No more boom and bust?

Fast-forward to the present. We have another diamond jubilee and another great whisky boom, though this time fuelled more by a global demand for Scotch than patriotic fervour. First came the news that Chivas Brothers, the whisky arm of Pernod Ricard, will continue to invest £40 million a year in Scotch, including the reopening of a mothballed Speyside distillery next spring. The aim is to increase Pernod's whisky production by a quarter. Within a week that story was buried by its arch-rival Diageo, which coolly announced it would blow a billion pounds on whisky over the next five years.

"The industry is now putting serious money where its mouth is," says the whisky writer and former marketing manager at Glenmorangie, Ian Buxton. Diageo's investment covers expansion of existing distilleries, construction of new warehousing and a brand new distillery on a scale similar to Roseisle which opened three years ago near Elgin. And, if that is not enough to quench the world's thirst for whisky, plans are already in place for a second distillery.

The sum may have been inflated to grab the headlines, for as Buxton points out, "It includes the working capital needed to finance this immense lake of whisky through maturation and distribution. So it's not really a billion – it's half a billion, but that is still a shed-load of money."

He claims within months of Roseisle opening, people at Diageo were saying it wasn't big enough. That is despite Roseisle being the biggest distillery built for a generation with 14 stills and a capacity to pump out 10 million litres of pure alcohol a year – more whisky than would have been produced by those seven late Victorian distilleries put together.

On top of the 25 employed at Roseisle, Diageo says its latest investment will create 110 jobs, many for young people, including coopers and coppersmiths. It will also create around 250 jobs in construction and support an estimated 500 jobs in the wider economy.

At the same time, Chivas is to reopen the Glen Keith distillery in Banffshire and expand four existing distilleries, including Tormore and Longmorn, and build a new bottling hall in Paisley.

Only 10 years ago it was a different story. Whisky was being sold at a loss for as little as £6.80 a bottle in UK supermarkets – the same as the cheapest vodka. While all whisky must spend at least three years in oak in a warehouse, vodka is drunk almost hot from the still. "If it's cold it's sold" is the mantra of that industry, which was making vast sums from brands such as Grey Goose. Vodka was the cool, mixable spirit that had long overtaken whisky even in its homeland. Whisky was what old men drank, at least in Scotland.

The low prices were proof that the infamous whisky loch of the 1970s had not drained away completely. The whisky loch was the result of what proved to be wildly over-optimistic forecasts from previous decades. Like the proverbial supertanker, the industry takes a long time to change course. When word from the bridge reached the engine room that all was not well, the warehouses were already full to the brim with maturing spirit. In May 1983, DCL, the dominant force in the industry and precursor to Diageo, was forced to cull 11 of its 45 malt whisky distilleries. Within two years a further 10 were shut. Some were later brought back to life, but the rest disappeared for good. Surely the industry risks a repeat of that?

Not according to Christian Porta, head of Chivas Brothers. "The world in 2012 and the world in 1980 is a completely different place" he says. "Thirty years ago, where was Scotch whisky consumed? Essentially in western Europe and North America."

His view is shared by Dr Nick Morgan of Diageo, who talks of rising GDP and demographic changes in developing economies. "That wasn't happening in the sixties and seventies, but it's happening now and provides a significant imperative for an industry like Scotch whisky which is based on the long-term laying down of stocks."

Billy Walker, who has been in the business for more than 40 years, running Burn Stewart and now Glendronach and its sister distillery Benriach, is equally upbeat. "With the events of the past five years, you'd have said this was probably going to be a bad time for the industry, so why wasn't it affected? The reality is that in the current climate if you're in a job you have never been in a better position with interest rates that have never been lower."

For Walker this has meant a solid, mature market for Scotch, "on to which you are bolting a recovered Russia, an emerging China and India and a recovering South America. In addition Africa is a relatively untapped market. I don't think there are any weak links in the chain."

For Porta, the potential has to be seen to be believed. "I went to a smaller Chinese city a few weeks ago – small being 2.5m people, in the middle of China. When you visit the bars and nightclubs and you see all the young Chinese drinking whisky it can only reinforce your confidence. You go to Mexico City or Sao Paolo and it's the same story." But in Europe, where one-third of his whisky is sold, surely it's more uncertain?

"I think one has to be a bit careful when one looks at all those headlines about crises in the eurozone. If you add up the northern European part which continues to be in pretty good health that compensates for more difficult markets in the south."

The future is all about luxury brands. "In China there is no standard whisky – the entry point is Chivas 12-year-old."

While global market leader Johnnie Walker would no doubt say it is the pre-eminent brand, not Chivas, it illustrates the degree of planning involved. "You're having to make predictions about what people will be drinking 10 years from now," says Gavin Hewitt, chief executive of the Scotch Whisky Association (SWA). "I don't know of any industry that faces that level of timespan."

Whisky shipments have certainly been increasing in value over the past five or six years and broke the £4 billion barrier in 2011. In volume, it was a slightly different story until a dramatic spike last year, as Donald Blair, an industry analyst who used to work for Diageo, explains. "If this turns out to be a long-term trend it can only be welcomed and the industry deserves to be congratulated. However, it does seem a bit counter-intuitive that growth was generally flat during the greatest global economic boom in history and then rose 19% during a so-called global crisis."

Hewitt puts the rise down to "the hugely burgeoning middle classes who have affluence as never before. Scotch is clearly the global spirit and the only one you'll find behind every bar in the world".

Of course you could say the SWA's job is to paint the industry's prospects in the rosiest possible hue. What is harder to dismiss is the scale of the investment from these multinational drinks firms. As Buxton says: "Diageo can put its money anywhere – into beer, wine, vodka or gin." In the past whisky brands lost out to the likes of Smirnoff and Bacardi. This time the booze barons are backing whisky.

If the distillers maintain their belief in whisky and continue to invest in their brands, then maybe they can sustain growth in the decades to come. To date the history of the whisky industry has always been cyclical, and some would say that is the nature of the beast, that supply and demand are bound to be out of step given the time lag between distilling the stuff and drinking it.

Others disagree. "As you can imagine Diageo doesn't move quickly on these things," says Morgan. "We like to take our time and take a very long-term view. People in Diageo are not unaware of the past."

Let's hope so. The great late Victorian whisky boom was all over by 1901. n