Something is going on politically in Alberta’s beer system. At this point I am not sure where it leads, but I something is afoot, as Mr. Holmes might say.
First there was the feature length piece in the Edmonton Journal this weekend (mentioned in the comments on my last post) taking a long look at inducements and their impact on the beer industry in the province. This piece was many months in the works, and I know the reporter had a hard time getting people to speak on the record about it. While I don’t think the piece furthers our understanding of inducements too much, it is, without question, the most public acknowledgement to date that it is rampant in the industry.
Does it lead anywhere? I doubt it. But if we combine the willingness of the Journal to print such a critical piece with other political happenings, I wonder if maybe, just maybe, the Alberta government wants to shake up the beer industry. Allow to explain.
From conversations I have been having with various beer industry types in the past couple months, it is clear the Alberta government has been quietly engaging in a consultation process around AGLC beer policy. The main focus of the review is the mark-up rate, and the mid-level transitional rate in particular (for a primer on the system and what the transitional rate is read here, here and here). There are clearly moves afoot, likely led by the big boys, to eliminate the transitional mark-up – a move targeting Big Rock and Minhas I suspect but with clear ramifications for all Alberta brewers and craft beer importers.
The review is headed up by Deputy Premier Thomas Lukaszuk, which is both odd and concerning. It is odd because normally a review of this nature would be headed by either the Minister reponsible or some backbencher. That the second most powerful member of the government caucus is involved hints that the government is serious about this review. Of course, it also means the review is being run by a person with no background or experience with the file. Still, it is noteworthy.
While they were first excluded, the Alberta-based brewers have found a way to muscle themselves into the consultation, and , in an interesting display of solidarity, have crafted a set of recommendations endorsed by all of them. The highlight of the package is a proposed revamping of the mark up system. The highlights go like this: under 20,000 HL production would be marked up 10 cents per litre (half of the current rate). From 20,000 to 50,000 HL the mark up would be 20 cents (again half of current rates). Then from 50,000 to 200,000 the rate would remain at the current 40 cents. After 200,000 the full rate of 98 cents would apply (same as today). They propose the rates be graduated, meaning the higher mark ups apply only to the volume above the cut-off.
The part of the proposal some may find controversial is their recommendation that the lower rates apply only to beer brewed in Alberta. All beer produced outside the province would be taxed at the 98 cents level. The Alberta brewers argue that their proposal would promote the development of more small brewers in the province, and would level the playing field for local producers competing against imports from elsewhere in Canada and the U.S.
I am well aware from my conversations with small brewers outside Alberta, that closing the transitional mark-up to imports would significantly hamper their ability to sell beer in Alberta. Many western Canadian breweries depend heavily on Alberta sales to keep afloat.
I can certainly understand and respect the position the Alberta brewers take on this position. They are looking after their interests. And they are right on the need to build-in lower tax rates for smaller brewers. If the big boys get their way and eliminate the lower rates, that would be bad news for all beer lovers. The issue of applying the lower rates only to Alberta produced beer is more complex. I have a certain affinity to it, being a big believer in supporting local. But I also know there are many good people who legitimately need that lower rate as well.
Much of this uncertainty is due to the publicity earlier this year about Minhas receiving the transitional rate for making discount beer in Wisconsin. The problem is that policy solutions to this legitimate concern are much harder to find than one might think. There is no easy way to distinguish in policy between a quality craft brewer like Paddock Wood or Yukon and Minhas. I don’t think a “not very good beer” tax is feasible (although wouldn’t it be nice if it were?).
Needless to say I suspect we will be seeing changes to Alberta’s beer regulatory system in the coming months. Will inducements and their enforcement be a part of those changes? I doubt it. But we will likely see a new mark-up system of some form. I will try to keep you posted (as long as I can keep myself informed, which isn’t always easy – transparency is not the Alberta government’s favourite word).
September 10, 2012 at 9:57 AM
So no matter if the big brewers or the Alberta brewers get their way, craft imports would be taxed at the full rate, regardless of their levels of production? I don’t like where this is going…
September 10, 2012 at 11:39 AM
Also, I don’t see how not applying the transitional rate to breweries outside of Alberta “levels the playing field” for Alberta breweries. They would be getting the same rate as any imports from similar-sized breweries, that seems like a level field to me.
If our small brewers feel like they need to be more competitive with craft imports then they should do it by improving their product, not this protectionist garbage.
September 10, 2012 at 10:44 AM
Basically this is the one bad apple (Minhas) ruined the whole barrel syndrome. This is being pushed through cause of ignorance of the system and the media jumping bandwagon. All the Alberta government has to do is enforce the current system. Minhas is pushing 400,000 hecs tax with their brewery them at 98 cents a litre problem solved.
This will push the growth of craft beer back in our province, expect to see less cool stuff being brought in and this is very sad.
September 10, 2012 at 3:19 PM
It is wild times in the world of beer lobby. . . and I don’t think the answer is to throw up the walls around Alberta. Guys like us do a lot to advance the conversation about good craft beer, and we are heavy contributors to culture in the communities in and around Edmonton and Calgary. This isn’t a question of Alberta craft Vs. Canadian and/or American craft; it’s a question of Big Guys–and I’m talking about the REALLY BIG GUYS like Molson Miller-Coors and AB-Inbev–vs. everyone else. When the two bigs own 95% of the market, while registering little to no (and occasionally negative) growth, the plays on the field start to get dirty as their shareholders start to demand improving fortunes.
There is no benefit to Alberta brewers penalizing other provincial craft brewers–that kind of short-sighted infighting when the two biggest cocks of the walk cry for a level playing field divides the ranks of good beer brewers when we should continue to stand united against foreign-owned behemoths.
September 10, 2012 at 3:42 PM
For existing Alberta-based breweries moving to a graduated mark-up system is a nice change that helps to foster growth. To encourage new craft microbreweries to open the next issue that needs to be addressed are all the requirements around minimum production and equipment size.
While I understand the desire of some Alberta breweries to wish to have a leg up on imports (even provincial imports), the idea of becoming as protectionist as most other Canadian provinces is a move in the wrong direction. I understand that they are at a disadvantage as many other provinces currently have different forms of “protect their own” legislation that makes is challenging for AB breweries to export. And though it may help their bottom lines right now, I think for the health of the Canadian craft beer industry, Alberta breweries (along with the AB gov’t) need to put some lobbying pressure on other provinces to have a “level” import playing field that Alberta currently allows. Then, let the best brews succeed.
Also, consumer choice in Alberta is AMAZING compared to either of our neighbours and this provides a great opportunity for more and more people in this province to try different beers and maybe become craft beer enthusiasts as well!
To grow the craft beer scene in Alberta we need the healthy mass of imports that we have now! We just need to find better ways of supporting our own while not punishing imports. To me, that is not fixing the system. It’s just working around the problem.
September 10, 2012 at 5:54 PM
Aside from whether or not the Alberta brewers proposal makes sense, is there any chance of this issue getting traction in the media or with the public at large? It seems like eliminating the transitional rate is a no-win for the government from a PR perspective. It hurts Alberta small businesses, increases prices for consumers, and is a big giveaway to huge foreign corporations.
We’ve already seen the AGLC backpedal on banning beers over 12% in the face of public and media attention, I guess the question is whether or not this is too technical for people to care.
September 10, 2012 at 9:08 PM
The sooner the Aglc implements this tax the better. Stop dumping beer into Alberta. And if your beer is Premium, who says you cant get a couple extra bucks at the liquor store. Tax them all unless your made here. Every other province does it, will just be the last…
September 11, 2012 at 12:11 AM
The problem is we have a government in an oil rich province spending money like drunken sailors presenting a feel good tax as it benefits Alberta breweries through a tax system that protects local breweries. It is another revenue stream that is all, they tried to increase booze taxes a couple years back and there was a public outcry they rescinded it, this is just another stab at it. This is a media friendly tax that makes the government look like good guys that doesn’t give a shit about craft beer but seems to as they are protecting Alberta breweries while filling their coffers. Anyone protesting this tax will look unfriendly to Alberta in all a great deception.
Pete you are wrong there is a graduated tax in other provinces as I have to send declaration of production form to BC, Sask and Manitoba in my own dealings with those boards. I wouldn’t say Alberta is a dumping ground for beer for the most part agents have acted responsibly, there are exceptions of course but that is another very opinionated topic.
Paul the beers over 12% issue was Canada wide and I believe that the AGLC handled it well in the end although some feel the extra taxes on these products. Some agents who rep those beers wish they could have been handled it better.
September 11, 2012 at 8:06 AM
Im well aware of the graduated tax in other provinces, I think if you don’t make the beer here, you shouldn’t receive a tax break. Simple, you can sell your beer here just at the highest tax. And as to our oil rich province, we already share that with everyone in transfer payment mainly to the east.
September 12, 2012 at 11:24 AM
That wasn’t my point it is the Alberta government looking for other tax streams because they are spending money like drunken sailors and we are going to have an increased deficit. If they throw up this tax in the name of Alberta breweries, I am certainly not going to drink more Ambers, Roughneck, Drummond, Grizzly Paw, Brew Brothers or Village because it because none of them make great beer.
This is a tax gouge in the name of Alberta and playing to the media nothing more. If this applied to Canadian breweries only I might feel a little better about it.
September 11, 2012 at 11:18 AM
Pete–your protectionist attitude is only similar to Quebec; the rest of the provinces in Canada dropped interprovincial trade barriers to beer decades ago to help all businesses grow. Alberta breweries do need to sell into other provinces in order to grow larger, and at the moment those doors are open to them with preferential rates. The amount of revenue the government stands to gain by taxing the smallest guys will more than be offset by missed opportunities in investment IN Alberta. Other breweries who sell beer here don’t just treat it as a dumping ground–Steam Whistle for example invests in three employees who pay their taxes and participate in the economy like any good Albertan. We also invest heavily in supporting local arts groups and community fundraisers (rugby clubs, charities like Meals on Wheels, etc.). The only real gain in abolishing the tax–for ANY small brewer–is enjoyed by the Big Beer guys. And lest we forget the Big Beer guys include Molson, who bought and closed the Calgary brewery; and brought an end to a strike in Edmonton by closing the brewery there.
This is a very complex issue–the “outsider” beer helps support the overall liquor distribution structure, since craft brewers from outside the province use Connect Logisitics–and the volume of that beer helps subsidize the transportation costs for your favourite whisky or wine. Having a visceral reaction to “Alberta First” and indignant fury over foreign beer hurts a lot of small guys who will either drive their prices up to the end consumer, or retreat from the province altogether. The best thing you can do to put Alberta first–if you’re that passionate about it–is only drink beer brewed in Alberta. As a beer fan myself, I enjoy drinking beer made by all our Alberta breweries–but I also enjoy plenty of other Canadian and American brewed craft–and that opportunity is only possible because the Province has taken a leadership role in terms of taxation in preference to a protectionist role. I, for one, am glad that Alberta is open for business; it, in my opinion, makes it the best place to live and work (and drink) in Canada.
September 11, 2012 at 11:37 AM
Why don’t you explain to all of us how simple it is to sell into Ontario, and the steps involved? Then explain how Ontario Brewery’s use the “Ontario Craft Brewers opportunity fund” to buy there way into Alberta bars? IE Umbrellas on every bar on 17 Ave? Hey I love all the craft beer here, but we shouldn’t be be subsidising out of province beer with Alberta Tax dollars while out of province producer line their pockets.
September 11, 2012 at 11:44 AM
Also, You could always open a Brewery in Alberta.
September 11, 2012 at 1:22 PM
How is a straight tax rate of 98 cents/L for ALL breweries, except small local breweries a bad thing?
I get the consumer argument from those that want to drink all the imported beers, but I think you need to think bigger than that – wouldn’t you like to one day have a local beer scene that is so good, and so full of variety, that you don’t need to rely on imports to fill that void? That local scene will not just build itself, so I like the idea of the government setting up the lower rates for lower production.
You can call the strategy “protectionist” if you want, but I don’t see what is wrong about wanting to encourage local business. Governments always setup strategic tax breaks/incentives to encourage business growth, I find the arguments on here against such policy to be rather feeble and self-serving.
September 11, 2012 at 2:23 PM
So cut the transitional rate even further for Alberta brewers, I have no problem with that. But don’t increase the markups that have helped Alberta get the best retail beer selection in Canada, especially when we already pay high prices for that selection. And if you expand ‘local’ to mean beer brewed in the Prairies then increasing the rate for small breweries outside of Alberta is going to hurt Paddock Wood, Yukon, etc.
Of course I’d love for my local scene to fulfill all my beer needs but given the state of Edmonton’s brewers this isn’t going to happen anytime soon. In a market like ours, I don’t know that it could happen ever. And from what I understand, there are more issues and policies preventing new breweries from opening up than just the markup rate.
September 11, 2012 at 1:47 PM
Hey all,
First I want to say how much I am appreciating reading the comment thread from this post. Clearly you all have strongly-held opinions around this stuff.
It seems to me that one of the things leading to disagreement is a lack of clarity around what our goals are. Do we want lots of Alberta brewers found in lots of locations? Do we want a wide selection of some of the world’s best craft beer? Likely the answer is “both” – which is fair, but if that is the case we are asking too much for one policy tool to accomplish. Are there other ways to promote each of those laudable goals?
Also, both sides may be over-estimating the impact of the mark-up rate. If imported craft beer paid the higher rate, that would add about $1.25 to the price of a six pack (unless my math is wrong on that). Not inconsequential, but not the end of the world either. I imagine shipping costs are bigger than that. Similarly, does a $1-$2 break on a six pack for local brewers make THAT much difference in their competitiveness? I am not in a position to answer that – but it is a good question.
Finally, I want to issue a gentle blanket reminder that while passionate debate is good, name-calling is not. I hope everyone remembers to stay respectful in their comments – some in this thread developed a bit of an edge to their tone. Keep it friendly, guys, we are all on the same side here – on the side of good beer.
Cheers.
September 12, 2012 at 11:00 AM
Similarly, does a $1-$2 break on a six pack for local brewers make THAT much difference in their competitiveness?
I think it may depend on how brand loyal certain beer drinkers are. If the guy who drinks Stella because it’s a “fancy import” sees that a local brew that looks “cool” is a few bucks cheaper, he might make the switch. He doesn’t care about the brand he drinks, he cares about image. Now, sure, he’s picking his brew for what I think are the wrong reasons, but if it results in more people buying local craft beer then I think I’m OK with that.
A better example is maybe the guy who always has a six-pack in the fridge — and likes his “pseudo-craft” beer because it’s a step up from fizzy yellow water — but is mildly risk averse and, as a result, doesn’t want to spend an extra $2-3 to switch from his usual Rickard’s Red to something he might not like. If a pack of Alley Kat Amber suddenly costs the same or less than his usual choice he may be more likely to take a risk and try something new; he might even become a loyal drinker of local craft beer.
September 12, 2012 at 1:32 PM
The markup saving is significant for a small brewer because it goes straight to the bottom line. In a business that traditionally is high volume/low margin (for the big guys, for sure) having this in our gross margin is significant. Moving to a full markup would add about $1.60 to the small brewer cost of a sixpack. That is then GST’d and then marked up by the retailer – the customer will likely pay more than $2.00 extra for a six pack. So, the small brewer is left with the choice – keep their current margin and have more expensive beer, or keep the beer price similar to Alberta beers and give up the margin, or somewhere in between.
Other provinces do pass on the differential markups to other small brewers, at least in the provinces we know about. However, there seem to always be other barriers thrown up, sometimes dollar barriers and sometimes other barriers.
My understanding of trade rules is that provinces cannot have preferential treatment of in-province businesses, breweries or otherwise. Of course there can be other barriers, as mentioned above. In BC, they are very restrictive in what products they give listings to and, with that, access to the government liquor stores. They also include a Cost of Service differential in their pricing, although I have never been able to determine exactly what service you get for that cost.
I think that Alberta brewers have a big opportunity in that the home team is only the home team, at home. They have feet on the ground and should have their tentacles throughout the community they brew in, and that is pretty valuable.
September 12, 2012 at 4:44 PM
Bob, that is a very interesting perspective. Thanks for the info. The more I delve into this issue, the more complex it seems. Glad I can just sit on the sidelines, drink some good beer and pontificate, rather than get my hands dirty actually trying to SELL beer.
September 13, 2012 at 7:39 PM
Why do people say Alberta has the highest beer prices in Canada? This summer I visited 4 other provinces and the price I paid for beer was always higher than it is here in Alberta. I have to be missing something or is it just a base price we are talking about rather than the “real” price that people actually pay at the beer store. If I am wrong, could someone tell me where to find all this cheap beer in BC, SK, MB and ON.
September 14, 2012 at 3:24 PM
I always thought that the problem the local brewers had was more of a marketing issue than a pricing or quality issue. Specifically, most beer drinkers do not browse at the liquor store, they just grab the familiar and are out the door.
What the local guys need more than anything is exposure and tools to break thru the clutter created by the big guys and their billion dollar marketing budgets.
Pricing is one of those tools but it cannot be the only one. After all, Coca Cola costs 3x more than PC Brand Cola yet sells in much greater quantities even though it tastes the same (or even better).
I don’t think it is a coincidence that BC and Quebec have the most lively micro scenes and also have the best market share in those places.
What do they do that we do not? The prioritize market placement for their microbrewed beers. BC Liquor promotes the microbrews heavily and gives them prime placement in their stores. Quebec allows their locally brewed beers to be sold just about anywhere where you can also purchase food.
We are never going back to state run liquor stores so perhaps if we looked at Quebec’s system, it would help. We can allow our locally brewed beer to be sold Safeway, Sobey’s, Save On or even Mac’s. Basically it would be a way to increase point of presence without having to raise taxes or cost anyone a dime.
Right now in Alberta, in too many liquor stores the local beers are in the corner of the cooler collecting dust while the Molson products are in the front and fly off the selves, at a premium price.