Drinking Local: This Party Comes With A Hangover
Posted January 13, 2017
Nova Scotia has seen an explosion of home grown tipple in recent years. Enjoying too much of it might impair our judgment.
There are now 21 wineries and 40 brewers of craft beer, as well as growing numbers of distillers and makers of apple cider. Sales exceed $20 million and are growing fast.
It’s all great fun. The grape growers and wineries have been increasing their acreage and improving their product. Wines using the Tidal Bay appellation, used by a dozen labels, are interesting and distinctive. They can be found in many restaurants around the province.
Craft beers from places like Shelburne, Liverpool, Tatamagouche, and Guysborough compete in Nova Scotia Liquor Corporation (NSLC) stores with global giants. Smaller craft brewers just sell from their own storefronts and to nearby restaurants.
There is a nice tourism spinoff. Visitors can experience the local products when dining out, and like to visit the places where they are made. Wine tours are common in the Annapolis Valley; the Glen Breton distillery, happily proximate to the booming Cabot Links golf destination, does a thriving tour business.
The downside is the impact on the provincial treasury.
The Nova Scotia Liquor Corporation produced net profits of $241 million for the provincial treasury last year, about 40% of sales. Expenses are about 16% of sales and the product costs are 44%.
Profit margins for the NSLC on local product are less than half of what they make on other sales, because the local producers keep a much larger share of the purchase price. The result is that taxpayers made $4.5 million less in 2015-2016 than they would have if the margins were the same as for out-of-province products.
On sales from their own stores, the winemakers and craft brewers keep more than 97% of the price, so profits for the NSLC are negligible. The total loss in profits on domestic products compared to usual margins exceeds $12 million per year, and keeps growing.
The local producers might find it outrageous for NSLC to expect a big profit margin on product that they make and sell themselves, and they would be right. But that is the wrong lens through which to view the question.
The NSLC is granted a monopoly on sales of alcoholic beverages so that the treasury can achieve a revenue goal. NSLC’s elevated profit margins are set by government and are, effectively, a tax we pay, in addition to the HST.
That is why booze costs a lot more here than, say, in Florida. Even after allowing for differences in currency, a bottle of Oyster Bay Sauvignon Blanc is 43% more expensive in Nova Scotia; a 1.75 litre bottle of Beefeater Gin is 60% more expensive.
The high prices we pay for alcohol are one of the reasons we get, for free, medical care for which Floridians pay a fortune.
Taking a reduced margin on locally produced product that the NSLC sells, and a tiny margin on product sold by the producers, is a reduction in that contribution to the cost of our health care. The amount foregone this year is about the same as the taxpayer handouts to film producers.
In 2016, the government announced a $12-million strategy to help double our province’s grape production by 2020. Perhaps something similar will be offered to craft brewers. If successful, we will enjoy even more local product, but on current form the $12 million annual cost to the treasury could double.
There is something to be said for efforts to nurture these businesses in their formative years—not just for the modest economic benefit, but also because it makes Nova Scotia a more interesting and fun place to live.
But the government needs to put a cap on what is effectively a subsidy. One way would be to gradually increase government’s share of the price on locally produced product. Better would be to leave the small producers alone, but to gradually increase the provincial take on larger and better-established producers.
Secondly, the amount of this subsidy should be disclosed every year so that taxpayers can see the real cost of their habits.
Like fine wines, subsidies should be enjoyed in moderation.
Related ArticlesBudget Season
- The Tax Changes Proposed for Small Businesses will have Side Effects August 25, 2017
- Drinking Local: Round Two January 20, 2017
- How Not To Do Provincial Cooperation January 6, 2017