North Carolina Lawmakers War Against Manufacturing Jobs

While 49 other states are scratching their heads figuring out how to promote manufacturing jobs, North Carolina’s General Assembly’s lack of action on prohibition-era laws may actually be destroying manufacturing growth, turning down the opportunity of a lifetime.

The manufacturing jobs I’m referring to here are provided by brewers and distillers whose only crime is deciding to open up shop in the communities they love, but are now being penalized by the state for becoming too successful.

Craft brewers have succeeded because they embark into new frontiers with their products and processes. Some brewers only serve their product on tap, while others find opportunity in expanding and creating manufacturing lines of bottles, cans, and kegs, reaching wider audiences. These entrepreneurial decisions are creating jobs – manufacturing jobs!

Oddly enough, however, the state is sending mixed signals. It willingly subsidizes out-of-state companies to move into North Carolina, but erects barriers restricting the ability of homegrown companies to expand. In just the last few years, beer manufacturers New Belgium and Sierra Nevada were given millions of dollars in corporate welfare by the state to open manufacturing plants in North Carolina, bringing in hundreds of jobs that arguably were not worth the cost. These jobs were paid for by the taxes imposed on North Carolinians, including the competitors of these subsidized companies, like Red Oak, Olde Mecklenburg and NODA.

Local craft brewers on the other hand are creating opportunity and the only investment they are looking for is for North Carolina to eliminate restrictions holding them back.

Currently, breweries can sell their own beer directly to retailers or self-distribute up to 24,999 barrels of beer a year. These mandates greatly hinder manufacturing growth. When a brewery becomes too successful for North Carolina politicians, producing its 25,000th barrel of beer, it has to fire its distribution team and hand over 100 percent of its distribution and branding rights to a third-party distributor. Should a brewery try to self-distribute its own beer above 24,999 barrels a year, the brewery will be breaking the law, be labeled a criminal, and be punished by the state, thereby coercing the brewery against its will.

Such restrictions impose severe disincentives for craft beer businesses to grow and add jobs.

HB 500 (along with HB 67 and HB 313) doesn’t eliminate the distribution cap like Colorado and California systems, but it does increase the self-distribution limit to 200,000 barrels allowing the brewery to self-distribute if it wants, and voluntarily work with a third-party distributor when the right incentives are available. It’s not perfect but it’s a small step in the right direction.

The craft beer industry is an ever-expanding and productively disruptive market. Entrepreneurs are continually changing their models and ideas to offer the highest value product to benefit consumers. This is all true whether the brewery creates 50 barrels a year, decides to produce a few thousand as a neighborhood pub, or expands to produce and manufacture nearly 1 million annual barrels of beer like New Belgium. All these business models are working and all of them are a result of expanded opportunity and eliminating restrictions on the marketplace.

We are seeing a market grow up in the face of the worst odds against it. Multi billion-dollar beer companies and foreign imports control 96 percent of the North Carolina beer market. In addition, wholesaler associations – well entrenched in lobbying efforts long before the craft beer movement came along – are looking to continue the forced use of their services.

Now these powers are trying to stifle local manufacturing potential on a market that only produces 4 percent of the beer consumed in the state of North Carolina by lobbying to keep the distribution cap in place and harm their smaller upstart competitors and customers.

North Carolina craft brewers are in the fight of their life, forming CraftFreedom.org advocating for reform. What’s disturbing about the battle, is brewers are only trying to keep their private property rights in order to grow their businesses and as a result create opportunity for their communities, but are being stymied by large corporations and lobbyists. Some manufacturing jobs will probably never return to the United States or North Carolina after moving. The state of North Carolina is no stranger to this, with multiple industries having left in recent decades.

Its obvious North Carolina’s elected officials are willing to spend millions of taxpayer dollars on corporate welfare to out-of-state companies for the sake of jobs. So why not pass HB 500 and allow for market-driven manufacturing job growth? These jobs won’t cost taxpayers a dime.

 

First published at the Civitas Institute

Revisiting Mandated Three-Tier System for Alcohol

What is the deal with the Three-Tier system (3TS)? No, this isn’t the beginning of a Seinfeld joke, it’s a legitimate question about 3TS, or a government-mandated monopoly that forces brewers to use wholesale services as the sole middlemen between brewers and retailers – a system propped up by the Wholesale Association lobby and a system that quite frankly gives wholesalers a bad name.

The 3TS was implemented across the country after prohibition ended in 1933 by most states to control the sale of alcohol. The “stated” design was to keep breweries from selling directly to the consumer, stop tied houses from opening, limit consumption, and promote small brewers. The 3rd party wholesaler was mandated as a middleman to be the only way brewers could reach market with their product.

Wholesalers do provide considerable value when producers are able to voluntarily contract their services as the brewer’s growth necessitates it, but that’s not what the debate is. The issue has been to indulge the talking points of a mandated 3TS as if they were beneficial. The idea should be revisited by examining what were its original goals and what this system has truly created some 84 years after its implementation.

There is a quote about bad policy, “Great in theory, but awful when practiced in reality.” The 3TS not only rings truth to this statement, it goes a step further. The theory’s given for the 3TS were never the intent and reviewing the unsupported claims should shed light on the reality it creates; promoting big beer and the status quo at the expense of the small entrepreneur brewer.

Claim No. 1: The Three-Tier System is the reason for the large number of breweries available today.

The facts support just the opposite: The large numbers of breweries in the U.S. are in spite of and shows no correlation with the forced use of the 3TS.

In 1900 there were 2.38 breweries per 100,000 people in the United States; today there are 1.55 breweries per 100,000, with some 5,000 breweries to choose from. The ups and downs along the way are revealing.

Between the year prohibition was repealed in 1933 and today, there have been an average of 0.31 brewers per 100,000 people. A time period uninterrupted by the mandated use of the 3TS.  After the initial jump in breweries the year prohibition ended, from 1941 to 1978 there was an 89 percent drop in the total number of breweries, with only 10 percent of the total number surviving after 37 years under the mandated 3TS.

In the 37 years since 1978 to 2015, the number of breweries increased an astonishing 5523 percent, to a total of 4,269 breweries. These two starkly different results of identical time span under a mandated 3TS reveal that at best the system has no relationship with selection. At worst, it may actually hinder brewery growth. The correlation grows when a comparison is made between states that have no self-distribution cap, and those states that limit or ban it.

This dramatic growth in brewer choice closely related to national legislation legalizing home brewing – which in time drew hobbyists into the business – alongside numerous states reducing regulatory burdens on brewers. For instance, some key states for beer production allowed brewers to sell their own product at market and allowing complete voluntary choice for brewers when they decided to use wholesalers.

Claim No. 2: Without the mandated 3 Tier System, ‘tied houses’ would take over the country.

There is a faulty argument here: The advocates and beneficiaries, the Wholesalers Association, of the 3TS are sounding an alarm that any tied house is evil. A tied house is a bar owned by the brewery that will sell only the owning brewerers products. In an email exchange, researcher Jarrett Dieterle of the R Street Institute said;

“There is no inherent evil in Tied Houses. Tied House fears are anachronistic in today’s economy, which features many examples of producers selling their products directly to consumers without any harm. WE allow Apple to sell their computers in Apple Stores, and many alcohol producers even sell their bottles of alcohol in their tasting rooms.”

The problem in the past 84 years has been the lobbying efforts of giant breweries and wholesaler associations advocating the 3TS status quo. The only brewers active after Prohibition were the corporate giants capable of weathering the drought making other products. These big companies, such as Budweiser and Miller, also had the lobbying power to endorse a system that would keep out competition, thus the mandated use of a middleman under 3TS. Which based on the historic trend in brewery numbers, has done quite well.

It is revealing there was more choice with tied houses per capita before prohibition than any point after and still to this day.

Note:“Breweries/100K people” in blue, is considerably lower than during any point before prohibition, while consumption rates have remained similar or higher before and after prohibition.

Claim No. 3: Consumption rates were incredibly high before Prohibition, and the Three-Tier System controls/ limits the sale of alcohol.

This is “the” case of Bootleggers and Baptists – occasions when one group actually benefits from laws intended to hinder it.

The best part about Claim No. 3 is that it is in complete contradiction to a wholesaler’s business model and claim “[The 3TS] provides the best method for smaller breweries and wineries to get their products into a diverse marketplace.” If this statement were 100% true the law would not be needed. Wholesalers benefit by using government to coerce brewers to use their services by law; meanwhile, temperance groups, oftentimes associated with religious organizations, endorse the 3TS for the sake of limiting the consumption of alcohol. Wholesalers are able to benefit from the temperance claims while distancing themselves to say they are the best way for a brewer to sell their product.

This contradiction aside, perhaps the mandated 3TS does promote large brewery consumption. Using data from the National Institute on Alcohol Abuse and Alcoholism, the highest point of alcohol consumption after 1850 in the U.S. was between 1973 and 1985 – a period that saw the smallest number of breweries per capita than any other time besides Prohibition.

In addition, comparing 18th and 19th century consumption to 20th and 21st century use may be like comparing cider to Orange Belgium Ale. Alcohol was more so socially acceptable because of its necessity for survival. With little to no access to sanitary water, Americans and alongside the world used alcohol to fend off disease. Consumption rates in any area with poor sanitization should be taken with a grain of salt, or, if I may, an ounce of rum.

Final Thoughts

Be on the lookout for additional unsubstantiated claims by the Wholesaler Association advocating for the forced use of their service. These top three arguments of the wholesalers reveal it to be a forced system wrought in cronyism, sustained by lobbyists, and persistent in misleading claims. These unfounded claims need to stop being promulgated as fact.

A system of free choice and association does not necessitate that small brewers win out, but it does ensure consumers receive the value they desire, wholesalers attract business based on the value they provide, and entrepreneurs have equal access to markets free of coercion based on the value they produce.

*Graph information is derived from the NIAAA, Brewers Association, and US Census Data.

Heartland Brewers Battling Against Government Overreach

In between running a growing business and serving on the Nebraska Brewers Guild, Kim Kavulak, co-owner of Nebraska Brewing Co., is battling against the repeal of a reform passed just last year.

The 2016 legislation was a collaborative effort among multiple alcohol-related industries, resulting in the defeat of 83 years of special-interest regulations stemming from prohibition. The game-changing reform opened markets for local brewers, granted property rights absent since 1920, and — more importantly — spurred innovation and job growth across Nebraska.

One year later, brewers are scrambling to save last year’s reform from a bill drafted in secrecy between wholesalers and the very same state legislator who sponsored last year’s free-enterprise bill.

LB1105, sponsored by Sen. Tyson Larson passed 45-2 in 2016. A major part of the bill allowed breweries to operate up to five total retail locations per license, moving beer between their locations without a distributor. If a brewery brewed more than 20,000 barrels of beer a year, the law let breweries keep ownership of their retail locations, where in the past all retail or brewpub locations would need to be closed or sold, destroying dozens of jobs in the process.

Although the change may seem trivial, in the world of alcohol regulations brewers face some of the most arcane regulations, governing nearly every step from production to bringing beer to market. Even the smallest reform in licensing or securing property rights could be a game changer for brewers trying to expand their businesses and keeping up with demand ahead of the competition.

Should the recently introduced LB632 become law, Nebraska brewers would once again be in danger of losing business and sacrificing jobs in the face of stifling regulations. It would mean halted growth and having to rethink hiring expectations, perhaps even layoffs. The bill would create capricious hurdles for how beer could be distributed and sold in the Cornhusker State.

“We were completely caught off guard,” Kavulak said. “We had no notice any legislation was going to be brought up this year. Neither the Brewers Guild or the state Liquor Control Commission were consulted.”

“Come January 18, the last day to introduce legislation, we face a legal battle with disastrous consequences for small brewers across the state,” he added.

Adding to the surprise, neither Sen. Larson nor the state Wholesaler Association would speak to the Brewers Guild for weeks after multiple requests for clarification.

“We had no idea why he would do this, and still have no idea for the motivation behind this complete turnaround by Sen. Larson.” Kavulak added. “Last year, brewers brought together wholesalers, the state Liquor Control Commission, and legislators to the table to negotiate the unopposed reform. Now, without notice we find ourselves shocked that an unopposed bill would be slated for repeal one year later. This bill threatens dozens of brewers growth so we all felt compelled to take action.”

Wholesalers across the country have deep lobbying roots and deep pockets to oppose any free market-oriented regulation. Typically, wholesalers draft and support legislation that forces brewers to use wholesaler services law. Brewers and wholesalers are fighting over basic private property rights in North CarolinaTexas, and Florida.

The laws that small brewers are trying to have repealed are the same laws large corporations such as Budweiser, Miller and Coors have used since prohibition to squelch competition. The excuses are many but supporters of these prohibition era regulations will cite safety concerns, health issues, and “fairness.” However, these laws have nothing to do with any those issues and everything to do with lobbying to create a state-sanctioned monopoly at the expense of entrepreneurs, consumers and economic opportunity.

Brewers like Kim Kavulak say they only want to pursue their craft free from coercion. These entrepreneurs are only looking to sell a quality product while creating a responsible and lively culture around our beloved brews. Kavulak has enough on her plate as a small business owner without having to battle against billion-dollar companies using politics at the expense of others.

Be on the lookout for KillTheBill events in Nebraska, but odds are no matter where you live local brewers are brewing up a battle for liberty and may soon need your support too!

To hear the interview on the “Free To Brew” podcast with Kim Kavulak click here.

(Colum first printed at Opportunity Lives)

Nebraska Brewers Fight Back

Kim Kavulak is fighting back to save 1-year-old reform from special interest groups trying to not only repeal reform but increase the hurdles a small brewery must overcome. LB1105 passed in 2016 bringing sweeping reform for brewers in Nebraska, now LB632 threatens to repeal key parts of last years reform and mandate a “come to rest” law on all beer sold. Kim alongside brewers across the state are joining together to promote #dontkillourcraft to stop this special interest cronyism.

Be sure to check out full article with Kim at Opportunity Lives