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A Post-Script on the New Mark-Up Policy

A tempest in a beer mug?

A tempest in a beer mug?

Since my post on Wednesday on the Alberta budget and the change to mark-up rates (see here) I have been trying to keep my mouth shut and let readers say what they want to say in the comments section. After all, I rambled for 1500 words or so therefore the least I could do is give some space to others to respond.

I must say the level of debate on this site has been a lot more thoughtful and respectful than stuff I have seen elsewhere – so thank you all for that. I encourage it to continue – there is no limit to how many comments can be added to a post, so debate away!

I am fascinated by the shape the debate is taking over the past couple days. I have read media stories, had many private exchanges with people on all sides of the issue and done a couple of media interviews myself (such as for this Global TV story). Lots of interesting takes have been shared. In many ways they parallel the three perspectives I discussed in the post, but given the specific context of the change, I am very interested in how they are each expressing themselves.

Here are a few observations a few days in, in no particular order:

  • First, I have learned that on the same day as the budget, Connect Logistics, the private monopoly contracted by the previous government to handle warehouse and distribution of all liquor in the province (except Alberta-based producers who are allowed to self-distribute if they choose), announced a set of fee increases starting in the new year. They charge for a variety of things and their rates are going up between 2% and 40%, and they are adding some new fees for longer term storage. The biggest increase is in fees for using the cooler space – something only affecting beer. So an interesting double whammy for imports. Local beer are affected as well, since most use Connect for at least some of their distribution.
  • Media reports have generally been favourable to the policy, seeing it as a benefit for local companies. However, many misinterpret or only partially understand the change. Many emphasize the mark-up separation between small brewers and the big boys, but downplay the effect on imports.
  • In private conversations with some agents and non-NWP breweries, I am a bit surprised at the speed of the effects. A number of accounts dropped some of their imports the very next day. Whoa. That said, I am also getting reports of many accounts pledging to keep the product, despite the price increase. It will take a while to really get a sense of how this will affect imported beer. The price increases are immediate, but how it ripples through the market is still hard to tell.
  • I am growing increasingly aware that, like all policy, there will be some collateral damage. I am not overly concerned for the fate of Stone Brewing or Innis & Gunn if their sales drop due to the change. They have solid, sizable home markets and plenty of options around the continent to sell their beer. However, smaller breweries, especially Canadian breweries with more restricted options in terms of alternative markets. I don’t mean to single out Yukon, but many people, including Alberta brewery people, have expressed to me their empathy for Yukon’s plight. Their home market is small (and they already rock it pretty well) and so Alberta is a crucial market for them. It is unfortunate, especially in the short term.

  • What the throngs debating the policy change should be doing together.

    What the throngs debating the policy change should be doing together.

    I am finding much of the debate, even on this site, has lacked context. People are reacting strongly to the change, accusing the government of protectionism. If we take a step back, it is clear Alberta continues to have the most open borders in the country. There is no body in Alberta approving or denying applications (sometimes somewhat arbitrarily) to bring a beer into the province. Every other province restricts market access directly. Alberta’s ONLY policy lever is the mark-up policy. As others have said, Ontario or Quebec or Atlantic breweries are negatively affected by this shift – and as a supporter of craft beer across the country I lament that – but today they still have better access to Alberta than Alberta breweries have to their provinces. If Alberta is being “protectionist”, what do we call Ontario? A fortress? I would challenge those mobilizing against the policy to consider spending a similar amount of energy lobbying their own governments to open their borders if it is that important a principle to them.

  • I find the arguments about consumer selection and the harm to people’s livelihood to be valid and it is important to keep sight of those things. This does affect real people. Some, however, are turning the issue into an anti-tax rant, trying to mobilize people against the government for hiking taxes on hard-working businesses and that somehow the increase is illegitimate because the government hasn’t earned or deserve it. I find this argument both specious and disingenuous. First, the mark up is applied to the wholesale price of the beer – the brewery is not paying more, the consumer is. Second, taxation is a legitimate tool for economic and social policy. I appreciate some have the view that no tax increases are legitimate, like our good friends over at the Canadian Taxpayers Federation. However, I take the position that a tax should be judged based upon what it achieves. This is a policy change aimed at generating economic activity and jobs. Whether it will remains to be seen, but that is the goal and it is a legitimate one. And besides, everyone, we are talking about beer – a discretionary item that is entirely within the personal control of the consumer. Don’t want to pay higher liquor taxes? Buy less liquor.
  • I think we all (me included) need to keep our perspective on this policy. It is a significant shift but not a revolutionary sea change. The beer market in Alberta will continue to purr along. I don’t mean to diminish the significance for people whose livelihood may be directly affected, but those are fairly small numbers. Some breweries will pull out of the market; others will increase their prices. But I predict Alberta will continue to have the best import beer selection in the country and maybe, must maybe, in a few years we will also have a more vibrant and exciting local beer scene.

Keep up the debate, here or in the previous post. Thank you to everyone who has commented and I pledge to keep this a respectful space for healthy disagreement and discussion.

9 comments to A Post-Script on the New Mark-Up Policy

  • This is a good and very sharp observations: “Every other province restricts market access directly. Alberta’s ONLY policy lever is the mark-up policy.”

  • Owen

    I think this topic should be brought up at the next first ministers meeting- providing equal treatment and taxation in each jurisdiction for all Canadian beers, so that however your province treats local beer will also be how you treat each Canadian craft beer.

    The best part would be the headlines, “Canada Gets Together for a Beer.”

  • New Brewery

    As part of a new brewery in Alberta, I have a couple thoughts.

    1) The biggest advantage Albertan consumers (me included!) have is privatized liquor stores. That doesn’t change, and really, the weak dollar has not affected selection. Consumption probably, but not selection. Same with the new markups. There are bars out there that scan the Alberta Beer Product list for the highest priced kegs as a short-hand for highest-quality, and that will not change.
    2) As with everything AGLC, the implementation and interpretation could be better. Specifically: the AGLC gets us to set our prices every two weeks. With this increase, the change was immediate. It didn’t give Yukon the opportunity to address the 25% increase in the price of one of their kegs. Even a day or two to allow producers to adjust their pricing so that, yeah, a bar wouldn’t be forced to drop lines because of the immediate price jump. Let alone allowing bars and restaurants time to adjust their menus accordingly: which they typically do on a bi-annually basis. Menu printing is expensive. And from personal experience, it was lame that I had to look up the new price of all our products when invoicing bars because the AGLC requires us to include the mark-up in the wholesale cost. Like I said, even one single measly day and the opportunity to adjust prices would have saved a whole heck of a lot of people a lot of grief. Details, AGLC, details.

  • Vern

    The effects of the increase are immediate. Only Ontario, Quebec and British Columbia have restrictive policies to importers of Beer. To lump in Manitoba, the Yukon and the remaining provinces is unfortunate, as this fall we have had tremendous support from these regions. Local brewers can self distribute and do not pay $8 to ship a pallet of Beer into Alberta from Halifax. Hence they have a logistic advantage. Alberta produces much of the world’s Barley Malt, so access to raw materials is second to none. I contend AGLC and Alberta government have breached signed free trade agreements that require all partners to tax signatories fairly. By the way, please remind me, are there preferential wine markups if a wine originates in BC rather than France?

  • Neil

    Well written, Jason. And thumbs up to Owen. All Alberta craft brewers have been asking for is equal treatment. Maybe this is the sort of disruption that is needed to get people talking about freeing up the movement of goods between all of the provinces in this great federation or ours.

  • Keb

    The sentiment that “All Alberta craft brewers have been asking for is equal treatment” may sound pleasant enough but what decision to raise taxes on non-Alberta beer does not guarantee equal treatment of Alberta brewers (craft or otherwise) at all.

    Just because our government has increased the tax on imports does nothing to prevent other jurisdictions from taxing Alberta brewed beer or not taxing Alberta brewed beer. Like I have said before if the Alberta government and the brewers of this province want to grow craft beer in this province in a manner that treats consumers equally focus on reducing the regulatory cost of doing business in Alberta for brewers.

    As a consumer all I want is to be treated equally and not punished for drinking an import from Quebec or California. If a few consumers prefer all their beer from Alberta, Sask or BC that is great but don’t allow the 1% to pay less tax than the 99% of the province who likes to drink beer from a variety of places.

  • […] writer Jason Foster, whose blog, On Beer, is the most authoritative in the province. Posts here and here really break it […]

  • Keb

    So will there be a post on the rather quick and predictable response from non-Alberta breweries who are pulling out of Alberta?

    Will these taxes mean more brewing jobs for people in Alberta, SK and BC or just a dearth of selection? High probability that it will just be less selection, less competition and ultimately worse for the consumer. What will make the nano breweries worth drinking is not a lack of competition (in fact that is what has given us 20 plus years of ok, but not great brewing here in Alberta)

    http://www.theglobeandmail.com/news/alberta/grinch-onomics-at-work-as-alberta-hikes-tax-on-out-of-province-craft-beer/article27880170/

    • Owen

      There has not been lack of competition in Alberta, there has been an overwhelming glut of competition coming from (among some decent beers from abroad) dumped stale-date beer from all around the world.

      Since privatization in the mid 90s, we have had the easiest market access of any jurisdiction in Canada and correspondingly, thousands of beers brewed out of province have competed with local startups, making our market extremely crowded. At the same time, there is almost no market access for Alberta beers in any other jurisdiction. Until just months ago, it made more sense if you wanted to sell beer in Alberta to open a brewery in Ontario and sell beer both there and in Alberta rather than opening a brewery in Alberta. There was unlimited access to the market and identical preferential small brewer markup.

      After a 20 year experiment in subsidizing breweries all over the world at the expense of our own industry, it is time to stop preferential treatment for small breweries in jurisdictions that do not give our own brewers the same benefits. I hope, but do not expect, that the brief media frenzy over this has caused some policymakers in other jurisdictions in Canada to reconsider their own protectionist beer markets – each and every one of which, might I remind everyone, is much more protectionist than Alberta is even after the tax changes. There is still 100% market access in Alberta, all that has changed is that beers from outside the New West Partnership cost an extra Fifty Cents a bottle. If your beer is not worth an extra $0.50 a bottle, I am not sure I want to drink it.

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