PEAKS AND TROUGHS OF THE SCOTCH WHISKY INDUSTRY 1900-PRESENT DAY (Part 1)

Part 1

Gavin D. Smith

1900 was a pivotal year for the well-being of the Scotch whisky industry. Unprecedented growth of whisky production during the late Victorian period had led to the creation of 33 new distilleries in the last decade of the 19th century alone, while many others were extended and modernised.

As the decade progressed, investment in whisky came to be fashionable, with banks lending money for speculators to acquire both stocks of maturing whisky and distillery shares. Blending companies spent money both on the acquisition of speculative stocks and new distillery projects.

Output of Scotch whisky had peaked in 1897, when 35.76 million gallons were produced, and the largest number of working distilleries during the second half of the 19th century was reached in 1899, with 161 in operation. Moss and Hume (The Making of Scotch Whisky) write that “Stocks were built up…to ridiculous levels…The annual increase in stock warehoused in Scotland rose from just under 2,000,000 gallons in 1891-2 to 13,500,000 gallons in 1897-98 and 1898-9 net additions to stock amounted to 40 per cent or more of total output.” The rise in production of pot stills was largely paralleled by the patent still producers, and grain whisky output rose from 9,400,000 gallons in 1886 to nearly 21,000,000 gallons in 1900.

Too good to be true

Outwardly, the Scotch whisky industry had never looked in ruder health, but all good things come to an end, and the years of plenty were soon to cease. The crisis was to be precipitated by the actions of R&W Pattison, a Leith-based firm which had been established in 1849.

Pattison’s began to blend Scotch whisky in their own right in 1887, as Pattison, Elder & Company, and while apparently extremely successful, both the Pattison brothers, Walter and Robert, were noted for their personal extravagance and flamboyance, and as early as the summer of 1894, when the business appeared to most observers to be flourishing, the Distillers Company Ltd board described Pattison’s finances as “…very doubtful.”

In 1896 the partnership became a public company, with the two Pattison brothers owning all the ordinary shares and 25 per cent of the preference shares, and they were also paid some £150,000 in cash. Such was their level of expenditure and outlay, however, that despite this large injection of capital, in order to remain in business, the brothers had to resort to selling stock which they bought back at inflated prices by obtaining bills of exchange which were then discounted. This resulted in greatly exaggerated valuations of their whisky. Amongst other dubious practices, the Pattison’s also over-valued property which they owned and, in order to maintain an impression of probity, paid share dividends out of capital.

The Pattison Crash

Inevitably, the whole facade would eventually crumble, and the firm collapsed spectacularly in December 1898. When formal liquidation proceedings commenced, it became clear that there was a deficiency of some £500,000, and available assets were worth less than half that sum. In 1901 Robert and Walter Pattison were convicted of embezzlement and fraud and sent to jail.

The wider consequences of what became known as the ‘Pattison Crash’ were the bankruptcy of 10 individual companies with whom Pattison’s had done business, and a slump in whisky prices, affecting distillers, blenders and merchants throughout the industry.

However, It seems highly likely that the failure of Pattison’s was really just the catalyst of the crisis, and ‘boom’ would have turned to ‘bust’ before too long in any event, as the level of stocks being accrued bore little relation to the level of sales. The Pattison’s were not alone in being determined to believe that the good times would last forever.

In reality, the Pattison collapse and its consequences meant that the Scotch whisky industry saw no further growth in terms of distillery construction for half a century.

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Image from the National Library of Scotland

Scotch in the 20th century

The end of the Boer War in South Africa during 1900 led to a reduction of spending by the British government on armaments and war-related materials and services, which played a part in the onset of a period of economic depression during the early years of the new century.

Overall Scotch whisky output had reached a peak of almost 36 million gallons in 1899, and by 1906 this figure had plummeted to below the 24 million gallons mark. Grain whisky production was particularly badly hit, falling from 21 million gallons to 12.5 million gallons during this period.

By contrast, pot still whisky production fell far less than might have been anticipated during the early years of the 20th century, after initially dropping from an 1898 level of just under 16 million gallons to some 10 million gallons in 1900. However, this had more to do with accumulating stocks than consistent demand for the product. The quantity of stock held rose from almost 90 million gallons in 1898 to more than 120 million gallons five years later.

While 159 Scotch whisky distilleries were operational in 1900, that number fell to just 15 in 1933, and US Prohibition (1920-33), an inter-war global economic slump, high UK taxation levels and two world wars all contributed to the relatively depressed nature of the Scotch whisky industry until more prosperous economic times arrived during the 1950s and beyond…..

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