Tax hike hits whiskey production

IRISH whiskey production is to be scaled down because of the negative impact of the 42% increase in excise duty imposed by Finance Minister Charlie McCreevy in December’s Budget.

Sales of distilled spirits have fallen by 21% in volume in the six months since December according to Irish Distillers Limited (IDL) which runs the country’s biggest distillers in Midleton, Co Cork.

Sales of ready-to-drink (RTD) products, where Smirnoff Ice is the market leader, are down 38%.

ID parent Pernod Ricard’s joint managing director Richard Burrows said sales of their Irish whiskey brands, Cork Dry Gin and Huzzar vodka were all down 11% so far this year.

“Sales are down because of the massive hike in excise duties,” he said frankly.

Pernod Ricard has invested more that €100 million to increase production at Midleton.

“We have decided to cut back on output targets for Irish whiskey because of the changes in the Irish market and that’s for products that will not come on sale for five years,” he said.

However, because sales of Jameson Irish Whiskey rose by 7% around the world, with sales of close to 1.6 million cases expected this year, actual production at the plant will increase but at a far more modest rate than planned and budgeted for.

“This will hit barley producers and other suppliers to the distillery,” said Mr Burrows.

However, Mr Burrows said the reduction in planned production will not impact on jobs. Irish Distillers employ close to 750 people in Ireland.

Yesterday, Pernod Ricard reported sales of wine and spirits, excluding duties and taxes, were €1,496m for the first half of 2003. The company said this represents vigorous organic growth of 8%, a negative currency impact of €157m (-10.4%) and a consolidation effect of +2%.

In a statement accompanying the results the company said:

“In Europe, (excluding France), the 8% organic growth achieved is derived from excellent results in major markets (Italy, Spain, United Kingdom, Germany, Greece), as well as Eastern Europe and Russia. Conversely, difficult market conditions continued in Ireland as a result of the severe increase in excise duty in that market at the end of 2002.”

The company said American sales were seriously affected by exchange rates against the dollar and the South American currencies (89m or -23%), notched up organic growth of nearly 7%.

“This chiefly reflects a good performance in the USA. Additionally, it is important to note the growth of local brands in Latin America, at a time when sales of imported brands remain weak, especially in Venezuela,” the company said.

The company said that in France, the difficult market conditions of the first quarter continued, though the last two months have seen a slight improvement.