DISTILLERS taking advantage of low cereal prices are at risk of forcing the whisky industry into another scenario of over-production like that which ravaged

selling prices between 1980 and 1983.

Although supply excesses today are not as high as in the early 1980s, sector analyst Alan Gray of Edinburgh-based Sutherlands has warned that the ratio of stocks to consumption looks set to rise. This has in part been spurred on by the declining cost of raw materials, with barley at its lowest level for years.

''In 1996, a tonne of malted

barley cost #320,'' Gray said. ''In 1997 the price was #250 per tonne, and it's lower than that now - much lower, in fact.

''In a way you can understand why the distillers do it, because they're able to make their product for less, and no-one knows when the costs might go up again. But as is the case with chocolate bars or cars or anything, the effect of over-production is to depress prices.''

His observations were based on the findings of Sutherlands'

annual whisky industry review for 1997, which cautions that over-supply combined with fierce competition could further enforce the already weakening trend in selling prices. The report said that in some instances during the past three years, selling prices of

Scottish-blended whiskies have dipped as low as #8 to #9 per case.

This does little more than cover the costs of distillation, warehousing and financing, and would not begin to pay for bottling or

blending.

In terms of supply, the ratio of stocks to supply is estimated to have been seven-and-a-half-years in 1997, compared to what is

generally recognised as a

''reasonable'' figure of seven years.

What is more worrying is that Sutherlands expects that ratio to rise to 8.1 in 1998, only fractionally off the 8.4 figure recorded in 1980.

''I don't believe that is good news for the industry because (over-production) often means that distilleries have to be shut down for some time to clear stocks,'' Gray said.

''Price increases haven't even matched inflation for the past two years. Now that's partially because of consumer resistance, but it's also because of all the infighting and price-cutting distillers have done to increase their market share.''

Although the Asian markets will be a write-off for the rest of this year and at least part of next year, Gray believes higher exports to other parts of the world should ''just about'' offset the downturn in the Far East.

Sales to North America are expected to see a slight increase on the back of a buoyant economy in the US and an increased willingness by many people to spend money on luxury items.

Europe, which has been a difficult market as many countries have prepared for meeting the Maastricht criteria, is also

expected to improve.

''The good news is that sales have been rising and world consumption has been rising,'' Gray said. ''There has been a wee bit of optimism in the industry - North America is looking promising as is Latin America, and Europe is improving.

''As for the Far East, there is no doubt that in the long term the market is encouraging. In Japan, for example, the decrease in the spirits duty has undoubtedly had a positive effect on Scotch whisky shipments.''