The Trump administration had imposed a 25% tariff on certain European spirits in an escalation of the ongoing Airbus/Boeing trade dispute, which saw many European spirits caught up as collateral damage. The aggressive trade negotiation strategies under Trump are now being replaced by the more pragmatic approach of Joe Biden’s democratic office and therefore armagnac producers with strong ties to the US have good cause for optimism. An initial four-month suspension on mutual tariffs between the EU and US was implemented in March this year and now EU trade commissioner Valdis Dombrovskis has reportedly put forward a proposal to extend this to six months. However, while the uncertainty of EU-US trade relations take the strain, other big players in the east are ready to prey on the wounded.
During a recent online discussion held by Vinexpo New York, Robert Tobiassen, president of the National Association of Beverage Importers in the US, said: “I was surprised it was four months and not six months. Under US trade law you can suspend up to 180 days. June is going to be a really pivotal month this year because that’s when the decisions will have to be made before the tariffs are due to end in early July.” According to the Bureau National Interprofessionnel de l’Armagnac, the US is the second biggest export market for armagnac behind China, and the imposed tariffs from the US sent a wave of fear throughout the French region.
“It was a real hostage-taking situation that we experienced overnight. We had a gun pointed to our head,” says Olivier Goujon, director of the BNIA. “An armagnac that le our cellars at €100 arrived at €125 over there. We were no longer in our market category within the spirits sector, in terms of product positioning.”
Barkley Stuart, executive vice president of federal government affairs for Southern Glazer’s Wine & Spirits, one of the US’ biggest distributors, adds: “I believe the largest impact is in creating uncertainty. After tariffs were imposed we have had to look at our pricing, with a four-month pause pricing will not adjust. Order cycles will be impacted as tariff is imposed when the item arrives in the US. “I think there is reason to view the suspension as positive and encouraging, however, there are no guarantees it will be extended. There is a new trade regime with the new administration. I believe the approach will be to look for a comprehensive negotiated agreement.”
DOUBLE BLOW
Traditionally the US has been one of the biggest export markets for armagnac, alongside China. According to figures provided by the BNIA, the US experienced an 11% drop in volume exports in 2020 while China was down almost 31%.
These figures can largely be attributed to the impact of Covid-19, but for producers who trade with the US, the implementation of the new tariffs on EU spirits at the close of last year was a double blow. Denis Lesgourgues, third-generation family member of Laubade in the Bas Armagnac region, values the US as its number one export market.
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“When I heard the news on December 30, I was very anxious because it was not good news at all, and it was a shame because our sales were going very well despite the pandemic,” says Lesgourgues.
“We’re now praying that it won’t just be for four or six months, but forever. When I heard the news about the deal between the UK and US I was hopeful that the EU would go in the same direction.”
In 2000 Lesgourgues’ father bought out their distributor in New York, which has provided the company with a much more flexible and adaptable approach in the US. Lesgourgues adds: “We are very fortunate to have our own subsidiary in New York and so we were at a huge advantage to other brands because we held immediate talks and didn’t have any orders cancelled. In the long run it would have been a real problem for us having the added 25%, but we were able to limit the impact.
“In the US we’ve actually seen a 43% increase in total sales in 2020 on the previous year, boosted by off-trade of course, which we’ve never seen before – the brandy category in the US is doing well right now.”
At the other side of the EU’s tug-of-war trade rope is Asia, with China remaining armagnac’s largest export market by volume, ahead of the US. However, China has also endured a similarly strained relationship with Europe over the past few months due to discrepancies over China’s human rights standards getting in the way of positive trade negotiations. President Xi Jinping is now pushing the EU hard to cooperate with China and show it more respect on the global trade map, but many armagnac producers have no time to waste and are looking to strike their own deals in the east as the US tariff spat continues across the Atlantic.
Tobiassen adds: “It is clear that the Biden administration wants to rebuild trade relationships with traditional allies. We [the US] have trust issues with Europe and right now there’s a bidding war between China and the US for rebuilding relationships with Europe and they have to decide what is the safest course.”
Jérôme Castledine, commercial director at Bordeneuve Châteaux & Collections, says: “The past 18 months we’ve had a real focus on Asia and it’s proven really successful. We’ve had the best start to the year we’ve had in a long, long time and it’s certainly not through the domestic market because that’s virtually dead – it’s the exports which are performing well. Volumes are up but also what they’re ordering is changing. “I find that the Asian market is a lot more open to armagnac. They love French products and the more craft they are the better and it’s much easier to work with them than it is with some of the more developed markets, which can feel like a constant battle at times.”
FOCUSED STRATEGY
One producer which sees China as a long-term target is Arton in the Haut region. The brand has been under new management since January with second-generation husband and wife team Jean and Lili de Montal taking over the reins from Jean’s father, Patrick.
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“Because we’re a small brand in terms of volume we have to have a focused strategy in terms of marketing and distribution, which is something that we are bringing to the company,” says Lili de Montal, whose family originates from China. “My father in law is passionate about the quality of the armagnac we produce, while my husband and I are now driving the growth of the business. Of course it’s integral to have a great product, but just having the best quality armagnac isn’t enough to grow the brand and so marketing is important too.
“We’ve been studying the market over the past year and we have a growth plan for the first three years, and a second phase over the following five years. The first phase will be focused on economy growth and development of distribution and with this we prefer to do fewer markets b
ut execute them very well.
“We see China as a huge opportunity for Domaine d’Arton, because through specialist importers such as MOQ Wines we are positioning ourselves to really thrive in the country. I believe armagnac is the perfect fit for the Chinese market because not only is it authentic with lots of history, but brands such as Arton are fully traceable, which the market loves.”
Despite coming off the back of a global pandemic and various trade disputes with its two biggest international markets ongoing, armagnac producers have a surprisingly high cause for optimism. Biden’s desire to heal US-EU relations may put to rest the steep tariffs in the west, while the sheer size of the Asian market represents a huge opportunity with the right strategies in place. One common factor for nearly every producer however, is that the continued poor performance of the domestic market is doing nothing to encourage them to look inwards.
