FALKIRK/LONDON (REUTERS) - Scotch whisky makers were among the most fervent industry advocates for staying in the European Union, but if Britain has to leave, they prefer a clean break.
The industry, already busy preparing for transport and logistical challenges, says it would be happy to stay in the EU single market and the customs union after Britain leaves the world's largest trading bloc if it had a say in regulations and a right to make bilateral trade deals.
If that is not possible, then it would be better to have no deal and default to World Trade Organisation rules, which mandate a zero per cent tariff on Scotch imports into the EU, said Karen Betts, chief executive of the Scotch Whisky Association (SWA).
"When we think it through, there are real risks, if you stay in the single market, of continuing to be bound by the EU's rules but not being able to influence them," she said. The industry would keep an open mind as long as negotiations with Brussels are going on, however, she said.
The industry position matters: Scotch exports were worth 4.36 billion pounds (S$8.05 billion) in 2017, more than one fifth of all of Britain's food and drink exports and 40,000 jobs.
To some extent, its position is unique.
For one thing, there is the advantageous tariffs under the WTO, which apply to almost all spirits.
For another, while its supply chain is almost all UK-based, exports account for 90 per cent of output, meaning it has seen big benefits from the post-Brexit weakness in the pound.
Protected by a UK law which means it can only be made in Scotland, Scotch is dominated by multinationals like Diageo and Pernod Ricard and has been an export sector for centuries. Distillers are skilled in cross-border trade and able to absorb logistical challenges and extra costs.
What the industry wants now is clarity about the terms under which Britain will leave the EU and how much time it has to get ready for it.
"We play the cards that we are dealt. We kind of just want to know what the cards are," Betts said.
A big concern, shared by other goods exporters, is how transport to the EU will be affected by a change in IT systems for trade with non-EU countries agreed before the Brexit vote.
If the agreed transition is not long enough following Brexit Day on March 29, 2019, the system may have to be used for all exports, including to the EU, just months after it has been introduced. The volume of declarations processed annually in that case will rise to 255 million from 55 million now, the government says, so it needs to be running glitch-free by then.
Whisky makers are making contingency plans for alternative routes and storage in case border delays affect sales or costs.
France, Spain and Poland are among the top ten global destinations for Scotch, together accounting for 19.3 million 9-litre cases in 2016, or 21 per cent of the total, according to drink industry researchers IWSR.
By far the world leader with 13.6 million cases, France is led by Marie Brizard, which ships William Peel Scotch from Scotland but also French spirits and cognac into Britain. The company's Scotch travels to France via Belgium, using ships and trains instead of trucks.
Chief Executive Jean-Noel Reynaud believes logistical disruptions will be manageable.
"We will just have to adapt to the new supply chain rules," he said. "If we have to account for another one or two weeks in the supply, we'll do so. When we export to China it takes much more time than just importing from the UK."
If there are bottlenecks, producers can build regional stocks, taking advantage of the fact that Scotch is not perishable, said Duncan Swift, who runs the food advisory group at business consultancy Moore Stephens.
Pernod Ricard, which has 20 per cent of the French market with its Clan Campbell and Ballantine's brands, already operates via 85 distribution centres around the world and could easily use one in Europe or rent more space, chief executive Alexandre Ricard told Reuters this month. The next few months will be key.
"What is absolutely critical for our business is to be ready to adapt swiftly," Ricard said.
Most of the growth opportunities for Scotch whisky comes from outside the EU, in places like Latin America, Asia and the United States, which means the bilateral trade deals that Britain negotiates will be important.
Among the fastest-growing markets for single malt Scotch in 2016 was the United States - also the world's most valuable market - but also China and India, from a much lower base.
Overall Scotch sales in India grew 14 per cent in 2016 and single malt sales grew 31 per cent, despite a 150 per cent tariff.
"It's the biggest whisky market in the world but only 1 per cent of what is consumed there is Scotch," said Dan Mobley, corporate relations director at Diageo.
Trade deals come down to economic muscle, however, and Britain's economy is roughly 15 per cent of the EU's. Such deals are also notoriously slow to cement; talks between India and the EU are stalled after a decade so far.
"I don't think there are any reasons to believe that a UK-India free trade agreement could be pulled off quickly," said Ingo Borchert, senior lecturer in economics at the UK Trade Policy Observatory at the University of Sussex.
Diageo, which makes 37 per cent of the world's Scotch, is keen that Britain copy-and-paste advantageous EU trade arrangements with countries like South Korea and South Africa.
Chief executive Ivan Menezes believes Brexit disruptions and costs are "not material" for a global company with 12 billion pounds in annual sales. He said the company and industry were working "very forcefully" with government to make their concerns clear.
"We don't want things that would make moving a case of Johnnie Walker into Europe or a truck crossing the Irish border slow down. It makes no sense," he said at a news conference in London in January.
SPIRIT OF ADVENTURE
Brexit comes at a time when the market for all kinds of spirits is expanding and consumer tastes are becoming more adventurous, with upsides and downsides for Scotch.
"When I started in the business (in the 1990s) people were loyal to a drink. They'd be a whisky or a gin drinker," said Ewen Mackintosh, managing director at independent whisky maker Gordon & MacPhail.
"People aren't category-loyal any more, they want to try new things," he said at the firm's Speyside distillery, which dates back to 1898.
Exports of single malt whisky rose 14.2 per cent in 2017, making up a quarter of total exports and driven by demand for unique tipples. Investment has poured into distilleries over the past five years, unabated by Brexit.
Diageo, which has spent about 1 billion pounds on facilities in Scotland since 2012, is due to reopen two rural distilleries that enjoy cult status among enthusiasts, in Port Ellen and Brora. Pernod will spend 40 million pounds to expand its Scotch bottling facility in Dumbarton this year. More than a dozen smaller whisky distilleries have opened in Scotland since 2013.
Ian Macleod Distillers bought Rosebank, a collector's favourite whose spirit goes for up to 2,500 pounds a bottle, in October 2017. With turnover of 65 million pounds, Macleod's has an 80-million-pound loan facility, backed by whisky stocks, to expand further.
"Brexit did not come into our decision (to buy Rosebank). We discussed it and dismissed it," said Neil Boyd, UK director.
Idled since 1993, the distillery is due to reopen in 2019, along with a visitor's centre in Falkirk, a growing visitor destination between Edinburgh and Glasgow.
Tourism is also helping bigger players. Over the past year, the number of tourists visiting Diageo's 12 visitor centres across Scotland rose 15.2 per cent. Spending per visitor is up 13 per cent in 2016.
Whisky makers' general confidence may come from decades of working with a product that only gets better with age.
"If I don't need (the Scotch) as a five-year-old, you keep it and it becomes a 10-year-old, and then again later it will become a 15-year-old," said Gordon & MacPhail's Mackintosh.
"So if you have the confidence to ride out the hard times, well, actually you can end up in a better place."