The high taxes created an underground liquor trade, similar to what occurred with bathtub gin during the Prohibition period in the United States. Smuggling went on in Scotland for 150 years; even churches served as hiding cellars. In the early 1820s, about half of the whisky served in Scotland was acquired through smuggling and therefore avoided taxes. In 1823, taxes were lowered under the Excise Act and smuggling slowed down.
In 1831, grain whisky comes into production—not quite as strong as malt whisky. As the Scotch Whisky Association explains, "The lighter flavoured Grain Whisky, when blended with the more fiery malts, extended the appeal of Scotch Whisky to a considerably wider market." The 1880s helped scotch even more: France's grape crop was devastated by a beetle infestation, halting production of wine and brandy. Scotland swoops in, offering scotch as an alternative. From there, the market grew. Today, exports are around the $7 billion mark.
So what does the scotch industry think of the referendum?
Well, they aren't thrilled about it. The Wire spoke with a number of scotch companies. The Edrington Group, which produces The Famous Grouse, Cutty Sark, Macallan, and Highland Park, told us that they are not discussing the referendum until after the results.
Diageo, which makes a variety of scotch, most notably Johnnie Walker, offered this statement to The Wire:
Our position on Scotland has not changed. We remain firm in our view that any decision on Scotland’s constitutional future is a matter for the people of Scotland. However, there are many questions to be answered in relation to the implications of potential constitutional change on our industry.
Naturally, we would have concerns about any developments which could add cost, complexity or uncertainty to our business in areas such as the currency, EU membership, access to the Single Market and international trade, as well as official support for exports. We still have no clarity in these areas.
We, together with the SWA [Scotch Whisky Association], continue to seek the reassurance we need in areas of critical importance to the future success of our business, and of the industry.
Diageo's spokesperson stressed to The Wire that production facilities will remain open no matter what occurs with the referendum. Bacardi, which makes Dewar's, deferred to the Scotch Whisky Association as well.
The Wire reached out to the Scotch Whisky Association, which provided a lengthy statement. While they did not overtly say they were against the referendum, they pointed to a number of questions that remain unanswered for their industry if Scotland is to gain independence. Their concern is in large part economic. The United Kingdom provides the scotch market with a number of economic benefits (making up for those 150 years of unfair taxing):
At the UK level, we are fortunate to have - on the whole - certainty in our domestic business environment. Monetary and fiscal policy is predictably managed. We benefit from the fact that our domestic market is the sixth biggest economy in the world, large enough to support broad and balanced growth and provide a pool of relevant skills. In contrast, as of now, the nature of an independent Scotland's currency remains unclear, and self-evidently this could affect our exports, management of supply chains, pricing, and competitiveness. The taxation regime also remains to be developed, and any regulatory divergence between Scotland and the rest of the UK may increase costs to business. In all these areas, we need further information and reassurance before we can assess whether we can mitigate these potential risks.
The United Kingdom's membership in the European Union also allows added protection for the scotch industry, as the association explains:
The 'Scotch Whisky' geographical indication is protected in EU law. We are able to export tariff-free across the single market, use EU mechanisms to eliminate market access problems, and benefit from the EU's clout in trade negotiations. Of course, not everything in the EU is perfect and, in my view, many areas need reform. But even a temporary interruption of EU membership involving exclusion from the single market or the customs union, if this were a consequence of independence, would be damaging and difficult to manage.
The scotch market in Scotland survives entirely on exports, mainly to India and United States. Overall, they have 200 markets with whom the U.K. supports meaningful, economically beneficial relationships. "A diplomatic network with the necessary geographic footprint, expertise, and influence to provide commercial and political support globally will continue to be essential," said David Frost, the association's chief executive.