Australia’s spirits industry has the potential to follow the wine industry and become a $1 billion export powerhouse by 2035 under the right policy settings, according to new economic modelling released today.

The Spirits Industry Competitiveness Plan prepared by research firm Mandala, and commissioned by the Australian Distillers Association and Diageo Australia, reveals policy and regulatory barriers, such as Australia’s high excise tax, are thwarting the potential of Australia’s spirits industry.

Australia’s emerging spirits industry currently supports 5,700 jobs in manufacturing, with almost half of the country’s 701 distillers located in regional areas. The spirits industry attracts 631,000 visitors annually, with distillery visits now the fastest growing tourist activity for overnight domestic visitors in Australia.

Despite this, the industry is still growing with 88 per cent of all distillers having fewer than 20 employees and more than half of distilleries less than five years old. Australian spirits exports also remain small when compared to the wine industry and international competitors, demonstrating an enormous opportunity for growth.

“While there has been an overall increase in the number of distillers in Australia, the average size of distilleries is declining, and many are not scaling as it is either too challenging or not worthwhile. This is primarily driven by the high excise tax, which is restricting businesses' ability to reinvest in their company and attract investment,” the report says.

The report states the federal Government can play a key role in helping to unlock the potential of the Australian spirits industry and simultaneously meet some of its own policy goals, including to grow Australian manufacturing and support regional jobs.

By taking key steps, including freezing twice-yearly increases to Australia’s spirits tax and establishing a ‘Spirits Australia’ body to support the industry’s growth, Australian spirits can go from being a $210 million export market in 2022 to a $1 billion export market by 2035.

This would create an additional $111 million in direct economic contribution and support almost 878 new FTE jobs, many in regional areas.

Australian Distillers Association chief executive Paul McLeay said: “This report proves what distillers right around this country already know, that Australia’s spirits tax has significant implications for the competitiveness of the spirits industry and the ability for distilleries to scale and attract investment.

“We welcome the federal Government’s move to set up a parliamentary inquiry into expanding innovation and value addition in food and beverage manufacturing, and we look forward to lending our expertise to those discussions.

“However, we already know the current spirits excise regime is limiting the opportunity Australian distillers have to expand and grow their businesses, and that by freezing it, we can grow regional jobs, tourism and manufacturing.”

Diageo Australia Managing Director Dan Hamilton said: “Australia’s spirits industry has enormous promise and Diageo has a strong track record in investing in great Australian spirits brands, but this report clearly demonstrates current policy settings are limiting the industry’s growth.

“Our consumers, who are having to pay $38 in tax for every 1 litre bottle of Bundaberg Rum, know this tax is not sustainable. Now, this report makes it clear that it’s also limiting the foreign direct investment which could drive industry and export growth.

“Having seen first hand the way Japan cultivated and grew its spirits export industry, I am confident Australia has all the hallmarks of being able to do the same, however, that cannot begin to occur until the government freeze’s the tax on spirits.”

Mandala Managing Partner Amit Singh said: “Our analysis shows that while Australia is 6th in the world in wine exports, we’re 29th in the world in spirits exports. Even though we perform better than the global average for spirits exports potential, we’re significantly behind the global lead pack.

“If Australia exports at its full trade potential, performing as efficiently as the UK, France, Singapore, Ireland, Mexico, we could export $1 billion of spirits annually by 2035 at our current rates of growth.”