Thursday, 17 September 2009

Diageo debate

Rob Gibson (Highlands and Islands) (SNP): Among his remarks, the cabinet secretary urged us to learn from the Johnnie Walker decision and to look to the future. We must consider that the decision has arisen from Diageo following a consolidation agenda.

In 2007, Diageo announced the investment of hundreds of millions of pounds in a huge new malt distillery at Roseisle on Speyside and in the development of Cameronbridge and Shieldhall, but that was before the world recession. At a time of flattened demand, there is a difference between the sales progress of white and brown spirits. As Wendy Alexander said in the Economy, Energy and Tourism Committee on 9 September:

"The issue then was the loss of brown spirits to white spirits—demand was growing much more quickly for vodka than for whisky". —[Official Report, Economy, Energy and Tourism Committee, 9 September 2009; c 2340.]

We have to ask ourselves what Diageo's priorities are. In August, it stated that net sales had increase by 15 per cent. Smirnoff sales were up 17 per cent, Captain Morgan sales were up 29 per cent and Johnnie Walker sales were up 4 per cent. The debate must take into account the effects of Diageo's priorities on the company's thinking and on people throughout Scotland.

A farmer who lives close to me, Hector Munro of Foulis, said in a recent letter that there are "large surpluses of malting barley in both UK and Europe plus World grain stocks" are "generally higher than they have been at any time in the past decade ... Faced with this scenario and with no regional protection for Scottish malting barley, the vital ingredient of that iconic-branded product, Scotch Whisky", which he grows, his business is in doubt. We need to take account of the way in which Diageo's demand for products affects people such as our barley farmers.

Diageo has a range of distilleries, including 15 small distilleries in Speyside. In volume terms, they do not add up to the production of its main competitors—Glenfiddich or the Macallan—hence the idea of developing Roseisle. Will we see a consolidation of malt whisky distilling if world demand for brown spirits continues to move more slowly than demand for white spirits?

As a Scottish distiller, Diageo needs to show sustained loyalty to the complete process of whisky distilling in Scotland. As Wendy Alexander also said at committee:

"The right analogy is with French wine production, and the real issue, which the GMB raised, is whether bottling in Scotland is compelled. Because of the influence of some of the large players in the industry, the Scotch Whisky Association does not support bottling in Scotland, which is astonishing ... The big strategic decision on whisky is whether there is a move to insisting on its being distilled and bottled here. It is interesting that the trade body for Scotch whisky does not favour that position." —[Official Report, Economy, Energy and Tourism Committee, 9 September 2009; c 2341.]

This is the danger in which we find ourselves.

Can we in the Highlands and Islands expect to see consolidation in malt distilling, as has happened with grain distilling? When Guinness took over DCL, it said that it would not cut the number of distilleries. However, the question of cutting the number of distilleries in regions of Scotland and consolidating production has not been removed.

With mega-distilleries replacing the diverse regional nature of our iconic whisky industry, Diageo has to be asked what positive legacy it will leave for Scotland. Is what is good for the Diageo business model also good for Scotland? What level of value will be retained in Scotland? As a previous speaker said, that must be maximised.

I am concerned when Diageo makes statements such as:

"The company has created a flavour map to categorise whisky by taste rather than region in an attempt to demystify the drink and attract new customers."

Scotland wishes to retain the regional nature of whisky production and bottling. We do not wish to be left with a bad taste in the mouth from Diageo's business decisions.

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