Beer in Vermont, important to the economy

A single-file line of Fiddlehead beer growlers sits on a shelf at Fiddlehead Brewery
Fiddlehead Brewing Company in Shelburne. Courtesy photo

Cameron Kovach, Vermont correspondent

Vermont’s craft beer industry has experienced remarkable growth. In just five years, the number of breweries in the state has more than doubled. Today, we have more craft breweries per capita than any other state.

It’s not just the quantity of breweries, though, that’s impressive. Vermont brewers have gained an international reputation for the outstanding quality of their beers. Based on nearly a million worldwide reviews on RateBeer.com last year, Vermont has both the best brewery in the world, Hill Farmstead Brewery, and the two highest rated domestic beers in global rankings, Alchemist’s Focal Banger and Heady Topper.

According to a recent report by the Vermont Brewers Association, the state’s craft beer industry has an annual economic impact of approximately $199 million and generates over 1,500 jobs. When including money stemming from craft beer tourism, that number swells to over $270 million—more than the annual economic impact of maple syrup in Vermont ($226 million-UVM Proctor Maple Research Center).

Needless to say, the craft beer industry in Vermont has become an important part of our economy. However, despite burgeoning demand for craft beers in the state and beyond, sustaining a viable craft brewery means overcoming several significant obstacles, including a high tax burden and intense competition.

The Beer Institute and National Beer Wholesalers Association estimate that nearly 41% of the retail price of beer in Vermont goes toward taxes. So, for every $10 spent on beer, approximately $4.10 gets funneled from the brewery’s potential profits straight to the government. For a small craft brewery, that typically means razor thin profit margins on top of steep start-up costs and huge time commitments. A combination that likely contributes to nearly one in four craft breweries dropping out of the market in Vermont. Some, like Liftline Brewing in Sheldon, after less than six months in operation.

In order to protect this important industry and preserve Vermont’s role as a craft beer pioneer, all three of Vermont’s Congressman, Senator Bernie Sanders, Senator Patrick Leahy, and Representative Peter Welch, have co-signed on a proposed bill entitled Small Brewer Reinvestment and Expanding Workforce Act, or Small BREW Act. If passed, Small BREW Act will cut the federal excise tax on beer in half for the brewery’s first 60,000 barrels (bbl) produced that year; a threshold few breweries in Vermont reach.

So, for a small brewery like Frost Beer Works in Hinesburg (<1,000 bbl/year), that would mean up to $3,500 in savings per year. While that may not seem like a lot, it gives small craft breweries more flexibility to expand their business, and as they grow their savings grow with them. More established breweries like Fiddlehead in Shelburne (5,000 bbl/year) would save $17,500 per year; Alchemist (9,000 bbl/year) would save $31,500; and larger breweries like Magic Hat and Long Trail (>60,000 bbl/year) would save at least $210,000 per year. For each barrel produced after the first 60,000, the federal excise tax would more than quadruple thereby supporting the development of local breweries over larger regional and commercial distributers.

Despite the recent renaissance of craft breweries in the United States, they only account for about 18% of total beer sales. That means the national beer market is still overwhelmingly dominated, and therefore influenced, by commercial brewers.

Moreover, the nation’s two largest beer companies, AB InBev and SAB Miller, recently proposed a merger, which would give them control of 60-70% of the domestic beer market. This led Senator Leahy to speak before a Senate subcommittee on anti-trust and competition policy last year, to ensure that the proposed merger would not negatively affect craft breweries in Vermont.

While Vermont craft brewers may only care about the market in their region or town, restrictive behavior by the nation’s dominate beer producers could still impact who has access to their beer.

For example, in all 50 states, retailers and restaurants can only buy beer through state licensed wholesalers. While that helps states track alcohol sales, many of the wholesalers are either owned or influenced by the major brewing companies, giving them little incentive to distribute a craft beer product that is cutting into their market share. In fact, the US Department of Justice is currently investigating allegations that AB InBev is purchasing wholesalers just to stifle the growth of independent brewers.

This type of influence also extends to controlling the market for ingredients like hops and barley or the glass and aluminum needed for bottles and cans. Something that will likely continue if the mega merger between AB InBev and SAB Miller achieves regulatory approval. Fortunately, many Vermont craft brewers take a cooperative approach to achieving success, which includes helping one another out by lending ingredients in times of need or by purchasing aluminum can shipments together to achieve the minimum order thresholds required by many can manufacturers.

One Response to "Beer in Vermont, important to the economy"

  1. Barry Clark   March 4, 2016 at 5:07 am

    The article includes a talking point from the beer lobby, “The Beer Institute and National Beer Wholesalers Association estimate that nearly 41% of the retail price of beer in Vermont goes toward taxes.”

    Here is a more detailed quote from the Beer Institute’s website: “On average, more than 40 percent of what American beer drinkers pay for a beer goes toward federal, state and local taxes—from excise to consumption to sales taxes, as well as the normal business taxes. That makes taxes the most expensive ingredient in beer today.”

    Normal business taxes includes items such as income, payroll, and property taxes. They are also payed by non-booze businesses. Similarly, many items besides booze are subject to state & local sales taxes.

    The article focuses on small breweries. For small breweries, the federal excise tax was reduced in 1977 to $7/barrel for the first 60,000/year. More than 90% of the breweries in the US produce less than that amount. It works out to 22.6¢/gallon. In contrast, the large breweries pay 58¢/gallon. The states also have excise taxes on beer. Vermont’s excise tax is 27¢/gallon.

    Most of the nearly 41% figure represents taxes that have a wide base. The excise tax is a small portion of what consumers pay for beer. The article says, “Vermont’s craft beer industry has experienced remarkable growth.” The federal excise tax is a factor in that growth because the large breweries pay a higher rate.

    It should also be noted that craft brewers focus on beers with a higher alcohol content than the beers of the large brewers. For instance, the article mentioned Alchemist’s Focal Banger and Heady Topper. They have 7% and 8% alcohol. In contrast, Anheuser-Busch’s flagship brand, Budweiser, has 5% alcohol. Many of its beers have around 4.2%. If we were to justify the excise tax as a tax on alcohol content, then the craft brewers should be paying more instead of less than the large brewers.

    Reply

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