France's cognac makers, buffeted by trade wars, reel from Trump's tariffs

By Tassilo Hummel

COGNAC, France - Christophe Fillioux's family estate in the cognac region of southwest France has survived for five generations, through wars and financial crises. Now, though, he has started to tear up some of his vineyards by the roots.

U.S. President Donald Trump's decision this week to slap 20% tariffs on all European goods is deepening the pain for France's nearly $3 billion cognac industry, which was already being buffeted by global trade tensions.

In October, the region's 4,000 growers were targeted by Beijing with tariffs following the European Union's levies on Chinese-made electric vehicles. Since then, cognac sales to China, its second-largest market by volume, have plunged by more than half.

With the U.S. - the world's top cognac consumer - accounting for one out of every two bottles sold, Trump's tariffs have left many growers apprehensive. 

Fillioux, the 45-year-old owner and master blender of the Jean Fillioux cognac house, founded in 1894 by his great-great-great grandfather, had already torn out half a hectare of old vineyards. He plans to uproot another hectare-and-a-half next year as part of an industry-wide plan to help growers through the crisis. 

"The situation is very hard to navigate. We've got a huge visibility problem," Fillioux said, standing in a vineyard planted by his father in 1980 - the year he was born.

Worse may be to come. Trump has threatened 200% tariffs on European wine and spirits if Europe hits US bourbon with additional duties.

Cognac exports to the U.S. last year roughly amounted to 1 billion euros ($1.10 billion). And the U.S is also France's top export market for wine: sales rose 8% last year to $2.3 billion last year, according to the Federation of Wine and Spirits Exporters, partly as buyers stocked up in anticipation of Trump's policies.

Fillioux's estate is working with its distribution partners to try to develop new markets in countries including Thailand, Vietnam, and Nigeria.

But he counts himself more fortunate than some other producers: he has little debt and owns his brand, making him less reliant on contracts with big houses such as LVMH-owned Hennessy, the largest cognac maker.  

"Problems are part of a vintner's life, with all the good and bad surprises", he said. 

GLOBAL SLOWDOWN

Even before the trade tensions with China and the United States - which comprise well over three-quarters of cognac revenues - cognac sales had been falling over the last two years due to a global slowdown in luxury spending. 

Prior to this, the industry expanded production volumes to meet booming demand during the COVID-19 pandemic. As recently as 2022, cognac houses encouraged growers to buy more land and plant vineyards.

Now many of the region's more than 4,000 growers find themselves indebted as their incomes deteriorate.

"We're going to manage these situations as best we can with the banks," said Florent Morillon, president of the Bureau National Interprofessionnel du Cognac (BNIC), an industry body representing growers and cognac houses including Hennessy, Remy Cointreau's Remy Martin, Pernod Ricard's Martell and Campari's Courvoisier. 

"All the investments made by the cognac houses, vintners, and distillers were based on business decisions. And then, external factors arrived," Morillon added.

COMPLICATED DOWNTURN

Exporting roughly 97% of its production, France's cognac industry has always been reliant on international trade, said Bertrand Blancheton, economics professor at Bordeaux University. "Cognac was born out of an alliance of foreign merchants and local growers."

From the 17th century, when Dutch businessmen brought their know-how to the region and taught locals how to make brandy, cognac has always been destined for consumption abroad, with Irish, English, and Scandinavian merchants opening their houses and shipping cognac overseas. 

In February, industry body BNIC, which oversees production, reduced the annual production limit for a third straight year to just half the levels of 2022, citing a "strongly deteriorated economic environment and an unprecedented drop in global consumption."

"We're only at the beginning of the crisis," said Jerome Sourriseau, a local politician and president of the group of municipalities formed by the villages around Cognac.

Unemployment is on the rise since cognac houses and suppliers stopped hiring short-term workers, while some started laying off staff, he said. 

Cognac producers and suppliers, including bottling facilities, packaging firms, and makers of barrels, cork and containers, employ roughly 70,000 people in the region. 

Some, like Tonnellerie Vicard, a century-old oak barrel maker, face an extra hit, as they export their goods to U.S. winemakers too. 

"We've already had customers tell us the same night that they need to review the orders they've already placed, reducing volumes by the amount of tariffs they will likely have to pay", said general manager Jerome Schmitt.

"SPECIAL BOND" 

In the United States, cognac has a "special bond" with the Black community, Blancheton said. Black American soldiers discovered the drink during World War II and brought it home, he said, before cognac brands led by Hennessy started heavily advertising in the 1990s and 2000s.

In 2012, rapper Jay-Z established the Cognac d'Usse brand in partnership with Bacardi, while Hennessy struck a sponsorship deal with the NBA basketball league in 2021. 

But even before trade tensions, cognac's sales to the U.S. were faltering, largely due to aggressive price hikes in recent years affecting middle-class consumers, said Thomas Mesmin of Paris-based luxury consultancy MAD.

"Not only did Americans start to drink less cognac, but they also switched their consumption attitudes towards other spirits like tequila and whiskey." 

While most high-end cognacs are exported to Asia, the U.S. business is dominated by less expensive bottles, selling for $36-60, and mass-selling brands like Hennessy so far failed to broaden their consumer base, Mesmin said.

"It's only a certain part of the population in just a few cities," he said.

Industry president Morillon predicted cognac would lose market share in the U.S., and producers would be unable to pass on the full cost of tariffs to consumers there.

"It's up to each house to decide, but we know today that in the current context, even if you just increase by 1 or 2 dollars, this can lead to disruption," he said.

Fourth-generation grower Pascale Dupuy, 67, said he would likely distill less this season, and sell more grapes to bulk buyers making cheap wine to limit his losses.

"One more problem added to the pile", said Dupuy, who lives in Ambleville, a village near Cognac, when asked about the trade tensions with the United States. 

Dupuy said major cognac brand Remy Martin has already cut its contracts with him by almost half, and he expects Hennessy will also buy considerably less, leading to a 40% decrease in his expected revenues this year. The companies did not respond to a request for comment.

With his daughter showing no interesting in taking on the struggling business, Dupuy said he would likely be the last generation of cognac makers in his family.   

"You start questioning if it's still worth it," he added.    

($1 = 0.9097 euros)

(Reporting by Tassilo Hummel, additional reporting by Sybille de la Hamaide; Editing by Daniel Flynn)