Europe’s biggest spirits makers breathed a sigh of relief on Thursday after the US unveiled the list of goods to be hit with tariffs following its victory in a World Trade Organization case, although the effects of the new levies will be unevenly felt by food and drinks groups across the region.
The WTO has authorised the US to slap levies on $7.5bn worth of EU imports annually after a dispute over illegal aircraft subsidies granted to Airbus, the European aerospace company. The US trade representative’s office set out a plan to put 25 per cent tariffs on goods including wines, olive oil, yoghurt and sweaters. A raft of companies, from Italy’s pecorino cheese makers to British tailors of men’s suits, will be affected.
But in the drinks industry, where investors had been bracing for a potentially severe impact, the US has spared cognac, champagne and some Irish whiskies. Irish whiskies made in Northern Ireland will be affected by tariffs but those made in the Republic of Ireland will not. Scotch whisky made in Scotland will be affected too.
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The US did not explain why similar products in different countries were treated differently and it also warned that the scope and level of the tariffs could change in the future. Few expect this move to be the end of simmering trade tensions between the US and Europe because the bloc is expected to win approval early next year for its own tariff response over illegal aid to Boeing.
“There are surprises, nuances and ambiguities” in terms of what spirits are covered by the tariffs, wrote Jefferies analyst Edward Mundy in a note. But overall, the list represented “a light touch and we would expect positive reaction for European spirits companies”.
French distillers Pernod Ricard and Rémy Cointreau are among those to have escaped a harsh outcome. Jameson — Pernod Ricard’s top-selling Irish whiskey and a major driver of its US growth — will not be subject to the tariff. Nor will Rémy Martin cognac, which accounts for 70 per cent of group sales.
Shares in Rémy Cointreau rose as much as 8 per cent to €124.60 on Thursday, while those in Pernod Ricard gained 3.7 per cent to €167.45.
Investors had been particularly worried about the impact of tariffs on Rémy Cointreau, whose smaller size and reliance on a few brands meant that any alteration could have been severe. Short interest against the stock rose to 20 per cent in the past two weeks, according to Markit data from Bloomberg.
For Diageo, the world’s biggest spirits maker, Baileys liqueur and single-malt scotch will be affected. However, revenue from its joint venture with LVMH in cognac and champagne will be spared. The company’s shares rose 2.1 per cent to £32.66.
“Diageo has a diversified portfolio both in terms of geography, brands and price points, so they should be able to weather it,” said Georgina Cooper, an investment manager for UK equities at Standard Life Aberdeen. The group owns roughly 2 per cent of Diageo’s shares in passive and actively managed funds, according to Capital IQ.
Although yoghurt and fresh cheeses are also included on the tariff list, the impact on Europe’s biggest producers such as Nestlé and Danone is likely to be minimal, said Martin Deboo, an analyst at Jefferies. That’s because they manufacture those products locally in the US so they won’t be subject to them.
