Current regulations, highlighted in a recent study by the Mercatus Center, make it difficult for brewers to enter and operate within the market, which in turn limits consumer choice.
Entering the craft brewing scene is costly and time-consuming. Before opening the doors for business, brewers must go through both federal and state hurdles.
At the state level, an aspiring brewer must acquire a license from the state’s alcoholic beverage regulator. The next step requires the approval of the brewer’s beer labels and, in some cases, formulas.
Now enter the high fees associated with entering the marketplace. For example, Virginia has strict fees based on the amount of barrels a brewer produces. According to Mercatus:
“The [Virginia] brewery license will cost $350 if she brews fewer than 500 barrels of beer in one year, $2,150 if she brews between 501 and 10,000 barrels in one year, or $4,300 if she brews more than 10,001 barrels.”
This structure deters growth, which in turn limits job creation and consumer choice. A better policy would repeal the licensing fees. The combination of nearly a dozen federal and state regulation hurdles, the roughly three-month waiting period required to complete these stages, and the dollars invested in licensing costs before a bottle of beer is sold all make for formidable barriers to entering the market.
If a brewer is fortunate enough to leap these hurdles, they find more waiting on the other side. At the state level, two of the most restrictive laws concern self-distribution laws and beer franchise laws.
Self-distribution laws require brewers to sell their product to wholesalers rather than selling directly to retailers. Once the product is sold to the wholesaler, the brewer loses influence as to how its beer is handled.
Adding to this load are beer franchise laws. These regulations strictly govern contracts between brewers and wholesalers, such as when and how a brewer can cancel or renew a contract with its wholesaler.
These laws make it very difficult for a brewer to switch to another wholesaler if they feel their current one is not meeting standards. Jacob Burgdorf further explains how these laws harm brewers:
“Even if a brewer can demonstrate good cause, many laws provide another level of protection for wholesalers by requiring advanced notice and a period, often 60 or 90 days, in which the wholesaler is allowed to address the grievance before termination or nonrenewal is allowed.”
This harsh regulatory climate limits the expansion and freedom craft brewers are entitled to as operators in a free market.
Both of these regulations restrict the freedom of choice for fans of craft beer. Data shows that states with tough self-distribution and franchise laws “averaged only 9.30 breweries per million people.” On the other hand, states with flexible regulations “had an average of 20.34 breweries per million people.”
Clearly, less regulation allows for craft brewers to expand not only their business, but also their product, which in turn benefits consumers. For example, look at California. The Golden State allows self-distribution and has no beer franchise laws. Because of this, it has 518 breweries as of 2015, the most in the United States.
It’s obvious: neither craft breweries nor consumers benefit from the harsh regulations. Businesses and consumers would be best served by free market principles.
Photo Credit: Tama Leaver