Alberta’s strange brew

An Alberta tax break aimed at boosting the craft beer industry has fuelled a discount market, and U.S. jobs

Strange brew

Photographs by Chris Bolin

The Alberta Gaming and Liquor Commission presumably had good intentions in mind when it brewed up a policy to lend a helping hand to small breweries. Namely, beer companies qualify for substantially reduced beer tax rates on the first 200,000 hectolitres sold in Alberta. The explicit aim was to help small players compete against industry leviathans such as Molson and Labatt. And, implicitly, the tax break would entice craft breweries to set up shop in the province.

However, eight years after the reduced beer tax rates—estimated by one analyst to total about $200 million in savings—were first implemented, little in the Alberta beer business has worked out the way the AGLC envisioned. Only five small breweries have opened for business in Alberta since the policy was implemented. And in that time Alberta has, in fact, become a market characterized by discount beer. And at least one of the breweries taking advantage of the AGLC policy doesn’t even brew in the province, let alone Canada.

Companies like high-end craft brewer Big Rock Brewery argue that the reduction in the beer tax helps them compete against the likes of Labatt and Molson. Levelling the playing field is the main goal of the program, says the AGLC. Nevertheless, critics wonder how well the program works, given the modest size of Alberta’s craft beer industry compared to other provinces.

While other jurisdictions offer tax incentives, in Alberta the level of small brewer support dwarfs other Canadian programs. While Edmonton adds a provincial tax of $98 per hectolitre (or 98 cents per litre) to beer sold by the big brewers, small producers receive a tax break of at least $58 per hectolitre for their first 200,000 hectolitres sold in the province—the equivalent of a $4.75 break off the price of a standard case of 24 cans. And for those that qualify, the maximum beer tax reduction works out to $11.6 million a year, or nearly four times the level of support available to Quebec brewers and almost six times more than in Ontario. A brewery industry analyst, who does not want to be named because he deals with the industry’s players, points out one big difference in the provincial plans. He says that while the Ontario and Quebec ones are for in-province brewing operations, the Alberta program doesn’t restrict where the brewing actually takes place.

Certainly in the case of Big Rock, the AGLC program has been good for the bottom line. In 2010, its profit was $6.1 million whereas the value of its tax savings in Alberta was $8.9 million, based on sales of 153,000 hectolitres. “We’re a Canadian-owned company up against companies that were at one point Canadian but are now multinational organizations and therefore efficiencies of scale are definitely not in our favour,” says Big Rock president Bill McKenzie, who adds that the provincial government is making the industry fairer and more competitive. And although McKenzie acknowledges the AGLC program is very important to Big Rock’s business model, he says if such tax breaks were to end, Big Rock would adapt.

The other large beneficiary of Alberta’s small brewer tax break is Minhas Craft Brewery. Though its head office is in Calgary, the main brewing operation is in Monroe, Wisc., where it has recently poured US$3.5 million into the operation. While the firm would not release financial information, co-owner Ravinder Minhas says it shipped 96,000 hectolitres to Alberta in 2010. The reduction in the beer tax was worth $5.6 million.

Still, Minhas contends that whatever the numbers are, Alberta is getting good value from its beer strategy. “Eighty per cent of our Canadian beer sales are in Alberta, so Albertan consumers are reaping the benefits. [The tax policy] is responsible for bringing the price of beer down. It’s not about subsidizing jobs in Wisconsin.” Also, Minhas is slated to open a brewery in Calgary in the first week of November that will produce up to 35,000 hectolitres of beer in its first year.

Indeed, consumers in search of cheap beer can’t complain. Minhas retails in Alberta for around $1.25 a bottle. “The average price in Alberta is lower than anywhere else in Canada. People from B.C. and Saskatchewan make trips to buy their beer in Alberta,” says Minhas.

Bryan Cox, a vice-president of Canada’s National Brewers (a trade association that represents Molson, Labatt and Sleeman), says Minhas’s rationalization for the tax break “is interesting. Our understanding of the policy is that it was to incentivize local craft brewing in the province of Alberta.” While his association represents the interests of Canada’s three largest breweries, Cox says “a strong, vibrant, local brewing environment is good for beer—it gets people talking about beer, and it helps grow the pie, which is good for all brewers.” Yet Cox points out there’s actually a dearth of craft brewers in Alberta. And there have been other side effects. John Sleeman confirmed that his firm, Sleeman Breweries, cancelled plans for a new Alberta-based brewery, in part because of the brewer tax break, which it would not qualify for.

AGLC CEO Gerry MacLennan declined to comment on the program. However, AGLC spokeswoman Christine Wronko insists Alberta’s “unique mark-up system” is all about creating a “level playing field for liquor companies” (an often repeated refrain among supporters). The fact that just five breweries have opened in the province since the tax break scheme was unveiled in 2003, and that the Alberta beer market is defined by discount brands, are consequences that are out of the government’s control. “The AGLC doesn’t dictate what products can be registered in the province for sale,” says Wronko.

Alberta’s small brewer system would appear to be yet another case of the law of unintended consequences—especially when a government agency tinkers with the free market economy. From a dearth of craft brewers to a helping hand for American jobs, the AGLC’s beer tax policy is enough to drive a teetotalling Albertan to drink.




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Alberta’s strange brew

  1. Who wrote this article?  Is the writer of this Magazine a mouthpiece for the big business?  This is the type of crap “We the 99%” are sick and tired of.  Let me see – I moved from Ontario a few months ago.  I used to buy BOXER LAGER, the lowest “legal” priced beer in the province from my local The Beer Store for $16.20 for a 12 pack, the biggest and most economical pack they sold.  This works out to $48.60 for a 36 Pack.  The same 36 Pack at the Loblws Superstore in Calgary by my house is $29.99.  This is everyday price.  $48.60 in Ontario vs $29.99 in Alberta.  Same beer, same country.  Now you know why everybody wants to move to Alberta – better Govenment, more jobs, cheaper to live – definitely beer.  And this article talks about “unintended consequence”.  How does he know what the intended consequence of a Government was when he enacted the laws?  May be they wanted to make sure Albertans get theeir beer at a faiir price.

    I was so incensed that I did more reserach on this and found out that The Beer Store is owned by foreign owned Molson and Labatt.  That is right – in Onatrio, beer costs me 60% more and they have given a retail monoply to big business.  So where does all the extra money go to? Big Government and Big Business i.e. ”The 1%”  Who gets screwed?  “We the 99%”.  My guess is that the retailer CITY LIQUOR shown in the picture is a small locally owned family business and the Brewery is a small family owned business.  All Albertans.  Hallelujah

    May be Mcleans should write an article exposing the Onatrio beer industry fraud.  “We the 99%” will appreciate that.

    Tyler Anderson

     

    • I agree 100%. There is no problem in Alberta. There is a problem that over 150 years other provinces & big business keeps protecting their own through inter-provincial barriers. I hope the Harper government helps to break down these barriers. It is easier to export than to sell domestically.

      • Inter provincial trade has certainly caused this small brewers markup to become a big issue. Mainly because it is more cost effective to open a brewery out of province and import into Alberta’s open market system than it is to go the other way. At the moment, of the 12 breweries in the province, Big Rock is the only one that exports inter provincially. You look at a province like BC, around 1/3rd of their breweries have beer available on Alberta shelves. Very easy to get beer in Alberta. Very difficult for Alberta brewers to get beer in other provinces.

  2. What a bad system in Alberta? Are you joking, so Albertans have the best priced beer in Canada and that is somehow a bad thing? Sounds like Ontario is envious of our system.  Let see we have more stores, better hours, better selection and lower prices…wow what a horrible system.

    Instead of buying beers from small brewer’s who have to fight with the big guys who are lets see  Imbev – Anheuser-Bush ( owners of Labatt) – biggest brewer in the world from Belgium, South African Brewer’s ( SABMillerCoors (owner of Molson) from South Africa and Sleeman whom is owned by Sapporo in Japan. Yep lets give our money to those 3 foriegn owned companies!! BTW i just found our John Sleeman is just a spokesman for the Tokyo brewers, good try John you had us fooled but not for long!! Also I just went wikipedia and did you know that 80% of beer sold in Ontario is sold through a group called ‘The Beer Stores’ which are owned by these 3 foriegn owned companies!! Thats called a monoply I thought those are illegal? Thank you Alberta you rock!! Macleans epic fail on this!

    • In TOTAL agreement. Ontario does not support small Canadian businesses. Only Big Brother.

  3. Let me get this straight, the Alberta government is doling out millions annually to “keep the price of beer down” – last time I checked keeping frat boys inebriated was not a public policy priority in Alberta or anywhere else – lets hope that the new premier has the sense to end this nonsense. 

    • Typical PROG Big Govt liberal “Alberta government is doling out millions annually”
      So in your mind less tax  ( money taken frrom the people who earned it ) to be the government giving away money? So in your twisted view all the fruits of peoples hard erned labour belongs to the govt and we should be greatful for what they dole out to us?
      You and all other PROGs disgust me!

    • Not at all. There are NO tax incentives offered to brewers in Alberta. There are simply lower taxes and the most progressive small business tax rate for the brewery industry in Canada. Alberta firms have higher labour and real estate costs. This includes Alberta brewers.

  4. THE MINHAS IS BEER IS NOT EVEN GOOD BEER

  5. Minhas contends that whatever the numbers are, Alberta is getting
    good value from its beer strategy. “Eighty per cent of our Canadian beer
    sales are in Alberta, so Albertan consumers are reaping the benefits.
    [The tax policy] is responsible for bringing the price of beer down.

    Indeed, consumers in search of cheap beer can’t complain. Minhas
    retails in Alberta for around $1.25 a bottle.

    ===============================

    So was this incentive introduced to help the industry grow in Alberta or just lower the price of beer?

  6. Actually, if anyone was paying attention, the big problem with Alberta’s craft market is barrier to entry: You legally have to be able to produce 5000 hectolitres (that’s about a quarter-million six-packs, or 10,000 kegs) a year within your first 18 months of operations to be licensed as a brewer. This is in stark contrast to the rest of the country, where there are either no or much-lower minimums. Also, Minhas built in Wisconsin because the regulations were changed (aimed at Minhas) to end ‘gypsy breweries’ which is, breweries which have their own recipe, and use the spare capacity of other breweries. Plans to build a Calgary brewery were put on hold as Minhas (which I agree, makes terrible product, but that’s not the issue here) scrambled to find a permanent home.
    BC & Quebec have more craft brewers because it’s easier to start-up in the province, not because their tax breaks are only aimed at in-province production.

    • In total agreement. We need brewers in Canada to have the ability to self distribute similar to USA three tier system.

      BC forces beer destined from Canmore, AB to Field, BC (106 km distance) to be shipped to & from VANCOUVER (1632 km). It is draconian – inefficient – and leads to excessive carbon emissions. All to sell 1 keg of beer with wholesale value of $250.

      The cost of freight in this stupid set up makes the shipment to BC more expensive than the ship beer from Victoria to Field – some $853 KM .

      In USA each small town has a beer distributor. In Canada – Big Business and Big Government through inter-provincial trade barriers collude and make it close to impossible for a Canadian based brewer to be a world leader.

      Canada needs to wake up – soon.

      • Re: Three Tier System in the US

        Three tier is not self distribution. The three tier is Brewery -> Distributor -> Retailer. Self distribution is Brewery -> Retailer.

        That isn’t to say Alberta isn’t without its problems when it comes to distribution. Given that while theoretically, the liquor system in Alberta is a free market system (the only province that does this in Canada), brewers, if they don’t self distribute, have to go through Connect in St. Albert regardless of where the end customer is. The distribution system itself isn’t completely free market and is still regulated by the AGLC. As a brewery, you have 2 options, self distribute, or ship to St. Albert. A proper free market system would allow for more distribution options on top of retail options.

  7. Manjit of Mihas Brewing CO. is a cheat and a crook. I went to school with her, she was at my school cause she got kicked out of churchill for cheating. Their parents ran Ok Liquor, and she worked there for years. She knows what she is doing, selling piss for beer and toilet cleaner for spirits, all the while getting subsidized by the gov even though they make the beer in the states. Im sick of this Walmart culture where the price is everything. I would rather drink less and enjoy a quality product rather then that shit they brew. Whats even better is they hide all their money in Barbados and pay no taxes. I feel sorry for all the real canadian brewers trying to make a quality product who have to deal with these intoxicant dealers and their disgusting product. I drink Vodka a lot and their Stars/Silver Wedding brand made me puke a bit in my mouth, no joke.

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