Bourbon Industry

New study says the bourbon boom is bringing jobs, money to Kentucky

Bill Samuel led a taste-testing session in June 2013 at Maker's Mark in Loretto.
Bill Samuel led a taste-testing session in June 2013 at Maker's Mark in Loretto. Herald-Leader

FRANKFORT — Kentucky's bourbon industry is in the middle of a billion-dollar building boom that could have far-reaching economic consequences for agriculture, tourism and taxes, according to a new study released Tuesday.

"We all knew that Kentucky's iconic bourbon industry was growing, and we all knew that that growth was strong," Gov. Steve Beshear said at a news conference announcing the study. "But the numbers in this study that are being released today are, quite honestly, phenomenal.

"Pick any measure — jobs created, payroll, tax revenue, barrel inventories, exports, visitors attracted — and, folks, the amount of growth is tangible. It is unrivaled and it is unparalleled."

The 67-page analysis, by University of Louisville economists Barry Kornstein and Jay Luckett, was financed jointly by the Kentucky Agricultural Development Fund and the Kentucky Distillers Association.

The research shows that the industry buys $56 million in grain and supports 1,360 farm jobs, and there is room for much more.

"There is potential for up to $89 million more in sales by Kentucky farms," which would support 1,660 more jobs with additional payroll of $8.9 million, according to the study.

Already, employment in the distilling industry has climbed from 3,103 employees in 2010 to about 3,850, according to the analysis. Including related jobs, from barrel-making to farming, total employment jumped 80 percent, from 8,690 jobs in 2012 to 15,400 in 2014.

By comparison, another of the state's signature industries — coal — employed 11,715 in the second quarter of 2014, according to the Kentucky Energy and Environment Cabinet. According to a 2013 University of Kentucky study, horse breeding employed slightly more than 16,000, and horse racing about 6,250.

The bourbon industry jobs have come as distillers expand their operations — more than $400 million in capital improvement projects since 2008, with $640 million more planned over the next five years, which means that the bourbon boom of the past few years is only the beginning.

Beshear said that the additional capital expenditures by distillers will create 1,500 more jobs, $43 million more in payroll and $5 million more in tax revenue. To encourage additional building, the General Assembly this year passed a tax credit to let distillers get back money they pay on aging barrels of whiskey if they invest it in expansion.

That means much more whiskey likely will be made, aged and sold out of Kentucky.

Three years ago, the economists surveyed 10 companies in eight counties; now there are 31 distillers in more than 19 counties.

"It's jaw dropping," said Eric Gregory, president of the Kentucky Distillers Association. "It seems like there's an announcement every week, but when you look at the totality, it's stunning."

To highlight the growth, the study was announced Tuesday morning at Jim Beam's new distribution center in Frankfort, a 600,000-square-foot complex under construction to process the spirits giant's finished goods.

Kentucky Senate President Robert Stivers, R-Manchester, joked Tuesday that the size of the 12-acre warehouse is "bigger than the whole town I was born and raised in."

Strategic legislative moves can increase the productivity of the distilling industry, which will have economic ripples across the state, Stivers said.

"This is going to mean a lot to my area," Stivers said. "We have a lot of people who cut white oak to make these barrels. And in other parts of the state, they're going to have growers growing corn. That economic impact is purely related to this industry alone. ...

"Now is not the time for this state to go in reverse on the bourbon industry."

Legislation is being drafted to allow more generous sampling at visitors centers and to improve the climate for small craft distilleries, Stivers said.

Fueling all this growth is increased demand for bourbon and Tennessee whiskey: Domestic sales are up almost 20 percent in five years, and gross sales are up 34 percent. The study estimated that gross revenue to Kentucky distillers from U.S. sales of bourbon in 2013 was $1.25 billion.

Exports of bourbon and Tennessee whiskey topped $1 billion in 2013, according to the Distilled Spirits Council of the United States. And the value of the products made by Kentucky distilleries has more than tripled since 2000, from $1 billion to $3 billion, according to the study.

To make all this whiskey, Kentucky's distilleries need a lot of corn, wheat, rye and malted barley.

According to the study, distillers currently buy about 40 percent of grain in-state, but Kentucky farmers could supply as much as 80 percent, which would double the distilling industry's impact on the agricultural sector, the study found.

"Several distillers in our survey expressed a desire to purchase only corn from non-genetically engineered seeds or that is grown organically," the authors wrote. "Working with distillers to meet those particular requirements is one avenue Kentucky's farmers can pursue to increase their corn sales to the state's distilling industry."

The increased interest in bourbon also has drawn hundreds of thousands of people every year to see where all that "juice" comes from. There were more than 735,000 visits to at least one Kentucky distillery in 2013.

New visitors centers have been added — and several more are planned — to capitalize on that tourism. And bourbon-related "experiences" such as the Bourbon Affair and the Bourbon Chase bring in even more people.

"The potential economic impact of the enhanced tourism business is real and seems to just be beginning," the study found.

Ancillary industries are being drawn to Kentucky by bourbon's critical mass: Quest Industries recently began building a $10 million plant in Elizabethtown to make decorative glass containers for bottles for, among others, Beam's Suntory, Campari, Diageo and Sazerac.

The KDA is looking at potential legislation to revamp laws on tourism and craft distilling to capture that growth, Gregory said.

Craft distilleries, although small, are growing "tremendously" — with $30 million in investments already and another $30 million expected in the next five years, according to the study.

Still, the authors found, other states have taken the lead: Washington, New York, Colorado, Oregon and Texas have more craft growth than Kentucky.

Although the General Assembly passed changes to tax and licensing benefiting distillers, Kentucky is less generous than the other five states in other ways, including distribution channels, sampling laws and visitors center purchases, the study found.

Mainstream distilleries use much more corn and wheat, but the smaller crafts could have a major impact on nearby farms. According to the study, most of the craft distillers surveyed already sourced their corn from Kentucky farmers and were eager to work with more local producers.

Laura Knott of the Kentucky Corn Growers Association said Tuesday her group is studying the feasibility of creating a grain co-op to supply the industry.

Kentucky needs to make sure the state stays competitive for crafts, which Stivers said are industry incubators.

"Small distilleries are going to be key," he said.