The Subsidies To Craft Brewers Need To Be Limited
Posted January 7, 2022
When governments decide to subsidize certain parts of the economy the demands for more never cease.
When Nova Scotia began subsidizing film making in the province, the argument was that it would create lots of jobs and enhance the province’s image as a tourist destination.
It is true that the Oak Island series has sparked some interest, as have two or three other productions in recent years. The dozens of other productions would have no recognizable tourism benefit.
The successful television series “Mr. D” was filmed at Citadel High School and ran for eight years. It is doubtful that viewers in Calgary or Toronto would care that it was made in Halifax.
The jobs argument was always weak, and the McNeil Liberals tried to eliminate the subsidy early in their first mandate. The industry fought back, and the government settled for a reinstated system with a spending cap of $12 million. That eventually disappeared and grew to cost $48 million last year.
The makers of animated productions argued successfully that they should get the same treatment. Their productions rarely have any tourism benefit, with the now departed Theodore Tugboat being perhaps the only exception.
Likewise, the Yarmouth Ferry was costing $13 million a year to subsidize an American owned and crewed vessel that brought in less than 1% of Nova Scotia’s tourists when it was operating.
That ballooned to $30 million in 2019 with the extra going to pay for docking and customs facilities in the United States. The last ferry that transported passengers was in 2019.
The latest salvo comes from Nova Scotia’s craft beer sector. They and their counterparts in wine, spirits, ciders, and ready-to-drink alcoholic beverages receive a substantially reduced markup from the Nova Scotia Liquor Commission (NSLC). The difference adds to the profits of the brewers. It is a subsidy.
Unlike films and the Yarmouth ferry, whose contributions to tourism are tiny, craft breweries provide a small but useful addition to the hospitality sector and the general ambience of the province.
A 2017 article in this space acknowledged as much and noted that some of the larger producers were also able to sell their product profitably in other jurisdictions without any subsidy.
The article concluded by arguing that the subsidy should be continued, but a cap should apply to each producer. At that time the subsidy cost about $12 million a year, an amount that grew to more than $30 million in 2019. The number of craft breweries grew from 40 to 89 in that short period. Sales have quadrupled.
Meanwhile, actions at the World Trade Organization put pressure on the province to limit the amount of subsidy to any one producer. The agreements signed by Canada say that countries should not discriminate against foreign products in their pricing.
The province has implemented a $750,000 cap on the amount of subsidy to any craft brewery, although producers selling directly receive additional subsidies until total sales reach 15,000 hectolitres (HL).
For most producers the cap does not much matter, but for a few craft brewers it does. When they hit the limit the NSLC keeps 31% more of the retail price, so their robust profit margins become much slimmer.
Nine Locks Brewing Company is the largest of them. In December it launched a media campaign saying that the province’s policy is damaging their business and discouraging further growth.
Co-owner Shaun O’Hearn says that he can barely make a profit when he has to give the NSLC the same share of the retail price as Labatt or Molson Coors.
It can’t be all bad. Knowing that these are the rules, Nine Locks went ahead with plans to build a new brewery. Nine Locks sells its popular Dirty Blond ale through the New Brunswick Liquor Store, presumably without any subsidy. It continues to get subsidies above the $750,000 limit until its total sales including its own stores reach 15,000 HL.
The Craft Brewers Association of Nova Scotia has been unsuccessfully lobbying Finance Minister Alan MacMaster to eliminate the cap. It is useful that he can lean on the trade agreements to justify keeping it. But that is not the only or best reason.
In its most recent year the NSLC produced $274.5 million of income, all of which goes to pay for public services. Every dollar that is used to fund subsidies for Nine Locks and the other 88 craft breweries is a dollar that is not available for health care, education, roads, and other services.
The craft brewery sector receives substantial taxpayer support and is thriving. The largest brewers receive $750,000 every year. Most Nova Scotians would feel that is enough.
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