Kentucky Distillers’ Association Sounds the Alarm as Tariffs Loom, Production Expands and Barrel Inventories Hit Record Highs

Kentucky Distillers' Association - Sounding the Alarm Over Tariffs, Taxes, and Changed in Consumer Demand

No doubt, there has been a softening for distilled spirits demand in 2024 as the spirits world comes down from its Covid-19 era lockdown highs. And now with President Elect Donald Trump talking daily about the power of global tariffs, increasing barrel taxes and growing Bourbon barrel inventory, the Kentucky Distillers’ Association (KDA) is sounding the alarm.

A Triple Threat of Looming Tariffs, Increased Taxes and Shifts in Consumer Demand

The looming return of retaliatory tariffs on American Whiskey is threatening the unprecedented growth of the Kentucky’s signature distilling industry, which is now aging a record 14.3 million barrels of Bourbon, the Kentucky Distillers’ Association announced.

Industry leaders are sounding the alarm globally that the threat of returning retaliatory tariffs on spirits – which have swept Kentucky Bourbon into trade disputes unrelated to whiskey – will disrupt growth, cost American jobs, jeopardize investment, and hurt local economies across the Commonwealth.

The European Union is set to reinstate tariffs on exports of American spirits at a crippling 50% rate in March if nothing is done. Retaliatory tariffs from the E.U. and other countries have cost Kentucky Bourbon a half-billion dollars in exports since 2018. These tariffs are independent of the tariffs that the President elect is talking about.

2024 Kentucky Bourbon Number Highlights

Casey Jones Distillery - Casey Jones Barrel Warehouse — Barrel storage.

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It’s not all doom and gloom as Kentucky Bourbon inventory is growing at a record pace thanks to massive capital expenditures by Kentucky bourbon makers over the last decade. Here is a quick look at some of the growth in barrel inventory and production.

Record 14.3 million barrels of Bourbon aging
Bourbon production reached an all-time high of 3.2 million new barrels filled
Production is up 600% since the turn of the century and nearly 200% in the last 10 years alone
Record aging inventory of 15.4 million barrels 1 when including rye, brandy, and other whiskies
Tax-assessed value of all barrels is a record $8 billion, up 19% from last year
Distilleries paid a crushing $60 million in taxes on aging barrels this year, an increase of 20%

“Bourbon continues to drive Kentucky’s economy as our homegrown industry is generating more jobs, more payroll, more tax revenue, more tourists and more distilleries in more counties than ever before,” said Eric Gregory, President of the Kentucky Distillers’ Association.

“But we are up against a triple threat of back-breaking tariffs, snowballing taxes and shifts in consumer trends that have slowed sales. If tariffs targeting American Whiskey are levied, distillery workers, farmers, truckers, coopers, hospitality staff and entire industries that depend on Bourbon will suffer.”

Gregory said the KDA understands that trade is a complicated issue and tariffs are an effective tool in some circumstances. “However, as proud American manufacturers, we are concerned about the potential retaliation that could impact our products,” he said.

“As the Worldwide Voice of Bourbon, it’s the KDA’s job to make sure decision-makers across the globe understand the far-reaching impact of the Bourbon economy and how American jobs would be lost if we continue to get dragged into unrelated trade wars.”

Kentucky Bourbon Inventory Has Skyrocketed

T.W Samuels Distillery - Bourbon Rickhouse, Now home to Heaven Hill and Maker's Mark Bourbon

The new numbers released are based on inventories reported as of Jan. 1, 2024. Submitted to the Kentucky Department of Revenue for tax purposes, the numbers represent all distilling companies in Kentucky, the vast majority of which are KDA member distilleries.

As the barrel inventory has skyrocketed, so have the taxes on those aging barrels – more than doubling in the last five years alone. Since 2009, taxes on aging spirits have soared more than 450% and continue to escalate at an unsustainable rate.

To counteract the mounting tax issue that puts distillers at a competitive disadvantage, legislators passed a law last year that will phase out the barrel tax over 20 years, while protecting funds for schools, fire departments and EMS districts, and giving local governments time to plan and diversify their tax bases.

“With an eye on building a strong Kentucky for generations to come, we are grateful that the pro-growth Kentucky General Assembly passed House Bill 5 to put our signature Bourbon industry on a level playing field with all other states and countries that do not levy such a discriminatory fee,” said Ashli Watts, President of the Kentucky Chamber of Commerce.

Newly-elected KDA Board Chair and Operating Owner of New Riff Distillery Ken Lewis said the industry will have to carefully navigate tariffs, taxes and other challenges in the coming years to ensure growth is sustainable for all distilleries, both large and small.

“We’re eager to continue telling the story of Kentucky Bourbon and find solutions with governments around the world that will protect jobs, investments and livelihoods back here at home,” said Lewis.

“Global trade has helped spirits of all kinds reach new markets, and while international Bourbon curiosity has grown tremendously, it’s not the only spirit people are turning to,” he said. “As governments work through disputes, the Bourbon industry wants to do all it can to keep spirits out of the line of fire.”

Gregory said inflation and changing consumer trends also have implications for the future. “It’s no secret that our industry is experiencing a slowdown in sales and still working to recover from the pandemic and the last round of tariffs. We are clawing back, but all these challenges are real and come with success.

“Kentucky Bourbon has gone global, more barrels are aging than ever before, and distillers have big plans for the future,” Gregory said. “The one thing we know is that at every turn in history, good things follow when Kentucky distillers are unburdened and allowed to focus on making great whiskey.”

Founded in 1880, the Kentucky Distillers’ Association is the Worldwide Voice of Bourbon™. Its diverse and growing membership produces the overwhelming majority of the world’s Bourbon, from historic, global brands to emerging micro distilleries that are fostering the next generation of the Commonwealth’s timeless craft. Kentucky Bourbon is a $9 billion economic engine generating more than 23,500 jobs and attracting over 2 million visits annually through the KDA’s Kentucky Bourbon Trail® experience. A 501(c)(6) nonprofit organization, the KDA maintains an open membership policy, champions a strong commitment to the responsible and moderate consumption of spirits, and fights to curb underage drinking and drunk driving.

Background on the U.S./EU Tariff Dispute Beginning in 2018

The tariffs being imposed on American Whiskey has nothing to do with American Whiskey. These are retaliatory tariffs because of an aluminum and steel industry dispute.

In June 2018, the EU imposed a 25% retaliatory tariff on American Whiskeys in response to U.S. Section 232 tariffs on steel and aluminum.
Due to the imposition of the retaliatory tariff, American Whiskey exports to the EU, our largest American Whiskey export market, plunged 20%, from $552 million to $440 million (2018-2021).
In October 2022, the U.S. and EU agreed to suspend the EU’s 25% retaliatory tariff on American Whiskeys for two years starting January 1, 2022.

American Whiskey Rebound after Removal of Tariffs in 2022

American Whiskey exports to the EU increased by 29% in 2022 compared to 2021 after the suspension of tariffs, reaching $566 million in 2022. This accounted for 44% of all American Whiskey exports, surpassing the pre-tariff level of $518 million in 2017.

Through October 2023 (latest data available), American Whiskey exports to the EU are up nearly 64% as compared to the same period in 2022 (January-October).
In December 2023 the EU agreed to delay an increase in tariffs to 50% until March 31, 2025. At the time, that date sounded far away but now, that date is quickly approaching and could be a disaster for American Whiskey exports.