"Welcome Pound Weakness" Cheers from UK Scotch Whisky Company

Annual export volume increased by 10.5% over the past year
Advantageous as barley and other whiskey ingredients are British-made ... High interest rates and rising energy costs are negative factors

[Asia Economy Reporter Kim Hyunjung] While the entire UK is frowning due to economic downturn, there is one place that is smiling. It is the Scotch whisky companies, a representative specialty product of Scotland.

On the 21st (local time), The New York Times (NYT) reported that UK Scotch whisky manufacturers have become major beneficiaries of the weak pound sterling. According to the NYT, the UK economy has been severely hit by Brexit, the Ukraine war, and most recently, the government's inconsistent tax cut policies that led to Prime Minister Liz Truss's resignation. However, the situation is different for Scotch whisky manufacturers. Thanks to the weak pound, the export price competitiveness of Scotch whisky has increased, leading to a significant rise in exports.

According to UK government data, Scotch whisky exports have increased over the past two years, with exports during the 12 months from August 2021 to July 2022 rising 10.5% compared to the same period the previous year. The British pound fell to an all-time low of 1.03 dollars last month and has since fluctuated around 1.12 dollars.

Besides the weak pound, there is another reason for the Scotch whisky industry's boom. The global popularity of Scotch whisky and the increasing demand are also important factors behind the industry's prosperity. According to the Scotch Whisky Association, about 90% of Scotch whisky is exported, with the largest market being the United States, which imported nearly $1.1 billion (approximately 1.5818 trillion won) worth last year. Demand in China and other Asian markets is also steadily increasing.

The NYT interpreted that the reason Scotch whisky companies have gained more from exchange rate benefits than other UK exporters is due to their low dependence on imported goods in the production process. Most whisky ingredients, such as barley, are grown domestically in the UK, so they are free from rising import costs. In contrast, other UK companies like automobile manufacturers, which heavily rely on imported parts, have not benefited from the weak pound.

However, it is difficult to remain optimistic about the continued boom in the Scotch whisky industry. Since it takes several years or even decades to mature whisky before it can be sold, some whisky producers rely on loans and have benefited from low interest rates in recent years. But if interest rates continue to rise, profitability could deteriorate.

Rising energy prices also negatively affect distilleries. Whisky production, which involves germinating and drying barley, is an energy-intensive process that uses coal. According to a survey conducted by the Scotch Whisky Association in August, about one-third of distilleries reported that their energy costs have doubled.