THE GLASS HALF- FULL Joep Stassen Paul Skehan President, Director General, spiritsEUROPE spiritsEUROPE FOREWORD

In times of difficulty, many will look at a glass and consider it half-empty. The European spirits sector – not immune from the economic difficulties facing many economies at present – prefers to consider the glass half-full. We find ourselves in full agreement with President Barroso who, in his State of the Union speech in September, said: “We must pursue our active and assertive trade agenda. It is about linking us closer to growing third markets and guaranteeing our place in the global supply chain. Contrary to perception… we have a significant and increasing trade surplus of more than €300 billion a year... We need to build on that…. Ultimately, this is about one thing: growth, which is necessary to remedy today’s most pressing problem: unemployment… What matters now is what we make of this progress. Do we talk it up, or talk it down? Do we draw confidence from it to pursue what we have started, or do we belittle the results of our efforts?”

We draw confidence from the resilience of the sector, and the opening of new markets around the world.

We talk it up.

2 HERITAGE AND QUALITY

The heritage of the spirit sector Premiumisation of spirits European spirits success is based on tradition, know-how and secret 2 out of every 3 bottles distilled annually by our small, medium and large recipes handed down through the generations. Scotch and Irish Whiskies, producers are sold in the EU, generating sales of €37 billion. While overall Cognac, Brandy de Jerez, Deutscher Weinbrand, Polish Vodka, Grappa, spirit consumption within Europe continues to fall, there is also a clear trend Ouzo, Genever - just a few of the 300+ spirits Geographical Indications towards quality. The average sales value of a litre of spirits in 2003 was €12 registered in Europe. They are a clear reflection of a sector rooted in culture but had risen to €15 in 2012. A ‘premiumisation’ of 23% in just 9 years… and tradition. The net result? The spirits sector generates European jobs, sales and growth that will stay local – these economic benefits are deeply and firmly rooted in Europe’s regions.

PREMIUMISATION 23% 71% 9% are in the hospitality sector are in the which accounts for SALES VALUE & VOLUME IN EU-28 retail sector 16.6 millions jobs in 2003 2012 Europe 7% are direct 120 employment( in the spirits sector) 115 1 MILLION JOBS 110 13% are indirect can be attributed to the employment production and sale of 105 (suppliers) spirits drinks, of which 100

Index (2003=100) Index 95 90 FOR 1 JOB almost created in the 10 JOBS 2 JOBS MORE THAN 1 JOB 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 European are created in the are generated in our is created in spirits sector hospitality sector supply chain the retail sector VALUE VOLUME

3 THE EUROPEAN MARKET REMAINS THE MOST IMPORTANT MARKET FOR OUR PRODUCTS...

European consumers enjoy our products, so we work hard to address protectionist measures created by European governments which put at risk fair competition and open markets. These proposals give rise to barriers to trade in products that are legally identified and traded throughout the rest of the EU.

The definition, functioning and protection of the spirits sector are determined in Regulation 110/2008 - which must apply in a harmonised way throughout Europe to be effective. The new rules adopted for the implementation of the regulation represent a very positive step toward such harmonised interpretation. These rules define how labels may refer to one or more spirit drink categories or Geographical Indications when used as an ingredient of a different beverage.

However, the European Parliament vote against creating the new EU category ‘absinthe’ was a missed opportunity. Already, Switzerland negotiates commercial agreements with third countries to protect the term “absinthe” which de facto will exclude any absinthe being exported from Europe to these countries…

ENFORCEMENT OF THE SINGLE MARKET IS FUNDAMENTAL - PROTECTING OUR RIGHT TO “ GROW AND INNOVATE WHILE OFFERING CLEAR INFORMATION TO OUR CUSTOMERS ” 4 ...BUT MORE THAN EVER, EXTERNAL TRADE IS THE GROWTH DRIVER

Spirits are the most valuable agri-products exported outside spiritsEUROPE supports an assertive external trade policy Europe, generating €10 billion sales around the globe in 2012, agenda. In absence of any Doha deal, we appreciate the push creating a positive trade balance of €9 billion for the EU. Even from the EU to negotiate and conclude important bilateral trade more extraordinary – these exports have doubled within the deals. With sluggish domestic demand, such deals are critical last decade, led by whiskeys and brandies. for the sector.

The trend towards premiumisation is even more evident for The elimination of tariffs and other barriers through successful exports: between 2003 and 2012, the value of a litre of spirits conclusion of free trade agreements – for instance with India, has increased by 38%. Canada, Thailand or Vietnam - would all create jobs in Europe to meet the increasing demand for European spirits.

SPIRITS DRINKS ARE THE EU’S BIGGEST AGRI-FOOD EXPORT 4% Generating a positive balance of trade close to €9 billion in 2012 (compared to €7 billion in 2011) Others

26% Brandies / 1,986 I 12% 3,617 I 12% Wine spirits 44% 1,685 I 5% €10,172,844,000 Whiskies 858 I 5% 5,271 I 33% 10,173 I 33% EXPORTS SELECTED 1,165 I 7% SELECTED FOOD EXPORTS 3,176 I 10% IN 2012 496 I 3% FOOD EXPORTS OUTSIDE THE EU OUTSIDE THE EU 10% in €m 863 I 3% Liqueurs 1,836 I 12% in €m (2003) (2012) 1% 2,604 I 8% 12% 3% Rum 4,465 I 28% Vodka Gin 8,865 I 29% SPIRITS CHEESE OLIVE OIL CHOCOLATE PASTA MALTED BEER WINES

5 Policing trade deals goes hand in hand with negotiation TOP TEN EXPORT MARKETS Signing new bilateral agreements is not enough. The Russia rules agreed must then be properly enforced to bring the Canada €287 m €749 m expected benefits to businesses and consumers. And + 37% all WTO members must live up to their obligations. We +31% monitor many countries around the world, either where markets are not yet open, or where we face technical or non-tariff barriers, for instance: USA South Korea €3,296 m €207 m ➜ Tax discrimination. China + 8% ➜ Burdensome license systems or duplicative + 22% €587 m procedures. +19% Taiwan ➜ Demands for excessive guarantees. €245 m Mexico +15% €208 m +13%

Singapore €1,047 m +23%

South Africa Australia €268 m €203 m +5% +20%

OVERALL EXPORT SALES IN 2012 PERCENTAGE INCREASE BETWEEN 2011 & 2012

6 1 UNIT OF ALCOHOL = 1 UNIT OF ALCOHOL, BUT SPIRITS ARE TAXED UNFAIRLY

SPIRITS WINE BEER TAX CONTRIBUTION More than 55% of the price paid for a bottle of spirits is tax

Through VAT and excise duty alone, the spirits sector generates €21 billion for EU exchequers:

➜ Excise revenues in 2012: €14.6 billion. ➜ VAT revenues in 2012: €6.3 billion.

Given the total retail sales of €37 billion, this means that more than 55% of the price of a spirit bottle comprises tax. This is unsustainable.

Excise taxes on alcohol should be fair to all businesses engaged in 0€/HL >1-500€/HL 501-1000€/HL 1001-1500€/HL 1501-2000€/HL 2001- 2500€/HL 2501-3000€/HL > 3000€/HL producing and selling wine, beer and spirits. It is clear that spirits EUROS PER HECTOLITRE OF PURE ALCOHOL, MAY 2013 are taxed unfairly.

The costs of illicit alcohol 32% Non commercial alcohol damages the sector, reducing its ability to grow, invest and Beer employ; it undermines public health objectives and it also cuts into the tax revenues for REVENUES FROM 47% national exchequers. That cost is counted in billions. EXCISE DUTIES Spirits EU27-2011 For spirits, one of the most prevalent forms of counterfeiting is refilling authentic bottles COMMON SUBSTITUTES with inferior products. In addition, look-alikes 21% - imitations of European spirits brands, are INCLUDE CHEMICALS USED IN Wine Source: DG Taxud seen on the market. Counterfeit products ANTIFREEZE, CLEANING FLUIDS, also trade on the premium status of legally NAIL POLISH REMOVER AND Approximately Revenues of €33 Nearly 1 in 5 UK defined spirit categories, but fail to meet the CAR WINDSCREEN WASH 10% of the alcohol million and €280 consumers (18%) production requirements. Trafficking of illicit distillates from neighboring countries is also consumed in Poland million are lost by the admit to «sometimes» prevalent. All these forms of counterfeiting deceive the consumer, pose a major health and 32% in Latvia is Latvian and Polish purchasing threat and are linked to criminal activities. spiritsEUROPE currently works towards illicit. exchequers annually. counterfeit alcohol. trying to quantify the scale and value of the non commercial markets in Europe. 7 REDUCING HARM REQUIRES BROAD STAKEHOLDER COLLABORATION

The vast majority of consumers enjoys our products in a convivial, social, responsible manner. However, the sector has LIGHT TO MODERATE CONSUMPTION CAN BRING HEALTH BENEFITS great concern about the minority which does not - causing harm Good to themselves, their families and society at large. As with other food and drink products, problems arise from misuse, not from responsible consumption.

There remain huge differences in consumption between countries – but without corresponding differences in harm All cause mortality Consumption is not a proxy for harm. A reduction in per capita consumption (European consumption has dropped steadily over the last 20 years) does not equate to a reduction in harm.

Our objective is to achieve sustained behavioural and cultural Bad change - through multi-stakeholder, long-term approaches Alcohol consumption that focus on targeted interventions and which aim to make a positive impact on abusive patterns of consumption. The European spirits sector has been a leader in rolling out responsible drinking programmes and campaigns both independently and in partnership with other stakeholders to Study Drinking quantity Risk reduction reduce misuse. Bagnardi et al, 2004 Up to 6 drinks/day Protective effect Gunzerath et al, 2004 Up to 2 drinks/day Highest protective effect Gaziano et al, 2005 1 drink/day Highest protective effect Di Castelnuovo et al, 2006 Up to 2 drinks/day (women) and 4 drinks/day (men) 18% for women, 17% for men Djousse et al, 2009 Up to 1.5 drinks/day 35% WHAT MATTERS ARE Lee et al, 2009 1 drink/day Highest effect: 28% DRINKING PATTERNS Streppel et al, 2009 2 drinks/day 25% Costanzo et al. 2010 Up to 2.5 drinks/day Highest effect “ AND BEHAVIOURS Ronksley et al, 2011 All drinkers together 13%

The latest meta-analysis by Di Castelnuovo et al 2006 concludes that: ‘the benefit of light to moderate drinking remained in a ” range of undoubted public health value (15%-18%)’ (2442).

8 EU PER CAPITA CONSUMPTION IN LITRES OF PURE ALCOHOL (OECD)

13 25 1975-1980: 1975-1980: 3.3% decline 20.7% decline (Minimum) pricing is not the silver bullet 12.5 20 spiritsEUROPE contests the introduction of minimum pricing. While we wholly concur with the wish to tackle abuse of 12 alcohol, with all the harms that may follow, we do not believe 15 1975-1985: that minimum pricing is the appropriate mechanism to 11.5 7.5% decline achieve it. Minimum pricing ➜ Will disrupt trade from other European countries. 10 ➜ Will penalize responsible drinkers, particularly those 11 1975-1990: Litres of pure alcohol 10.3% decline less well off. Number of EU countries 1975-1995: ➜ Will not have a significant impact on harmful or 5 10.5 17% decline hazardous drinkers. 1975-2000: 17.3% decline 1975-2005: 10 18.6% decline 0 1975 1980 1985 1990 1995 2000 2005

WHILE THE NORDIC COUNTRIES 14.5 2.9 HAVE THE LOWEST PER CAPITA 12.4 10.4 2.8 11.2 CONSUMPTION, THEY HAVE ONE 1.5 1.1 OF THE HIGHEST HAZARDOUS DRINKING SCORES... CENTRAL EASTERN & EASTERN EUROPE CENTRAL WESTERN & WESTERN EUROPE SOUTHERN EUROPE NORDIC COUNTRIES

ADULT PER CAPITA CONSUMTION IN LITRES OF PURE ALCOHOL HAZARDOUS DRINKING SCORE (*) * The hazardous drinking score is a composite score indicating the potential impact of drinking on health and social outcome ranging from 1 (least detrimental) to 5 (most detrimental). It is comprised of some heavy drinking indicators, including the proportion of drinking with meals and drinking in public places, all of which have been associated with more harmful outcomes for the same volume of overall drinking.

9 What do we do to reduce harm? The spiritsEUROPE RoadMap 2015 sets out our actions to deliver increased consumer information and awareness and also to encourage responsible attitudes towards alcohol. RoadMap 2015 has three pillars: ➜ Ensuring responsible commercial communications. ➜ Encouraging responsible drinking. ➜ Engaging with all relevant stakeholders.

It is supported by three websites: ➜ www.marketresponsibly.eu ➜ www.drinksinitiatives.eu ➜ www.responsibledrinking.eu

Highlights include: ➜ 141 active campaigns and prevention programmes. ➜ Interactive training sessions to raise awareness and understanding of the standards applicable to spirits marketing communications. Designed with a particular emphasis on digital and social media.

ROAD DEATHS ATTRIBUTED TO DRINK DRIVING: POSITIVE TREND The EU Strategy The spirits sector welcomes the positive review of the EU Strategy to 100 support Member States in reducing alcohol-related harm and of the European Alcohol and Health Forum - of which spiritsEUROPE is a 90 founding member. ➜ The Forum has contributed to strengthening and expanding self- 80 regulatory systems, in particular for the marketing of alcoholic 70 beverages. ➜ Without the Strategy, dialogue and cooperation between EU 60 stakeholders would have been unlikely to take place to a 50 comparable extent.

40 Although more time is needed to assess long-term trends of such 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 complex social phenomena, several national indicators show that we OTHER ROAD DEATHS RELATIVE DEVELOPMENTS IN ROAD DEATHS ATTRIBUTED TO ALCOHOL AND are on a good path (e.g. on drinking & driving). These encouraging OTHER ROAD DEATHS IN 22 EU COUNTRIES TAKEN TOGETHER OVER THE PERIOD signs show that the current multi-stakeholder approach works, and 2001 TO 2010. should be strengthened and continued. Source: ETSC, April 2012. We support the continuation of the EU Strategy. 10 LIST OF MEMBERS

SPIRITS ASSOCIATIONS DK HU PT Observers FDSE HSA ACIBEV Full members Association of Danish Spirits Hungarian Spirits Association Associação dos Comerciantes CH Producers www.szeszipar.hu e Industriais de Bebidas Espirituosas e Vinhos FSS AT www.acibev.org Fédération Suisse des Spiritueux FNGO ES IE www.wineandspirit.ch Fachverband der Nahrungsund FEBE ISA ANEBE Genussmittelindustrie Federación Española de Irish Spirits Association Associação Nacional de NO Österreichs Bebidas Espirituosas www.ibec.ie Empresas de Bebidas VBF www.dielebensmittel.at www.febe.es Espirituosas The Association of Norwegian IT www.bebacomcabeca.pt Wine and Spirit Suppliers BE FEDEJEREZ FEDERVINI www.vbf.no FBVS Federación de Bodegas del Federazione Italiana Industriali RO Fédération Belge des Vins et Spiritueux asbl Marco de Jerez Produttori Esportatori ed GARANT www.fbvs.be www.fedejerez.com Importatori di Vini, Acquaviti, Federation of Alcohol Industry SPIRITS COMPANIES Liquori, Sciroppi, Aceti ed Affini and Spirits from Romania BG FI www.federvini.it Bacardi-Martini APITSD ETL/ FABIA Spirits Romania www.bacardilimited.com Association of Producers, Finnish Food and Drink LU Asociatia Producatorilor si Importatorilor de Importers and Traders of Spirit Industries’ Federation / Finnish CLC Bauturi Spirtoase Beam Drinks Alcoholic Beverages Industries’ Fédération luxembourgeoise www.spirits-romania.ro www.beamglobal.com www.apitsd.com Association des industries et du négoce des www.etl.fi vins, liqueurs et spiritueux c/o SE Brown-Forman CY www.educalcool.lu SSWS www.brown-forman.com CWA FR The Swedish Spirits & Wine Cyprus Wineries Association BNIC LV Suppliers Gruppo Campari Bureau National LANA www.spritochvinleverantorserna.se www.camparigroup.com CZ Interprofessionnel du Cognac Latvijas alkohola nozares apvienība UCSPI www.bnic.fr www.dzeratbildigi.lv UK Diageo Union of the Czech Spirits SWA www.diageo.com Producers and Importers FFS MT The Scotch Whisky Association www.uvdl.cz Fédération Française des TMCCEUI www.scotch-whisky.org.uk Moët Hennessy Spiritueux The Malta Chamber of Commerce, www.lvmh.com DE www.spiritueux.fr Enterprise and Industry WSTA BOVB www.chamber.org.mt The Wine and Spirit Trade Pernod Ricard Bundesverband der GR Association www.pernod-ricard.com Obstverschlussbrenner e.V. SEAOP NL www.wsta.co.uk www.obstbrenner.com Greek Federation of Spirits spiritsNL Rémy Cointreau Producers www.spiritsnl.nl www.remy-cointreau.com BSI www.seaop.gr Bundesverband der Deutschen PL Spirituosen-Industrie und PPS -Importeure e.V. Polish Spirits Industry www.spirituosen-verband.de www.pps.waw.pl 11 €21 000 000 000 generated through VAT and excise €10 000 000 000 export sales outside the EU 1 000 000 jobs in production & sales 140+ prevention programmes 31 national associations 8 multinationals 1 organisation

rue Belliard, 12 - Bte5 spirits.eu 1040 Brussels, Belgium Tel: +32 (2) 7792423 spiritsEUROPE [email protected] www.spirits.eu Design: inextremis.be (mp4685) - Photos cover, p. 2 & 6 : Fotolia.com (Africa Studio, PictureArt, Lulu Berlu, Christian Jung, Lukas Gojda) p. 2 & 6 : Fotolia.com (Africa Studio, PictureArt, (mp4685) - Photos cover, Design: inextremis.be