How to Solve the Bourbon Shortage

Just when we’re getting over the damn lime shortage now we have to worry about a bourbon shortage?

Thanks to roving reporter Joe Anzalone, it’s another great write-up from Matthew Yglesias that has our attention as we head in to the weekend. Because we’ve been hearing a lot recently about the potential bourbon shortages facing the market, but thinking through the solutions is something that rarely gets discussed. For a little background, Yglesias’ commentary nails the issue spot on. Unlike most consumer goods where an increase in demand triggers an increase in production, the challenge with bourbon and all aged spirits is that the production cycle is way to long to adjust to wavering demand in real time. Aging, the thing that makes us love bourbon is the same thing that keeps the distilleries from simply pumping out more product.

Before we get too hung up on the issue at hand, it’s worth realizing that the timing of this latest “crisis” is in lockstep with slight price increase across much of the industry. You can effectively argue that the shortage is causing the price increase but you could easily skeptically argue that it’s a nice story to ensure consumers accept the price increase just as well. Either way, we’ve seen some interesting market corrections like this before (think Maker’s Mark dilution scandal) and to be honest I’m not so sure it matters much. Point is, more people are drinking bourbon, the production of bourbon is a long cycle, and therefore some out of the box solutions are required.

I like Yglesias conversation starter around building a “Future’s Market” for whiskey production. He recognizes the challenges in the approach being that not all bourbon is created equal, therefore complicating the potential contracts at hand, but it does have interesting implications for such a booming industry. Financial market solutions may help curb the price adjustment issues but another approach could be in production innovation.

We are already starting to see distilleries find methods for drastically speeding up the aging process. With anything related to production short cuts, there will always be a conflict between “authenticity” and “efficiency” but as more and more geeks get into the business we’re bound to see some real advancements in aging. Aging seems simple but there are a number of variables big distilleries are starting to play with (barrel surface area, temperature variation, etc.) and more will come. Bourbon is uniquely positioned to take advantage of these production innovations because “age” while important is less crucial for consumer choice. Sure, the most expensive bourbons tout their age as a major selling point, but I doubt anyone reading this can say off the top of their head how long the standard Buffalo Trace bourbon is aged for.

Regardless, it’s an interesting time to be a bourbon drinker and worth keeping tabs on the “shortage” situation. I wouldn’t go run out and stock up just yet, but then again, maybe…

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