Bill Lark is the godfather of Australian whisky but he has never seen times like these

Whisky was legally distilled in Tasmania two years before it was in Scotland, yet the home-grown industry lay dormant for more than 150 years.

Then known as Van Diemen's Land, the distilling of spirits was declared illegal in 1839 by Governor John Franklin, whose wife, Lady Jane, reportedly declared that she would "prefer barley be fed to pigs than it used to turn men into swine".

The ban only eased in 1901 when national distilling laws passed, but it would take nearly 91 years before smaller producers were legally allowed to manufacture the liquor, thanks to the efforts of a man who became Tasmania's whisky godfather.

It ushered in the dawn of the state's booming whisky economy, thriving on the world stage even when it was shocked by jaw-dropping scandals.

Now a global whisky downturn is hitting distillers from Kentucky to Kilkenny and industry giants are bearing the brunt of it, pausing production and laying off staff as customers leave bottles on the shelves.

While the old-fashioned boom-and-bust cycle is familiar for most distillers, the downturn represents the biggest challenge for Tasmania's whisky businesses since the state was governed by colonial law.

'Let's give it a go': The birth of an industry

Until 1992, small-scale spirit operations were not permitted in Australia, with the country's distillation act requiring people to have built a commercial-sized distillery before applying for a licence.

But that requirement was scrapped after a campaign from Hobart-based land surveyor and pub owner Bill Lark.

"The idea to make whisky came … from a realisation that Tasmania must have had good barley because our local beers were being exported all over the world at the time and we knew our water was probably some of the best water in the world," Mr Lark told 7.30.

"And I just made a comment to my father-in-law and my wife, 'why isn't somebody making whisky in Tasmania?' and Lynn said to me, 'I don't know, Bill, but let's give it a go'.

"When I look back, that was the start of the modern-day spirits industry in Australia, opening up the door for ... people to start with a small still and help us to produce good spirits here in Australia."

With a licence in hand, Bill and his wife Lynn went on to found Lark Distillery, and thanks to some advice from Scottish whisky giant John Grant, released their first batch of Tasmanian whisky in December 1998.

"We had 150 bottles we could take to the market. We weren't sure whether people would like it, let alone buy it, but that sold out almost straight away," Mr Lark said.

"Our second release sold out before it was even bottled and it just sort of grew from there."

Highs and lows of a young industry 

In 2014, a seismic shift occurred in the whisky world when Hobart-based distillery Sullivans Cove was awarded best single malt whisky at the World Whisky Awards.

Sullivans Cove chief executive Andy Gaunt said the victory "changed everything" for the global whisky industry, and for the distillery, which until then had only been producing small amounts of the spirit.

"It was really a moment that the whisky industry almost literally fell off their chair and realised that whiskies from the non-traditional countries were as good as, if not better in terms of quality, than whiskies from places like Scotland and Ireland and Japan and North America," he said.

Despite its rapid growth and award victories, Australian whisky hasn't been immune from controversy.

The collapse of Tasmanian whisky producer Nant in 2017 left investors thousands of dollars out of pocket, after they had purchased barrels with the promise of them being bought back by the distillery when the whisky matured.

Nant founder Keith Batt last year pleaded not guilty to 736 criminal offences. His case returns to court next February.

In 2022, Lark chief executive Geoff Bainbridge resigned from his role after The Australian published footage of him intoxicated while allegedly smoking amphetamine.

And earlier this year, a Hobart magistrate dismissed charges against the Salamanca Whisky Bar, after allegations it had sold fake versions of the award-winning Sullivans Cove whisky.

Challenging conditions

Globally, times are tough. A fall in demand has resulted in Jim Beam pausing production at its main Kentucky distillery for all of 2026.

In Scotland, producer Holyrood has announced an indefinite pause, while administrators have been called into the community-owned GlenWyvis Distillery in the Highlands.

In the Tasmanian town of Port Arthur, cost pressures have forced McHenry Distillery founder William McHenry to let staff members go and scale back production.

"Coming out of COVID, we had two distillers, we had two brewers. We've let both brewers go, we've let one distiller go," he said.

"I largely do all the distilling now, [we've got] a part-time brewer, so the core production side of our business has really contracted a lot.

"18 months ago we were distilling every day. Now I probably distill a couple times a month."

The decision to slow down production is not one whisky producers take lightly. Whisky spends a long time maturing in barrels before it makes its way onto shelves.

That process at McHenry Distillery takes about 10 years, meaning the decisions made about production now won't be felt until well into the future.

"What worries me is that we're out there trying to get overseas business now … when the demand comes, we're going to be struggling to supply," Mr McHenry said.

"We're going to have a look at our bond store and we're not going to have enough whisky there."

Mr McHenry said his drop in sales is down to a number of factors, including an increasing number of distilleries, persistently high inflation and people choosing to buy cheaper imported products instead of more expensive Australian whiskies.

He believes the "tightening" business conditions and the increased competition for customers could ultimately lead to some distilleries collapsing.

"It may push a few players out of the market that are either too small or just don't have the stamina to stay in it,"

he said.

Calls to overhaul excise remission

Some medium-sized distilleries argue the federal government's alcohol excise remissions scheme is stopping them from growing, and contributing to their slowdown.

Whisky producers are charged an alcohol excise at a rate of $110 per litre of pure alcohol, but receive the first $400,000 of excise back as a tax refund.

Mr McHenry is pushing for a complete overhaul of the alcohol excise, arguing it is crushing profit margins for bigger operations who use the money to grow their business or purchase new equipment.

"Unfortunately, now that rebate, rather than being used for investment in growing the industry, is being used by some distillers to actually cut price," he said.

"It puts a ceiling on the price that you can sell your product for. It strips out all the profitability for people like me.

"It's OK if you want to just operate as a small business and that's all you need, but halfway through the year we start paying [the excise] and we either have to add it to our price or we have to take extreme discounts.

"Neither is ideal, comfortable or pleasant."

In a statement, a spokesperson for Assistant Treasurer Daniel Mulino said the remission scheme "provides important support to smaller Australian brewers and distillers, helping them manage costs, grow and support local jobs".

Keeping spirits high

The challenges that lie ahead aren't front of mind for one of the newest players in Tasmanian whisky, Waubs Harbour.

The distillery, housed in an old oyster hatchery in the east coast town of Bicheno, creates a maritime-inspired whisky.

Started by brothers Tim and Rob Polmear, it began making whisky in 2019 and sold its first bottles three years ago.

The distillery has worked to ramp up production as sales increased, and now produces about 12,000 litres each year.

"I'd be lying if I didn't say that I've seen the slowdown in the industry, and you'll definitely see it if you walk into a bottle shop,"

Tim Polmear said.

"But I think people that love a good premium whisky somehow find the dollars, and fortunately for us, we haven't seen much of a downturn.

"Over the last couple of years, we've seen [a] good 30 per cent sales growth."

At a time when others in the industry are downsizing, the brothers are scaling up.

"We're still expanding … we're running out of room in the shed,"

Mr Polmear said.

Production is also increasing at Sullivans Cove. Mr Gaunt hopes that trend continues as the local industry tries to grow its worldwide whisky sales rate from the current 0.05 per cent.

"We have about 3.5 per cent volume share of global wine, and it's taken 20, 30-odd years to go there from when we saw new world wines emerge," he said.

"With Tasmania, a 1 per cent share of whisky globally is what we would like to be aiming for.

"We think with Australia more broadly, that could be up to 2 per cent volume share, which is a considerable increase in whisky that we would be selling and making around the world from today's very small share."

Beyond the gloom

The Sullivans Cove chief executive believes the future is bright even with the current turbulence.

"The opportunity for Australian whisky right now is probably the best it's been for many years," Mr Gaunt said.

Mr Lark is confident the Australian whisky industry, and the business he still represents as a global ambassador, are in good shape.

"There's no doubt that there are challenging times in the world of whisky," he said.

"We were warned when we first started … there will be highs, there will be lows, and it's simply then a matter of cutting your cloth to suit your measure for those times.

"The interesting thing about the Australian market is amongst that sort of gloom, there's some amazing opportunities.

"It's wonderful to see the Australian market now wanting and accepting Australian spirits. When we travel overseas, the international markets are excited."

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