Thursday, July 5, 2018

Some Perspective on the Barton Warehouse Collapse



Two weeks ago, we told you about the partial collapse of Warehouse 30 at the Barton 1792 Distillery in Bardstown, Kentucky. Yesterday, not surprisingly, the rest of it came down. The photographs and videos are certainly dramatic, approximately 18,000 barrels of whiskey, each one holding 53 gallons and weighing 500 pounds, in a massive pile, with pieces of the roof and other debris scattered about.

No one was injured in either collapse.

The story is all over social media and many people are blowing it way out of proportion. Obviously, it is a bad accident, but it doesn't imperil Sazerac, the distillery's owner, nor will it have a significant impact on the industry as a whole. It is a drop in the bucket. There are currently 6,657,063 barrels of whiskey aging in Kentucky. The barrels affected in this incident represent about 1/3 of 1% of that total, and that's just in Kentucky. There are a few million more aging in Tennessee, Indiana, and other states.

Although they are rare, events like this do happen. As a precaution, every warehouse contains a mix of different products at different ages, mitigating the impact of accidents on inventory planning.

Sazerac, America's third largest whiskey producer, won't miss a beat.

The warehouse was about 80 years old. It was a wooden structure, covered with a thin steel skin. While the exact cause has not been determined, it isn't hard to figure out the factors that may have been involved: an old, wooden building; a very wet spring, and a tremendous amount of weight. These things happen from time to time. The most unusual fact about this incident is that there wasn't a fire. There usually is a fire.

As it is, the biggest concern is keeping whiskey from smashed or leaking barrels from getting into the creeks that surround the site, which all empty into the Beech Fork River. If you watch one of the longer videos, you can see there is a massive earthmoving operation going on at the base of the hill, creating a barrier to keep the alcohol out of the stream.

After the initial collapse, the Kentucky Environmental Protection Agency reported that approximately 500 fish were killed. When alcohol gets into a waterway, algae feed on it and deplete the water of oxygen. The fish die of asphyxiation.

After a warehouse at Wild Turkey collapsed and burned in May of 2000, officials of the Kentucky Department of Fish and Wildlife Resources announced that a 28-mile-long 'dead zone' was floating down the Kentucky River with the current, killing everything in its path. It was the worst fish kill in Kentucky history. About 227,000 fish died, including paddlefish, catfish, shiner minnows, spoonbills, carp, gar and saugers. Wild Turkey was assessed and paid a large fine.

As you can see from the pictures, many of the barrels appear to be intact. They are made from white oak, which is pretty stout stuff. There are no estimates yet as to how many can be salvaged, and the effort will take a long time. Barrels will literally have to be removed one by one, probably using some kind of crane to avoid disturbing the pile.

There probably were distilleries on the Barton 1792 site before 1876, but that was the year Tom Moore and Ben Mattingly established the Mattingly & Moore Distillery there, with financial help from John Willett, Mattingly's father-in-law. Moore's mother was a Willett too, so it was all in the family. In 1879. Moore established the Tom Moore Distillery right next door and that is the plant that eventually became Barton. (The year 1792, which is the name of the distillery's flagship product, is the year Kentucky became a U.S. state. It otherwise has no significance to the history of the distillery.)

Barton is pretty ideally situated on the edge of Bardstown. The distillery itself is in the valley, at the spring. Most of the warehouses are on a high plateau above it, to maximize air circulation. Although a small part of one original building was incorporated into the distillery, most of it was built in the 1940s. Sazerac bought it in January of 2009. Sazerac also owns the Buffalo Trace Distillery in Frankfort, and a maturation and bottling operation in Owensboro at the site of the Glenmore Distillery.

Although this accident is surely unfortunate, and the clean-up will be costly and time consuming, everything and everyone is going to be just fine.

Sunday, July 1, 2018

In Bourbon Country, Fall Begins Today



No, the leaves haven't changed and the thermometer tells a different story, but July 1 is the first day of the fall distilling season in America's whiskey distilleries.

Division of the year into two distilling seasons was codified in the Bottled in Bond Act of 1897 and later incorporated into the Federal Standards of Identity for Distilled Spirits as Subpart B, Sec. 5.11 'Meaning of terms.'

The significance of this rule is shown in the photograph. For a distilled spirit to be labeled 'bonded' or 'bottled-in-bond' it must, among other things, have been entirely distilled within a single distilling season, either spring (1/1 - 6/30) or fall (7/1 - 12/31) of a given year. Although the law no longer requires disclosure of the distilling season on the label, it still obliges producers to adhere to that limitation.

Designating the two seasons as 'spring' and 'fall,' rather than in some other way, has even deeper roots. Traditionally, distilling was a seasonal enterprise, mostly taking place in the fall, after the harvest was in, when grain was most plentiful and cheapest, and when farmers were available to work as distillery hands. Distilling would then continue into the winter months, with a short break around Christmas and New Year, until the grain ran out or the weather got too hot, whichever came first.

As the research being done at George Washington's distillery at Mount Vernon has shown, distilling in those days involved a lot of very hard, physical labor. It was also hot work, from boiling water to cook the mash, which had to be stirred by hand, to the hot copper stills themselves, distilleries were hot and smoky. Better to do that sort of thing in the fall and winter than in the heat of summer. Also in those days, without the technology to control fermentation with chilled water, the yeast had a tendency to work too fast in hot weather, leading to lower yields.

Today, although technology makes it possible to distill all year, and the current high demand for American whiskey makes it an economic necessity, distilleries still typically take a summer break—usually in August—to give workers a vacation and to clean, maintain, and upgrade the equipment.

If you plan to tour a distillery this summer, check first to make sure they will be operating during your visit.

So while it is too early to break out the candy corn, you may want to raise a glass to the new distilling season that starts today.

Monday, June 25, 2018

The Rest of the Sourced Whiskey Story



A few weeks ago, NBC News posted a story and video with the headline "Behind the misleading claims fueling America's bourbon boom." They did a good job with it. It was well told and accurate, despite the overheated headline.

Stories about whiskey sourcing appear from time to time and that's good too, It is an aspect of the industry most people don't understand, and there are shady operators out there who exploit that ignorance.

But there are a few parts of this story most journalists miss.

(1) Sourced whiskey is nothing new.

(2) Whiskey sourcing is not inherently sinister.

(3) It's not all coming from MGP.

First, some history. It took a long time for distilled spirits to become an industry in the United States. Distilleries, like most things, were local. You bought your whiskey or other spirit directly from the person who made it, or from a local retailer who did. It was only around the middle of the 19th century that it became an industry. The Coffey still made it possible to produce a large volume of product, and the railroads made it possible to get that product to distant markets quickly and economically.

For the most part, distilleries simply distilled and aged the product. Most were located in the country, close to their raw materials: water and grain. They sold most of their output to distributors who bottled it and created brands, and marketed them far and wide. Back then, virtually all whiskey was sourced whiskey.

After 1905, technology made bottling more practical, beginning a trend toward vertical integration.

That trend continued when the industry came back after Prohibition, but sourced whiskey never went away. Some distilleries continued to sell most of their output to distributors and most distilleries sold at least some of it that way.

There are two ways to buy sourced whiskey. The first is bulk whiskey, where you buy whiskey the distillery has made and aged at its own expense that is ready to drink. The other is contract, in which you buy new distillate and either pay the distillery to age it for you, or take it and age it yourself.

As the industry contracted when bourbon sales collapsed in the 1970s, there was a lot of excess distilling capacity. Because sourced whiskey (bulk or contract) tends to be a low margin business, most distilleries that specialized in it were early casualties. The distilleries that survived primarily made and sold their own brands, but since most of them had excess capacity they were happy to do contract distilling for anyone who asked, and they were happy to sell bulk whiskey when they had excess inventory, which most did through the 70s, 80s, and into the 90s.

What we now know as MGP in Lawrenceburg, Indiana was originally owned by Seagrams. It is a big distillery that makes both neutral spirits (i.e., vodka) and whiskey. It primarily made Seagrams Gin (which uses neutral spirit) and Seagrams blended whiskeys such as Seagrams Seven Crown (which combines straight whiskey with neutral spirit).

In 1999, the entire Seagrams company was sold for parts. Diageo got the blended whiskey brands. Pernod got the Lawrenceburg distillery and Seagrams Gin. Diageo contracted with Pernod to keep making the blends, but there was nothing to prevent them from making them somewhere else in the future. Likewise, Pernod could make its gin somewhere else. The Lawrenceburg distillery, then about 70 years old and showing its age, began to look like a surplus asset. Pernod announced its desire to sell the plant and said they would close it if they couldn't find a buyer.

Because sales of the Seagrams blends were declining, Pernod found itself with more whiskey in its aging warehouses than it needed, so in about 2005 it quietly began to sell some of it in bulk. The makers of Templeton Rye were among the first buyers and as has been well documented, they went to great (and illegal) lengths to hide the source.

Eventually, Pernod sold Lawrenceburg to Angostura, the distilled spirits division of a large insurance and financial services company in Trinidad and Tobago. Along with a lot of other things, that company crashed in the 2008 worldwide financial crisis. Without financing from their failing parent, the Lawrenceburg distillery was forced to go it alone, selling whatever they could to whoever would buy it just to keep the lights on.

MGP bought the distillery in 2011 and their timing was great. All of a sudden, the market for both bulk whiskey and contract distilling was booming. Margins improved. MGP was sitting pretty.

But through all this, MGP was never the only or even the primary seller of sourced whiskey. A few of the major distilleries had always sold it as a regular part of their business. They included Heaven Hill, Barton (then owned by Constellation), and Sazerac's Buffalo Trace. Brown-Forman didn't sell bulk but they did a lot of contract distilling at their Shively plant. Virtually every other major distillery sold bulk from time to time, whenever their forecasts predicted a surplus in a particular age range.

But as the bourbon boom got even boomier, those producers increasingly needed both their stocks and their capacity to support their own brands. Contract producers stopped accepting new contracts or permitting current customers to contract for greater volumes. Brown-Forman stopped doing contract distilling altogether. MGP became the only game in town.

Today, supplies of bulk whiskey are still very tight, but a lot of new contract distilling capacity has been created. In addition to contract distilling, MGP is investing in building up its bulk whiskey stocks and many of the new producers, such as Bardstown Bourbon Company, are doing the same. In addition, long time non-distiller producers such as Luxco and Michter's have built their own distilleries, becoming distillers. As their house-made whiskey reaches maturity, they will exit the sourced whiskey market as buyers and perhaps re-enter it as sellers, so the whole dynamic is changing.

Meanwhile, the majors continue to unload their surpluses into the market from time to time. Maker's Mark and Jack Daniel's are just about the only distilleries that never need to do this.

Although they are losing their hegemony, all this is not bad news for MGP. It means the business is becoming more competitive but MGP's CEO, Gus Griffin, is a smart guy who knows the business well. He already has begun to develop house brands to diversify away from the low margin sourced whiskey business.

Meanwhile, stories like the NBC News one are making consumers smarter and more skeptical about sourced whiskey, especially mediocre products with fancy bottles, big price tags, and dubious origin stories.

Friday, June 22, 2018

Partial Warehouse Collapse at Barton 1792



At about 11AM EDT this morning, without warning, a whiskey aging warehouse at the Barton 1792 Distillery in Bardstown partially collapsed. No one was injured but about 9,000 barrels are affected, according to Nelson County Emergency Management spokesman Milt Spalding. Although the visible barrels appear remarkably intact, they may be leaking. So far, according to officials, water in the nearby Beech Fork River has not been impacted.

The building, which is about 60 years old, was being repaired. Bardstown Fire Chief Billy Mattingly said the part still standing is very unstable and may collapse as well. The warehouse held a total of 20,000 barrels.

There is no way to say yet how many barrels were lost. Intact barrels, still full, can be salvaged. Even so, the financial cost surely will be in the millions, not just from lost whiskey but also the cost of replacing the building. New warehouses cost about $2 million each. As for the whiskey, the value of a barrel will vary according to its age but let's say a full barrel is worth about $2,000, a low estimate. A loss of 9,000 barrels adds up to $18 million.

Here is one mitigating factor. Because accidents happen, distilleries don't put all of their eggs in one basket. Every warehouse contains a mix of barrel ages, from newly-filled to fully mature.

As the images show, the warehouse was built at the edge of a hill and that is the side that collapsed. This has been an unusually wet spring throughout the region. One possible reason for the collapse is subsidence caused by oversaturated soil. Barton 1792 is owned by Sazerac. As of now, the company has not made any announcements about the accident.

Click here for some drone-shot video of the scene.

Sazerac has released the following statement:

Barton 1792 Distillery is confirming it did have an incident with one of its barrel warehouses, Warehouse #30 today, Friday, June 22nd around 11 a.m. EDT. 

One side of the barrel warehouse collapsed causing structural damage.  No one was inside the warehouse and there were no injuries. 

The Distillery team took proactive measures to access and contain the damage immediately.  The Kentucky Department for Environmental Protection has been on site and the Distillery team implemented a number of actions to minimize any environmental risk.

Barrel Warehouse #30 was built in the 1940s and held approximately 18,000 barrels.  We believe no more than half of the barrels inside are impacted; we are assessing how many of the impacted barrels can be recovered.  A mix of various distilled products at various ages were stored in that warehouse.

The Warehouse incident will not affect normal operations or tourism activities; the Distillery expects to be open for tours on Saturday and it will resume normal business operations on Monday.   Barton 1792’s normal “summer shutdown,” which is when bourbon distilleries shut down for a short time period in the summer for repairs and routine maintenance, began last week. This will not affect bourbon production once the Distillery’s summer shutdown time period ends as already planned.   

It may be several days or weeks before a full assessment of the damage to Warehouse 30 at Barton 1792 is fully complete.  At this time we do not know which Barton 1792 brands or customers will be impacted.

Thursday, June 14, 2018

Elijah Craig Did Not Make the First Bourbon



One of the most persistent bourbon myths is the one about Elijah Craig. Here is a typical example, from Alexis Lichine's New Encyclopedia of Wines & Spirits: "Early in the colonial history of America, a Baptist minister, Elijah Craig, established a still in Georgetown, Kentucky and began producing whiskey from a base of corn. The still is said to have been one of the first in Kentucky and customers in neighboring towns christened his product Bourbon County Whiskey, from the county of origin."

The myth can be traced to Richard Collins, whose History of Kentucky was published in 1874. Collins does not identify Craig by name, but writes that "the first Bourbon Whiskey was made in 1789, at Georgetown, at the fulling mill at the Royal spring." This claim is included, without elaboration, on a densely-packed page of short statements under the heading 'Kentucky firsts.' 

Collins does not attempt to substantiate the claim nor has any evidence ever been produced to support it. Craig was a real person—a major character in early Kentucky history—and he was a distiller. He also operated a fulling mill at the Royal Spring in 1789, so there is little doubt that Collins intended to attribute this milestone to Craig. What is lacking is any evidence that Craig’s whiskey was unique in its day, that it alone had somehow been elevated from the raw, green, corn distillate made throughout the frontier to the bourbon whiskey we know today.

In addition to a lack of any evidence to support the Collins claim, which was made almost 100 years after the fact, there is another, more significant problem about connecting the Craig claim to bourbon’s name. Craig's distilling operation was never in Bourbon County, even with the shifting of county boundaries that took place during Kentucky's early history. Craig didn’t move, but the boundaries did as new, smaller counties were created from older and larger ones. Craig's site was first in Fayette County (1780), then Woodford (1788), then Scott (1792), but never Bourbon. 

In Craig's day, making whiskey was commonplace, universally viewed as an economic and personal necessity. It was only much later, in Collins’ time, that making and consuming whiskey became controversial. Collins himself sympathized with the prohibitionists who would eventually outlaw whiskey, but distillers and their supporters were quick to embrace his assertion that bourbon was 'invented' by a respected Baptist preacher. This does not explain why Collins attributed the invention of bourbon to Craig, but it does explain why that legend has endured.

Now, of course, it is in the interest of a certain distillery to keep the myth alive. 

Tuesday, June 12, 2018

Buffalo Trace Updates Bourbon Shortage Status



I don't generally publish press releases. I am publishing this one for two reasons. (1) It contains a lot of interesting information. (2) I wish everybody would put out something like this. Don't you?
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Thirsty Drinkers Cope with Scarcity amidst Bourbon Shortage

Buffalo Trace Distillery Now Investing $1.2 Billion to make more  

FRANKFORT, FRANKLIN COUNTY, KY (June 12, 2018) In 2013, Buffalo Trace Distillery looked at its bourbon inventory, current sales, and 20 year sales projections and determined it had a problem: fans were drinking more bourbon than the company had predicted. In short, the company was facing a bourbon shortage. 

So it took the next logical steps: put bourbons most in danger of running out on allocation, warned fans there might be periodic shortages at the liquor stores, increased distillation, added more bottling lines, and hired more employees, including a dedicated position to watch and balance bourbon inventory. The company thought these steps were the appropriate reaction to the problem, rather than raising prices to slow sales or compromising taste or quality to bottle more by diluting proof, or bottling barrels before they fully matured.

Now, five years later, the bourbon boom is still booming, Bourbon sales continue to grow in the United States by five percent annually. The number of new brands has exploded as consumers seek more variety. Over 1,500 craft distilleries dot the landscape across America. The craft cocktail scene has arrived and a new bourbon bar seems to open weekly.

Those national trends are good news for Buffalo Trace Distillery who has more barrels coming of age over the next 12 months. Fans of Buffalo Trace Bourbon will enjoy finding more bottles available in 2018, but the company still suspects it will not be enough to meet demand.

There’s good news on other brands too, like Eagle Rare, W. L. Weller, E. H. Taylor Jr, and Blanton’s Single Barrel, as all of these brands will see more barrels come of age and bottles produced in 2018.

The Distillery will continue to bottle other fan favorites such as Van Winkle, George T. Stagg, Elmer T. Lee and Sazerac Rye as barrels mature, but unfortunately there will be little growth on these brands.

The company expects the majority of its whiskeys will still be on allocation, and will continue bourbon allocations across the U.S. to ensure each state receives some.

“When I started with the company in 1995, we filled 12,000 barrels a year. Today the growth seems moderate, but when you think about how far we’ve come, it’s actually phenomenal, considering when we’re on track to produce 200,000 barrels this year,” said Harlen Wheatley, master distiller.

All that growth takes capital investment, and Buffalo Trace is in the early stages of spending $1.2 billion over the next 10 years at this National Historic Landmark. Already, two new barrel warehouses are complete with new barrels being loaded inside. The third is going up rapidly, and the foundation has been started for the fourth. When complete, each of these new warehouses will hold 58,800 barrels of whiskey. The plan is to build one new warehouse every four months for the next several years. Each warehouse cost $7.5 million to build and $21.0 million to fill with barrels.

Each warehouse will be insulated, an industry first, to protect it from the cold Kentucky winters, when bourbon lies dormant inside a barrel when temperatures drop. Already, Buffalo Trace is one of the few distilleries to steam heat its existing warehouses, now another layer of environmental protection has been added with insulation. 

But all those barrels means whiskey production must be increased too, which is why Buffalo Trace is in the process of replacing its boilers (some of which have been in place since the 1950s) and is preparing its site to add a new cooling tower next summer. The cooling tower cools down the water that is used for cooling down the grain after its cooked into mash. 

Also next summer, the Distillery plans to add four new cookers, twice the size of the existing cookers. Plus, four new fermenters will be installed. These 92,000 gallons fermenting tanks will be same size as the existing fermenters - the largest in the distilling industry.

As whiskey production capacity increases, the distllery expansion will displace the main bottling operation at Buffalo Trace. So a new bottling hall is being built at a cost of $50.0 million which will improve efficiency, flexibility and overall quality. The move is expected to be complete by the end of 2018.

Buffalo Trace Distillery would like to stress that while the bourbon shortages are prevalent on all of its brands, they speak only for themselves, not for the entire bourbon industry. 

Although Buffalo Trace is moving forward aggressively with expansion plans, allocations will continue, with no foreseeable end in sight.  Buffalo Trace Distillery would like to thank its customers for their continued support and to ask them to remain patient as they endeavor to make more bourbon. Unfortunately, you can’t cheat Father Time when making good bourbon!

About Buffalo Trace Distillery

Buffalo Trace Distillery is an American family-owned company based in Frankfort, Franklin County, Kentucky. The Distillery's rich tradition dates back to 1773 and includes such legends as E.H. Taylor, Jr., George T. Stagg, Albert B. Blanton, Orville Schupp, and Elmer T. Lee.  Buffalo Trace Distillery is a fully operational Distillery producing bourbon, rye and vodka on site and is a National Historic Landmark as well as is listed on the National Register of Historic Places. The Distillery has won 21 distillery titles since 2000 from such notable publications as Whisky Magazine, Whisky Advocate Magazine and Wine Enthusiast Magazine. Its Col. E. H. Taylor, Jr. Four Grain Bourbon was named World Whiskey of the Year by “Jim Murray’s Whiskey Bible 2018.”  Buffalo Trace Distillery has also garnered more than 500 awards for its wide range of premium whiskies. To learn more about Buffalo Trace Distillery visit www.buffalotracedistillery.com

Monday, June 11, 2018

International Law? There Is No Such Thing



WARNING: No bourbon content.

In their criticism of the Trump administration's recent policy change, regarding separating the children of asylum-seekers from their parents upon arrival, many have cited the 1951 United Nations Convention Relating to the Status of Refugees and its 1967 protocol that says the U.S. must recognize refugees that fear persecution and are not able to get help from their home country. They say that by arresting asylum-seekers and putting their minor children into protective custody, the U.S. is in violation of that international law.

I don't approve of that policy, nor did I approve of the U.S. invasion of Iraq in 2003, but both events raise the question. What is international law? Here is something I wrote in 2004.
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On September 17th, United Nations Secretary General Kofi Annan said in an interview with the British Broadcasting Corporation World Service that he believed there should have been a second U.N. resolution to determine the consequences of Iraq's failure to comply over weapons inspections.

Asked if he viewed the invasion of Iraq as illegal, he said: "Yes, if you wish. I have indicated it was not in conformity with the U.N. charter--from our point of view, from the [U.N.] charter point of view, it was illegal."

When politicians and commentators talk about international law, they usually fail to explain that what is called 'international law' is very different from the ordinary, everyday law to which you and I are subject. If we break a law and are found guilty by a court, we can go to jail, be required to pay a fine, or required to pay some sum of money to another person. Ultimately, the jurisdiction in question (whether it be a city, state, or nation) has the authority and power to enforce its rulings, by force if necessary, and they usually do so without hesitation.

If, like most people, that is what you think of when you see the word 'law,' then by comparison 'international law' is practically a euphemism.

Advocates of international law would like everyone to equate it with the common understanding of the word 'law.' That is why they use the term. But if there were truth-in-advertising in international rhetoric, the term 'international law' would have to be banned.

International law consists of a web of multilateral and bilateral agreements among and between sovereign states. The first 'international laws' were trading agreements that became standardized and to which most nations subscribed. Today, the various courts of international law operate under the auspices of the United Nations. If you understand the United Nations to be to international law what the State of Illinois is to Illinois law, you can begin to see the problem. Persons, whether natural (you and me) or unnatural (corporations), are subject to Illinois law. The state of Illinois can send armed officers to take me into custody to enforce its laws. It can order my bank to give it my money. It can even kill me.

With international law, sovereign nations are the subjects. What can the United Nations do to a member nation found guilty of violating an international law? If the United Nations imposes sanctions on a nation, it relies on its member states to abide by the sanctions regime. International law only works when it is in everyone’s interest to go along. When it is not, they don’t, and there isn’t much anyone can do about it.

Unless, that is, they have a military and the willingness to use it. Then so-called international law can provide a handy rationale for military action.

In an Illinois courtroom, at least ideally (and, in fact, in most cases), the law applies equally to everyone. This may be true of international law in theory, but in reality it is always political.

Nations voluntarily submit themselves to the various bodies charged with hearing cases and making rulings about alleged breaches of international law. They can cooperate during a trial and then say, “no thank you” to the verdict, or they can say “no thank you” to the entire process.

As a rule, nations abide by international law except when they don’t. When they don’t, the political part kicks in, first prodding and persuasion, then maybe sanctions, which might or might not be effective at punishing the violator, depending on the violator’s susceptibility to international pressure and on the willingness of other nations to bring it. Imagine if the IRS collected taxes that way.

It is often said that the United States Constitution “is not a suicide pact,” meaning that any right can be reasonably limited when permitting its full exercise would threaten the nation. Likewise, international law is not a suicide pact. Sovereign nations never will submit voluntarily to rulings that threaten their sovereignty and the United Nations has no independent ability to compel them to submit.

So, the United States invokes international law to defend its invasion of Iraq and the war’s opponents invoke it to condemn the invasion as illegal. Who is right? Neither? Both? Both sides have a case but, ultimately, so what?

That is what 'law' means when you put an 'international' in front of it. Ultimately, not much.