From Kentucky to Korea – have a bourbon!

Free Trade Agreement opens lucrative Korean market to good ole country bourbon

Fred Minnick By Fred Minnick

The U.S. and South Korea signed a Free Trade Agreement that in part removed the 20 percent tariff Seoul had placed on U.S. bourbon whiskey. U.S. producers of bourbon expect sales to increase as a result of the agreement. (Reuters)

People are smiling these days in Kentucky. Thanks to the signing last fall of a Free Trade Agreement between the U.S. and South Korea, whiskey makers in Kentucky are expecting good days ahead. Why? Because South Koreans love whiskey, and U.S. whiskey makers will be more than happy to oblige that taste.

Bourbon whiskey producers here in the U.S. are eager to tap into Korea’s $10 billion spirits market, the world’s 11th largest, says Eric Gregory, director of the Kentucky Distillers Association.

Goodbye to those dreaded tariffs

“Korea is one of the most promising spirits markets in the world,” Gregory says. “But, it’s been difficult for bourbon to gain a foothold because of high tariffs and counterfeit products.”

The Free Trade Agreement will allow bourbon distillers to be aggressive in their marketing, Gregory says, thanks to the lifting of a 20 percent tariff on whiskey in South Korea. That country is the world’s seventh largest importer of whiskey, Gheewhan Kim, minister of economic affairs at the South Korean Embassy, recently told Cincinnati.com.

South Koreans like their liquor, and drinking is an integral part of their society. It’s common for workers in Seoul to spill out of their high-rise offices at the end of the work day and head to the bar for many hours of drinking, along with some colorful karaoke as the night progresses. Westerners, in fact, are counseled to learn the etiquette of drinking in that country, so as not to disrespect a Korean  person.  South Korea ranks 11th worldwide in alcohol consumption, according to the World Health Organization. Rice wine, called soju, is by far the most popular drink on the Korean Peninsula, with one estimate putting the number of bottles consumed in a year at 3 billion. But whiskey — whether from Kentucky, Tennessee, or Scotland (one of the biggest suppliers of whiskey — or whisky, as the Scots spell it — in South Korea) —  is the hard liquor of choice.

A worker at the Jim Beam distillery in Kentucky prepares a barrel of whiskey. (Reuters/Rick Wilking)

From corn to the bottle

Very few brands of bourbon, a barrel-aged spirit made primarily out from corn, are currently available in South Korea, but the new trade agreement will undoubtedly change that. Separately, the European Union and South Korea approved a Free Trade Agreement  last year that also opens up that market to Scotch whiskey. Distillers in Scotland are eager to take advantage of the lifting of the 20 percent tariff on Scotch whiskey.  “There is clearly room for growth with the benefit of fairer access,” says David Martin, Scotland’s senior member of the European Parliament. “This is a great deal for Scotch whisky,” he says.

Rob Samuels, president of Maker’s Mark whisky (Maker’s Mark affects a British accent), says his company will consider its options for Korea, but the company must be “selective” in its marketing strategy.

Brown-Forman, one of the largest wine and spirits businesses in the U.S., says the only American whiskey it currently sells in Korea is Jack Daniel’s Tennessee Whiskey. Brown-Forman also owns Early Times, Woodford Reserve and Old Forrester.

Jim Beam spokesman Clarkson Hine says that Jim Beam is looking forward to the opportunities from the easing of trade restrictions. “We see nothing but a potential upside,” Hine says. Time, however,  is an issue. The bourbon industry is quite different than other industries in the time it takes to produce whiskey. Just because tariffs are lifted does not mean bourbon producers can flood the Korean market. Unlike white spirits like vodka or tequila, distilled bourbon must be aged for a significant period of time, usually at least six years.

Hideki Horiguchi, the president and CEO of Four Rose bourbon, is optimistic about the sales potential in South Korea. (Fred Minnick)

A waiting game

Four Roses President and CEO Hideki Horiguchi says Korea is the No. 3 Asian market for whiskey, behind Thailand and Japan. Of all the bourbons hoping to enter Korea, Four Roses knows the territory well. Owned by Japan’s Kirin Brewing Company, Four Roses has a slight distribution advantage, with large hubs in Japan, as well as a cultural advantage because of its Japanese connection.

“Even without considering this opportunity of the free trade agreement, Korea itself is a very attractive market for us,” Horiguchi says.

Jim Rutledge, master distiller of Four Roses, stressed that patience is required, as much as the whiskey producer wants to take advantage of the market potential in South Korea. “Everything we are producing right now,” won’t be available very soon. “When we will be using [selling]  will be 2018,” Rutledge says.

As the new market opens up, Rutledge cautions, bourbon producers must have a sufficient number of barrels in inventory to support that market for at least five years.

With distinction, made in the U.S.A.

The U.S. Congress in 1964 recognized bourbon as a “distinctive product of the U.S.” And although bourbon can be produced anywhere in the U.S., most of it is made in Kentucky, where the liquor has a strong historical association. According to the U.S. Census Bureau, Kentucky whiskey exports were the state’s No. 2 agricultural export in 2010, at $192 million.

Beyond South Korea, the international demand for bourbon has been growing every year. According to the Distilled Spirits Council of the United States, spirits exports grew 16.4 percent in 2011, with American whiskey making up 69 percent of the total.

Sales of bourbon in Brazil have gone through the roof, helped along by a recent agreement signed between the U.S. and Brazil  to recognize each other’s unique distilled spirits – bourbon and Tennessee whiskey from the U.S. and cachaca from Brazil. U.S. whiskey exports to Brazil rose an astonishing 519 percent from 2001 to 2011, growing from $517,000 to $3.2 million, according to Peter Cressy, president of the Distilled Spirits Council.

“Brazilians are rapidly acquiring a taste for the finest American whiskeys,” Cressy notes.

For those bourbon makers, it seems, the sky – or the world – is the limit for sippers of this unique American liquor. As the iconic country crooner Willie Nelson sang, “Whiskey River don’t run dry, you’re all I’ve got, take care of me.” They’re probably singing that tune in Kentucky right now: