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Bourbon: A Victim?

Beam Rack House.jpg

By Bbadgett – Own work, CC BY-SA 3.0, L

I have a couple of pieces at the Diplomat on how Trump’s various trade wars are affecting the bourbon industry in Kentucky. First, on the general industry impact:

The bourbon industry requires long-term planning for production and sale of its product. Predominantly (but not solely) produced in Kentucky, bourbon is subject to a variety of legal requirements, include specific aging periods for some variants. Many commercially popular bourbons have relatively long aging periods (four years for Jim Beam, six for Makers Mark, 7.3 for Woodford Reserve) meaning that distilleries need to determine production targets well in advance of sale. When an exogenous shock such as the Trump tariffs impacts the industry, sales decline and stocks rapidly increase, with potentially severe effects for producers who have bet on a particular level of demand. On the upside, bourbon doesn’t go bad; however, warehousing imposes significant costs on producers.

And the second, on the specific impact in Kentucky:

The tariffs themselves have more of an impact on small producers because they cannot take advantage of economies of scale to reduce transportation and warehousing costs. Moreover, while big producers can experiment with ways to avoid tariffs (warehousing in a third country, for example), small producers don’t have the resources to employ such strategies. Finally, while all producers have been hit by second order effects (an increase in the price of steel and aluminum because of tariffs) startups and small distilleries looking to expand obviously have the biggest problems.

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