The 1898 Pattison Crash and 50 difficult years for Scotch

The claim that the Pattison Crash ‘symbolically brought an end to growth in the whisky industry for nearly fifty years’ originates in Michael Moss and John Hume’s The Making of Scotch Whisky (p127) and was repeated by Charles MacLean in Scotch Whisky: A Liquid History (p160). 

There is no doubt that the whisky market crashed in the late 1890s, and the failure of the Pattison whisky empire has always been cited as a key contributing factor – although arguably the problems associated with speculation and overproduction were already causing difficulties in the industry.

But did the Pattison Crash really end the growth in the whisky industry for 50 years?

In the short term, the whisky market had to come to terms with a vast oversupply of stock. Years of speculation had resulted in millions of gallons of whisky set aside in warehouses in anticipation of future demand. When the bubble burst, and demand was insufficient to drain the whisky from the warehouses, some companies failed and many speculators sold off their stocks cheaply, depressing prices and profits for distillers, brokers and blenders alike.

At the same time as there was a glut of whisky on the market, there were trends which restricted demand. The British government, for example, began to tax spirits more heavily than ever before with a succession of duty increases: whisky became very expensive in its most valuable market – the UK – at a time when there was an economic recession. The number of operating distilleries in Scotland fell from a peak of 161 in 1899 to 120 in 1912.

The outbreak of the First World War in 1914 served to exacerbate the difficulties for the industry, as foreign markets were cut off by military action, most notably by the U-Boat campaign in the Atlantic.  There was also a shortage of materials – most pot still distilleries had to shut down entirely in 1917 to conserve vital cereal stocks required to feed the nation, while grain distilleries were diverted to activities such as the production of industrial alcohol for the war effort. 

The aftermath of the First World War presented challenges as well as opportunities. The US introduced Prohibition in 1919, and it was no longer possible to ship whisky legally to the US for ordinary consumption (although some distillers continued to export to countries such as Canada and to Caribbean islands such as the Bahamas, for ‘re-export’ to America). A short-lived recovery ended in the late 1920s and a deep recession followed the Wall Street Crash in 1929. There were just 84 distilleries operating in Scotland in 1927, and the number continued to fall, to just 15 in 1933.  Production plummeted. 

A brief revival in the industry’s fortunes after the Great Depression was set back again by the outbreak of the Second World War. Although Britain attempted to continue the supply whisky to the US market to earn vital US dollar currency, shipping routes were disrupted and markets across the world were cut off by German, Italian and Japanese military activity. Shortage of raw materials led to an almost total shut-down in distilling once again, until there was just a single whisky distillery operating in Scotland in 1944. 

The post-war boom in Scotch whisky was hindered, ironically, by a shortage of mature Scotch – the industry had been unable to manufacture sufficient amounts of whisky during the war years to meet the demand that soared after 1945 and rationing and shortages of materials (which continued in the UK for several years after the end of the war) placed further constraints on production. Whisky production in Scotland did not return to the peak level of 1899 until the 1950s, other than for a brief spell in 1938-39. The development of foreign markets was held back until the 1970s by continued shortages of mature stock, despite booming demand after the war.

However, the first half of the 20th century was not entirely one of gloom and doom. Every crisis presents opportunities, and fortunes were made by brokers who bought up stock when it was cheap, and sold on when demand rose. There was a considerable amount of consolidation in the industry and DCL – the forerunner of Diageo – emerged as the industry leader, bringing a degree of order to the whisky market.  After 1933, there was a large amount of investment in whisky-making in Scotland, from North American companies such as Hiram Walker, Seagram and National Distillers.  The seeds of the boom in Scotch whisky, which began in the 1950s, might be said to have been sown during the first half of the 20th century.

The What is Whisky controversy did indeed arise during the early years of the recession in the trade. A Royal Commission was set up in 1908 to look at the issue after it had attracted a great deal of attention in the press, and especially by a decision by Islington Borough Council in London to prosecute wine and spirits merchants for selling spirits as Scotch whisky which the Council deemed not to fit that description. 

The Commission took evidence from a wide range of people involved in the whisky trade and gave its judgement in 1909 – that “’whiskey’ [sic] is a spirit obtained by a distillation of a wash saccharified by the diastase of malt, that ‘Scotch whiskey’ is whiskey, as above defined, distilled in Scotland.”  The judgement effectively confirmed that whisky could be labelled as Scotch whether it came from a pot or a patent still, or was a blend of the two, so long as it was made in Scotland. The definition has been refined over the years, but has remained consistent in law ever since (see the Scotch Whisky Regulations of 2009, the most recent legislation passed in the UK).