Barrel Boom brings distillery gloom.

Barrel Boom brings distillery gloom.

The bourgon barrel industry is on a roll, but that's not good news for the whisky industry Richard Neill reports on tough choices and smart solutions.

Production | 16 Dec 1999 | Issue 7 | By Richard Neil

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New moves in the rum and tequila industries rarely cause more than an eyebrow twitch in the boardrooms of Scotch whisky distillers. After all, the arrival of the latest 'slammer in a can' or 'ready-mix mojito' is hardly the stuff of a whisky-maker's nightmares.But recent developments in Mexico and the Caribbean have prompted a jangling of worry beads in even the most confident corners of Speyside. The successful re-invention of rum and tequila as premium sipping material – some tequilas sell for $50 (£31) a shot and upwards in the US – has provoked more than new rivalry at the bar. There's now unforeseen competition for one of the most crucial elements in whisky production – bourbon barrels. And to these new barrel migrations can also be added another factor – the general decline in bourbon sales. Together they lead to a shrinking stock of used bourbon barrels. Then there is the continuing rise of sherry cask prices. All in all you can understand why the Scots are counting their wood stocks a little more carefully these days.Unlike the wine industry where rising barrel prices have been met with the growing use of chips and staves to provide oak flavour cheaply, the whisky industry has no such barrel -on-a-budget option. To be able to use the term 'Scotch whisky' on the label, by law the spirit has to have been aged in oak casks for a minimum of three years. Fluctuation in the supply and price of wood therefore has important implications for
all whisky, from the finest single malt down to the
cheapest blend.Some people – particularly wine makers who are paying up to £500 ($810) for a top-of-the-range new French barrique – might argue that the Scots have had it far too easy for far too long. Or to be precise, they've had no wood worries since 1 March, 1938. It was on this day that new American legislation decreed that all bourbon should be made in brand new wood. Introduced after intense lobbying by the oak forestry businesses in Arkansas and by cooperages throughout the US, the new law suddenly created an abundant and cheap supply of used barrels for the Scots.Yet it is only relatively recently that Scottish distilleries have really appreciated the effects of this legislation. Thoughts of cheap bourbon barrels were few while a steady supply of cheap sherry barrels from Bristol, the centre of sherry bottling right up until the 1970s, kept distillery accountants happy, and others simply shipped Paxarett, a sweet condensed sherry, to Scotland and sprayed it on to the insides of barrels. But the significance of that 1938 rule became abundantly clear when sherry bottling reverted back to Jerez and demand for olorosos and amontillados began to shrink and sherry barrel prices began to rise.For the last half century the average price of a 200-litre American barrel has remained ridiculously low. According to Douglas Taylor of Speyside Cooperage, the price dipped from about £8 ($13) a barrel in 1979 to an all-time low of £2 ($3) during the whisky slump in the mid-1980s. "But in the last decade, it has steadily risen to a current level of $55 and they're talking of £38 ($62) a barrel next year," says Taylor.One explanation for the rise is the increased demand for bourbon barrels from other spirits. "The market for barrels has always been something of a roller-coaster ride,” says Max Shapira of Heaven Hill, a company with the second largest inventory of bourbon barrels in the US, which sends about 75,000 barrels to Scotland every year. “In the last five years the trend towards speciality rums and premium Anejo tequilas has brought increased demand for our barrels. We even have growing markets in south-east Asia.”The Scots have a different explanation. Douglas Taylor says, “A new barrel will probably be costing the bourbon guys about £75 ($122) and their argument is ‘Hey, we're no different to the sherry producers – we're seasoning your barrels for you, so pay up’. And when you look at the price the Spanish bodegas are charging, they have a point.”The cost of a 500-litre sherry butt is £300 ($485)plus compared to £35 ($57) for a 200-litre bourbon barrel. George Espie of Clyde Cooperage sums it up even more succinctly, saying, "The Americans are aware that their product is a market commodity. Over the last two or three years the percentage increase in bourbon barrels has probably been in double figures."The outlook is even more troubling for those using sherry butts – about four per cent of fillings are stored in sherry casks reports the latest Scotch Whisky Review. According to David Robertson of The Macallan, which along with parent company Highland Distillers, accounts for most of the sherry butts being imported into the UK – the massive rationalisation in Jerez has had a big impact. Contraction in the sherry market has intensified the competition for barrel allocation, and some bodegas now charge a premium just to allow barrels to be placed into the solera system. As Robertson explains, “For many years now we have specified our own oak trees in northern Spain and have casks made and seasoned with sherry in Jerez to our own precise specifications. But some bodegas now charge a premium rent for this seasoning. This year we'll be paying about £400 ($650) for each butt.” It can also take well over two years after payment for the wood to arrive. Recent research at The Macallan has revealed the sherry itself is less important than the type of wood used (i.e. Spanish oak rather than American oak). This exorbitant investment might now seem increasingly hard to justify to distillery accountants. But ask Robertson whether, if sherry is secondary to the flavour they might use second hand wine barriques instead, his answer is an emphatic “No”. He adds, “None of the wineries is using the Spanish wood in a way that we would want to put our whisky in their barrels.”Fortunately the whisky industry has developed its own buffer from price rises by extending the life of its existing barrel stocks. The first method involves the simple re-use of barrels over a number of fills until the character of the barrel becomes almost totally neutral. Most companies will use a barrel for up to three or four fills but increasingly this is being stretched further in an attempt to stretch out the life of a barrel.Glenmorangie‘s Dr Bill Lumsden reckons about 40 per cent of the character and flavour of a whisky comes from the spirit itself and 60 per cent from the cask and the chemistry between spirit and barrel. “Once you start getting to the sixth or seventh fill, it's debatable how much use the barrel is,” he says. “At Glenmorangie, barrels are only used for a maximum of three fills and material for single malts will only come from first and second fill barrels.”Traditionally, this would be the end of the road for what could by then be a 40-year-old barrel. With no flavour left in its grains, it would either be chopped in half and sold off as garden tubs at £10 a go, or ground down into chips and sawdust for smoking salmon. However, the introduction of so-called rejuvenated casks has prolonged a barrel’s active service even further, and this new development could be a vital tool as ‘new’ barrel prices keep increasing. The process simply involves stripping the char off a refill barrel and re-charring it so that you have almost replicated a ‘new’ cask.“The whole industry has been asking itself what would happen if the supply of bourbon casks were to dry up and rejuvenation is one of the main solutions that has emerged,” claims Jim Beveridge, the section manager at UDV's Brand Technological Research Centre. But while accountants love the economics of rejuvenated casks, there are some who argue the flavours imparted by wood that has undergone this scrape ’n’ burn technique are far from subtle.“Not only does the process double, perhaps even triple, the useful life of a cask, but our studies show that rejuvenated casks can preserve the inherent distillery character of the spirit even better than filling into fresh ex-sherry or ex-bourbon wood, which can mask this. Rejuvenation radically increases the activity level of the cask, so it matures its contents faster. And it does this without adding uniform wood or extractive notes, thus ensuring that each of the malts the blender uses in his ‘palette’ has a distinctive character,” adds Beveridge who believes rejuvenation can extend the life-span of a barrel to two or three times the normal length.But there are others who argue that while this scrape ‘n’ burn technique may be useful to blenders – and hugely popular with accountants – it does not do a lot for malts which are to be bottled as singles. The chemistry of oak-wood is too complex, and the flavours it imparts during maturation too subtle, to allow for rejuvenation.The Findhorn Foundation, a New Age community founded in the 1960s to the east of Inverness has been turning old whisky barrels into houses. According to John Talbott, one of the pioneers behind the project and author of Simply Build Green, they paid about £800 ($1,300) for the 25,000-litre Douglas Fir spirit receivers and five permanent homes have been built so far. “We could have used some of the old mash vessels but they don’t have as nice a smell as the spirit receivers,” admits Talbott.Converting used bourbon barrels and sherry butts into homes might be stretching the estate agent's “bijou and compact” description to the absolute limit, but there could be a neat sideline in eco-friendly dog kennels. Mind you, if the boys in Kentucky hear that circular canine lodging has become a lucrative business, they’ll be tempted to raise their prices at an even faster rate.
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