All over Kentucky, you hear the same thing at almost every distillery: hammering.
The state's signature bourbon industry is building like never before, adding distilling capacity and warehouses to age whiskey. The new capital investments topped $1.5 billion in 2016 with no end in sight.
Will trade tariffs from the European Union, Canada and other countries become a roadblock for bourbon? It's hard to say.
A Senate committee is scheduled to hold a hearing on tariffs on Wednesday. Turkey is proposing a 40 percent tariff, starting Thursday. Canada is proposing a 10 percent tariff on U.S. whiskey that could go into effect July 1. China also has proposed a 25 percent tariff. Mexico already has imposed a 25 percent tariff.
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The punitive tariffs are retaliation for American tariffs imposed by President Trump on foreign steel and aluminum.
Senate Majority Leader Mitch McConnell has opposed the tariffs but so far hasn't been able to persuade Trump to halt them. On Friday, the president imposed a 25 percent tariff on $50 billion in Chinese goods.
Republican senators have been reluctant to take up legislation to counter Trump, but they plan to grill his administration next week over the plans. Sen. Orrin Hatch, R-Utah, who chairs the Senate Finance Committee and derided the Trump tariffs as a "tax hike on Americans," will bring Commerce Secretary Wilbur Ross before the committee on Wednesday to answer questions.
"While we share a common goal of pursuing a pro-growth, pro-America agenda, I have made no secret my concerns with the administration’s use of 232 tariffs,” Hatch said. He charged that American consumers will pick up the tab for the tariffs, which he said will hurt manufacturers and could undermine the GOP tax cuts.
In Versailles, Brown-Forman is in the midst of a huge building boom for its premium bourbon, Woodford Reserve. The company, based in Louisville, has bigger brands (its Jack Daniel's Tennessee Whiskey is the best-selling American whiskey in the world) but Woodford Reserve is the one they chose to give the marquee sponsorship of the Kentucky Derby this year.
And Woodford Reserve got a multimillion-dollar expansion. In 2014, the company opened at least four 55,000-barrel warehouses in Woodford County on the hill overlooking the historic distillery and bought more than $1 million in land to build as many as five more warehouses.
That's a lot of premium bourbon, sitting around waiting to come to market. And the market that Brown-Forman is aiming at?
Europe, which is about to impose a 25 percent tariff on American whiskey as early as Wednesday.
Europe loves American whiskey. Last year, the U.S. distillers exported $789 million in spirits to the European Union, including $667 million in American whiskey, according to the Distilled Spirits Council of the U.S.
"Europe is our priority for Woodford right now," said Lawson Whiting, the incoming CEO, earlier this month. Sales of the brand topped 700,000 cases in the last year, with growth of Woodford Reserve and Old Forester, which just opened a new distillery in downtown Louisville, at more than 23 percent. Overall, the company told shareholders to expect growth of 6 to 7 percent.
But tariffs in major markets are going to require some "surgical" reactions to get there, he said. "It’s a tough, tricky situation we've been watching for months," Whiting said. "It seems like everyday we wake up and the thing takes a little twist or turn. It's a dynamic situation, very tricky to make broad statements."
In Europe, which accounts for a fourth of all of the company's sales, largely of Jack Daniel's, Brown-Forman is pushing hard, he said. Aspirations for the Woodford Reserve brand "are very high in Europe," Whiting said.
To counter the anticipated price increase, Brown-Forman is stockpiling in European warehouses.
Other major distillers are quietly taking steps as well. Jim Beam is the biggest-selling bourbon in the world, but it's owned by Beam Suntory, with a corporate parent in Japan. So the company is reluctant to discuss how it might cope with impending price increases globally.
"We hope that the U.S. and the E.U. will continue to work toward a solution that avoids the imposition of retaliatory tariffs," spokeswoman Emily York said. "Our bourbon brands are increasingly popular among consumers around the world, and that includes in the E.U. We will continue to make our case on both sides of the Atlantic because no one wins in a trade war where consumers, distillery workers, farmers, bartenders and waitstaff are among the innocent victims. Even so, we are making contingency plans to manage through all potential scenarios."
While stockpiling might work for whiskey giants, it won't help small craft distillers like the James E. Pepper Distillery in Lexington, which just started distilling again in December at the historic site.
Owner Amir Peay said his strategy for 2018, more than a year in the planning, was built around increasing exports to Europe.
And a 25 percent tariff "will have a big impact on a business like mine," Peay said.
"We’ve been exporting to Europe for four years; it's about 10 percent of our business. We had been planning for some time to make a major expansion into the European Union, which is the best market for growth for American whiskey. ... We brought on a new 700ml bottle, rearranged new distribution network and brought on a distribution network in Amsterdam."
Altogether, hundreds of thousands of dollars were invested, including bringing a bottling line to Lexington, he said.
He'd shipped precisely one 40-foot container of whiskey when the news of the pending tariff hit.
"Wham, it's a new reality for Europe," he said. "We’d either need to eat it and have our margins affected or pass it along to importers and distributors, who pass it along to bars, who pass to customers. So it ends up being exponential."
He'd been aiming to price his whiskey on the shelf at about 35 euros a bottle. Now, depending on how increases are take up the supply chain, he's looking at 45 euros per bottle, he said.
"Those kind of price swings really do affect consumer behavior," he said.
Shipping it ahead isn't really possible for him.
"Brown-Forman can afford to front-load their inventory pretty substantially. For a small independent whiskey business or distiller … to simply allocate all that capital into product that just sits there is non starter," Peay said. "So we’re going to suffer. ... What will I do with all that whiskey I’ve been putting away?"
For some Kentucky distillers, the answer is moot: Buffalo Trace (which produces premium brands such as Pappy Van Winkle, Eagle Rare and Elmer T. Lee) doesn't export, said Mark Brown, president and CEO of parent Sazerac, so don't expect the tariffs to make Weller suddenly easier to find.
"We believe that free trade is in the interest of all parties; as Wild Turkey is in its seeding phase in Europe, the duties on bourbon will not affect our growth plans for the brand nor the overall performance of the company," said spokesman Enrico Bocedi.
Whiskey expert and author Chuck Cowdery said that at least in the short term the impact on most big Kentucky distillers should be minimal.
"Bourbon isn’t soybeans. It isn’t a commodity," Cowdery said. "You can’t get your bourbon somewhere else. ... The prices are definitely going to go up, and those things always get passed along to the consumer. But if I want bourbon and have been paying 30 euros a bottle, is 40 euros going to stop me? Hard to say. Nobody knows. If you like bourbon, where else are you going to go?"
For many people, American whiskey is a luxury item, comparable to a prestigious car, albeit a more affordable status symbol.
"If I want a Mercedes, I can afford a $60,000 one as well as $50,000. And I’ll pay it," he said. "I’m not going to drink Spanish brandy because it’s cheaper than bourbon if I don’t like Spanish brandy. It’s an affordable luxury and it won’t break the bank."
In the end, today's tariffs could be just a blip in bourbon's boom unless things get much worse or the trade war lasts for a long time.
"Whatever’s coming out of the stills today won’t be available for sale until 2022 at the earliest, and things will be different by then, one way or the other," Cowdery said. "Politics aside, the U.S. wins when the markets are most open. "