In September, Scottish citizens will vote on independence and whether it should withdraw from Great Britain.
There are all kinds of interesting angles here — politics, debt, currency, oil rights, etc. — but for many people the big question is, what does this mean for Scotch export?
Bank of America is out with a long note titled What if Scotland votes for independence? At the very end, they look at some risks that a yea vote would pose for the industry.
The firm notes several ways that the Scotch industry could be affected.
The most straightforward way is on the currency side:
At present, the large producers typically invoice Scotch whisky in U.S. dollars irrespective of the final destination market. As such the main transactional FX risk faced is the movement in Sterling/US$ which is typically hedged on a 12-month basis. A volatile currency would likely be more difficult and expensive to hedge making pricing and planning decisions harder.
There would also be free-trade issues:
— Loss of protected status for scotch: Scotch whisky enjoys the protection of ‘geographical indication status’ under E.U. law. This protected status could therefore be put at risk leaving the industry exposed to greater overseas competition/private label brands and reversing the progress that industry has made in tackling counterfeit products.
— Loss of tariff free trading opportunities: E.U. membership allows scotch producers to export tariff free across the E.U.’s 28 member states.
Scotch producers might also lose their global support networks:
As a major exporter the scotch industry currently benefits from access to the U.K.’s extensive network of overseas embassies, agencies and trade delegations.
And finally, producers might come under more burdensome pension and tax regulations:
Given the uncertainty over the eventual fiscal position of an independent Scotland, there is the risk that business rates and taxes have to rise to plug the fiscal gap. The Confederation of British Industry (CBI) has also voiced a number of concerns over the potential impact on company pension schemes — pension schemes are typically run on a U.K. wide basis. Such schemes may have to apply with onerous E.U. cross border rules, potentially raising costs for business.
So higher costs, higher tariffs, the loss of marketing power, and more volatility for Scotch producers. Seems plausible that availability will go down and prices will go up for consumers.
Meanwhile, here’s a chart of the big export markets for Scotch:
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