Why The War In Ukraine will Make Bourbon More Expensive Than Scotch
I have written about this before, but as the crisis and shortage worsen, I feel the need to keep writing. The Barrel shortage. This is a unique crisis for Bourbon as, by law, Bourbon must be aged only in new casks.
Charred New Oak Containers A regulatory Requirement For Bourbon
There are specific regulations about where the whiskey is aged to make Bourbon. The CFR mandates that Bourbon be aged in “charred new oak containers.” The law requires that the wood holding bourbon be charred, and it must be “new oak.” So, the barrel form is more of a practice than a legal requirement.
The new oak requirement differs from other forms of whiskey, such as Scotch whisky, which often uses barrels previously used to make Bourbon. Bourbon requires the first use of the wood to interact more with the char, allowing for a sweeter flavor profile.
Now let me show you how it is much worse than expected, and yes, it has to do with Ukraine and Russia.
Over the coming months, due to the current Russia/Ukraine conflict, the cask barrel industry is already experiencing considerable disruption as significant pressure is placed on the European wood supply chain, amplifying the shortage of raw materials.
EU authorities imposed a ban on wood products from Russia and Belarus, and concurrently, Russian authorities made a similar move by prohibiting exports of these products to the European Union until the end of the year, which has imposed an increasingly tough economic and trade war.
Ukraine is in Europe, and due to the war that has recently broken out, all business for the country stopped overnight. While many companies still have a certain amount of raw materials to see them through the next couple of months, they will eventually have empty stocks, forcing the rest of Europe to source raw materials from former Yugoslavia.
However, oak is not the only raw material affected; there is also a shortage of Birch Plywood.
- Russia is one of the highest timber suppliers in the world and ranks as the seventh most prominent exporter of forest products worldwide, accounting for 22% of the global trade. Russia is the third-largest supplier of Birch Plywood globally and, together with Belarus, supplies 25% of Europe’s sawn timber. And it clearly shows that the global market will continuously impact as long the Russia-Ukraine war continues. A country like China, which supports Russia in the conflict, has also been affected by limited trade sanctions as it depends on importing timber, logs, and wood chips even for their domestic use.
- Ukraine also makes up a large percentage of Europe’s sawn timber, with a 13% supply being exported.
Therefore, we expect to see significant disruption to the supply chain, leaving France, Germany, and Croatia to source their timber from alternative sawmills, which can only cover a small proportion of the shortfall.
Issues the industry is facing:
- Most plywood used as backing for engineered flooring comes from Russia.
- Very little Russian oak will be exported to Europe with the current prohibitions.
- Ukrainian Oak will be increasingly difficult to secure in the coming months, putting even more pressure on the oak supply.
- The board of PEFC and FSC has declared that all timber from Russia and Belarus is ‘conflict timber and cannot be used in PEFC and FSC certified products. Russia’s relationship with China could see Russia offloading Oak and Plywood products onto China, which will see the market flooded with more engineered Oak flooring that is not PEFC or FSC certified.
When the war ceases, Ukraine will take months, if not years, to recover and start production again. So while we may not see the repercussions straight away, we can expect to see the knock-on effects on the engineered oak flooring industry in the next six months. As there is no short-term solution to the supply shortage, rest assured that we are doing all we can to secure stock of quality oak and forward-plan to ensure our clients can obtain their desired products.
The Short Note
All the above factors only apply to Bourbon, which is affected by today’s wood prices and can’t reuse barrels, adding a tremendous expense to production. Scotch that reuses barrels may very well dodge this bullet. In addition, any barrels they are currently purchasing were purchased by the supplier, a bourbon distillery, at a price four years ago.