Comment - Spirits - Are We Running Out of Casks?
As the Scotch whisky industry appears to expand with gay abandon, Ian Buxton takes a look up the supply chain and asks if there's enough wood in them thar hills to hold the stuff.
What links the disastrous floods of 2011 in Missouri and the current huge expansion of the Scotch whisky industry? And, why could this link become a problem for the new generation of tiny boutique distillers?
The answer is casks, or rather the potential lack of them. As Bill Owens, founder & president of the American Distilling Institute (the organisation for the craft distilling industry in the USA) notes, in addition to Scottish growth and an expansion of Bourbon output “craft brewers, wineries and the Tequila distillers are all increasing the demand [for casks] - if you don’t have supply confirmed, then you’ve got a problem”.
Owens is particularly concerned for around 30 of his members, all new start-up businesses, recalling that, during the Missouri flooding, it was impossible for heavy trucks to access the state's forests, leading to fewer trees being felled, less timber being laid down for air drying and the shortage of staves today, just as demand soars. To make matters worse, heavy rains in 2013 also limited the harvesting of mature timber. One consequence: Prices for a new American oak barrel have risen sharply, “from $320 to over $700”, claims Owens.
That’s a cost inflation that affects the whole industry but is a particular problem for the emerging craft sector, where cash-flow is particularly tight.
A similar jump in prices - around 30% in the past year - has affected the market for once-used Bourbon barrels, which are so critical to Scotch whisky. Today, prices have risen to around $80, or more if you only want tiny quantities. So concerned is at least one major Scotch distiller that they will shortly be undertaking a fact-finding mission to the US, to understand the whole supply chain back to the forests and saw mills.
The problem isn’t confined to the US. Much Spanish Sherry is matured using American oak staves and, as Edrington’s director of whisky operations, Robin Gillies explains: “We’re seeing some of our Spanish cooperage partners going to the lengths of purchasing a share in a US stave supplier to guarantee future supplies. Without that assurance, right now US suppliers won’t commit to long-term contracts; they’re accepting orders but without a firm commitment that they can deliver.”
Others echo his concerns. “Casks, what casks!?” asks Stuart Nickerson of The Malt Whisky Co. “It’s already a problem, with no ex-Bourbon or refills to be had, unless you have a contract or have some other muscle,” says Nickerson, who is currently planning a Shetland start-up. “It’s a definite problem for the new starts,” he added.
But, some smaller operations that have secured established suppliers are more sanguine. “Although casks are becoming increasingly difficult to source, we have good arrangements with Buffalo Trace and Miguel Martin for our cask requirements,” says Anthony Wills of Kilchoman Distillery Co on Islay. “These arrangements were put in place before the pressure built and we are delighted that they will continue to supply our requirements.” Wills reports prices of GBP90 (US$148) for Bourbon barrels and GBP450 for Oloroso Sherry butts.
Asked about the cask supply situation, a Diageo spokesman said: “Clearly, we plan our wood purchasing for the long term in the light of our known wood usage and future plans for production. We have longstanding relationships with third parties who source only the highest quality wood for us.
“However,” he added “we are not solely reliant on purchasing new and previously used casks; we are firmly committed to extending the useful life of valuable casks (and lessening the environmental impact of our wood sourcing) through our highly developed rejuvenation programme.
“Diageo’s team of coopers have worked with our scientific, technical and maturation experts over recent years to develop a much more sophisticated, more finely-calibrated approach to rejuvenation, using a variety of methods.
“The bottom line,” continued the Diageo statement “ is that our understanding of supply chain options, cooperage capability and blending knowledge are all used to mitigate the challenges of cask supply; particularly the need for new wood.”
For the moment, then, US barrels are “readily accessible and relatively cheap” for the major players, according to Robin Gillies. However, that relies on US legislation mandating the use of new barrels for Bourbon and Tennessee whiskey – and it's this latter style that Diageo is lobbying strongly to change, though the company stress they have no plans to alter the use of new barrels for their George Dickel brand.
Perhaps the company should be careful what it wishes for; while it may be argued that one company cannot legislate for a whole industry, it’s equally true that no one company can control what others do. If the re-usage of barrels were to be permitted in US legislation, then all bets are off, notwithstanding the views of Diageo, Brown-Forman or the cooperage and forestry industries.
At present, however, the debate is focused around the legislation on Tennessee whiskey, whish has been enacted at state level. Federal law, however, applies to the rules on Bourbon, an apparently arcane but critically important distinction missed by some commentators outside the industry.
“What will happen to Scotch whisky if, as some in the industry are pushing for, the Bourbon legislation is amended?” asks Gillies rhetorically. That’s the nightmare scenario for Scotch – millions more litres of spirit leaving the stills and nowhere to put it.
After years of hard work and cost in removing poor quality wood from the Scotch whisky supply chain the industry could be faced with the chilling prospect of once again filling tired or sub-standard wood – or not filling at all.
“The wood supply chain is particularly acute,” says Gillies. “It’s pretty tight out there.”
So, if you’re thinking of building a new distillery, first check you can find some wood in the trees.
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