Demand from Far East could help Scottish economy out of lockdown

Demand for Scottish products in China and other Far Eastern countries could prop up industry as the country emerges out of lockdown ahead of the rest of the world, experts have claimed.

Wednesday, 16th September 2020, 7:30 am
While sales of Scotch whisky globally have been badly hit by the pandemic, there are signs of a recovering demand in the Far East, and particularly in the already growing Chinese market

China, where the coronavirus originated and which went into strict lockdown in January, is moving back to normality earlier than many other countries, with economists saying the Chinese economy is likely to return to pre-Covid levels by the end of the year – unlike countries in Europe and the US which are predicting various levels of economic despair.

Scottish products – especially Scotch whisky, which is regarded as a premium product in China – are in high demand. The amount of Scottish food and drink sold to China has risen seven-fold over the past decade, although the country is still not in the top ten food and drink export markets for Scotland.

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“China is in a much better place than Europe and the US,” said Nick Stamenkovic, senior economist at Royal Bank of Scotland. “They took a bit of a hit, but they’ve rebounded quite quickly and the policies they’ve put in place mean that they could be back to pre-Covid levels by the end of this year, which will not be the case for the US and Europe as a whole. Given that China is increasingly a services economy rather than a manufacturing economy, for whisky companies, it has been a clear source of demand and that should persist in coming months.”

KPMG last week issued a warning that Scotland’s economy is set to contract by 9.1 per cent this year – worse than its previous June predictions of a 8.1 per cent drop. However, it said that growth in Scotland is expected to pick up to 8.2 per cent next year if a vaccine is rolled out by April with the economy reaching pre-Covid level by early 2023.

Its fears were echoed by Bank of England policymakers Sir Dave Ramsden and Gertjan Vlieghe, who last week warned the Commons Treasury select committee that the damage inflicted on the British economy is likely to be worse than it predicted just weeks ago.

Karen Betts, chief executive of the Scotch Whisky Association, said that global exports of whisky were down more than 30 per cent to £1.5 billion in the first half of 2020.

In Europe, the picture has been mixed, with retail sales rising, but falling in bars and restaurants. In the US, strong retail sales growth has been hampered by a 25 per cent tariff on whisky stemming from an unresolved trade dispute between Airbus and Boeing.

However, she said exports to China had risen in the second half of this year. It is estimated that around 25 bottles of the drink are already exported to China every minute, generating £89 million a year for the Scottish economy.

Ms Betts said: “If that trend holds for the rest of the year, it would mean export losses of £1.5bn in 2020.

“There are some green shoots of recovery, especially in parts of Asia. Exports were up in China by nearly 6 per cent in the second quarter of the year compared to the same period last year, reflecting the fact that Asian markets went through the immediate Covid-19 crisis earlier in the year. Those countries that managed the first wave of infections well have also held up better.”

Next month, a virtual five-week whisky festival is to be held from Scotland to market the national drink to Chinese customers.

Run by Dundee digital agency Zudu, the event will push brands including Clydeside Distillery, Lindores Abbey and Keith Brewery to a growing Chinese market, culminating in a live whisky tasting event in Shanghai in November.

The company will follow it up with a six-month marketing campaign in various regions of China, pairing whisky with local food, through its Chinese division NihaoScotland, which promotes Scottish brands through Chinese social media such as WeChat, Douyin, and Xiaohongshu.

James Buchan, managing director of Zudu, said: “China is coming through the other side of the coronavirus pandemic much faster than we are here in the UK, so now is a great time to start pushing whisky brands internationally.

“Consumers are prepared to pay more for imports, and our festival will feed into that through storytelling, influencer marketing, and building brand loyalty.”

James Withers, chief executive of Scotland Food and Drink, said: “China is still very much an untapped market, even for the Scotch whisky industry, which is one of the most mature exporters out there, so there’s definitely room for growth.”

The Scottish Chambers of Commerce said that Britain’s exit from the European Union, combined with the effects of the pandemic, meant that firms needed to expand international contacts as much as possible.

A spokesman said: “It is now more important than ever that we channel our investment and resources to looking outward.”

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