time we got rid of it because it is a production tax. We don’t really tax any other Kentucky production product other than spirits. “
Smaller artisanal stills are particularly affected by the barrel tax, Gregory said.
“It’s hard for them to afford to sit a barrel for years and tie up capital while they get old,” he said. “A lot of small, artisanal distilleries are turning to things that they can produce almost overnight, like vodka, gin, mezcal – things that they can produce fairly quickly that don’t need to be. It helps them generate income while their bourbon is aging. Another thing that has really helped make distilleries is the tourism component. Now that they can sell cocktails and things, they can organize events, and it really helps bring in some much needed cash as they age the bourbon. “
David Meier, owner of the Glenns Creek Distillery in Frankfort, Ky., Said bourbon was a “crazy business” and a “gamble.” It typically keeps around 500 barrels of aging bourbon in its warehouse.
“Everyone’s building warehouses now because everyone wants a 15-year-old bourbon, so it has to sit there for 15 years,” he said. “When you look at the time between when you distill it and when you sell it, companies double when times are good, but they predict those times are going to continue to be good five, eight, 10 or 20 years from now. . That’s the dilemma right now. Everyone is increasing production, but this is not going to hit the market for several years. Until then, who knows what will happen to the demand? ”
Meier said that when Bourbon production peaked in the 1960s, distilleries doubled and increased their capacity and storage space. Its distillery is located in a valley on specific land. He said that at one point many distilleries are running out of room to build more warehouses and have to buy land, as is the case with Buffalo Trace in Frankfort.
“The underlying problem is that people want bourbon older and older, which means you need more space because it’s going to stay there longer. If you’re a small distillery in Lexington, like the barrel or Bluegrass, you have to store most of your product elsewhere, mainly because of the city code. When you are in the countryside and you have enough land, and if you have the financial means, you can increase the storage. Some places don’t have an option on it It’s different from any other business in making and producing something to sell. Any other manufacturer, you can make it today ‘hui and sell it tomorrow. With bourbon, it’s doing it today and waiting and waiting and waiting. At this point, hopefully, there will always be a demand for it. “