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Cognac producers race against time as Trump returns to power
On the day that Donald Trump returns to the White House for a second term as US President, trade data show that Cognac producers have shipped extra supplies to America in advance of potential tariff increases.
In December LVMH’s Hennessy, the largest producer, increased the amount of Cognac it delivered to the US by 17% compared with November. That was an increase of a third compared with shipments in December 2023 according to data supplied to Reuters by ImportYeti.
Courvoisier, which was bought by Campari from Suntory for €1.1 billion early last year, more than doubled its exports to the US in December compared with November and those in December 2023.
Cognac surge
Other producers are thought to have used the same tactic to fill distribution pipelines despite a significant lessening of America’s appetite for Cognac due to top price rises and the effect of inflation on consumers’ pockets.
It is also believed that distillers of both Scotch Whisky and Tequila have advanced shipments in bids to beat potential tariff increases.
No spirits producers have commented publicly on whether they have shipped extra stocks.
America is the largest market for Cognac and the pre-Covid trade dispute in Trump’s first term has not been forgotten.
In 2020 the US imposed a 25% tariff on Cognac as an adjunct to the ongoing spat about alleged subsidies to both Boeing and Airbus.
These were later set aside, but not rescinded, while negotiations took place, but unless the US Congress repeals the existing legislation, the tariffs will be automatically reimposed on April 1.
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Trump’s tariffs
Even if that were to happen, Trump has threatened to impose his own penalty tariffs on all goods imported to the US to correct trade imbalances and encourage support for US producers.
A similar special tax on single malt scotches in 2020 was reckoned to cost distillers about £6 million a day in lost sales until it was dropped.
Meanwhile, demand for luxury goods in the US is showing signs of improvement.
Credit card spending on luxury brands in December turned positive for the first time in more than two years, while Swiss jewellery and watchmaker Richemont reported strong US sales in the final quarter of 2024.
Both LVMH and Remy Cointreau are due to issue their latest trading figures at the end of this week. They will be watched with keen interest by analysts for any signs of an upturn. Remy Cointreau has previously warned that the rest of its financial year will be very disappointing while Moet Hennessy has been discounting widely to shift existing stocks at the cost of lowering its margins.
However, analysts at Barclays have signalled a US positive trend for luxury spending, saying LVMH’s wines and spirits division has “started to see some improvement for Hennessy in the US.”
Luxury liquor
Meanwhile, Cognac was hit in 2024 by weak global demand and trade tensions with China, the industry’s second-largest export market.
Cognac exports to China dropped by 75% in December compared with last year after Beijing hit producers with a deposit scheme of up to 40% while it examines whether the French producers “dumped” the spirit at uncompetitive prices to the detriment of Chinese distillers.
That does not augur well for sales in advance of the key Chinese New Year season, which welcomes the Year of the Wood Snake next week.
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