Friday, September 23, 2011

When Craft Brewers Bicker

So I subscribe to this RSS feed that I can never read the full article for. Why? Because the silly pay wall prevents me from reading Beer Business Daily. But the teaser (because you never know, with a teaser like this I just might pony up the $500+ per year for a subscription) goes like this:
Holy cow. There's trouble in paradise. Here's what happened. At about 3pm yesterday, outspoken brewer Larry Bell of Bell's Brewery rang BBD from the Cubs game to relay that it is his opinion that the small brewer tax bill (H.R. 1236 and S. 534), which sets a new tax threshold at 6 million barrels, should be scrapped in favor of language which keeps the threshold at 2 million barrels...
If you're like me you read that and went "Holy Cow! I have no idea what any of that means or why it matters but it sounds incongruous and meaningful so I'm going to research it."

Like I said, "If you're like me ... and you have a beer blog ... and you find tax law interesting ... and you have a Thursday morning to kill ..."

Anyway. There's a bit of a backstory to this: At the end of last year the Brewers Association was faced with the problem that Sam Adams would no longer qualify under its [the BA's] definition of "craft beer" which put a barrel cap at 2 million barrels to be a member. So, rather than face the lost dues of its biggest member, the BA, unsurprisingly I suppose, simply raised the barrel cap to 6 million barrels, thereby retaining Sam Adams as its largest member by a rather healthy margin.

There. That ought to fix it, right?


Relatedly, and by relatedly I mean in a causative not a correlative, manner, Sam Adams faced another problem: the tax code gives a break to certain small brewers. The tax break goes like this: every brewery owes the federal government an excise tax of $18 per barrel; except, we don't want to hurt small breweries, and, in fact we want to encourage them, so instead of $18 per barrel, any brewery under 2 million barrels only has to pay $7 per barrel on the first 60,000 barrels.

You see where this is going right?

If you guessed that Sam Adams, through its puppet the Brewers Association, would lobby the government to increase the barrel limit from 2 million barrels to 6 million barrels you win a prize.

Given all of that, we come back to the Present Day. Larry Bell bitchin' in the Rags. Why does Larry Bell care? I'm sure if I had paid my $500+ per year for that damned subscription I could probably tell you. But, as it is, I have to guess.

My guess is that Larry Bell, like the rest of us, gets testy when he sees rules bent for "the special case." Even if the rules might ultimately (but probably not) affect/benefit him. It's the principle of the matter. Why should we treat Sam Adams any different?

It's a really good question, actually.

2 million barrels is a lot of beer. 6 million barrels is 3 times "a lot" (is that a "shit ton"?). Is it even possible to be a "craft" brewery at 2.5 million barrels of production? Given the scale of production is the $11 per barrel tax break on a mere 60,000 barrels (less than 3% of your production) incentivizing you at this point? Would an increase in $11 per barrel on less than 3% of your production really hurt you? And, if it's not providing an incentive or meaningful break, why should we (the American people) subsidize you? We need all the money we can get. Adding $660,000 isn't much, but, hey, it'll pay for a couple new school renovations.

In other words, if the Brewers Association weren't just a puppet of Sam Adams and listened to people like Larry Bell instead of Jim Koch, the Brewers Association might waste its lobbying dollars on increasing the 60,000 barrel part of that equation instead of the 2 million barrel part of that equation.


  1. I know others will disagree with me when I say that for me, "craft" doesn't signify millions upon millions of barrels contract-brewed for you across the country.

    Craft; noun
    1. an art, trade, or occupation requiring special skill, especially manual skill: the craft of a mason.

    Yes, it's good beer. Yes, some of it is even phenomenal beer, and it's often better than the small-batches made locally by artistic brewers. That still doesn't make it "craft" in my eyes...

  2. This was debated on the Brewers Association email forum a while back. An individual membership is $155 per year. Anyway, it's true that keeping Boston Beer in the organization is good for market share statistics. More importantly, it also gives the BA a lot more political clout. The fact that BBC has been a good corporate citizen in recent years - selling surplus hops at-cost during the shortage, creating loan programs for startup businesses - makes it harder to hold their size against them. In addition, Larry may have been willing to jeopardize the potential tax break for all small brewers just so Boston Beer wouldn't be included (I don't remember exactly what was said/implied/threatened, but people were afraid that Larry would go to Capitol Hill and lobby against the BA). The issue is definitely more complicated than it seems.

  3. Bah. Once they exceed a few thousand barrels, most packaging breweries rely on industrial equipment and divide the brewing tasks assembly-line style (wort producer -> cellar person -> packager). They have sales teams, brewers working nights/weekends and tours that are often given by retail employees who don't know much about the brewing process. There may be valid reasons for considering Boston Beer a "them" instead of an "us", but the romance of artisanal production shouldn't factor into it.

  4. Joe makes many great points. While i am not, and never have been, a big fan of the "exception theory", Boston Beer Company has been a very active and positive member of the craft beer sector for years. I would say, overall, keeping them in the segment is beneficial...for now.

  5. I agree that BBC has been "a good corporate citizen" (corporations are people!? What!?), but question whether a trade association such as theirs should be engaged in activity that clearly benefits only ONE of its members. Especially where its other members (namely, all of them minus one) would prefer the activity (read: money) be spent elsewhere.

    I've also come to the conclusion, much like Travis and Zach, that whether the Brewers Association defines a brewery as "craft" is not particularly relevant to whether the brewery is one that we as consumers do, or should, also consider "craft".

    In other words, "craft brewery" has a number of definitions (at least two) including the possibility that "craft" has as many definitions as there are people in the universe drinking "craft beer".

  6. I think we're mashing up two issues. Yes, the BA changing its definition of "craft brewers" was solely for the benefit of BBC. It also took very little time or effort to do. The proposed tax break, on the other hand, would cut excise taxes on the first 60,000 barrels to $3.50/barrel and cut them on the next 1,940,000 barrels to $16/barrel. It would affect all brewers who produce less than 6 million barrels a year, but it's not tied to the BA's craft brewer definition - one could change while the other stays the same. The tax break would help all small brewers, not just BBC.

  7. Why not just give the tax break on the first whatever number of bbl to all brewers? If you are small, it really helps you. If you are big, it doesn't save you much, but you'll take it. That way we don't have some ambiguous term like "craft" or some ambiguous line in the sand in tax law. Isn't the point to help small brewers get off the ground? I get the point of taking away the tax break from bigger companies (progressive taxation), but really, it is a small amount the government is "losing" if it is only the first 60,000 barrels. Or just make it like a normal graduated tax. Every barrel over X you produce is taxed higher. That encourages startups and also doesn't punish successful bigger brewers (They still get the break on their first X bbls, so they can't complain they are being treated different. If it is only 3% of their production, well, hey, good for them for being so successful).

    As to what the BA does....that's another political animal entirely.


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