Written Submission for the Pre-Budget Consultations in Advance of the 2022 Federal Budget | August 2021
Recommendations
• Recommendation 1: We recommend that the Government of Canada eliminate excise tax on the first 10,000 hectolitres of beer brewed by all breweries in Canada to fund the hiring or re-hiring of people and the investment in new materials and equipment to accelerate their economic recovery.
• Recommendation 2: We recommend that the Government of Canada raise the annual production threshold for maximum excise rates from 75,000 hectolitres to 400,000 hectolitres, allowing emerging large craft breweries to invest in growth and increase the economic benefits they provide to local communities across Canada.
• Recommendation 3: We recommend that the Government of Canada provide funding to support the Independent Craft Seal of Authenticity™ awareness campaign to encourage consumers to buy “made in your community” Canadian craft beer.
• Recommendation 4: We recommend that the Government of Canada support craft beer’s move away from problem plastics to new sustainable packaging, while assisting the industry in developing a “made in Canada” aluminum can supply strategy.
Introduction
Due to the COVID-19 pandemic and the restrictions it created, the craft brewing industry had to quickly adapt in order to survive. Breweries lost their on-premise customers, the bars and restaurants, virtually overnight. Those that relied on walk-in customers to their tap rooms were forced to change their business model and develop new ways to sell, including canning or bottling the beer that was previously packaged in kegs. Despite these forced changes, the craft brewing industry continued to grow across Canada, employing more Canadians and contributing more to their local communities.
Craft beer has gained widespread market acceptance over the past decade. Since 2010, over 1,200 craft breweries have opened in every province and territory, creating and entirely new value-added agri-food category in Canada. Presently, approximately 24% of all beer produced in Canada is the product of an independently owned and operated craft brewery. Canadian craft breweries have added over 15,000 jobs to the economy in the past decade by opening hundreds of new manufacturing facilities, many of them in small towns and rural communities. This “rural renaissance” has been created by a combination of community involvement, support for local suppliers, and a redefining of the Canadian beer drinking experience.
As the Canadian economy begins to fully reopen, Canadians will again have the opportunity to enjoy a craft beer at their local brewery, and the industry will continue to grow. However there continues to be impediments to the industry reaching its full potential and delivering its full economic value to the country.
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1. Support for Small Craft Breweries During Their Pre-Profit Years
Of the approximately 1,200 craft breweries in Canada, 95% are below $10,000,000 in annual revenue, and most are well below $1,000,000. These businesses are small manufacturing companies requiring significant capital investment long before their first batch of beer is brewed. The majority of them are
less than 5 years old, and most are not yet profitable. Investment capital is hard to come by, and the owner-operator is rarely able to attract equity investors other than friends and family. Cashflow is important, as it is in all small manufacturing environments, and these young companies are in constant need of more raw materials, more capital equipment, and more employees.
We are asking the federal government to modify the excise duty structure on beer to exempt all Canadian breweries from paying duty on the first 10,000 hectolitres brewed in any given year. This change would benefit all breweries large and small equally in terms of excise tax dollars saved, but the savings realized by the smaller, newer breweries would be the most impactful. The additional dollars would not flow to corporate retained earnings, but instead be reinvested in the upstart business.
Recommendation 1
We recommend that the Government of Canada eliminate excise tax on the first 10,000 hectolitres of beer brewed by all breweries in Canada to fund the hiring or re-hiring of people and the investment in new materials and equipment to accelerate their economic recovery.
2. Removing Barriers to Growth for Emerging Large Craft Breweries
The Excise Act currently allows for a reduced rate of excise duty on a brewery’s first 75,000 hectolitres of beer. Any annual production above that level is taxed at the same rate as the millions of hectoliters produced in Canada by the largest multi-national breweries. For the emerging large independent Canadian craft breweries, this represents a barrier to growth as they attempt to compete with multinational corporations for market share in Canada and internationally.
The United States recently reduced excise rates on beer such that breweries producing 25,000 hectolitres of beer annually now pay $200,000 in excise duty (all figures are approximate). In Canada, that same production level is taxed at $400,000, representing over half of the brewery’s net profits. A brewery producing 100,000 hectolitres in the United States pays $850,000 in annual excise taxes. In Canada it would be $2,500,000. As the brewery grows in size, so does the disparity.
To rectify this problem, we recommend that the Government of Canada modify the existing excise duty rates by increasing the annual production level at which beer is taxed at the highest level. Specifically, the government should raise the annual production threshold from 75,000 hectolitres to 400,000 hectolitres and stretch the existing rate brackets accordingly. This would align with provinces like British Columbia and Alberta, where breweries enjoy a reduced tax burden on 300,000 and 400,000 hectolitres respectively.
This will have the effect of reducing the overall excise tax burden on the emerging large craft breweries and allow them to invest those dollars instead in people, production equipment, sales channel development and manufacturing innovation.
Recommendation 2
We recommend that the Government of Canada raise the annual production threshold for maximum excise rates from 75,000 hectolitres to 400,000 hectolitres, allowing emerging large craft breweries to invest in growth and increase the economic benefits they provide to local communities across Canada.
3. Encouraging Canadians to Buy Local and Recognize Authenticity
Now more than ever consumers want to support their local businesses. Beer drinkers want to support their “own” local breweries. Craft beer has been steadily gaining market share in the beer sector because it combines new flavour profiles and quality standards with community building and the satisfaction of “buying Canadian”.
To ensure that consumers can differentiate between authentic Canadian craft beer and other market entries that attempt, through advertising and packaging, to imitate craft, the CCBA has followed the lead of many other countries including the United States, Great Britain, France, Germany, Australia and others in introducing its own Independent Craft Seal of Authenticity™. When viewed on a can or bottle, the consumer will know they are buying and drinking authentic Canadian craft beer, developed and brewed in Canada by an independent Canadian-owned company.
The Seal combines symbols representing the core components of the craft beer industry and it is shown below:
Observing that consumers are more inclined than ever to support their neighbourhood small businesses by “buying local”, provincial liquor boards are helping Canadian producers by launching promotional campaigns and allocating shelf space to made-in-Canada products.
The Seal is the industry’s mechanism to communicate with consumers who want to buy Canadian. It allows them to be 100% confident that their purchase dollars are staying in Canada to support small, independent owner-operated breweries.
The Seal was recently introduced and some of the larger craft breweries have licensed it. Unfortunately, the vast majority of breweries are short on discretionary funds and will likely wait until next year. With the federal government’s support, every craft brewery will have access to the Seal and consumer awareness will heighten at a time when it is most important.
Recommendation 3
We recommend that the Government of Canada provide funding to support the Independent Craft Seal of Authenticity™ awareness campaign to encourage consumers to buy “made in your community” Canadian craft beer.
4. Supporting Craft Brewers’ Move Away from Problem Plastics
The craft brewing industry is committed to moving away from problem plastics. However, due to the small-batch nature of craft beer, our breweries currently rely heavily on plastics for can labels. There are two types of plastic labels: pressure-sensitive and shrink sleeve. Plastic is also used elsewhere in the production process, including six-pack rings that are used by some of our larger craft breweries.
We applaud the government’s initiative to eventually eliminate problem plastics. Craft brewers’ ethos is highlighted by environmental stewardship. But access to packaging alternatives is difficult and expensive.
Without proper support, the craft brewing industry will be put at a disadvantage should the government ban pressure sensitive and shrink sleeve labels. While craft brewers rely on these two types of labels, multinational corporations are able to print directly on cans. This process is only economically feasible for order quantities that are well beyond the reach of the majority of our breweries.
The craft brewing industry will need support for R&D to develop and implement processes to replace plastic labels.
Another challenge facing small breweries related to aluminum cans is availability of supply. Even the largest craft breweries must wait in line for supply behind the multinational beverage companies, all of whom have arrangements with the can manufacturers. For smaller breweries it is difficult at best to get allocation and almost impossible to get firm delivery dates.
One of the factors exacerbating this problem is that 473 ml cans, which is the predominant format for craft beer, are not manufactured in Canada.
The craft brewing industry needs assistance from the federal government to develop a strategy for creating supply certainty for aluminum cans.
Recommendation 4
We recommend that the Government of Canada support craft beer’s move away from problem plastics to new sustainable packaging, while assisting the industry in developing a “made in Canada” aluminum can supply strategy.
About the CCBA
The Canadian Craft Brewers Association (CCBA) is the national voice of Canadian craft beer. We represent the interests of over 1,200 small and independent craft breweries and their supplier partners from every province and territory in Canada. The Association is a federation of provincial craft brewers’ associations and advocates on behalf of them and their member breweries. The CCBA owns and licenses the Independent Craft Seal of Authenticity™.