APPENDIX 27
Memorandum from Professor Mike Danson
and Geoff Whittam, University of Paisley (DIS 4)
Thank you for the invitation to submit further
evidence to the Scottish Affairs Committee "Inquiry into
the Drinks Industry in Scotland". Unfortunately we have been
extremely busy over the last two months and have been unable to
devote any time to updating our initial evidence, as presented
in December 2000 and incorporated into the Appendix to the Inquiry[4].
As way of a substitute for a formal paper, therefore, we would
like to take this opportunity to make a few comments which we
trust will be of some use to yourselves in the coming deliberations.
While we believe that the inquiry has made a
promising start and made some valuable introductions, the General
Election obviously limited the analysis and restricted the Committee
from pursuing more in-depth discussions and analysis. Meanwhile,
some of the issues and challenges we raised in our submission
have appeared to be generating some interest and, though unconnected
to ourselves, we do note a number of initiatives. So, the recent
improvement in sales to France and other European markets by certain
companies has been based upon better training of sales staff,
consumers and intermediaries. Such moves usually have been through
moves to the higher value added parts of the market, especially
in malts. The education and identification of tastes and preferences
as an essential element of a long term and intensive campaign
is very much consistent with the arguments we articulated in our
submission. The benefits to the economy of Scotland are greater
than similar export based growth in blended whiskies. Thus as
we strongly suggested, the interests of the duopoly which controls
most of the market can be very different from those of remote
distilleries in the Highlands and Islands and of communities dependent
on large scale bottling plants in the lowlands.
Addressing the industry at the level of the
locality, the region, Scotland and the UK in terms of outputs,
needs, exports, value added, employment, taxes and profits will
produce very different pictures. What is good for the UK Chancellor
may not be beneficial for large multi-national companies, but
the effect of duties and excises on Scotland may well be neutral,
with jobs and purchases from Scottish households and enterprises
fairly independent of output. Interestingly, the needs of the
Chancellor of an independent Scotland probably would lead to the
same sort of taxation and duties policies as is currently adopted
at the UK level; but that does not mean that the interests of
the industry's workforce in Scotland, the smaller producers, bottlers
and blenders and suppliers are the same as either the Chancellor's
or the two multi-national corporations' who dominate the sector.
Thus, promoting a higher value added Scotch Whisky industry based
more on malts may well secure a more sustainable future with similar
levels of employment and incomes for households and indigenous
companies, but would not be necessarily advantageous to those
who dominate the industry at present nor to the UK Chancellor.
The potential for such restructuring and repositioning
cannot be divorced from the rest of the spirits sector, as we
argued in our earlier submission, but the Scotch Whisky industry
is often treated in isolation. We would refer you back to the
original arguments.
The other area which we believe would be worth
further consideration concerns the links within Scotland between
Scotch Whisky and other areas of the economy. Again developments
since the Inquiry, not least the effects of foot and mouth disease
and other more recent events which will have long term damaging
effects on the tourism and rural economies, increase the rationale
for considering the Scotch Whisky industry in its local and regional
context. Too little recognition has been given to the linkages,
current and potential, between tourism and whisky, but also education
and a number of other areas, where synergies are possible. As
before, we argue that the needs of communities and enterprises
will not be addressed automatically by the market place. Further,
the government agencies active in promoting economic development
in Scotland have not been able to realise many of these for a
number of reasons.
While we do not want to explore these here,
there are good grounds to believe that much more could be achieved
in rural Scotland by a more proactive approach to connecting up
the sector at a local and regional level to other parts of the
economy. Lessons from the French wine industry and Irish golfing
holidays are but two examples of state intervention in the market
to boost employment, activity and profits. A role of the Scottish
Affairs Committee usefully would be to bring such matters to the
attention of the UK Parliament; as we have argued elsewhere and
above, the effects of changes in taxation and duties on whisky
on the Scottish economy are not great, they mostly impact on the
Chancellor's tax take and the profits of companies. That such
companies are multi-national and their shareholders are spread
across the world means that the only effect on Scotland of such
fiscal changes can be through (dis)investment decisions, otherwise
jobs etc are inelastic with regard to changes in taxes.
The comparative advantages of Scotland are becoming
increasingly apparent through this very domination of the sector
by a duopoly, with the recent establishment of "bottling
glen" progressively securing the wider spirits sector here
for some time to come. Encouraging Scottish Enterprise, Highlands
and Islands Enterprise, the tourism boards, higher and further
education and the other partners and stakeholders around the sector
in Scotland to be more pro-active also could well have significant
and positive implications for the economy. The need for a strategic
view of such potentials is not being recognised elsewhere, so
the Scottish Affairs Committee Inquiry could promote such a debate
and policy initiative.
Again, can we apologise for the rushed nature
of this response? As our research has been unfunded to date, other
duties and responsibilities have limited our abilities and capacities
to deal with the sector in greater depth. However, we believe
that the report we published last year remains largely valid,
and indeed many developments since we compiled it confirm the
basic messages. We, of course, would welcome the opportunity to
expand on any of the points and issues raised here.
Professor Mike Danson and
Geoff Whittam
Department of Economics
The Business School
University of Paisley
September 2001
4 See HC 114-v, session 2000-01, pp 204-227. Back
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