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Oakes Weekly - May 11, 2006


Optimism in Canada - 2006 Budget Analysis
Oakes Weekly May 11, 2006      
Written by Oakes


Vancouver, CANADA -



Canada’s new minority government passed their first budget last week. Some of it was good, some of it bad, but there was one item in there that is of relevance to non-Monkey portions of the site. The bill includes a cut to excise taxes for small brewers. The cuts are on a sliding scale, and at the “micro” and “pico” ends of the scale they are dramatic.

This was met with enthusiasm by the Canadian Association of Small Brewers. They estimated that the result could mean another 1500 jobs in the microbrewing industry in Canada. Currently the total is only 2000, so that’s a pretty significant boost they expect.
Moreover, the bill mainly lends the breaks to brewers under 75,000 hl/year in production. Coming from a socially conservative government with its stronghold in parts of the country not known for craft beer, this is a rather pleasant surprise that they would think of this little industry right on the first budget. Nice work, indeed.

The net result is that Canadian small brewers now will enjoy the same tax breaks that small brewers in other countries have enjoyed. Combined with the fact that in several provinces small brewers already have easier access to the packaged market than anywhere else, it’s easy to see where the industry’s optimism comes from.

To truly build a healthy craft beer scene, however, there are some other things that can be done (albeit not by the federal government). The first is easy – enforce the laws with regards to the draught market. Free kegs are killing the little guys. It’s illegal to offer them, but all the big brewers do. Everybody knows this, but officials turn a blind eye. Excise tax break or no, small brewers cannot give kegs of expensive beer away like the big brewers can with their cheap swill and economies of scale. That’s why the laws are there. Enforce them…that means you Ontario and BC.

Open the market to real competition. That’s right, kill the government liquor stores. And I don’t mean switching towards the sort of half-assed version of private retailing that BC has and that keeps turning up in discussions about privatizing the LCBO. It’s got to be all or bust. In other words, if Joe Blow wants to open up Mega Beer Mart down the street, and Jane Smith wants to open up The Wee Little Barley Wine Shop right next door, they can both do it without any hinderance beyond what the free market provides.

Why is this good? Don’t government stores provide great distribution opportunities? I mean, private sales haven’t resulted in an explosion of new micros in Alberta, now have they? Nor in Quebec…ok, bad example. Quebec actually gets a lot of new breweries and all those new breweries are selling in dépanneurs, not the SAQ. Why is that?

Well, government stores have a big, centralized distribution system. Beers often sit in warehouses at ambient temperatures for two or three months. The big guys have built their beers to withstand this brutal treatment. They don’t have any flavour to lose. But craft beer is a product with subtle flavours and nuances that can’t handle either the processes to make the product tough enough for the public distribution system or the weeks of sitting in that warehouse.

Moreover, many government stores don’t move craft beer. They don’t know how to sell it, that’s for sure. It’s a rare day when someone wanders into a BCLDB or LCBO store and a member of the floor staff educates them about a beer and gets them to try something new.

Further, they often try to sell it in geographical areas that just don’t buy the stuff, meaning that months-old beer is finally removed from the shelves to be resold in places that do buy it. That’s not good for the brewers. Any brewer who thinks selling ages-old beer is better than not selling at all it doesn’t deserve their brewer’s license. Ancient beer = no return business.

Which leads me to another point. Breweries have too much freedom to float. They just aren’t tough enough. There are dozens of brands on the shelves that exist simply to fill a SKU. They don’t sell nor are they innovative. These breweries (and brands) don’t need to do anything well to get province-wide distribution, which in some cases seems to be enough to keep them afloat, perpetuating the myth that craft beer isn’t all that distinctive. Too many breweries still trade on being “the little guy” rather than being “the best beer you can buy”. Joe Thirsty walks into a store, decides to give a microbrew a shot and has a 70% chance of getting something boring, overpriced and/or old as dirt. Joe Blow’s next trip to the store yields his trusty macrobrew. (Which is equally overpriced, but that’s another story). Joe Thirsty should have a choice of fresh, brave, distinctive beers, each having earned its way into the marketplace, rather than being given a free ride at the socialist welfare teat.

I actually fear this with the lower excise tax. On one hand, I want to encourage more people into the business. Similar easing of barriers on the licensee side of things would give me the excuse I need to get a beer bar going. Hopefully this makes the difference for an aspiring brewer of interesting niche beers. I’d love to see someone start up who had previously felt they wouldn’t survive making only big, flavourful brews.

Hopefully it does NOT encourage yet another small-time entrepreneur with no particular passion for beer other than drinking it to open yet another me-too brewery with an uninspired product line full of derivative beers. We don’t need any more Premium Lagers, “English” Pale Ales, Amber Ales or any of that.

So yes, I am optimistic. The government knows craft brewers exist and wants to do their bit to help them out. The recognition that beer is no longer a one-size-fits-all industry has been a long time in coming. Unlike the CASB, I don’t care about 1500 new jobs. I’m a consumer. A quality over quantity kind of guy. I’m more concerned with how many good new beers I’m going to see on my shelves. I see this budget as a good first step to strengthening the industry. Removing a major barrier to entry is a start. Now we just need the provinces to do their bit, enforcing competition laws and getting out of the retailing business.
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