Last Friday in the Calgary Herald, Paige MacPherson, Alberta Director of the Canadian Taxpayers’ Federation (CTF), wrote a guest column taking the Alberta Small Brewers’ Association (ASBA) to task for its position around beer mark-up rates. You can read the column here.

Personally, I found the article odd both for its timing and for the fact the CTF felt a need to weigh in on this issue at all. For those of you who don’t know the CTF, they are a right-wing advocacy group who lobbies for lower taxes, lower spending and greater financial accountability in government. Some observers call them an “astro-turf” group with an ideological agenda (for example, see here), but I will sidestep that for the moment.

The issue in question is the differential mark-up for small brewers and that this mark-up is applied to all small breweries regardless of location. This issue has percolated for some time and I have written about it extensively (here and here and here, just as samples). The basic argument lines up like this: Alberta brewers feel the policy puts them at an unfair disadvantage in the marketplace, especially given restrictions in other provinces; meanwhile advocates for the policy say it enhances consumer choice.

I have been careful to be open-minded in my analysis on the issue. I understand there are legitimate positions and interests involved on both sides. Many small non-Alberta breweries, especially those based in Canada, need the lower mark-up to allow their beer to be price competitive in Alberta. Conversely, I can see the argument that the Alberta government owes more of an obligation to Alberta companies than those from elsewhere.

But allow me to turn to Ms. MacPherson’s column. My concern is that she demonstrates both a lack of understanding of the beer industry in Canada and a strange sense of timing. The odd timing is self-evident, as she has to chastize the ASBA for not yet taking a post-election position and has to resort to a 2-year-old position as a straw man. Now, it may be the ASBA continues to hold the same view, but their decision to refrain from commenting suggests they are reacting to the reality of a new NDP government, something MacPherson seems to miss. One might argue the ASBA is being rather smart in its strategic silence. Nor has the government made any announcements regarding the policy as of yet. As a result, MacPherson is punching at ghosts.

It is when she turns her attention to the substance of the matter where she really goes off the rails. She displays a noted lack of familiarity with the beer industry. I will ignore the fact there is no such thing as “Big Rock Rig Pig Ale” which she proclaims to enjoy (Rig Pig would be a Brewster’s product, by the way) and instead focus on a couple of more salient issues. In short her arguments are simplistic and misleading. And I say this as someone who can see both sides on this issue.

First, the differential mark-up rate is designed to acknowledge that small breweries lack the economies of scale that large breweries possess, yet (and because of it) create more jobs per unit than large breweries. In other words, they are good economic engines. From that logic there is an argument to be made that the differential should apply only to those breweries that actually generate jobs in the jurisdiction. To put it more bluntly, there is legitimacy in arguing it is not the responsibility of the Alberta government to support the job creation efforts of breweries located in Ontario, Wisconsin, England or Czech Republic, which is what the lower mark-up applied to everyone can be perceived as doing.

MacPherson tries to turn the argument into a battle between Alberta craft beer vs. Canadian craft beer from other provinces. She fails to mention that the lower mark-up applies to international imports as well. It is the international importers that disproportionately benefit from the lower mark-up, as they experience higher transportation and duty costs than a Canadian brewery.

MacPherson also neglects to point out that the position to restrict the lower mark-up to Alberta brewers is supported by Labatt’s, part of the largest beer corporation in the world. It is hard to argue Labatt’s is being protectionist.

Second, MacPherson dismisses the reality that other provinces erect barriers to import beer by equating it to a sales tax. “We wouldn’t impose a sales tax just because New Brunswick has one.” As much as that generates guttural reactions from Albertans it is an entirely disingenuous connection. The issue is that Canada is rife with protectionist rules around beer. Alberta breweries face huge hurdles getting into other provinces. Alberta’s single-handed decision to remove barriers can be seen not as brave but as foolhardy. It puts Alberta companies at a competitive disadvantage.

Had MacPherson called on the government to take a lead in advocating removing inter-provincial barriers around beer, she and I would have common cause. However, further entrenching the tilted playing field, as she suggests, makes no sense.

It is easy to say “let the market decide”. The problem is that Canada doesn’t have, and since prohibition never has had, a real open market. Wishing it so doesn’t make it so. Governments have a responsibility to deal with real situations, not vague wishes of what could be.

MacPherson does correctly point out that one of the issues of the mark-up is its stark cut-offs. Pass the threshold and suddenly ALL the beer you make is charged at the higher rate. This is problematic. Except MacPherson doesn’t realize that if you graduate the mark-up without changing the eligibility rules, all you do is create an economic advantage for the BIG breweries that are importing into Alberta, because they get to take advantage of the graduation as well. Sure, that might be pennies in the glass for the big boys, but is that really where Albertans want to put their dollars (in terms of lost revenue)?

My final issue with MacPherson’s column is her sneaky attempt to insert an idea that, if implemented, would be wholly destructive to craft beer in Alberta – for both Alberta brewers and imported craft beer. At one point she says: “To truly support the industry, the government should lower beer taxes across the board, making beer easier to sell and buy”. Lower mark-ups (which are not the same as taxes but I won’t go there for the moment) for everyone? How does that help anyone?

Giving the big corporate brewers a break might lower prices, but it will increase their competitive advantage over the little guys, which means little guys (Alberta-based or import) get squeezed out. Differential mark-ups help level the playing field. Reducing or eliminating that differential leads to distortions in the market, not a freer market. “Lower taxes” is good rhetoric, but when it comes to beer it is bad policy.

MacPherson positions herself as a defender of the beer consumer. The problem is that she holds a one-dimensional stick-figure image of a beer drinker  The beer market is becoming complex, diverse and multi-faceted. Price is no longer the only factor in a beer consumer’s decision matrix. Long gone are the days when a 10 cent differential will lead to a spike in sales. MacPherson is stuck in the old model of brewing. In the 21st century, the nature of competition is much more complex, requiring a much more complex response. Lower mark-up rates for all is not the answer.

I do not know what motivated MacPherson to write the guest column. Its oddness does, however, leave me speculating that there may be interests involved other than MacPherson’s sincere concern for the poor, long suffering Alberta beer drinker.

The solution to beer mark-ups is not simple, and that is exactly what is wrong with MacPherson’s column. She is acting as if it is a simple trick of making things cheaper for consumers and everything will be fine. That is not the reality of the beer industry in the 21st century. I hope the new government crafts a 21st century solution.