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Wine & Spirits

Bullish on the Future: Kentucky Bourbon Production Grows

FRANKFORT, Ky. — Kentucky's bourbon industry is signaling that it's increasingly bullish on its future after reaching new production heights despite the COVID-19 pandemic and trade disputes in key overseas markets.

Bluegrass State bourbon producers filled nearly 2.5 million barrels in 2020, setting a new production record, the Kentucky Distillers' Association said Monday. It marked the third straight year that Kentucky distilleries filled more than 2 million barrels of bourbon.

And for the first time in the modern era of American whiskey, Kentucky has 10 million barrels of bourbon aging in distillery warehouses, it said. The state of 4.5 million people has more than 10.3 million barrels of maturing bourbon, according to the latest figures.

"Kentucky's signature bourbon industry continues to invest in our commonwealth at unprecedented levels, despite global pandemic disruptions, exorbitant taxes and ongoing trade wars," said Eric Gregory, president of the distillers' group. "This is truly a historic and landmark record."

Massive inventories are a bet on the future because most bourbons typically age four to eight years before reaching their market. Bourbon gets its flavor and golden brown color during aging. New production numbers are based on inventories reported as of Jan. 1, 2021, submitted to the state for tax purposes.

Kentucky distillers are in the midst of a $5.1 billion capital investment campaign that includes expanding production facilities and warehousing to meet the global thirst for Kentucky bourbon.

Production has continued to rise despite some industry headwinds both at home and abroad.

Kentucky bourbon exports to the European Union and the United Kingdom — the state's largest whiskey export market — have taken a hit from ongoing Trump-era tariff disputes. Overall American whiskey exports have declined by 37% to the EU and by 53% to the UK as a result, according to the Distilled Spirits Council of the United States.

American whiskey makers have been caught up in a trans-Atlantic trade dispute since mid-2018, when the EU imposed a 25% tariff on American whiskey and other U.S. products in response to then President Donald Trump's decision to slap tariffs on European steel and aluminum. 

The Kentucky distillers' group has joined a coalition of 50 U.S. alcohol-related trade associations in pressing President Joe Biden's administration to secure the suspension of tariffs on American whiskey. 

"Our industry is collateral damage in trade disputes that have nothing to do with bourbon," Gregory said.

Meanwhile, Kentucky distillers are seeking relief from barrel taxes on aging whiskey.

Distillers will pay a record $33 million in aging barrel taxes in 2021, a production cost that distillers in other states don't face, putting Kentucky producers at a competitive disadvantage, the distillers' association said.

Most of the barrel tax revenue goes to local school districts. Under a plan floated by the distillers' group, distillers would continue paying barrel taxes, to maintain the revenue for schools, and the state would refund distillers the equivalent amount from the General Fund, Gregory said. The distilling industry would commit to reinvesting the refunded money into its operations, he said.

"The bourbon industry is investing more than $5 billion in this state to increase production, build innovative tourism centers and create thousands of new jobs," Gregory said. "But punitive barrel taxes are punishing this growth and harming our chances to land new distilleries. 

Kentucky lawmakers passed a corporate income tax credit in 2014 to offset barrel taxes, but the escalating number of barrels –- and therefore taxes –- far outpaces the amount of credit that distillers can take, Gregory said. Some distillers now only realize 30% of the credit, he said.

Kentucky is home to 95% of the world's bourbon production, the association said. The $8.6 billion bourbon industry generates more than 20,100 jobs with an annual payroll topping $1 billion, it said.

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