Australian spirits targets $1 billion export opportunity

There's an incredible interest in new world regions of spirits production. There's this appetite for exploration within consumers' minds, and Australia is almost the best positioned market to capitalise on that. It's remarkable that we grow some of the best Barley, rye, cane for rum, wheats.

botanicals, like we grow all the stuff and we're arguably the best at doing it. And we're known for innovation and ingenuity. And so we've got to capitalize on that now. Time is of the essence. You know, it's not something that we can just sort of consider for the next five years. Welcome to Drinks Adventures, a podcast about drinks and the people who make them. I'm James Atkinson and this is a special Australian Spirit's ambitions of becoming a one billion

export industry by 2035. We all know the quality is there and that$1 billion is what economics firm Mandala Partners believes is achievable. Government gets behind the Australian spirit. just as it has done for wine over several decades now. tabled its ambitions in the federal inquiry into food and beverage manufacturing. 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 and communications manager. And this episode presents audio Four separate hearings held in Sydney, Canberra, Melbourne between June and August, which I edited together for narrative projects. At the top of the episode you heard Archie Rose distilling Ko for Will Edwards. This is Committee Chair Rob Mitchell MP.

Can I just ask you about your experience in exporting overseas and this is I guess um follow-up from yesterday's discussion around shifting products into Southeast Asia. What have been the successes and challenges that you faced in doing that and accessing those markets?

Yeah, I think I mean it's a journey that we are we are very, very early in our sort of uh 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 seven hundred.

trying to fly the flag for both Tasmania and Australia. But we are we are coming up against juggernauts, people that have been in the industry for two hundred years. Some of our competitors internationally in Europe particularly are celebrating three hundred years. So w we are a embryonic stage um in our development.

No one really knows that we make whiskey. And the second part is obviously our economies of scale. We are at a a cost disadvantage because we have yet to hit those economies um to be able to drive future export conversations. I now welcome representatives from Starwood Distillery for Hansard Record. Could you please each state your full name and the capacity in which you appear? I'm David Vitali, uh the founder.

So um having lived in the United States for five years, despite all of the international recognition that we have for Starwood but also, you know, my peers in in Sydney at Archie Rose and of course the Tasmanians there's very little awareness of Australian whiskey. And one of the challenges I think we face is that that idea of brand Australia resonates very strongly from a tourism perspective. It certainly resonates very strongly from a a food point of view.

Seafood, beef being the big ones, obviously. But there's just zero resonance on on a spirits level. But if you sit in 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 in in very practical terms is uh export conversations with distributors. ensuring that we plug in and explain to them what we bring, which is New World whiskey. We have no intention of trying to be or emulate something that has existed for three hundred years. We we think we've got a fantastic story to tell and take to the world. We enter some of the the most prestigious awards

And we come out winning golds and winning ongoing met medals. It's not just one year and it's a it's a one and done. We've been consistently doing that. But again, it's 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.

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 making cannot be replicated anywhere else in the world. And if Spirit's exports were to take off, the flow-on effect throughout the supply chain would be immense. This is Julian Train from Hickson House Distilling.

We're two years into our journey, but we do have a really strong hospitality background. So we all come from a 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 really only just

Scraped the top. So I really for us that's just a journey that we're just continually on. Our head distiller Tim is in his little back room all the time experimenting on on flavour flavour profiles. Some of them are horrendous, 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.

Polly Clintworth, president of the Australian Distillers Association. I guess, you know, we know that nothing else tastes like Australia and that is a really great quite a difference on the world stage, you know, and we've got such a strong connection to the Australian lands through 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 ginns 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. 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 Malts and Griffith. Through this R and 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 tons of peted malt from the UK and creating a highly value added Australian grown and made product.

able to be sold for an approximately four hundred percent premium to the feed barley farmers in the region would have previously relied on. This has resulted in a uniquely Australian whiskey that is authentically Australian, differentiated by a use of lower yielding but more drought tolerant malt.

Better suited to the Australian climate, 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 Reimalt having won world's best whiskey four times and singamolt 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 cooperatives who, from a wine perspective, are incredibly sophisticated, but from a spirits perspective, there's almost none. to look at 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 was affect 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 as well, as the US and Europe currently export to Australia. And I think, you know, 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 and effect from inbound tourism back here in Australia. Holly Clintworth, 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 to highlight the potential here in Australia. This is Mark Hill, Managing Director Oceania at Suntory Global Spirits. 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 in Japanese whiskey, which was big in Japan, but not really big globally. We've seen that increase sixfold over the last ten years. Um and uh to me that shows you another example where you if you get it right, you know what's possible. 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. Oh, maybe we were starting to produce our own tequila. Well we we are making the Garbay spir spirits, which is very exciting and talks to the innovation that we have. But I think the point is the bigger point is that we're getting outstrips because we we've effectively bootstrapped ourselves to this point and we need some more support because otherwise we're going to get left behind. David Vitali speaking there.

This is Rob Mitchell MP speaking to Kylie McPherson, Regional Vice President, Director of Public Affairs at Brown Foreman.

In your submission you say that Australian consumers um 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?

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 whiskey 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 fifty one percent corn mash, uh, etcetera, etcetera.

We've got a unique opportunity to set our own standards which 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 uh as we take that to the world. those unique things are are things we want to protect as opposed to stifle uh innovation and growth. And they would be things that we would come together and hopefully get I s I suppose buy in as well as enforcement.

in order to make sure that we've got descriptors which which are truly descriptive of Australia. Mm-hmm. And you think how can we be providing that as a government assist in providing support or intervention?

So at the moment we're kind of addressing this as a voluntary group of industry players. We need um coordinated support with the department would be a starting point. We work very closely with our counterparts in say the Scotch Whiskey Association, Distilled Spirits Industry Council of the United States. and we're bringing that global s 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 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. That was Nicole Lestal of Spirits and Cocktails Australia.

The industry's future prospects also depend on distiller's 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 one hundred and four dollars per liter of pure alcohol, and the rate increases every six months, indexed to inflation.

This is DiAgio Australia Managing Director Dan Hamilton. We've committed close to£200 million 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, uh new uh development of that part of the business. And I look at the investment going into Japan at the moment, into Japanese whiskey, 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 setting. So uh we're committed, we're here, this is a great business for us. We're gonna continue to build Bundy, we're gonna continue to support that wonderful icon, but the opportunity is for a lot more investment. And it's other countries that have got, you know, their own claims to quality credentials who are, unfortunately, getting the line share of that.

As Brown Foreman, we're always looking to invest in international markets and we have done so previously. In the UK in twenty fifteen 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 eleven year period and we've made subsequent investments in a tourism facility, in increasing production, we've tripled export.

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. So that at the moment only three percent of Australian distilleries have received foreign direct investment and they're the main distilleries that are exporting. One of the the unique things about our business and our industry is you know 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 gonna be. It allows us to continue to invest. An analogy I use is w we started in nineteen ninety two. We've got a product called the Legacy. It's it's a twenty year old product.

In that time there's been thirty nine or forty excise increases. If you imagine putting that down and trying to understand what that price to consumer would be in in twenty years. It's a very difficult proposition for us as a as a um as an industry. A consumer can walk into a retail store and purchase a five litre cask of wine containing forty three standard drinks for under seventeen dollars.

Whereas the excise component alone on a bottle of spirits containing half the amount of standard drinks is nearly twenty nine dollars. There is no rationale for this discrepancy when you consider that a standard drink is the same in its healthy implications, whether it's consumed in beer, wine or spirits. If we were to uh review the excise rate, that would then generate

a great deal more investment into business growth in the industry. And I'll like I'll just talk myself off the cuff very quickly. That's more people hired, that's more malts purchased from the growers out in Griffith, that's more neutral spirit from Manildra, more Australian botanicals, more bottles, more glass, more everything. And so it's the flow on effects and the secondary and tertiary effects of that growth.

that then also need to be factored in in terms of, you know, if you still want to look at govern government re revenue generated, there'd be all of those suppliers that then benefit that 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 the growth that you're gonna see throughout the supply chain by allowing us to reinvest that back into our businesses is probably too 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 uh 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, eighty percent 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. Like why would I look at Australia with respect? And it's difficult for me to come up with an answer to that.

The industry is calling on the government to establish a body called Spirits Australia that would enforce truth and labelling and promote Australian spirits in export markets. This is Starwood CEO Simon Martin. There's a lot of learnings out of what the wine industry did with putting together the Wine Australia body uh decades ago.

to be a uh 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 spirit. Uh it 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.

When we look at what we're doing right now, it's sporadic at best. Uh 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 that was of uh I suppose substance. When you look at wine Australia, today that export industry is worth two billion. Today Spirits is two hundred and ten million.

that coordination some time ago, some years ago, propelled that industry and put us on the map. And spirits also are the most exportable product alcoholic product that exists. If you look at it on a value per kilo basis. And you look at, you know, even a really nice craft beer, your nine kilo case fetches a retail price of what, ninety bucks?

You look at the same nine kilo case for spirits. I mean we were at our place yesterday, we were tro we were tasting a uh whiskey that retailed for two hundred and twenty dollars. aged in Australian red gum casks made from New South Wales grown mould. 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 two thousand dollar 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's immense. 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 realizing the potential to capture global consumers who value Providence.

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 Emerg Spirit markets. And this will be an opportunity to miss.

That was Australian Distillers Association Chief Executive Paul McClay. This is Committee Chair Rob Mitchell MP, speaking to Will Edwards of Archie Rose. So where do you see five years from now? With reform or down slow? As as steady as we go. 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 whiskey of our region or our state. um and not have that ambition to be national or international. I absolutely think you'll see a couple of winners.

Like I'm not gonna sit here and go it's all gonna 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, you know, they whatever, get acquired by a multinational like 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.

A 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.

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 so really there's so much room

for Australian made products to expand and 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 one. Australian whiskey has the potential to be as big as Japanese whiskey or bigger in the long term. Australian spirit, 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. Starwood CEO Simon Martin speaking again there.

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? Will 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 fair way to go in this process. If this is the first time you've listened to Drink's Adventures, nearly all of the people and brands featured in this episode have appeared previously on the show, so I've linked back from the show notes to some of those relevant. the relevant episodes from the podcast archive. Thanks for joining us and I'll see you again next time.