0:00:02 > 0:00:04I'm on a journey, to find out
0:00:04 > 0:00:07about a multi-billion pound industry,
0:00:07 > 0:00:10flowing through this quiet glen and out to a thirsty planet.
0:00:12 > 0:00:16I don't need to visit a world city - London, New York or Tokyo.
0:00:16 > 0:00:20The big money centres want a share of what is slowly maturing here -
0:00:20 > 0:00:24a sleepy backwater that helps define Scotland's place in vast,
0:00:24 > 0:00:27fast-globalising markets.
0:00:28 > 0:00:31This is Speyside, heart of the Scotch whisky industry,
0:00:31 > 0:00:34and I am here to find out how important it is to Scotland.
0:00:35 > 0:00:38We have made Scotch whisky the international -
0:00:38 > 0:00:41the number one international - drink of choice.
0:00:41 > 0:00:42It's sensational.
0:00:43 > 0:00:46But is that a success all of Scotland can enjoy?
0:00:48 > 0:00:52I think the benefits to Scotland of the whisky industry are really
0:00:52 > 0:00:55quite disappointing.
0:00:57 > 0:01:00Could the Scotch whisky industry give a little more back?
0:01:01 > 0:01:05I believe that the success could be spread around a little more.
0:01:05 > 0:01:09It's Scotland's water, and whisky is Scotland's national drink,
0:01:09 > 0:01:12but should we be getting more out of each bottle?
0:01:24 > 0:01:27My day job is to report on the Scottish economy.
0:01:27 > 0:01:31Not only on the downturn, but what is looking up.
0:01:31 > 0:01:35That's brought me to Edinburgh, in search of a dram.
0:01:35 > 0:01:39Hello. Ticket for one for the magical mystery tour.
0:01:39 > 0:01:42The whisky business is booming across the world,
0:01:42 > 0:01:43and I want to find out why.
0:01:43 > 0:01:46I am being taken for a fairground ride past
0:01:46 > 0:01:48the ghosts of distillers past.
0:01:48 > 0:01:50'I'm soaked through! Fresh water is,
0:01:50 > 0:01:55'after all, a vital ingredient in the art of making Scotch whisky.'
0:01:55 > 0:01:59As a tourist attraction, it is for fun and a serious reminder for me
0:01:59 > 0:02:02of the unique global appeal that sets Scotch apart.
0:02:02 > 0:02:06Only here can you distil and mature the world's premium spirit.
0:02:06 > 0:02:08It looks a simple enough process,
0:02:08 > 0:02:12but people here are being sold a package of image, tradition
0:02:12 > 0:02:13and quite a bit of myth.
0:02:13 > 0:02:15Just disappears.
0:02:20 > 0:02:22You get a glimpse here of Scotch as a magnificent,
0:02:22 > 0:02:26world-beating blend of marketing magic.
0:02:26 > 0:02:28But who's buying it?
0:02:28 > 0:02:30So we were set up almost 25 years ago
0:02:30 > 0:02:32on behalf of the Scotch whisky industry,
0:02:32 > 0:02:36to give visitors to Edinburgh a sort of showcase of Scotch whisky.
0:02:36 > 0:02:39But the big increases we have really seen in terms of visitor
0:02:39 > 0:02:41numbers are in the Chinese market.
0:02:41 > 0:02:44So, although Russia and India and, certainly,
0:02:44 > 0:02:48South America are coming through quite strongly, the actual
0:02:48 > 0:02:52number of visitors delivered that has been most significant is China.
0:02:52 > 0:02:55So whisky's new success owes a lot to big growth markets.
0:02:55 > 0:02:56Here is further proof.
0:02:59 > 0:03:02They tell me this is the world's largest private whisky collection,
0:03:02 > 0:03:06pulled together not by a Scot, but an enthusiast in Brazil.
0:03:06 > 0:03:10He sold it to Diageo. And that distilling giant brought it here.
0:03:10 > 0:03:13Competing for rare malts with buyers round the world,
0:03:13 > 0:03:14it helps to be minted.
0:03:14 > 0:03:16Well, our most expensive bottles that we
0:03:16 > 0:03:20have at the moment are £10,000 and we have had a couple of sales
0:03:20 > 0:03:25this year where more than one £10,000 bottle of whisky has been purchased.
0:03:25 > 0:03:29So that had been our biggest sale ever before this year.
0:03:29 > 0:03:33But this year, we have seen a few sales of £30,000-£40,000.
0:03:37 > 0:03:41From more than 100 distilleries, a sprawling global reach.
0:03:41 > 0:03:45Selling into 200 markets, the most recent export figures showed
0:03:45 > 0:03:48every second, 40 bottles shipped overseas.
0:03:48 > 0:03:50America still spends the most.
0:03:50 > 0:03:54Then it is France, although the French drink the most.
0:03:54 > 0:03:57In recent years, the big growth has been further afield -
0:03:57 > 0:04:00South Africa, Taiwan, South Korea,
0:04:00 > 0:04:05and Brazil, which saw its imports of Scotch up 48% in 2011.
0:04:05 > 0:04:07So what has whisky been getting right?
0:04:07 > 0:04:11The head of the industry's umbrella body is Gavin Hewitt.
0:04:11 > 0:04:17Since 2001/2002, our exports have doubled, 100%.
0:04:17 > 0:04:21So we have moved now to £4.23 billion.
0:04:21 > 0:04:23That is the value, as it leaves the country.
0:04:33 > 0:04:36Adverts like these help generate sales of more than £20 billion.
0:04:36 > 0:04:40So who is this classic old world thoroughbred targeting?
0:04:43 > 0:04:46We are appealing to the emerging markets.
0:04:46 > 0:04:50We are appealing to the affluent, the middle-class people who
0:04:50 > 0:04:54are aspirational, people who actually see Scotch whisky as the drink
0:04:54 > 0:04:57of choice, because that is actually telling them that they can afford it.
0:04:57 > 0:05:02As well as that, it means that they are part of a global network.
0:05:06 > 0:05:08Think Scotch in its new markets -
0:05:08 > 0:05:10think cool, glamorous,
0:05:10 > 0:05:13elegant, powerful.
0:05:13 > 0:05:16It needs a bit of help with the lingo from a native son.
0:05:24 > 0:05:27Not much sign of tartan or shortbread here,
0:05:27 > 0:05:31where image detonates explosive growth.
0:05:31 > 0:05:33Works like a depth charge.
0:05:33 > 0:05:35Pow.
0:05:44 > 0:05:47A product with a global market is not anything that peculiar.
0:05:47 > 0:05:50Think of Apple computers, Toyota cars.
0:05:50 > 0:05:53But with whisky, brand works differently.
0:05:53 > 0:05:58It doesn't feel like someone is selling me soap powder or cola.
0:05:58 > 0:05:59What makes this very rare
0:05:59 > 0:06:02is that it is a product which has to be made in one country.
0:06:02 > 0:06:06But what is also unusual about it is that it breaks the rules of globalisation.
0:06:06 > 0:06:10It's not about one giant powerful brand taking over the world -
0:06:10 > 0:06:14although Johnnie Walker is a global brand - it's also about the variety
0:06:14 > 0:06:17that there is of different whiskies, different ages and different expressions.
0:06:17 > 0:06:20The more variety there is, the more profitable it becomes.
0:06:22 > 0:06:24Let's look more closely at those profits.
0:06:24 > 0:06:28In the past ten years, the value of exports has nearly doubled,
0:06:28 > 0:06:33but the volume is up just over a third.
0:06:33 > 0:06:37Growing volume is what helps grow jobs in distilling and bottling.
0:06:37 > 0:06:39But with the value growing much faster,
0:06:39 > 0:06:41that's where profits come from.
0:06:41 > 0:06:45In other words, profit from whisky is rising a lot faster
0:06:45 > 0:06:48than employment. But at least both are growing.
0:06:48 > 0:06:51That wasn't always the case. Let's look back...
0:06:51 > 0:06:53# Whisky, whisky, Nancy whisky
0:06:53 > 0:06:57# Whisky, whisky, Nancy-oh... #
0:06:57 > 0:07:00The industry sprang from the love of a dram - distilled locally.
0:07:00 > 0:07:03It was an early export success.
0:07:03 > 0:07:09Family firms got rich - Grants, Walker, Buchanan, Whyte and Mackay.
0:07:09 > 0:07:13But that doesn't mean they were running the industry that well.
0:07:13 > 0:07:16A lot of whisky industry away back in, say, the '60s and even
0:07:16 > 0:07:19the '70s, it was the seat of the pants. They kind of thought,
0:07:19 > 0:07:22"Things are looking good, we'll produce whisky,
0:07:22 > 0:07:25"X amount of whisky - not worry too much about the stock position
0:07:25 > 0:07:27"or the financing of it or things like that."
0:07:27 > 0:07:30So this was kind of a cottage industry?
0:07:30 > 0:07:32That's a fair description.
0:07:32 > 0:07:35And of course, if you take the big company in the industry,
0:07:35 > 0:07:37Diageo, away back in the '60s and '70s,
0:07:37 > 0:07:41it was the Distillers Company Limited and it was really split up.
0:07:41 > 0:07:45You had individual companies like Johnnie Walker, you had Sanderson's,
0:07:45 > 0:07:49Haig, White Horse, all of these doing their own things, competing
0:07:49 > 0:07:53with one another under the umbrella of the Distillers Company Limited.
0:07:53 > 0:07:56So with many of the leading brands under its umbrella,
0:07:56 > 0:08:00yet in competition, Distillers Company was proudly Scottish,
0:08:00 > 0:08:03with a business footprint in London.
0:08:03 > 0:08:06But should Scotland be proud of it?
0:08:06 > 0:08:09They'd come in Tuesday at lunchtime to start their working week,
0:08:09 > 0:08:11do a couple of days
0:08:11 > 0:08:15and leave Thursday at lunchtime back to their estates or their big house
0:08:15 > 0:08:19in Surrey or their Highland estate, having done a week's work.
0:08:19 > 0:08:22It was a very leisurely business in those days,
0:08:22 > 0:08:24a very patrician business.
0:08:28 > 0:08:29Then came the '80s.
0:08:29 > 0:08:32With the Thatcher revolution, inefficient business
0:08:32 > 0:08:34became vulnerable to a new type of businessman.
0:08:34 > 0:08:39MUSIC: "Big Time" by Peter Gabriel
0:08:39 > 0:08:42It's a matter for the shareholders, it's a matter for the Scotch
0:08:42 > 0:08:47whisky industry and it's a matter for Scotland.
0:08:47 > 0:08:49To understand how whisky went global,
0:08:49 > 0:08:52one business deal was pivotal.
0:08:52 > 0:08:54Ernest Saunders was the boss of Guinness,
0:08:54 > 0:08:57hired to boost the brewer's family fortune.
0:08:57 > 0:09:01He sensed the potential of Distillers Company and launched
0:09:01 > 0:09:03a takeover bid. He locked horns in a battle for control
0:09:03 > 0:09:05with a Scottish entrepreneur.
0:09:05 > 0:09:07It was a bitter and dirty fight.
0:09:07 > 0:09:09So what kind of operator was he?
0:09:09 > 0:09:10He was charming,
0:09:10 > 0:09:13absolutely charming.
0:09:13 > 0:09:17He was one of these men who would, you know, nothing was enough.
0:09:17 > 0:09:20I mean, I used to get a phone call throughout this saga
0:09:20 > 0:09:21almost every weekend.
0:09:21 > 0:09:23"Alf, I've just come off the tennis court."
0:09:23 > 0:09:25Sunday morning, Saturday afternoon.
0:09:25 > 0:09:28He had a big house in Buckinghamshire.
0:09:28 > 0:09:31"I just thought I'd have a chat with you about such and such."
0:09:31 > 0:09:34He was just always available, always charming
0:09:34 > 0:09:39and yet there was something about him that wasn't quite true.
0:09:39 > 0:09:43Saunders gained the backing of Scottish business grandees
0:09:43 > 0:09:44and won control of Distillers.
0:09:44 > 0:09:47But it was a deal built on deceit.
0:09:47 > 0:09:50They promised in their prospectus that they would set up
0:09:50 > 0:09:53their head office in Scotland, and I don't know why the authorities
0:09:53 > 0:09:59did not insist on that, because no sooner had the battle been won,
0:09:59 > 0:10:04than that was quietly dropped and, you know, it just didn't happen.
0:10:04 > 0:10:08Had the head office of what was then Distillers, subsequently Guinness,
0:10:08 > 0:10:12been set up in Scotland, that could have been quite transformational
0:10:12 > 0:10:15in many ways. Not that the industry's doing badly, but to bring a head
0:10:15 > 0:10:21office of that magnitude to Scotland would have been absolutely wonderful.
0:10:21 > 0:10:25Saunders would eventually be jailed for insider share dealing
0:10:25 > 0:10:27to do with the Distillers Bid.
0:10:27 > 0:10:32But his legacy lives on. The company he helped create became Diageo.
0:10:32 > 0:10:38Today, it's a colossus not only of whisky, but also vodka, rum, gin,
0:10:38 > 0:10:39tequila and rice spirit.
0:10:42 > 0:10:44This is the new global headquarters for Diageo,
0:10:44 > 0:10:48a company that last year made more than £3 billion in profit,
0:10:48 > 0:10:50more than a third of that from whisky.
0:10:50 > 0:10:55Now this could, it should, have been a headquarters based in Scotland.
0:10:55 > 0:10:59But instead, it's here in the west side of London, within sight
0:10:59 > 0:11:01of England's Wembley Stadium.
0:11:03 > 0:11:05I keep hearing this familiar tale -
0:11:05 > 0:11:09company headquarters shift out of Scotland, to London and beyond.
0:11:09 > 0:11:13Loss of corporate power can mean a loss of confidence
0:11:13 > 0:11:15as well as spending clout.
0:11:15 > 0:11:17How can Scots ensure they get the most benefit
0:11:17 > 0:11:19from what is produced here?
0:11:19 > 0:11:22And does it matter that Diageo is not headquartered where it distils
0:11:22 > 0:11:25so much shareholder value?
0:11:25 > 0:11:28I think we have 5,000 employees in the UK,
0:11:28 > 0:11:324,000 of them are in Scotland, which says quite a lot right there.
0:11:32 > 0:11:34I think if you had the headquarters
0:11:34 > 0:11:38in Scotland it wouldn't add that many jobs. The jobs are here already.
0:11:38 > 0:11:40They're very good jobs. They're very important jobs.
0:11:40 > 0:11:43They are the heart of our industry and they're the heart of Diageo.
0:11:43 > 0:11:47Diageo is only one player, but it's a very big one.
0:11:47 > 0:11:50It's heading towards 40% of the market.
0:11:50 > 0:11:53The French company Pernod Ricard owns Chivas Brothers,
0:11:53 > 0:11:55and comes next, with 20%.
0:11:55 > 0:11:56Japanese and Indian interests
0:11:56 > 0:11:58are among those accounting for as much again.
0:11:58 > 0:12:01Which leaves just the remaining 20%
0:12:01 > 0:12:04controlled from Scottish headquarters.
0:12:04 > 0:12:06So power lies outwith Scotland.
0:12:26 > 0:12:28What difference does that make?
0:12:28 > 0:12:30And where does it leave the areas which produce
0:12:30 > 0:12:33so much of this valuable commodity?
0:12:34 > 0:12:36I've come to Speyside.
0:12:36 > 0:12:39Around half of Scotland's distilleries feed off springs
0:12:39 > 0:12:41and burns around this glen.
0:12:41 > 0:12:46It's an area of outstanding beauty, but it's got economic challenges.
0:12:46 > 0:12:50Pay rates here are among the lowest in Scotland. Skilled work is valued.
0:12:57 > 0:13:01This is the Cooperage at Craigellachie, where you can see
0:13:01 > 0:13:04what quarter of a million casks look like, while awaiting repair.
0:13:10 > 0:13:14These men's jobs depend on whisky. And the whisky depends on them.
0:13:14 > 0:13:18You've got sherry butts over there brought in from Spain, and
0:13:18 > 0:13:20right here, barrels - these have
0:13:20 > 0:13:23come all the way, it says, from Kentucky.
0:13:23 > 0:13:25Jim Beam Bourbon.
0:13:25 > 0:13:29Made from American oak and about 90% of the wood that comes in here
0:13:29 > 0:13:31is American, the rest, much of it is Spanish.
0:13:31 > 0:13:34One of the strange things about Scotch whisky
0:13:34 > 0:13:37is that although you've got barley, you've got water from Scotland,
0:13:37 > 0:13:40a great deal of the character that you get in Scotch comes from
0:13:40 > 0:13:43this wood, grown many, many miles away from Scotland.
0:13:43 > 0:13:46With bourbon, with sherry infused
0:13:46 > 0:13:51into the wood, giving Scotch so much of its character and its flavour.
0:13:55 > 0:13:57These coopers are paid per barrel.
0:13:57 > 0:13:58And they're driven.
0:13:58 > 0:14:03No time for chat, no water-cooler gossip in this workplace.
0:14:03 > 0:14:06Lots to do, to hit targets, to meet demand.
0:14:06 > 0:14:10Far from the modern marketing, these craft skills remain steeped
0:14:10 > 0:14:11and matured in tradition.
0:14:15 > 0:14:16So much for patience,
0:14:16 > 0:14:20I'm leaving here with the sense of an industry working at full pelt.
0:14:29 > 0:14:31In a less frenetic corner of Speyside,
0:14:31 > 0:14:34one of its malt whisky distilleries.
0:14:34 > 0:14:38Malts are used to flavour blends, which dominate the market.
0:14:38 > 0:14:42Bottlings of single malt represent less than a tenth of volume sold,
0:14:42 > 0:14:45and nearly a fifth of value.
0:14:45 > 0:14:48Billy Walker led a buy-out of BenRiach from Pernod Ricard
0:14:48 > 0:14:52nine years ago, since then roughly tripling its valuation.
0:14:52 > 0:14:56So, here's whisky's question for a country debating its future.
0:14:56 > 0:14:59Small, nimble and independent like this?
0:14:59 > 0:15:03Or better placed fitting into a big player with a big reach?
0:15:04 > 0:15:06The big boys in this industry,
0:15:06 > 0:15:09Pernod Ricard used to own this, Diageo.
0:15:09 > 0:15:12They're putting a lot into marketing and advertising.
0:15:12 > 0:15:14To some extent you've come along in the slipstream?
0:15:14 > 0:15:16We've come along in the slipstream,
0:15:16 > 0:15:19but we're not in the same footprint, you know.
0:15:19 > 0:15:22We're not operating in the mass market.
0:15:22 > 0:15:24We consciously and deliberately do not engage
0:15:24 > 0:15:25with multiple retail stores.
0:15:25 > 0:15:29You can't get BenRiach in a supermarket?
0:15:29 > 0:15:32You cannot get it in a supermarket, and my covenant to the people
0:15:32 > 0:15:34who have helped us in the private
0:15:34 > 0:15:36independent retailers, you will never get it in a supermarket.
0:15:36 > 0:15:39Which makes you happy you don't have to deal with that?
0:15:39 > 0:15:41It makes me very comfortable, and I'm a very happy boy.
0:15:44 > 0:15:47I can see in here, this is no place for a quick buck.
0:15:47 > 0:15:51Maturing product for a market decades from now,
0:15:51 > 0:15:53it teaches you to be patient.
0:15:53 > 0:15:54So, is long-term,
0:15:54 > 0:15:58long-distance thinking another factor that sets whisky apart?
0:15:58 > 0:16:02It's working for investors here, using a foothold in Angola.
0:16:04 > 0:16:07Well, the Chinese of course are investing in all African
0:16:07 > 0:16:11countries at the moment, and there's a lot of oil revenue in Angola.
0:16:11 > 0:16:15So... And as a consequence there's quite a lot of money
0:16:15 > 0:16:18and the duty-free area is probably the most sophisticated area
0:16:18 > 0:16:21in the country, where you will be able to get
0:16:21 > 0:16:24the kind of choice that they might be looking for,
0:16:24 > 0:16:27and of course there's some very, very high value stuff in there.
0:16:27 > 0:16:29And they're attracted to that.
0:16:29 > 0:16:32So the Chinese workers on their way home come through
0:16:32 > 0:16:35looking for pretty high-end product?
0:16:35 > 0:16:39Very high end, top end. And normally they're influenced by the boss.
0:16:39 > 0:16:41So the boss comes in and says,
0:16:41 > 0:16:43"I like the look of a, what, 25-year-old BenRiach"?
0:16:43 > 0:16:46Maybe a 30-year-old, and if he chooses, the rest choose.
0:16:46 > 0:16:49What's a 30-year-old BenRiach going to cost?
0:16:49 > 0:16:52Oh, it could be maybe £400 a bottle.
0:16:52 > 0:16:53That's quite good business for you.
0:16:53 > 0:16:56- That's sweet.- Slainte!- Slainte!
0:16:58 > 0:17:02While BenRiach sells its own malts through independent retail,
0:17:02 > 0:17:06I've headed upstream on the River Spey to see how a different small
0:17:06 > 0:17:09distillery can be a vital, thriving part of a big corporate structure.
0:17:09 > 0:17:14Cragganmore is one of Diageo's 12 Speyside malts.
0:17:14 > 0:17:17I've been in the industry now for over 35 years.
0:17:17 > 0:17:21I have never known growth like we're seeing just now.
0:17:21 > 0:17:25I've never seen the level of expansion within the industry
0:17:25 > 0:17:30to try and meet that expected demand, that expected growth,
0:17:30 > 0:17:32so it's definitely one of the most buoyant,
0:17:32 > 0:17:37the most exciting time that I've seen in whisky so far.
0:17:52 > 0:17:53To meet anticipated demand,
0:17:53 > 0:17:57Cragganmore operates round the clock, round the calendar.
0:17:57 > 0:18:00I'm told distilling here takes only eight people.
0:18:00 > 0:18:03That's one highly productive workforce, at full stretch,
0:18:03 > 0:18:06but nowhere near what the industry needs.
0:18:06 > 0:18:09And that's what explains this place,
0:18:09 > 0:18:12and a lot of metal bashing by Diageo's coppersmiths.
0:18:14 > 0:18:17Roseisle, near Elgin, is distilling on a grand scale,
0:18:17 > 0:18:22producing enough spirit for 35 million bottles of whisky each year.
0:18:22 > 0:18:25We can mechanise things to make it a lot more automated,
0:18:25 > 0:18:29but also make the quality identical every single run of the spirit
0:18:29 > 0:18:32stills, and of the mashing process.
0:18:32 > 0:18:34How many people is it work here?
0:18:34 > 0:18:36We've got ten operators and myself
0:18:36 > 0:18:39and we've also got a business administrator in the office, as well.
0:18:40 > 0:18:44So it's the yeast that does much of the hard work here, rather than
0:18:44 > 0:18:47the scale of workforce I'd expect in such a productive plant.
0:18:47 > 0:18:51There are a lot more jobs in bottling than in distilling.
0:18:51 > 0:18:55Though the job creation is modest, the scale of investment is not.
0:18:56 > 0:19:00This colossal distillery was opened only three years ago,
0:19:00 > 0:19:03and yet the owners are already thinking that they're going to
0:19:03 > 0:19:05have to build another one at least this size,
0:19:05 > 0:19:08and perhaps another one again, in the next five years.
0:19:08 > 0:19:12They've committed up to £1 billion in that investment programme,
0:19:12 > 0:19:17because they reckon that this whisky boom that's going on in global
0:19:17 > 0:19:20markets in South America and Asia and growing into Africa,
0:19:20 > 0:19:23is going to continue, not just for the next five years of investing,
0:19:23 > 0:19:27but for the decades after that when the whisky being made here today
0:19:27 > 0:19:29is going to be put on the market and drunk.
0:19:29 > 0:19:31Learning about the growth so far,
0:19:31 > 0:19:35it's easy to forget there's a lot more potential.
0:19:38 > 0:19:40India is the world's biggest whisky market.
0:19:40 > 0:19:45As I learned when I visited recently, Scotch could take off here.
0:19:45 > 0:19:47But there's been a long-running
0:19:47 > 0:19:50tax dispute with India's distilleries lobby.
0:19:50 > 0:19:52And there's an even bigger challenge,
0:19:52 > 0:19:54here and across the world -
0:19:54 > 0:19:56the threat of poor-quality counterfeit brands,
0:19:56 > 0:20:00which threaten sales and reputation.
0:20:00 > 0:20:03I have five intellectual property lawyers whose job is to look after
0:20:03 > 0:20:07Scotch whisky and to make sure that fakes, as far as possible,
0:20:07 > 0:20:11are taken off the market and we have a zero tolerance policy.
0:20:11 > 0:20:13We have an intelligence network beyond belief.
0:20:13 > 0:20:15And my lawyers are dealing with 70 cases
0:20:15 > 0:20:18at any one day around the world.
0:20:18 > 0:20:22It's a big problem, but we, I think, are largely on top of it.
0:20:22 > 0:20:25I've reported on the other major challenge thrown up by globally
0:20:25 > 0:20:29competitive companies driving for shareholder returns -
0:20:29 > 0:20:30the threat to jobs.
0:20:30 > 0:20:35Summer 2009 in Kilmarnock, there was outrage when Diageo announced
0:20:35 > 0:20:38it would close its Johnnie Walker bottling plant, ending nearly
0:20:38 > 0:20:42two centuries of the leading brand's link with the Ayrshire burgh.
0:20:42 > 0:20:46700 jobs went, with fewer replacement roles in Fife.
0:20:46 > 0:20:50Some argued because Scotch has to be Scottish,
0:20:50 > 0:20:53then Scots should dictate the terms.
0:20:53 > 0:20:55I say this is such a campaign.
0:20:55 > 0:20:57This rally demonstrates it.
0:20:57 > 0:21:02And we are going to achieve something for the workforces of Scotland.
0:21:03 > 0:21:05Diageo disagreed.
0:21:05 > 0:21:08Diageo got its way.
0:21:08 > 0:21:10The Kilmarnock decision was very painful
0:21:10 > 0:21:12and I was involved in those discussions.
0:21:12 > 0:21:17It was a very painful, difficult decision, and I think we...
0:21:17 > 0:21:22we behaved, I hope when we look back, and I think it already, we look back
0:21:22 > 0:21:25and say we did a job of best practice in looking after those people.
0:21:25 > 0:21:27We talked to them individually, many of them
0:21:27 > 0:21:30stayed on and are now working, you may have seen some of them,
0:21:30 > 0:21:35in Fife in our other plants, and many of them
0:21:35 > 0:21:39moved onto other successful jobs and I think we did that well.
0:21:45 > 0:21:47Challenges and opportunities.
0:21:47 > 0:21:50Scotch is not just valuable to Scotland,
0:21:50 > 0:21:53but those export earnings are prized by Government here in London, too.
0:21:55 > 0:21:58I've learned this is a product that can surf
0:21:58 > 0:22:01the wave of globalisation, but it does so on terms often
0:22:01 > 0:22:04dictated by powerful companies, where the benefits are widely
0:22:04 > 0:22:08dispersed and governments can wield little more than the power to tax.
0:22:08 > 0:22:12Whisky fuels the current debate about who controls Scotland's future
0:22:12 > 0:22:14and its economy.
0:22:16 > 0:22:19Among those who love the aroma of Scotch whisky
0:22:19 > 0:22:21are the mandarins here at the Treasury.
0:22:21 > 0:22:24You can almost smell it wafting through
0:22:24 > 0:22:27the corridors of Whitehall power, and it's no wonder that when the
0:22:27 > 0:22:30Chancellor sets out his budget each year at the Commons dispatch box,
0:22:30 > 0:22:36tradition dictates that he fortifies himself with a dram of Scotch.
0:22:36 > 0:22:39And in an industry worth some £5 billion a year,
0:22:39 > 0:22:42it's reckoned less than £2 billion of that comes to
0:22:42 > 0:22:45Scotland in purchase of supplies and in wages.
0:22:45 > 0:22:49Is it enough? I asked the economist Professor John Kay.
0:22:49 > 0:22:51I think the benefits to Scotland
0:22:51 > 0:22:55of the whisky industry are really quite disappointing.
0:22:55 > 0:23:01The largest producers of Scotch whisky are not based in Scotland.
0:23:01 > 0:23:03Er...they don't...
0:23:03 > 0:23:08Their profits mostly go to people who are not resident in Scotland.
0:23:08 > 0:23:11They don't pay very much tax in Scotland,
0:23:11 > 0:23:16and we don't think they pay very much tax in the UK.
0:23:16 > 0:23:19That's a picture the industry rejects.
0:23:19 > 0:23:23We have already faced and already enjoyed over £1 billion
0:23:23 > 0:23:27of investment into Scotland in the last four years.
0:23:27 > 0:23:29I will put my head on the block now
0:23:29 > 0:23:33and say that we're going to enjoy £2 billion of investment
0:23:33 > 0:23:36into the Scotch whisky industry in the next three to four years.
0:23:36 > 0:23:40Of course, it's perhaps this very success that makes getting
0:23:40 > 0:23:43more out of the industry rather tempting.
0:23:43 > 0:23:47Well, I think the question becomes whether there's some way
0:23:47 > 0:23:51we could levy a production tax on this
0:23:51 > 0:23:56and a tax of a few tens of pence a bottle.
0:23:58 > 0:24:02That's not very significant in terms of the overall retail price
0:24:02 > 0:24:05that people are paying for whisky, but it could generate revenue,
0:24:05 > 0:24:09which in a Scottish context would be quite significant.
0:24:13 > 0:24:16So what's being suggested is a tax on every bottle of whisky
0:24:16 > 0:24:18produced in Scotland.
0:24:18 > 0:24:21It would be the same amount for every litre
0:24:21 > 0:24:23leaving the production line.
0:24:23 > 0:24:25In each bottle, there's quality, myth and mystique,
0:24:25 > 0:24:28but the unique ingredient is Scotland's water,
0:24:28 > 0:24:31and Holyrood already has the power to tax that.
0:24:31 > 0:24:35We commissioned research on how much that could raise.
0:24:49 > 0:24:51That's all assuming the whisky companies absorb
0:24:51 > 0:24:53the tax from their profits.
0:24:53 > 0:24:56In austere times, is such a revenue-raiser something
0:24:56 > 0:25:00our political leaders in London or Edinburgh might want to look at?
0:25:00 > 0:25:02I ran the numbers past a former chairman of the Royal Bank
0:25:02 > 0:25:06of Scotland, who chaired the First Minister's economic council,
0:25:06 > 0:25:08Sir George Mathewson.
0:25:08 > 0:25:14Well, it could in theory result in less sales overseas.
0:25:14 > 0:25:19I question that, in as much as the prices...
0:25:20 > 0:25:26..50p or whatever it is, would not be a major percentage of the sales
0:25:26 > 0:25:30price, it's also highly profitable as I understand it,
0:25:30 > 0:25:37so it would seem to me there's room there for some movement.
0:25:37 > 0:25:38Would you expect much pushback?
0:25:38 > 0:25:44If this idea were pushed forward, clearly a lot of it would
0:25:44 > 0:25:49come from lower sales or lower profits within the industry.
0:25:49 > 0:25:53Um... I would expect pushback, yes, I would.
0:25:53 > 0:25:56But I do think the numbers that
0:25:56 > 0:26:00- I- have seen make it worthwhile investigating.
0:26:00 > 0:26:05To be absolutely honest, I cannot see why any government would
0:26:05 > 0:26:11actually apply a production tax which would make Scotch whisky less
0:26:11 > 0:26:15competitive overseas against drinks - spirit drinks or any other
0:26:15 > 0:26:19alcoholic drinks, which are cheaper to produce and cheaper to sell.
0:26:21 > 0:26:23From here in Leven in Fife,
0:26:23 > 0:26:25I watched this most Scottish of products
0:26:25 > 0:26:28being packed up and taken around the world.
0:26:28 > 0:26:31I've seen how whisky has brought pride, identity,
0:26:31 > 0:26:34jobs and global success to Scotland.
0:26:34 > 0:26:37But the industry warns against any attempt to levy more taxes.
0:26:40 > 0:26:42Well, I hope it wouldn't happen. I think it's poor economic strategy.
0:26:42 > 0:26:46I think it's poor industrial strategy.
0:26:46 > 0:26:51I think if the argument in an economy is to take a successful business
0:26:51 > 0:26:54and then tax it, keep taxing it because it's successful,
0:26:54 > 0:26:56I think is the wrong impression.
0:26:56 > 0:27:00Those who like the idea believe the industry has nothing to fear.
0:27:01 > 0:27:04Well, I would not wish to harm it, is the first thing.
0:27:04 > 0:27:08I don't believe it would be substantially harmed
0:27:08 > 0:27:12and I believe that the success could be spread around a little more.
0:27:16 > 0:27:19I've learned a lot about this industry on my travels.
0:27:19 > 0:27:23About a traditional product sold in a modern way around the globe,
0:27:23 > 0:27:27and about what that means to us back in Scotland.
0:27:27 > 0:27:28I've even taken time to learn
0:27:28 > 0:27:31a thing or two about the whisky itself,
0:27:31 > 0:27:33and how to appreciate its complexity.
0:27:35 > 0:27:41I'm now getting Columbia and Venezuela...
0:27:41 > 0:27:44A bit of Singapore, Korea,
0:27:44 > 0:27:47distant hints of Vietnam and India, strong, strong
0:27:47 > 0:27:53note of profitability, and the salty tempestuous oceanic trade winds.
0:27:53 > 0:27:58Because this is, in a sense, the modern economy in a glass.
0:27:58 > 0:28:01It's a product which reaches into almost every country in the world.
0:28:01 > 0:28:04It's a sort of liquid currency.
0:28:04 > 0:28:06And for all the myth that's built into the marketing,
0:28:06 > 0:28:10there's nothing mystical about the way that it approaches these
0:28:10 > 0:28:12modern, highly competitive markets,
0:28:12 > 0:28:16because this is seen as a threat in some parts of the world.
0:28:16 > 0:28:19But it's also been established as the desirable,
0:28:19 > 0:28:21aspirational drink to be seen with.
0:28:21 > 0:28:24So whether or not there's enough payback to its home country,
0:28:24 > 0:28:28this is a Scottish success story worth toasting.
0:28:28 > 0:28:29Slainte!
0:28:51 > 0:28:54Subtitles by Red Bee Media Ltd