Scotch Whisky and Scotland’s Economy - A 100 Year Old Blend

09 Jan 2013

A century of Scotch Whisky

The Scotch Whisky Association (SWA) celebrates its centenary year this year, having formed in 1912. In that year the Scotch Whisky industry employed just under 5,000 people across Scotland and generated around £3 million in Gross Value Added (GVA). The industry was in decline, the number of active distilleries in Scotland had fallen by nearly a third from the start of the century to just 120 by 1912.

The Scotch Whisky industry was devastated by the two world wars and for around two years during World War II Scotch Whisky production was even suspended. After World War II the Chancellor of the Exchequer identified "one or two special items such as whisky" with export potential which could help to close the dollar gap following the 1949 devaluation of sterling.

Substantial gains were made between 1952 and 1962 with a Scottish Office report praising the "startling performance" of Scotch Whisky exports and that the industry had achieved a "spectacular expansion in output and exports."

Golden age of Scotch Whisky

The 1960s and 1970s represented a golden age for the Scotch Whisky industry. By 1972 the industry accounted for just over 20,000 jobs across Scotland, generated value added of £84 million (GVA) and exports of £228 million. At its peak, Scotch Whisky supported nearly 100,000 jobs directly within the industry and through its supply chains across Scotland.
 But the end of the seventies also marked the start of an extended downturn in the Scotch Whisky industry. This paved the way for significant structural change in the industry.

Eighties and onwards

The eighties saw a dramatic reversal of fortunes for the Scotch Whisky industry compared to the spectacular performance in the sixties and seventies. Some of the difficulties were compounded by overproduction in the late seventies and there were clear signs that the industry had overinvested bringing old distilleries back into use.
 The disparate nature of the industry made it difficult to develop international brands in increasingly competitive markets. Following the downturn the Scotch Whisky industry has undergone a process of consolidation still on-going today. Arguably it is inward investment and development of international networks that has once again restored Scotch Whisky to the spectacular performance seen in the seventies.

One century later

Today, the total economic impact of Scotch Whisky on Scotland's economy is nearly £4.2 billion supporting around 36,000 jobs in the industry and supply chain. Productivity has accelerated to previously unseen levels, this year (2012) the GVA per worker was conservatively estimated to be £275,000.

The average Scotch Whisky worker adds nearly five times the value added by workers in Scotland's life sciences sector. Workers in the Scotch Whisky industry are 57% more productive than workers in London's financial and business services industry.

Future prospects

The economic impact of Scotch Whisky as a share of the Scottish economy is still below the watermark during the sixties. If the Scotch Whisky industry were to account for a similar share today, this would add value approaching a further £1 billion. A return to these heights is not unreasonable given significant new investment in Scotch Whisky production capacity.

Scotch Whisky exports are now Scotland's largest international export ahead of refined petroleum (£3.0 billion) and business services (£2.5 billion). Scotch Whisky has underpinned Scotland's international export markets overtaking refined petroleum in 2009 and accounting for 55% of growth since 2002.

Scotch Whisky exports are being sold to countries that are currently growing more quickly than countries buying other Scottish international exports. Scotch Whisky enjoys an enviable position with regards to growth markets and is likely to play an increasingly important role in the story of Scotland's export markets.

Conclusions

The golden age of Scotch Whisky during the sixties and seventies saw a significant rise in export volumes. The more recent rise of the Scotch Whisky industry has been helped by rising export values. Even throughout the current global downturn the average value of each bottle exported has risen by 42% over the last five years. The average value of bottles of Scotch Whisky sold overseas has risen each and every year since 2007.

It is difficult to identify other drinks industries in Europe, or elsewhere, that have developed products as high value as Scotch Whisky. Significant capital investment and the reopening of previously mothballed distilleries suggests Scotch Whisky will play an even greater role in Scotland's economy in the future, especially as its growth markets are focused on the high growth economies of the world.