The Malt Whisky Yield Curve

by Daniel on December 4, 2003

This is a piece I’ve been thinking about for around a year and have now finally got round to writing up now that the Cardhu Scandal has made it arguably topical again. Basically it’s an idea for anyone who wants an easy way into thinking about capital theory. I’ve thought for a while that the booze industry ought to be used much more as an example for people thinking about time and production, because it allows you to abstract from considerations of technology and the production process; there are any number of ways to produce a chair, some more time-consuming that others, but there’s only one way to produce a cask of ten-year-old whisky[1]; start with a cask full of nine year old whisky and wait. The fact that time is intrinsically part of the production process for wine and brown spirits is why you see “capitalised interest” on the balance sheets of drinks companies; part of the economic cost of whisky production, and therefore part of the eventual sale price and the value of the goods, is the interest foregone during the process of maturation. It’s this interest element which I’m going to concentrate on.

I’ve picked whisky as my example rather than wine, because it’s a product which is more homogeneous over time than wine. Unlike vineyards, whisky producers don’t have vintage years, because whisky is a more industrial and less agricultural product; the growing conditions of the grain make less of a difference to the finished product than they do with grapes. Therefore, there aren’t so many considerations of whether a particular year was “good” or “bad” when it went into the barrel to deal with; the capitalised interest element is the most important reason why older whiskies cost more than younger ones. I couldn’t abstract entirely from these kinds of issues, as you’ll see below, but it was possible to do quite a lot even under the aggressive simplifying assumption that all whisky is homogeneous.

I managed to dig up two datasets; one from the Scotch Malt Whisky Society and one from the WhiskyWeb high end vintage malts catalogue. The SMWS dataset is larger, and it’s more concentrated toward the younger end of the yield curve. It’s also, I think, more homogeneous in the types of malts on offer; the SMWS, as far as I can tell, is selling for the most part whiskies from smaller distilleries rather than the megabrand single malts, and it seems unlikely to me that there will be a lot of variation in the rarity of the malts on offer. The SMWS is also a mutual society rather than a profit-making concern, so I have less to worry about in the area of strategic pricing behaviour. For this reason, I’ll mainly be concentrating on this dataset.

My first step was to go through the current SMWS catalogue on the web, noting the age and price of all the whisky they’re selling through their website (30 data points in all). The next thing to do is to adjust for tax, since UK excise duty is charged at £19.65 for every 1% of alcohol strength per 100 litres, rather than ad valorem [2] Plotting and eyeballing the data below, it’s clear that the relationship is there.


In order to get anywhere, though, we need an estimate of the non-time-related costs of whisky production (mainly excise duty, but also grain, water, fuel and overhead). There’s a number of approaches one could take to this, but I decided on the simplest one I could think of that wasn’t absolutely obviously wrong. I took logs of the prices (because we’re dealing with compound growth rates here) and regressed log price on age, as below:


The regression equation suggested that the intercept of the simple log growth equation was 2.9877, and the antilog of 2.9877 is 19.84, suggesting a notional price of about twenty quid for raw single malt spirit straight out of the distillery. That strikes me as not so bizarrely out of line with the price of a bottle of vodka (an unaged grain spirit) as to be unusable, so I’m sticking with it. As shown lower down, this is quite an important number, though; I’d be grateful for any opinions on what a correct number might be.

Once you’ve got the price of a bottle of whisky of zero age (Pedants may at this point say that it can’t be called whisky if it’s less than three years old), it’s easy to compute the implied rate of return of a bottle of X year-old whisky selling for Y. Here’s the scatterplot, with a fairly boneheaded scatterplot smoother thrown in using Excel’s “Moving Average Trendline” function.


I wouldn’t read too much into the downward slope of the yield curve on this chart; it’s just kicked around a bit by the fact that there’s only a few data points at the short end. I would take away from this scatterplot that the realised rate of return on malt whisky in the cask over the last forty years has been surprisingly constant at four percent, give or take fifty basis points.

One might have expected a positive slope in this yield curve, if one thinks that whisky in the cask gets better at an ever-increasing rate (possibly a whisky snob’s a priori belief), or if one were to think that, as the Cardhu case proves, the supply of properly aged whisky is incredibly inelastic, older whiskies would have a rarity value. But I don’t think you can support this with the data. I played around with my spreadsheet until I got some signs of visible upward slope (basically, at a raw spirit cost of around £24 or above), and you get this chart:


I don’t think that the implied rates of return on the younger malts are credible; they’re well below the rate of return on money in the bank, so why would people be selling? (Also, my guess is that the implied forward rate of appreciation of an 8-year old bottle as it turns into a 10-year old bottle would be implausible). On this criterion, my log-linear estimate of £19.84 looks quite good; the lowest data point is 3.4%, so almost everyone’s earning more from whisky in the cask than the money rate of interest. My guess is that, within the SMWS dataset, the older spirits on offer are from less prestigious distilleries, so any time-varying rarity premium is being offset by a negative distillery-specific premium. Since I couldn’t conveniently get a list of the distilleries from the SMWS website (it could be done, but it seemed more trouble than it was worth [3]), I didn’t check up on this.

Modelling the effects of rarity premia is probably best done with the WhiskyWeb dataset. This is a short but expensive catalogue of older, more prestigious malts. There are fewer datapoints (25), and they range from 16 years to 66 years[4] old, so I felt uncomfortable putting them on a scatterplot. I’ve tabulated them below, sorted by distillery and then by age. Note that I’ve not tax-adjusted the prices because I’m not at all clear on the excise duty position of WhiskyWeb; I crudely altered the implied raw spirit price to sort of compensate. This probably accounts for some of the very low (c2.5%) implied rates of return on some distilleries.


What one gets out of this is first, that the estimate of four percent still looks pretty OK, even going out to some really rather old whiskies. Second, there are clearly distillery-varying premia between distilleries (Macallans seem to do much better, for example), and the very very old whiskies do appear to have an age premium; the assumed upward slope is there if you go out far enough. I’m mildly surprised about the distillery-specific premia in the growth rates (I’d have assumed that the premia would be there simply in the young whiskies, and that growth thereafter would be simply determined by the time value of money). Maybe the best malts age better, or maybe there is more demand for them so they get rarer as they get older.

So there you go. The internal rate of return on Scotch malt whisky in the cask since the war has been four per cent for whisky to be sold today. Mine’s a Chivas.

(For classroom discussion; How does this “malt whisky yield curve” relate to the more normal bond market curve? What rate of return might you expect today on spirit being distilled today?)

[1] Go on, spell it “whiskey” in the comments. I dare you. I just dare you.
[2] I assumed that the prices quoted were for a standard 75cl bottle at cask strength (50%), giving excise duty per bottle of £7.37.
[3] Perhaps a curious decision given the time and trouble gone into this piece overall …
[4] WhiskyWeb gives the “vintage” (year of distillation) rather than the age for most of its whiskies; I hand calculated the age and this might be a source of errors, given that some of the whiskies where they do give an age, it doesn’t seem to match up too well with the stated year of distillation.



Mrs Tilton 12.04.03 at 7:14 pm

If your’s is a Jameson’s, it’s ‘whiskey’ you’ll be spelling it.

Your round; Black Bush for me.


dsquared 12.04.03 at 7:19 pm

Please note that the above comment now makes no sense because I have edited the piece, sorry.


David W. 12.04.03 at 7:20 pm

It’s a sweet sixteen year-old Glenrothes for me that hits the spot.

Seems like an single-malt investment club is in order, also.


Jeremy Osner 12.04.03 at 7:27 pm

B-but isn’t vodka made from potatoes?


dsquared 12.04.03 at 7:31 pm

Vodka is basically any neutral spirit, so you can make it out of anything, including sugar beet if you are a woefully low-end brand white spirits producer. But the sort of vodka that the sophisticated cosmopolitan readers of CT might actually drink is usually a grain spirit.


Brad DeLong 12.04.03 at 7:38 pm



Carlos 12.04.03 at 7:55 pm

I love you, man.


Ted Barlow 12.04.03 at 8:04 pm

What is the effective definition of “neutral spirit”?


Mrs Tilton 12.04.03 at 8:34 pm

It’s your prerogative, of course, to edit the piece ex postfacto. Those who control the past control the future, or something.

Now you’ll excuse me as I pour myself a wee dram of Talisker before retiring.


Mrs Tilton 12.04.03 at 8:38 pm

Brad DeLong writes:


Close enough, for a Sasanach.

‘Vodka’, while we’re at it, is a diminutive for water, ‘whiskeen’ as it were.


Tom Runnacles 12.04.03 at 9:06 pm

Glenmorangie, please.


nick sweeney 12.04.03 at 10:13 pm

One first thought: the big difference between the age/rarity premium of whisky and that of wine is that malt doesn’t age in the bottle. Meaning that it’s not just a question of taking a bottle of 1924 Sandemans and keeping it well-cellared for 80 years, as is the common practice with most Oxford colleges. You have to have a distillery that’s confident enough of its long-term future to keep casks aside, and in good condition, rather than choosing to bottle at an earlier age, or flog off the casks to a blender.

So, I suppose the main economic distinction between a bottle of 1960s Petrus and a 40-y-o Macallan is that the distiller bears the burden of sitting on his hands while the casks take up space, where as the winemaker gains a premium, if any, from giving buyers the right to take the wine en primeur and sit on their hands for 40 years.

The Cardhu scandal is interesting, I suppose, because it directly addresses dsquared’s ‘distillery-specific premium’, and points to another phenomenon: the transition from distillery-specific branding to more modern, advertising-driven branding in whisky sales: think ‘duty-free shop’ or Lost In Translation if you need that distinction clarifying. So, Diageo’s saying ‘sod the composition, we’ve spent millions pushing the name’.

Personally, I’m amazed that ‘premium’ versions of Johnny Walker sell for such ridiculous prices around the world: I suppose that it has the advantage of being ubiquitous for foreign travellers, just as Jack Daniels is the preferred drink of the Formula One crews. The same curious position also applies to those blended Scotches which dominate the US/world market — Black & White, Dewar’s, Vat 69, Cutty Sark, Ballantine’s — none of which really register to most Brits, accustomed to Bell’s, Famous Grouse and Whyte & Mackay. (Or, if you’re discriminating, Black Bottle, which is very very good for a blended.)

I do wonder what the yield curve is on Johnny Walker, though? I suspect it’s higher than single malts; or at least, those malts which haven’t received the big marketing push along the lines of Talisker, Laguvulin et al. However, I’d be open to an analysis which compared the yield curve of a blend to those of its component parts. Not that I’m asking the management to perform such a task.

Mine would be a Port Ellen if I could afford to buy it and find justification to drink it. (Sigh.) So I’ll content myself with an Ardbeg 17.


nick sweeney 12.04.03 at 10:50 pm

One last thing: the ‘pure malt’ thing isn’t Diageo’s invention: most supermarkets in the UK offer own-label malts for each region, and while the Highland, Lowland, Island and Speysides are usually labelled ‘single malt’, the Islays are almost all labelled ‘pure malt’, suggesting (though never stating outright) that they’re vatted malts. Which is understandable, given that all the remaining Islay distilleries have such strong brand identities. The only own-brand Islays that are definitely single malts are sold by M&S and Oddbins (Bowmore and Bruichladdich respectively, if you believe the rumours).


wcw 12.04.03 at 11:01 pm

as an occasionally disturbed aficionado, I enjoyed this. it all mostly makes sense, too, except for the intercept.

see, the IRR on whisky should be more like cash than a bond, since once it’s old enough to bottle and sell, you can do so at any time. sure, the old stuff goes for more, but the new stuff can be sold now. in the aggregate, that’ll behave like a bunch of commercial paper.

it’s just that I don’t think a bottle measure of spirit is worth $30 out of the distillery, even accounting for the higher proof of cask strength. but that’s a question for the whiskymakers, not me.

I can’t pick just one. I’m a huge fan of almost anything Ardbeg, Glenfarclas, Highland Park or Springbank. especially those pricey bastards at Springbank. the Sub Pop of the scotch world, sure, but did you get any of that 12/100 they exported to the US some years back. drool, drool, drool…


dsquared 12.05.03 at 8:21 am

see, the IRR on whisky should be more like cash than a bond, since once it’s old enough to bottle and sell, you can do so at any time

Give that man a dram! absolutely correct.


Doug Muir 12.05.03 at 12:22 pm

Credit where it’s due; a lovely piece of work.

Why aren’t you publishing this stuff?

Pretty strictly beer and wine, with the very occasional finger of Balkan brandy.

— Damn, it’d be fun to try this for slivovitz — more like whiskey than wine, but the price structure is distorted by massive government intervention. And always has been; moonshining and smuggling have been regional specialties for a long, long time.

Doug M.


Ashok V Desai 12.05.03 at 12:44 pm

I think that 4% you got was the current interest rate on a liquid asset such as a bank deposit. It would vary, and so should the whisky prices. The whole vintage price curve should go up and down with the interest rate.


Jay Currie 12.06.03 at 6:38 am

All of which suggests that there is a crying need for whiskey futures. If you can do it with lame years in France, there is surely a way for a Scot to make a quid discounting the sure thing of whiskey in the cask.

In principle a cask of whiskey,discounting the rarity premium and charging a mild risk premium for the possibilty of VAT and excise increases, should have a present value at which it could be sold. Or, better still, drunk when you are seventy.


al 12.11.03 at 3:52 pm

Very interesting!

Had you decoded the number references SMWS uses to label their bottles? The first number denotes distillery, second is a bottling code. There are some very big names among the distilleries the society bottles.

It might also be worth pointing out that the SMWS whiskys are single cask malt bottlings (rather than single malt) and are often atypical of the distilleries they come from (partly why they don’t use the names). Two whiskies from the same distillery and of equivalent ages can have very different characters due to the woods of the casks and may be priced differently as a result. Prices at SMWS are likely to be quite varied and not necessarily reflecting the price you might expect for an equivalent bottling under the name of whichever distillery the spirit originally came from.

I’ll look into the price of unaged spirit for you – pretty sure I have some info about it somewhere.


al 12.11.03 at 5:19 pm

I remembered that my whisky books are in a bookcase in the Welsh Borders and I am in London. These links might interest you in the meantime although they don’t really answer your question. Another thing I forgot was the “Angel’s Share” – approx 2% loss in alcohol by volume per year when whisky is aging in wood. Presume you left that out deliberately though.

Those links:


al 12.12.03 at 1:35 pm

Having thought about this some more, I suspect there are a few more niggles here (sorry for the pedantry!):

1. The assumption that the SMWS prices reflect a standard 75cl bottle at cask strength (50%) is flawed. SMWS cask strength is cask strength. Most are over 55% by volume, many are over 60%.

2. SMWS outturn is generally approx 300 or 600 bottles, depending on the cask. Since they are single cask bottlings, each one is automatically going to be ‘rare’ (although, I guess, not necessarily ‘good’). Unusual finishes are even more rare and unusual malts are mainly what SMWS is about. At least one bottling from a cask formerly used to store chillis for tabasco sauce has been done by them.

3. I am a little cautious of the Whisky Web dataset. Rough-and-ready calculations based on the date of distilling don’t tell you how long the whisky has been in wood. From what I can see there are at least some entries which are ‘younger’ than the distillation date would suggest. As Nick Sweeney points out further up in the comments, a malt ages in wood, not in the bottle.

4. There is a tendency for some malt drinkers to believe that the old days were better and some of the distilleries had (still have in many cases) some pretty weird practices. New stills are often deliberately dented to match the knocks on those they replace. Because of this, whisky distilled way-back-when has a degree of premium attached regardless of how long it was in wood. It’s difficult to estimate how this affects price.


mark 01.05.04 at 5:36 pm

For a distllery, the cost price of production of a litre of pure alcohol of ‘new spirit’ is between .85 pence and £1.50. I think this might change the IRR somewhat.

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