This is a special episode of the Drinks Adventures podcast reporting on Australian spirits’ ambitions of becoming a $1 billion export industry by 2035.
We all know the quality is there, and that $1 billion objective is what economics firm Mandala Partners believes is achievable if the Federal Government gets behind the Australian spirits industry, just as it has done for wine over several decades now.
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The spirits industry tabled its ambitions in the Federal Inquiry into Food and Beverage Manufacturing in Australia, which is currently being conducted by the House of Representatives Standing Committee on Industry, Science and Resources.
I’ve been involved in the inquiry process through my day job as Media & Communications Manager for industry body Spirits & Cocktails Australia.
This episode presents audio from four separate hearings held in Sydney, Canberra, Hobart and Melbourne between June and August, which I’ve edited together for narrative purposes.
More:
Lark Whisky spreads its wings under new CEO Satya Sharma
Kristy Lark-Booth’s eclectic Tasmanian spirits
Philip Moore, Gin Magazine Hall of Fame Inductee
Australian spirits’ $1 bilion export ambitions: Full transcript
JAMES ATKINSON: At the top of the episode you heard Archie Rose Distilling Co founder Will Edwards. This is Committee chair Rob Mitchell MP speaking with Lark Distilling CEO Satya Sharma.
ROB MITCHELL: Can I just ask about your experience in exporting overseas? And this is, I guess, follow up from yesterday’s discussion around shifting products into Southeast Asia. What have been the successes and challenges that you face in doing it and accessing those markets?
SATYA SHARMA: Yeah, I mean it’s a journey on which we are very, very early in our outreach. The challenges are creating the awareness of where we’re from. Right now, you’ve got Lark going out to the world, along with a minority of those 700 distilleries, trying to fly the flag for both Tasmania and Australia. But, we are coming up against juggernauts, people that have been in the industry for 200 years. Some of our competitors internationally, in Europe particularly, are celebrating 300 years. So we are in an embryonic stage in our development. No-one really knows that we make whisky. And the second part is obviously our economies of scale. We are at a cost disadvantage because we have yet to hit those economies, to be able to drive future export conversations.
ROB MITCHELL: I now welcome representatives from Starward Distillery. For the Hansard record, could you please each state your full name and the capacity in which you appear.
DAVID VITALE: I’m David Vitale, the founder. So, having lived in the United States for five years, despite all of the international recognition that we have for Starward, but also, you know, my peers in Sydney at Archie Rose and of course, the Tasmanians, there’s very little awareness of Australian whisky. And one of the challenges I think we face is that idea of brand Australia resonates very strongly from a tourism perspective. It certainly resonates very strongly from a food point of view, seafood and beef being the big ones, obviously. But there’s just zero resonance on a spirits level.
SATYA SHARMA: But if you sit in Australia and you talk about what we’ve got that the rest of the world doesn’t, it’s not that we’re short of stories. It’s not that we’re short of amazing product. It’s just that we don’t have a megaphone. The thing that catapults us and drives speed to market will be creating that awareness of what we uniquely bring to the world. What that translates to, in very practical terms, is export conversations with distributors ensuring that we plug in and explain to them what we bring, which is new world whisky. We have no intention of trying to be or emulating something that has existed for 300 years. We think we’ve got a fantastic story to tell and take to the world. We enter some of the most prestigious awards and we come out winning golds and winning ongoing medals. It’s not just one year and it’s a one and done. We’ve been consistently doing that. But again, it’s making sure that those awards translate into people knowing we’ve won those awards. And that comes with that megaphone of a loud united voice.
JAMES ATKINSON: Spirits already contributes more than $15.5 billion in added-value to the Australian economy, and supports more than 100,000 jobs. The industry argues that many of the products distillers are producing cannot be replicated anywhere else in the world. And if spirits exports were to take off, the flow-on effect throughout the supply chain would be immense. This is Julian Train from Hickson House Distilling.
JULIAN TRAIN: We’re two years into our journey, but we do have a really strong hospitality background. So we all come from the world of drinks and cocktails and flavours. And I guess what’s really opened our eyes, certainly over the last three years is just how much exploring there still is to do with Australian native botanicals. Some of the flavour profiles, you just cannot replicate them from anything else and we’ve really only just scraped the top. So that’s just a journey that we’re continually on. Our head distiller Tim is in his little back room all the time experimenting on flavour profiles. Some of them are horrendous, but some of them are amazing. We’ve discovered some really truly amazing things and I think that that’s a story we need to take to the world. We’ve got flavour here that you just can’t find anywhere else.
HOLLY KLINTWORTH: Holly Klintworth, president of the Australian Distillers Association. I guess, you know, we know that nothing else tastes like Australia and that is a really great point of difference on the world stage, you know, and we’ve got such a strong connection to the Australian lands through the grains and the grapes and the sugar and the fruit and the indigenous botanicals that we use. And it’s becoming more and more common for gins in Australia to draw on those indigenous botanicals a lot. So as our industry grows, so will our reliance on those indigenous and native ingredients and we’re looking for ways to source those that are culturally respectful and environmentally sustainable.
WILL EDWARDS: Archie Rose whiskies proudly celebrate their Australian provenance with all seven of our malts grown and malted in Australia, a feat that took us nearly eight years to achieve, with the final two malts having to be grown and exclusively developed for us in partnership with Voyager Craft malt in Griffith. Through this R&D partnership with Voyager, we’ve innovated to create Australia’s first commercially available native timber smoked malt, eliminating the need to import thousands of tonnes of peated malt from the UK and creating a highly value-added Australian-grown-and-made product able to be sold for an approximately 400% premium to the feed barley farmers in the region would have previously relied on. This has resulted in a uniquely Australian whisky that is authentically Australian; differentiated by our use of lower yielding but more drought-tolerant malts better suited to the Australian climate; has a smaller carbon footprint as the grains don’t need to be shipped from overseas; is value-added at every stage of production and is genuinely world-class, our Rye Malt having won World’s Best Whiskey four times and our Single Malt two times. And the other one I’ll talk to is casks. So we’re heavily reliant, as is the industry, on ex-bourbon and new American oak casks from the US and to a degree, fortified wine casks from Europe. We’re working with Australian cooperages who, from a wine perspective, are incredibly sophisticated. But, from a spirits perspective, there’s almost none to look at. We are taking ex-Australian wine casks and through a shave toast recharge process generating casks that can deliver the same flavour profile or better, than new American oak, ex-bourbon American oak and fortified French oak from Europe. And what that would do is… I mean, it’s in the early stages for us, but if we can develop that successfully and then commercialise that with the cooperage we’re working with, that would then develop a new Australian cask supply business, cooperage industry that could service both the Australian industry but potentially export casks to the rest of the world, just as the US and Europe currently export to Australia.
HOLLY KLINTWORTH: And I think additionally, there’s a really big opportunity as far as attracting tourism goes, because the more we get our spirits out to the world and we promote the flavours unique to Australia, I think that can have a really great flow-on effect on inbound tourism back here in Australia.
JAMES ATKINSON: Holly Klintworth, president of the Australian Distillers Association speaking there. The spirits industry points to the achievements of other spirits-producing nations that have enjoyed Government support on export development initiatives. This is Mark Hill, Managing Director Oceania at Suntory Global Spirits.
MARK HILL: Japan partnered with the government in setting some supporting policies, particularly around the spirits industry and particularly around export as well. What we’ve seen in Japanese whisky, which was big in Japan, but not really big globally, we’ve seen that increase six-fold over the last ten years. And to me that shows you another example where, if you get it right, you know, what’s possible.
DAVID VITALE: Tequila now is the fastest growing spirits category in Australia. There’s a coordinated effort by the Mexican government to kind of advocate for tequila around the world. We are making agave spirits, which is very exciting and talks to the innovation that we have. But I think the bigger point is that we’re getting outstripped because we’ve effectively bootstrapped ourselves to this point and we need some more support because otherwise we’re going to get left behind.
JAMES ATKINSON: David Vitale speaking there. This is Rob Mitchell MP speaking to Kylie McPherson, regional Vice President, Director of Public Affairs at Brown Forman.
ROB MITCHELL: In your submission, you say that Australian consumers would benefit from improved product descriptions. So can you tell us the kind of issues you’re facing in the industry in relation to false or misleading advertising. And how could the Government assist in providing support and intervention in this matter?
KYLIE MCPHERSON: Regarding the clarity for consumers, we have a Free Trade Agreement, for example, with the USA for our products. And under that agreement, Bourbon and Tennessee Whisky are recognised as distinctive products of the United States. Bourbon is also very well regulated in the United States in terms of what it needs to comprise. We have seen some instances here in Australia where there have been products that have been held out to be a bourbon, but in fact they are not. So they’re not aged in wood, they’re not comprised of 51% corn mash, etcetera.
SATYA SHARMA: We’ve got a unique opportunity to set our own standards, which are uniquely Australian. Protecting what we believe is important from the perspective of innovation, that allows us to have our own distinct, let’s call it fingerprint, as we take that to the world, those unique things are, things we want to protect as opposed to stifle, innovation and growth. And they would be things that we would come together and hopefully get, I suppose, buy in, as well as enforcement, in order to make sure that we’ve got descriptors which are truly descriptive of Australia.
ROB MITCHELL: And how can we be providing that as a government… assist in providing support or intervention?
NICOLE LESTAL: So at the moment, we’re kind of addressing this as a voluntary group of industry players. We need coordinated support with the department, would be a starting point. We work very closely with our counterparts at say the Scotch Whisky Association, the Distilled Spirits Council of the United States, and we’re bringing that global perspective to the table. But we actually just need that departmental alignment as well. From an industry perspective, obviously, free trade and everything comes through trade and they’re very involved in those conversations. But the actual delivery of this next bit I would see being something that the Department of Industry could help us with.
JAMES ATKINSON: That was Nicole Lestal of Spirits & Cocktails Australia. The industry’s future prospects also depend on distillers’ ability to access capital to fund the scaling up of production capacity and expansion into export markets. But industry advocates argue that potential investment from global spirits companies is unlikely under the current tax regime. Australia now has the world’s third highest spirits tax at almost $104 per litre of pure alcohol, and the rate increases every six months indexed to inflation. This is Diageo Australia managing director Dan Hamilton.
DAN HAMILTON: We’ve committed close to 200 million pounds in our facilities in Scotland over the last few years. Mexico, where tequila has been established now, as a really significant global category, premium, super premium, we’re investing hundreds of millions of dollars. New production, new facilities, new development of that part of the business. And I look at the investment going into Japan at the moment into Japanese whisky. It is huge. That investment is not coming to Australia today because at the moment you just can’t justify it because of the policy settings. So, we’re committed, we’re here, this is a great business for us. We’re going to continue to build Bundy, we’re going to continue to support that wonderful icon. But the opportunity is for a lot more investment and it’s other countries that have got their own claims to quality credentials who are, unfortunately getting the lion’s share of that.
KYLIE MCPHERSON: As Brown-Forman we’re always looking to invest in international markets and we have done so previously in the UK, where in 2015, they chose to freeze excise and also cut the spirits rate. And we bought three Scotch distilleries. Since that time, there have been nine freezes of the excise rate over an 11-year period. And we’ve made subsequent investments in a tourism facility and in increasing production. We’ve tripled exports from those facilities during that time. So building a brand at home, but having the conditions to give confidence to invest is really important. We’re not really seeing those conditions here in Australia and unlocking that. At the moment, only 3% of Australian distilleries have received foreign direct investment and they’re the main distilleries that are exporting.
DAN HAMILTON: One of the unique things about our business and our industry is we produce these beautiful products, then we lay them down in oak, we put them into a warehouse, then we don’t sell them for sometimes five years, seven years, ten years. So, you know, by having a system where we know exactly what the value is going to be, it allows us to continue to invest.
SATYA SHARMA: An analogy I use is, we started in 1992 and we’ve got a product called the Legacy. It’s a 20-year-old product. In that time there’s been 39 or 40 excise increases. If you imagine putting that down and trying to understand what that price to consumer would be in 20 years, it’s a very difficult proposition for us as an industry.
JULIAN TRAIN: A consumer can walk into a retail store and purchase a five-litre cask of wine containing 43 standard drinks for under $17, whereas the excise component alone on a bottle of spirits containing half the amount of standard drinks is more than $29. There is no rationale for this discrepancy. When you consider that a standard drink is the same in its health implications, whether it’s consumed in beer, wine or spirits.
WILL EDWARDS: If we were to review the excise rate, that would then generate a great deal more investment into business growth in the industry. And I’ll just talk myself off the cuff very quickly. That’s more people hired, that’s more malt purchased from the growers out in Griffith. That’s more neutral spirit from Manildra, more Australian botanicals, more bottles, more glass, more everything. It’s the flow on effects and the secondary and tertiary effects of that growth that then also needs to be factored in terms of, if you still want to look at government revenue generated, there’d be all of those suppliers that then benefit from that, and then also all the individuals that benefit from that, from an employment perspective. So I think just solely looking on excise revenue generated, ignoring the growth that you’re going to see throughout the supply chain by allowing us to reinvest that back into our businesses, is probably too narrow a view. And the other thing too, is that I would imagine you would also encourage, or at least increase the interest of internationals in potentially investing in the domestic market. I mean, I’ve had a number of conversations with multinationals who basically have said, ‘why would I look at Australia, where again, to my point before, 80% of the value of the product is going to the government? I can go to the states, I can go to Asia, I can go to Japan, I can go to the UK, why would I look at Australia, with respect?’ And it’s difficult for me to come up with an answer to that.
JAMES ATKINSON: The industry is calling on the Government to establish a body called Spirits Australia that would enforce truth in labelling and promote Australian spirits in export markets. This is Starward CEO Simon Marton.
SIMON MARTON: There’s a lot of learnings out of what the wine industry did with putting together the Wine Australia body, decades ago, to be a voice, for the industry around the world. And I think something similar to that would make sense, but there would be a lot of things you would do differently. Banding together to promote Australian spirits would be powerful. At its simplest, it would be a promotional body, I think, to help open doors, talk to influencers, and facilitate introductions for the producers to enter those markets and to get in front of the trade and consumers.
SATYA SHARMA: When we look at what we’re doing right now, it’s sporadic at best, each distiller going out to each market on their own, deciding how we go out and build a category, which, if it was more coordinated, if there was sufficient backing, we would be able to create something that was of substance. When you look at Wine Australia today, that export industry is worth $2 billion. Today, spirits is $210 million. That coordination some time ago, some years ago, propelled that industry and put us on the map.
WILL EDWARDS: And spirits also are, the most exportable alcoholic product that exists. If you look at it on a value-per-kilo basis and you look at even a really nice craft beer, your nine-kilo case fetches a retail price of, what, $90. You look at the same nine-kilo case for spirits… We were at our place yesterday and we were tasting a whisky that retailed for $220, aged in Australian red gum casks made from New South Wales-grown malts, like it’s super premium product with distinct Australian provenance, with all the ingredients sourced from Australian farmers using highly innovative manufacturing methods to make a super value-added product. That’s a $2000 case. So for the same freight and incurring the same sustainability freight, like freight miles, from a sustainability perspective, you’re generating massive value exporting spirits versus exporting beer and wine. So the potential is immense.
PAUL MCLEAY: So a generation ago, your peers in a committee just like this gave the wine industry the recognition, direction and support it needed to become the industry it is today. With the right policy settings and infrastructure, Australian spirits can be the next export powerhouse. And the risk is that other markets will outpace Australian distillers from realising the potential to capture global consumers who value provenance, value, quality and premium and distinctive spirits. And if we do not act now, the Australian distillers will lose their market share – that we have every right to claim – to other new world and emerging spirit markets. And this will be an opportunity missed.
JAMES ATKINSON: That was Australian Distillers Association chief executive Paul McLeay. This is Committee chair Rob Mitchell speaking to Will Edwards of Archie Rose.
ROB MITCHELL: So where do you see, five years from now?
WILL EDWARDS: With reform or status quo?
ROB MITCHELL: As steady as we go.
WILL EDWARDS: I think it will be very difficult. I think almost the most disappointingly, you’ll see a number, the majority of mid-sized players with serious potential, not grow. And some of that might be intentional. They might just go, ‘look, it’s just too hard to achieve the scale that we need to achieve on our own. We’re better off being just the gin or whisky of our region or our state, and not have that ambition to be national or international’. I absolutely think you’ll see a couple of winners. Like, I’m not going to sit here and go, it’s all going to be dire. There will be headlines out there where there’ll be a couple of distilleries who smash it. They go overseas, they do great, whatever, get acquired by a multinational, that will happen, but they will be the exception. And I feel as though we’re looking at an industry that will be a really nice little small craft industry with a couple of people that make it and bunch that don’t, and a bunch that sit in the middle going, ‘look, if we just had this or if it was just a bit easier, if there was just a bit more support, we could be there too. But, man, it’s just too hard’. I, think that’s where we will end up.
JULIAN TRAIN: And for us Aussie producers, part of our challenge and part of what we want to achieve over time is, even locally here, is people choosing more Australian over international brands. You know, the gin category, for example, is in decline, but it’s a huge category. So really there’s so much room for Australian-made products to expand and change consumers’ choices. And so in an ideal world, in five years’ time, if we get this right, we can be championing our own locally made product here, just the same as we’ve done in wine.
SIMON MARTON: Australian whisky has the potential to be as big as Japanese whisky or bigger, in the long term. Australian spirits, I believe, has the potential to be as big as Australian wine. And, you just look at the impact that Australian wine has had on our country and economy. Here is a small, vibrant, up-and-coming industry that has that same growth potential. That’s why we’re so excited about what it could be, but it will be fundamentally requiring export market development.
JAMES ATKINSON: Starward CEO Simon Marton. Congratulations to all the witnesses in the inquiry who I think did a brilliant job of putting the industry’s case forward. So, where to from here? We now wait for the Committee to table its report on the inquiry in Parliament, which will hopefully happen before the year is out. And then the Government has to prepare its response to the report. So watch this space, as there’s still a way to go in this process.
