Craft breweries Big Rock and Minhas will especially hard hit
By John Hilton-O’brien
On Monday, Deputy Minister Thomas Lukaszuk is expected to erase Alberta’s budding competitive craft breweries. There won’t be any legislation or debate: it is an administrative matter, resolved by a caucus meeting and the stroke of a pen.
The mechanics are simple. For the past ten years, the Alberta Government has levied a counter on smaller craft breweries that was smaller than that levied against massive international producers. For the majors, with their multi-million hectalitre productions, almost a dollar per litre is added to the price at the till. For the minors, a sliding scale was adopted, typically adding half this rate. The differential rate is meant to allow smaller brewers to compete with the economies of scale possible to massive breweries like Molson’s and Labatt’s.
On Monday, Lukaszuk will propose to his caucus that they eliminate the differential rate for breweries making more than 150,000 or so hectoliters per year. This will run Alberta businesses such as Minhas Craft Brewery and Big Rock out of the market, forcing them to compete against brew runs of up to 850 million hectoliters – almost a thousand times their size.
While the breweries most affected are in Calgary, Lukaszuk will have his discussion at the meeting of the Capital Region Caucus. While all of the PC caucus will be invited to attend, the matter will be decided by a 15-minute agenda item of the PC’s Edmonton MLAs. Since it is a regulatory matter rather than legislation, no public debate will ever be heard.
The spins are somewhat predictable, if spurious.
Lukaszuk will argue that the lower rate constitutes some sort of “subsidy” to Minhas and Big Rock. It’s obviously not true: Minhas and Big Rock will not actually pay a dime less tax. The levy goes direct to the consumer. In fact, our “subsidized” rate is roughly a hundred times the amount charged to similar producers in the United States.
It will also be argued that the point of the reduced levy is to protect local producers only. This seems to specifically target the Minhas brewery, which was originally forced to ship its material to Wisconsin for brewing. In 2006, a policy change aimed specifically at Minhas appeared, prohibiting contract brewing: Minhas was given six months to build or purchase a brewery – anywhere – or go out of business. They were able to purchase one of the Wisconsin breweries, foregoing longer term (and more expensive) plans to build a brewery in the Calgary area. Minhas has since built a Calgary brewery, and announced plans to move all of its production lines there.
All of this is beside the point: the lower rate currently applies to all small brews, regardless of origin. It’s an attempt to be compliant with trade treaties like NAFTA – protectionism has never been involved. We wanted to create an environment in which we could export our beer – not to create a protected market.In 2004, in fact, the AGLC rejected a push for protectionist measures because it would have violated trade agreements such as NAFTA.
Another argument appears to be a bit of snobbery. Minhas beer, it is argued, is not really a “craft” brewer. Their beers are sold at the discount level, typically $1.25 for a can including deposit (the can itself being a craft beer no-no.) The argument also targets Big Rock, whose PC Lager’s regular price is $12.35 for a 15-pack. Those who believe that the purpose of the lower levy is to protect the craft beer industry would leave out Minhas and Big Rock – because they are not “craft” brewers.
On a deeper level, the move reflects a level of administrative incompetence on the part of the Alberta government, reminiscent of the oil royalty review.
Lukaszuk’s initiative marks the ninth time that the government of Alberta has conducted a review of the policy in ten years. Needless to say, frequent policy changes create an unstable investment market – which makes it hard to raise the capital necessary to build or expand a brewery. The very instability of the administration tends to undermine the industry.
Lukaszuk himself has no background in the alcohol industry, and no familiarity with the file. It seems likely that he is susceptible to clever lobbying. Molson and Labatt’s have their very own industry association, and a tremendous capability to hire lobbyists. It seems quite possible that Lukaszuk thinks he is speaking to the vast majority of beer producers – when he is really speaking primarily to people prepared and often paid by the large beer producers, who are no longer Canadian, except in their branding.
Our former “Canadian” beer companies are now multinationals:
- Molson is now part of the South African Brewery (SAB) MillerCoor-Molson. They are based in South Africa and the USA. Commanding 40% of Alberta’s market share, they control 35 labels including Rickards, Creemore, Heineken, Foster’s, Granville Islad, and Leinenkugel.
- Labatt is now part of Anheuser-Busch imBev Global. Based in Belgium, they control Budweiser, Kokanee, Stella Artois, Beck’s Alexander Keith’s, Guiness, Lakeport, Lowenbrau, and Lucky Lager. They command 40% of Alberta’s market share.
- Sleeman’s is now part of Sapporo Sleeman’s, in Japan. They control 18 brands, including Sleeman’s, Old Milwaukee, Pabst, Stroh’s, Schlitz, Shaftesbury, Blanche de Chambly, and Red Bull Beer. They have 8% of Alberta’s beer market.
How do the locals fare against these multinational behemoths? Big Rock has 7% of the Alberta market, and Minhas has 4%. All the others together have roughly 1%.
It seems likely (and industry sources confirm) that Lukaszuk’s push to remove Big Rock and Minhas from the Small Brewer’s Mark Up regime has to do with this market share. By making these companies less competitive or driving them out of business, the majors stand to gain 11% of Alberta’s lucrative beer market.
Does this sound fanciful? Think again: the multinationals have bought and closed dozens of local breweries in Canada. Here’s a few examples that may be familiar to beer aficionados and Albertans:
- Lucky (Vancouver) closed by Anheuser-Busch in 1982
- Lakeport (Hamilton) closed by Anheuser-Busch in 2010
- Granville Island closed by South African Brewery in 2011
- Molson (Edmonton) closed by South African Brewery in 2007
- Molson (Calgary) closed by South African Brewery in 1989
- Molson (Lethbridge) closed by South African Brewery in 1990
- Banff Brewing was closed by Sapporo in 2000
- Joseph Waner (Calgary) was closed by Sapporo in 1999
- Peak Brewery (Canmore) was closed by Sapporo in 2000
- Shaftesbury Brewing was closed by Sapporo in 1999
There are literally dozens more of such examples. Manitoba no longer has a single brewery: the multinationals have moved all brewing out of province to achieve greater economies of scale. I think it is fair to say that the agenda of the multinational brewing companies does not march well with local brewing. These guys play for keeps.
In Alberta, the multinationals do keep paid lobbying staff. One in particular caught my eye: Gord Olsen, who was a senior bureaucrat in Klein days, has registered as a lobbyist for Labatt.
More interestingly, sources in the PC party tell me that Olsen was the campaign manager for Premier Allison Redford’s local campaign in Calgary-Elbow. This certainly makes him an effective (and doubtless expensive) lobbyist – he will literally have her cell phone number. It also explains why this move is being done by the Deputy Premier, rather than the Solicitor General or the AGLC who usually make decisions about alcohol regulations.
If true, this makes us wonder about the ethics of the situation. We wouldn’t allow a person who was working for the government to be lobbying ministers a month later. Why are we okay with allowing someone who was providing direct partisan services to the minister to do the lobbying?
Technically, there is no law against this. But the situation looks pretty clear: the multinational brewers hired a PC crony to lobby the Premier to drive their competitors out of business. On Monday, at 8:15, he will have succeeded.
Alberta’s beer is about to smell as bad as its government.