Barley Legal: Part One

Beer: That wonderful libation for which man first drug himself out of hunter-gatherer existence, that liquid grain yielding pleasures enough to make man work seven days a week. How far we have come.

This first chapter in the Barley Legal series will focus on the beer markets and some notable changes to them in the past few years, as well as the direction of two distinct markets for beer.

One might make the somewhat obvious assertion that there is a market for cars. But are all cars really in the same market? Think drastic comparisons, such as a Maserati versus a Geo. One can easily conclude that, despite both of these machines being loosely called “cars,” they are two truly different goods used for much different purposes.

The same is for beer as is for cars. Look at this, and then this. My point exactly.

Besides showing us the benefits of economies of scale, these two prices and products can easily illustrate an important point: We drink beer for two different reasons.

Let’s be honest: Beer gets you drunk, but it can also taste great — and we can find beers anywhere between these two ends of the spectrum. At some point, one crosses the line from drankin’-beers to drunken-beers, and there is a distinct market for each.

A great graphic from the Brewers Association illustrates this point:

See the bottom of the trough, that spot around 1980 on the x-axis? Those breweries almost completely consist of huge breweries — like the 12 that Anheuser-Busch operates in the U.S. alone. Then the micro-brewery boom came; that’s the heavily positive slope. Then the recession; that’s the level part.

But here, in an exceedingly dense table from Hopsteiner, one sees that there is no significant increase in beer production from 2002-2005. And not only that, but the data shows no significant increase in production in the U.S. and Canada over a 15-year period, despite astronomical brewery growth. See an attractive graph from Hopsteiner below:

The growth displayed above, in fact, has come almost solely from the microbrewery market. (For those of you keeping score, a “microbrewery” is defined as producing less than around 2,000,000 hL of beer per year.)

One can see that there is nearly no growth available to any incoming brewer, except to reallocate market share from one brand to another. An example of this is American Ale, the Anheuser-Busch attempt at a mass-produced microbrew. But the current economic climate will even start collapsing the craft beer bubble soon, as loans are hard to come by — especially in a market drunk on cultural influence much greater than its actual success.

But! Here comes the cool part: Ontario, Canada, quickly becoming my new favorite place on Earth, has issued Ontario’s Tax Plan for Job Growth. Part of the plan: “Support for Microbrewers.”

This is just one step in the tax plan, but one with a few effects. The first will be to create damn good beer, which is in the good interest of all.

A second effect will be job growth, and perhaps the prevention of job loss. Due to huge energy considerations, the cost of alcohol licenses, and expensive insurance (many breweries operate bars on-site, along with crazy-dangerous equipment), taxes really drain a brewery of its funds. And with a low amount of liquid assets (oh, the irony), breweries will be pinched very hard by large fluctuations in related markets.

And thirdly, the pride citizens take in their regional brews is an exponential utility. St. Louis, the home of Anheuser-Busch, defines itself almost completely by the breweries in town. Directions are given in terms of the proximity to a brewery, and bars are chosen specifically for which locals are on tap.

As the Ontario experiment continues, results will be interesting to follow.

Until the next installment in this series, cheers!

Tagged as: Barley Legal, Beer, Business, Economy