So Minhas Brewing, whom I recently took to task for their claim to be craft, seems to have earned the ire of a prominent political columnist. In the Canadian edition of the Huffington Post and in MacLean’s , David Menzies takes aim at the AGLC’s tax policy for brewers (thanks to the readers who pointed it out – see end of post). Smaller brewers pay less tax on their beer than the big boys. This is not an uncommon feature of beer tax regimes in Canada. Alberta has a four-tier system, the lowest rate for brewers who produce less than 20,000 hectolitres, a second for under 200,000 and then the full rate after that. An additional staggered rate applies to breweries not producing in Alberta.
Menzies’ focuses his ire on two aspects of the policy. First, that it has failed to produce a significant number of new breweries in Alberta. Second, that Minhas benefits from the tax break, even though at the moment all of their beer is produced in Wisconsin. He frames his position as Alberta tax dollars subsidizing jobs in Wisconsin.
Normally, Menzies and I don’t share a common opinion – our politics are quite different. However, in this case he has a point, but not necessarily the one he thinks he does. Let’s start with Minhas. I have long thought it odd that Minhas would be eligible for the lower tax rate for two reasons. First, they don’t actually brew beer in Alberta. And second, their Wisconsin brewery was in 2010 the 14th largest brewery in the U.S. It never made sense to me.
One confusion created by Menzies is his comparison of Alberta-based breweries and Minhas. The problem is that Minhas is NOT eligible for the small brewer mark-up, but they are eligible for what is called the “transition mark-up rates”. (read the whole Mark-Up Schedule here). The two small brewery rates only apply to Alberta producers. However the transition rate does not have that limitation. What is more irritating is that Minhas likely only gets that rate today because of the odd rule that eligibility is based upon volume at the time of entering Alberta, not today. I don’t know Minhas’ volumes, but I have a suspicion they are over 400,000 hectolitres. That category of mark-up feels suspiciously like the “Minhas rule”, because I can’t figure out who else would be eligible for it.
Menzies is mad that tax dollars are subsidizing jobs in Wisconsin. Fair enough. However, Minhas is about to deep-six that argument by opening up a new brewery in Calgary. But a bigger problem remains. My position is that the mark up policy is incoherent and simplistic.
I understand a lower tax rate is an important equalizer for small brewers. It addresses their lack of capacity to take advantage of economics of scale. That makes sense. But we make a mistake by isolating this one policy. What Menzies doesn’t realize is that it is the whole basket of policies around beer that have limited the growth of microbreweries. I won’t get into it all now (because I have done so before), but the combination of privatization, lack of enforcement of inducement rules, not staggering the tax rate, minimum production requirements and an inviting environment for imports are what are limiting the growth in craft beer. It is not the tax rate’s fault.
The main concern about the tax rate policy is its incoherence. What does it want to do? Does it want to create new breweries? I don’t think so. Does it want to promote employment in Alberta? It clearly doesn’t do that. What is the policy goal here? That is the problem. What we need is a tax rate designed to meet specific public interest goals. We want more beer production IN Alberta. So, the lower rate should apply only to breweries with operations in Alberta, with no odd “transition” rate. Global production volumes should count, so “off-shoring” can’t create tax benefits. The rate needs to be staggered, so that production under the threshold continues to be taxed at the lower level. Maybe the tax subsidies should be connected to employment, or percentage of sales in Alberta. Maybe they should only apply to craft breweries (although I am not sure how to operationalize that one). There are lots of options for designing a beer regulation system that can promote local production and sales of quality beer. But the Alberta government has no interest in that. Which is why Menzies is right, but for the wrong reasons.
By the way, I must note that loyal readers drew my attention to the Menzies piece. Actually in a 24 hour period, no less than 7 people independently emailed me with a link. Aside from that giving me a bit of a chuckle, it also humbled me. I am honoured that onbeer.org has readers serious enough to want to highlight things that might be of interest to me. So, I want to thank all of them for being considerate and thinking of me . And, second, I want to encourage all of you to feel free to send me links of interesting stuff. I am a busy guy and can in no way see everything that happens on the interweb. But if it is interesting to you, it might be to me as well.
November 30, 2011 at 8:44 PM
I have considered meeting with my riding MLA to discuss issues around the current beer legislation. Maybe we can take it offline and discuss some of the issues and see if we can directly address them with the provincial government.
November 30, 2011 at 10:20 PM
The Mclean’s article is very poorly written. It really is just a I hate Minhas piece and the line in the piece that made me laugh the most is taking those high paying brewing jobs. Minhas is very closely watched by the AGLC they have been fined and rules have been changed because of Minhas. So be it there is always one bad apple. Big Rock wanted this tax structure from when they bought the BC breweries. Drummond and Wild Rose pushed to have the lowest tax bracket raised to 20 thousand hecs and the system is working. There are other issues at hand here that have nothing to do with Minhas.
You change the structure you raise the price significantly of Rochefort, Cantillon, Phillips, Dieu du Ciel and every other brewery that enters our market and you will change what make our market so dynamic. If you don’t like Minhas just don’t buy their beer.
December 3, 2011 at 2:28 PM
You make some good points about unintended effects by messing around with the regime. I think that supports my contention that the current policy is incoherent – it doesn’t know what it wants to achieve. Plus, I don’t have quite the same level of confidence in the “free market” around this stuff. Government regulation is often necessary, and this may be a case where it is. I don’t claim to know what the tax regime should look like, but I would not say the system is working just fine as it is. I am not satisfied with “just don’t buy their product” because there are so many other layers to it, including dishonest advertising a VERY unlevel playing field between the big boys and small brewers. I think it is important to air as many of these things as possible. Thanks for your take.
December 2, 2011 at 2:31 PM
You know what the real problem is? The laws weren’t written to reflect the realities of the international brewing situation. They never really are because a provincial government tends to think on a smaller scale. We have the same problem in Ontario. It’s a small governmental body attempting to maintain a hold on a much larger system. Minhas is simply taking advantage of a poorly written legislation.
What the government should do is simply refuse to let Minhas use that loophole. It’s clearly not in the spirit of the law.
December 3, 2011 at 2:22 PM
Jordan, you make a good point. The tax laws are fairly antiquated – and even though they keep updating them in response to lobbying, there hasn’t been a serious rethink about what alcohol taxes SHOULD do in decades. What is the policy goal? Thanks for posting.
December 2, 2011 at 10:11 PM
Hoser is absolutely right. Keep a level playing field for all small producers, but X makes bad beer, tell the world and don’t buy it.
December 4, 2011 at 7:46 AM
You can’t have it both ways I put your quotes below and answered them.
“Plus, I don’t have quite the same level of confidence in the “free market” around this stuff.”
Answer Then you should write only about Alberta beers for your blog or printed articles as every time you write about a product brewed by a small brewery outside of Alberta you are supporting the free market that you don’t have confidence in. All the local breweries are growing ,just look at Calgary 2 or 3 breweries are being built presently. We grew up in the shadow of Big Rock for 15 years, Alberta’s beer education has been stifled because of that. The craft revolution is growing just not at the rate that you think it should be, there are other factors. Also if you look at this way that you are helping a lot of small Canadian breweries that have a new market because of Alberta’s tax laws and openness.
“Government regulation is often necessary, and this may be a case where it is. I don’t claim to know what the tax regime should look like, but I would not say the system is working just fine as it is. I am not satisfied with “just don’t buy their product” because there are so many other layers to it, including dishonest advertising a VERY unlevel playing field between the big boys and small brewers.”
Answer: Although your blog you can’t have it both ways. Dishonest advertising if the product is horrible, it doesn’t stick around pretty simple. Most Alberta retailers know what is up. AB or INbev have craft beer lines in the States, Coors/Molsons has the Blue Moon line it just part of doing business, and we are seeing this same sort of marketing in Canada. Minhas rebrands to make their product seem more exotic and Big Rock rebrands their Pine Valley stuff to separate their craftbeer from the buck a beer market.
Protectionism over one bad apple is not the solution besides in 2012 Minhas will have a brewery in Calgary and this story will be put to a close. Expect maybe for the bad beer part.
December 4, 2011 at 9:10 AM
Hoser, I am not sure you get my point (which could be my fault). I am not trying to have it both ways. I am just trying to point out aspects of the beer industry that are wonky or may not be in the consumers’ / small breweries’ interests. I am not advocating protectionism, nor am I saying that we should return to the days where you had to brew it in the province to sell it in the province. I am simply highlighting some things that I consider problematic. I am a big supporter (as you know) of craft brewers, no matter where they are. And I want a system that doesn’t punish them at the expense of cheap imitations.
This blog is about tossing my observations out there and engaging in debate – like this one – to clarify what is the right approach. I respect your view and my response (I hope) is a sign that it is worth engaging rather than ignoring.
I know, for example, that you and I have differing views on the merits of liquor retail privatization. That is fair. And it makes for more interesting conversations over beer. Let’s keep doing that.
December 4, 2011 at 1:01 PM
My point is as long as it is beer a hectolitre is a hectolitre no matter who makes it under the Alberta system. If you start defining cheap imitations when does it start to get confusing to the AGLC. For an example several Belgian’s are made with adjuncts as is Minhas. A little silly to make a point but then do Rochefort and Minhas then fall into the same category as they are both made with adjuncts?
On the declaration of production forms the AGLC ask for at the end of each year they ask worldwide production levels to set the tax structure. So even when Minhas enters the Alberta market with the Calgary operation their Wisconsin brewery as all their other production operations will be included in their tax base and they will be taxed accordingly. Example Rogue’s distilled spirits and all their brewpubs are part of world wide production levels with their tax base.
To what point does cheap imitation end, I don’t like the Mill Street Wit is it a cheap imitation then. Minhas makes crappy beer but it is still beer and they are taxed accordingly. If you define cheap imitations to make your point you only confuse the matter or at least to me.
December 4, 2011 at 6:07 PM
You are right on the narrower issue of not setting policy that distinguishes between craft and non-craft. But I think I am talking about a broader policy shift – trying to build a beer regime that has a coherent sense of what it wants to accomplish. It is not about picking on Minhas or on making it harder to import good beer here. It is about replacing a system that is a mish-mash of policies with contradictory objectives with something that makes sense for beer consumers and beer producers. That is all I mean.
Keep on drinking good beer! (And importing it into the province!!)
October 24, 2012 at 2:16 PM
Menzies article is biased, that said I have personally heard things while working for them that have caused me to raise my eyebrows more than once…. The Calgary brewery is essentially postage stamp sized (like the article postulates) and in no way capable of handling full production…