*

Alcohol importers may hike prices to cover the cost of

proposed

tariffs

*

Major brands like Don Julio tequila and Jack Daniel's

could

become more expensive for American and Canadian drinkers

*

US wine and spirits volumes already down 5.5% before

tariff

measures

(Adds President Trump's decision to delay tariffs to paragraph

1 and 2, and Canada's delay of its retaliatory measures to

paragraph 3.)

By Emma Rumney and Waylon Cunningham

LONDON/NEW YORK, Feb 3 (Reuters) - Global makers of

alcoholic drinks like Diageo ( DEO ) are caught in the

cross-fire of a major trade war as threatened tariffs --

postponed for a month-- could deal a hefty blow to an industry

already struggling with falling sales.

U.S. President Donald Trump over the weekend signed

executive orders imposing 25% tariffs on Canada and Mexico, the

United States' two main trading partners. On Monday, after

discussions with each country's leader, he postponed his

decision on tariffs for one month.

With the U.S. pausing tariffs on Monday, Canada dropped

retaliatory measures, such as 25% levies on a raft of U.S.

imports, including beer, wine and bourbon. Similarly, Ontario

Premier Doug Ford dropped his previous order to pull

American-made liquor off the shelves in the province.

Key brands like Don Julio tequila and Jack Daniel's whiskey

from producers like Diageo ( DEO ) and Brown-Forman ( BF/A ) would become

more expensive for U.S. and Canadian drinkers if importers hike

prices to cover the cost of future tariffs. Some analysts

estimated brands like Diageo's ( DEO ) Crown Royal Canadian whisky would

rise in price by as much as 10%, threatening to hurt sales.

U.S. tariffs would drive steep price hikes on imported booze

like Canadian whisky at a time when financially stretched

consumers are already cutting back. But while U.S. bourbon and

whiskey producers could see a bump in domestic sales, their own

export businesses could be curtailed by retaliatory tariffs.

"Given pressures on consumer budgets, such a price increase

would likely lead to a shift in demand to cheaper/unimpacted

products," Fintan Ryan, analyst at stockbroker Goodbody, said in

a note.

For example, home-brewed beer or spirits might become more

competitive as costs of foreign goods rise.

Ralph De La Rosa, president of Miami-based freight company

Imperial Freight Brokers, which works with alcohol companies,

said alcohol companies' options to offset tariffs would be

limited.

"There really aren't too many mitigation strategies," he

said, adding that spirit makers would have to decide how they

handle the higher cost: pass it all on to consumers or use their

own margin to absorb at least some of it, he continued.

Diageo ( DEO ) declined to comment ahead of its results on Tuesday.

Brown-Forman ( BF/A ) did not respond to requests for comment.

"At a time when the combined wine and spirits marketplace is

down 5.5% in volume, the combination of tariffs and increased

domestic pressure could have severe and negative effects on the

U.S. beverage alcohol marketplace," the Wine & Spirits

Wholesalers of America industry body said in a note published

after tariffs were announced on Feb 1.

Brian Rosen, founder of alcohol investor InvestBev, said

tariffs on foreign goods could boost U.S. spirits like U.S.-made

whiskey as they become more price competitive.

But Jeff Quint, CEO of Cedar Ridge Distillery, a small

bourbon maker in Swisher, Iowa, worried that any retaliatory

tariffs imposed by Canada would cut off a key export market when

production far outstrips domestic demand.

He feared this could prompt supply gluts and drive price

wars as local producers struggle to sell all their stock

domestically.

For others, the negative impact was immediate. Victor

Yarbrough, chief executive officer of Brough Brothers

Distillery, a small bourbon producer, had been in talks to have

his products stocked in Canada - a key pillar of the firm's

growth plan.

Following the tariffs, his Canadian partner axed the deal as

a result of an instruction not to stock U.S. spirits.

For Diageo ( DEO ), whose Mexican tequila labels like Don Julio

would also be at risk, a shift to cheaper products by U.S.

consumers could equate to a cost of up to $600 million per year,

or 3% of group sales, Goodbody's Ryan estimated, though analysts

at Jefferies put this at more like 1.5%.

Diageo's ( DEO ) shares closed over 2% lower on Monday.

The tariffs and retaliatory tariffs would threaten alcohol

sales in all three markets-- the U.S., Canada and potentially

Mexico-- which are among the highest alcohol-consuming countries

on a per capita basis.

Shares of Constellation Brands, which makes Modelo and

Corona beer for the U.S. market in Mexico, and Jack Daniel's

maker Brown-Forman ( BF/A ), also fell on Monday.

Brown-Forman Corp. ( BF/A ) CEO Lawson Whiting said in an investor

call in December that previous European retaliatory tariffs on

American whiskey were "a very painful and challenging time for

us."