Is the Future Bright for Bourbon Distillers?

On Sunday, the Associated Press had a story headlined “Kentucky Bourbon Makers see Bright Future.” This headline implies that bourbon distillers have large sales ahead of them. While it is true that bourbon, along with rye, has been riding a wave of popularity after some hard years, the body of the article presents the more complicated picture that is bourbon distilling.

Bourbon is by definition, a whiskey whose fermented mash contains at least 51 percent corn, is distilled at not more than 160 proof and is aged in new charred barrels.

It is the aging that represents both risk and benefit for bourbon manufacturers. Since 1958 distillers have been able to bond or store their product for twenty years without paying taxes. As the article points out, “Distillers are putting up the tab for millions of rounds of bourbon years before they are even ordered.” They are confident because last year they filled the most barrels since 1970.

The risk is that twenty years from now there may not be a market for what the distillers are currently producing. Bourbon distillers have faced this dilemma since the late nineteenth century. The bonding period dates back to 1868 and was part of compressive reform of liquor taxes.

From 1868 until the onset of Prohibition bourbon distillers suffered through repeated boom and bust cycles where they were often left owing taxes that they could not pay back. These cycles continued after Prohibition and into the 1950s. The Forand Bill, which raised the bonding period to 20 years, was a response to the plight of distillers, who had produced too much and could not pay the taxes they owed.

A bonding period of twenty years did provide more stability to the industry but as the article points out, “The last time the industry spiked production in the 1970s, distillers ended up with a glut when demand fell sharply.”

Today’s bourbon distillers are optimistic but they may face the same issue as the distillers of the 1890’s. In August of 1893 Bonfort’s, a trade journal, wondered, “Just how distillers are to meet taxes on May and June ’90 whiskies is a problem that perplexes them and their customers.”[1]

 

 

[1]Bonfort’s Wine and Liquor Circular, 40 (Aug 10, 1893): 372, 374.

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