Excise increases are killing independent craft breweries

Australia’s $3 billion craft beer sector is in crisis. The cost of living has affected consumer discretionary spending, which means less money is flowing through taprooms and the till. Input costs and the bill of materials going into a pint have risen at least 30% in the last 12 months, and excise increases every six months, linked to the CPI, are hitting profitability and the bottom line.

“It’s not the latest increase – which happened on Monday – that’s going to push us over the edge, it’s the cumulative impact of decades-long, twice annual increases in excise that has done the real damage,” says Kylie Lethbridge, chief executive of the Independent Brewers Association (IBA).

Travel through virtually any regional town or community and there’s a good chance it plays host to a local craft brewery. In fact, there are more than 600 of these indie beer producers scattered across the nation, and while they represent only around 8% of the total beer market, they employ close to 60% of the people working in the sector.

But this perfect storm of issues, exacerbated by steady, relentless excise increases, is taking its toll.

According to Lethbridge, in the last 12 months close to 50 independents have either gone under or into voluntary administration, with only a handful successfully emerging from that process and finding their feet again.

“We’ve tried to absorb many of those cost increases over the years, including the tax rises, and what we’re saying now is we just can’t keep doing this. We’re either going to have to put our prices up or have more breweries close their doors.”

What will the market bear?

The issue the sector faces is simply increasing the price a punter pays for a pint in the taproom or for packaged takeaway beer isn’t a viable strategy, says David Black, head brewer and co-owner of The Coastal Brewing Company, an award-winning 1200 litre capacity microbrewery located in Forster, on the mid-North coast of NSW.

“There’s a limit on what people will spend on a beer,” he says, and the evidence is Coastal Brewing’s taproom takings. While people might still buy a pint on premises, when they leave, they’re not taking a case of beer with them, instead settling for a four-pack of the company’s brews, if anything at all.

“People are cutting back on discretionary spending, and whether we like it or not, craft beer, for most people, is discretionary spending.”

While people might be spending less on craft, however, the real issue isn’t so much the cost of living crisis, but the fact the way Australia taxes alcohol is inequitable, favouring wine producers over their peers in beer and spirits.

Mazen Hajjar, founder of Melbourne-based mid-sized craft brewery Hawkers, points out what he sees as structural hypocrisy, arguing the wine industry has managed to convince governments it’s actually in the agriculture business and an exporter, and therefore doesn’t really count as alcohol.

Because of the wine industry’s lobbying, its products are subject to what’s called the Wine Equalisation Tax, or WET, which is levied as a percentage of revenue, not on the alcohol by volume in each bottle like beer or spirits. Nor, says Hajjar, is the WET indexed to the CPI twice a year as happens with beer excise.

An ancillary issue is wine bottles are not part of the Container Deposit Schemes (CDS) set up in most Australian states, where consumers get back 10c for each returned container. This means wine producers aren’t charged around 15 cents per container like the beer industry is, and don’t have to pay a hefty fee to register each new product or packaging variation with the various state-based schemes.

Hajjar, who has recently merged his business with Sydney brewer White Bay, says the CDS fees are taxes whichever way you look at them. And those costs are passed onto consumers who are led to believe it’s to boost recycling rates, not the revenues of the operators of the schemes, which includes the market-dominant Japanese beverage companies and others including Coca Cola.

“The [CDS] regime cost producers $405 million, but they only paid back $165 million to consumers,” he says.

The knock-on effect

Hajjar says the inequitable taxes, including the CDS, are having a significant effect on Australia’s regional and rural communities where most indie brewers are located, but successive governments have done nothing more than pass the buck on meaningful tax reform. Instead, they either blame the previous government or kick the can down the road for the next government to deal with – which never happens.

The real answer, he says, would be to have a single blanket tax across all forms of alcohol, including wine, rather than the current system. A freeze on the twice-yearly excise increases would also help, he adds.

The IBA has made representations to successive governments about the need for tax reform, but it has always fallen on deaf ears, says Lethbridge.

It has also lobbied the Australian Competition and Consumer Commission to conduct an inquiry into the contentious tap contracts that govern draft beer sold in most pubs. Those contracts favour the market-dominant Japanese beverage companies that control most of the Australian beer market and serve to lock out indies from getting a foothold at their local.

“I’d estimate at least 80% of Australia’s taps are locked up in contract to one of the majors,” she observes.

What it comes down to, says Hawkers’ Hajjar, is the government is unwilling to even consider reform, even though reducing the cost of a pint or six-pack would be a winning election issue.

“The [federal] Treasurer is a fucking moron,” he says. “He changed the way small producers are talked about in the most recent budget.

“Whereas before we were artisanal producers and seen as a vibrant, contributing part of our local communities, now we’re talked about as a revenue stream. That’s what we are to the government – nothing more than a revenue stream. They’re a bunch of jackasses.”

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