Craft Brewers — Round Two

The January 7th article on the craft beer industry was prompted by a media blitz in December for which Nine Locks Brewing Company was the dominant voice. My research for the article included two telephone calls with co-owner Shaun O’Hearn. The article provoked a heated response from the Craft Brewers Association of Nova Scotia (CBANS) which appears below and in The Chronicle Herald.

The grievances begin with the meaning of the word ‘subsidy’. My understanding is that a subsidy is a benefit given to an individual, business, or institution, usually by the government.

They argue that there is no cheque or handout, so it is not a subsidy. What happens in practice is that a brewer like Nine Locks periodically receives a payment based on the dollar value of sales at the NSLC.

On a per bottle basis the cheque is larger than what would be received by brewers like Molson Coors or Heineken. That is because of the reduced markup that the NSLC applies to craft brewers in the province. The difference is added to what out-of-province brewers would receive. Perhaps if the NSLC sent separate cheques for each of the two amounts it would be clearer that this is a subsidy.

The entire profits of the NSLC are used by the government to fund things like health care and education. The subsidies to craft brewers reduce the amount available for those purposes.

The January 7th article and the Association’s letter concur that the craft beer industry has been a success. Despite covid-related trials they report that in 2021 sales grew by 10.8%, while sales of beer from outside the province declined. Because the craft beer provides lower returns than the products it displaces the income margins at the NSLC are diminished.

The article stated that subsidies amounted to $30 million in 2019. The text was needlessly ambiguous on whether that was for craft beer only or for all sales of Nova Scotia-made tipple. It was the latter.

The subsidies for craft beer include more items than the article mentioned. It said that Nine Locks sells beer in New Brunswick without any subsidy. That is not the case. New Brunswick treats Nova Scotia brewers like their own, so Nine Locks and others also enjoy subsidies from the New Brunswick government. Nova Scotian taxpayers pay for this indirectly by providing corresponding treatment to New Brunswick craft brewers.

A much larger additional benefit comes from the permission granted to brewers and vintners to sell from their own storefronts. There, the NSLC receives a 5% retail markup. For sales at the NSLC after the $750,000 limit is reached, and for all sales of out-of-province makers, the markup is 38% of the after-tax retail price.

So, the province is getting 33% less of the purchase price on beer sales from craft brewery storefronts than on the NSLC sales of out-of-province product they are displacing.

The association also draws attention to the employment that the craft breweries provide. A welcome result, but if that is a reason for subsidies every business in Nova Scotia will qualify.

Finally, they complain that the externally-owned Oland brewery, which also employs lots of people and creates craft beers, receives the same subsidies that they do. The NSLC says that it adopts this position to treat all provincially-based brewers equally.

Special subsidies to any economic sector always involve arbitrary design choices. That is why, when governments decide to subsidize certain parts of the economy, the demands for more never cease.

The article argued that a $750,000 subsidy cap for any one producer on NSLC sales was enough for taxpayers to bear. It did not note the additional subsidy on sales from brewers’ storefronts.

The issue affects fewer than a handful of the craft breweries. It would be wrong to further enhance the subsidies.

Bill Black, a True “Bud” to Big Beer
By Debbi MacDonald, Executive Director
Craft Brewers Association of Nova Scotia (CBANS)

Thanks, Bill, for your creative portrayal of the production limit debate playing out between NS Craft Brewers & Finance. Unhindered by facts or accuracy, it was interesting to see such complex & serious issues simplified down to the talking points of one side. Sparing no time to consult local industry – similar to the previous government when they launched the offending Local Beer Policy in 2020 – Mr. Black dusted off his 2017 rant and exposed our greedy nano and micro brewers(?) – most struggling to stay afloat after two disastrous years – declaring the real victims to be Government, the NSLC and Big Beer. The end.

However, at the risk of “complicating things”, perhaps we could add some balance?

Our reduced mark-up of 40% isn’t a subsidy, it’s a fair return to taxpayers on the sale of our beer. It’s also the highest rate in Canada with small brewers in Quebec, Ontario & Alberta paying roughly 6%. So when Nine Locks (and soon Propeller and Garrison) are forced to pay 84.5% markup, well… something doesn’t seem right.

$30 million benefit to local brewers in 2019? Perhaps Nova Scotia has been confused with Ontario, but based on actual sales through the NSLC, the amount of deferred revenue from local beer sales is roughly $3.25 million. We know that’s a much less dramatic number, but we think most would see that as a reasonable investment for a thriving province-wide industry.

The 15,000HL limit defining a microbrewer was established 30 years ago – before there was even a local industry! Fun fact, Nova Scotia boasts the lowest, most restrictive limit in the country and penalizes breweries just as they start to grow. So, some might call it “sneaky” when the rules changed a year ago, but the government just capped a local brewery at 11,000HL – 25% BELOW the limit.

Surprisingly, there was no mention that this new “local” policy now delivers a $750,000 taxpayer payout each year to Brazilian-owned AB/InBev, something the world’s largest brewer has lobbied so hard for. Well Budweiser, you can add that to your $46 billion annual revenue and thank you for not leaving Nova Scotia!

WTO trade challenges are real issues, but they have nothing to do with small vs large producers. WTO targets local protectionism. So just like when we ship beer to other provinces and get their small producer break, Nova Scotia needs to offer the same to all small producers.

This isn’t really about Nine Locks. Our recommendations were mostly about improved mark-ups, representation and opportunities, particularly for the smallest producers in this province. By dismissing 18 months of intensive, good faith consultations, the new Finance Minister now owns the mess that he had no hand in creating.

Surprising to folks like Bill, Nova Scotians appear to love local! In 2021, local beer grew by 10.8% while the entire sector only grew 0.4% and commercial beer declined. Meanwhile, NSLC profits soared by 11% to $275 million. Given that, is a pandemic really the right time for government to kneecap successful breweries, oversee the delisting of products from struggling small producers (mostly rural) and offer no alternatives or new opportunities?

While most Nova Scotian brewers are indeed small, their impact is massive. Nearly 20% of all beer consumed here is made here by local craft brewers and only half of that flows through the NSLC. With 1150 direct jobs and $50,000,000 in annual payroll, our 70 microbreweries employ Nova Scotians at a rate of 35 times that of a certain multinational that also brews here – and our profits stay here.

Finally, one should question the fairness of changing the rules in the final hour and penalizing successful local small businesses. Every one of these breweries understood the rules when they invested, built, and grew their breweries. While it was reasonable to hope for some evolution or positive change over the decades, they at least knew what the status quo looked like.

We tend to agree with Bill that government should have limited involvement in private industry, but that’s not the case here is it. The Nova Scotia government controls literally every aspect of our lives – production, distribution, retailing and promotion – and they’re also our largest customer. Their policies make winners and losers, creating opportunities and roadblocks everyday. They don’t get to be impartial; they need to be engaged.

Bill, you’re certainly entitled to your opinion, but we think the good people of Nova Scotia deserve the facts. Maybe next time, do that reporter thing and give us a call – we’ll bring the beer!



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