When I read the Chronicle-Herald’s op-ed page early in the morning of January 22, 2022, I was interested to see 2 dueling op-ed pieces on the local craft beer industry, one from Debbi MacDonald, the head of the Craft Brewers Association of Nova Scotia, and one from Herald columnist Bill Black, doubling down on his piece from a couple of weeks ago on the treatment of that industry. To say it reminded me of what one’s body demands you to do after consuming a lot of beer would be an understatement.
In the interests of full disclosure, I retired from the NSLC in 2014 after 12 years working there, first as Corporate Secretary to the Board, then in 2012 adding additional responsibilities relating to Communications and Social Responsibility. During that entire time, one of my tasks was policy relating to one of the NSLC’s 4 legislated mandates, Local Industry, which was added in the 2001 amendments to the Liquor Control Act that also made NSLC a Crown corporation, which was intended to give it a degree of autonomy from excessive government involvement.
When I arrived, the local industry here in Nova Scotia was very small, but the problems were large. The pioneers in the local beer and wine sectors felt unloved by the NSLC, and for good reason. The NSLC in the old days was built to deal with large commercial producers, and dealing with the particular requirements of much smaller and less corporate local manufacturers was foreign to them. The NSLC mass-market model simply did not work for small local producers. It was a very intimidating place for them to walk into, and they heard the word “no” quite often.
Fortunately for them, the Board of Directors in those early days took the legislated mandates in the Act quite seriously, and encouraged the organization to address the issues. They saw the positive effect that local wineries were having on Nova Scotia’s rural economy, and listened to those involved in the industry on what could be done to grow that more broadly. The same thing applied to craft breweries, but at that time there were only a handful of them locally and they were somewhat of a niche product.
Since that time, things have changed dramatically. As part of a trend both in North America and elsewhere in the world, craft brewing has exploded in popularity, right along with small distillers and local wineries. This is doubly remarkable when one looks at beer consumption numbers overall. Beer as a category has been largely flat in terms of volume consumed for over a decade. Its not necessarily that people are drinking more beer, at least not beer they buy from the NSLC. But what they are drinking is dramatically different than what it was at the time of the legislative changes here. Starting about 10 years ago, both the number of craft breweries and the volume of product they produce being sold began to trend upward, to the point where we now have over 70 small brewers with over 20% of the Nova Scotia beer market. A real success story by any measure, unless you are a commercial brewer. With the overall market being flat in terms of volume, that 20% came out of their hide.
Of course, nobody can punish success quite like Nova Scotia, so such things could not be allowed to stand, or so it appears. Some of that may be due to inertia, some may be due to ignorance of how the business works, and some it may be due to denial. Having been removed from the industry for some time now, I can only speculate on these things. I do recall that prior to my retirement, meetings with representatives of the craft brewing industry would occasionally touch on the need to update the definitions of what a craft brewery was in the NSLC Regulations. That’s where the 15,000 hectoliter maximum volume was found in the definition of a microbrewery. At the time, a few other provinces had a similar limit, and we suspected Nova Scotia simply copied that. But other jurisdictions were starting to increase that number as they experienced growth in the sector before we did. It made sense to all of us around the table that some sort of graduated step-up framework would be needed since the economics of a small brewer did not magically become those of a large commercial brewer when you passed 15,000HL of annual production. But in 2014 it seemed a long way off because the biggest craft brewer here at the time was around 8,000HL in size.
Tied to that was the NSLC markup charged on sales by craft breweries through the NSLC store network. Around 2000 or 2001, before it became a Crown corporation, the Commission (as it was then known), following what I was later told involved much back-and-forth at one of their meetings, agreed to chop the markup in half, from the 80% they had been charging all brewers, to 40% for craft brewers. This again was in line with what had gone on in other provinces, and recognized a basic principle. If you are making a product in small quantities, it costs much more per unit, because you do not enjoy economies of scale. If the same percentage markup is applied regardless, the much higher retail cost of that craft product makes it largely immune to retail sale. This is not, regardless of what Mr. Black may believe, a “subsidy”. A Rolex is not marked up at the same rate as a Timex. Nor is the $100 bottle of wine on the list at Mr. Black’s favorite restaurant marked up at the same percentage rate as the low-end stuff. It is just Retail 101. In any case, the retailer is not losing money on the sale. What they are making is more than what they would get if the sale did not take place at all, which is the likely result from a one-size-fits-all markup percentage.
Sometime over the last year or two, policies were changed so that every Nova Scotia brewer receives a benefit from NSLC on sales of locally made product, up to a maximum of $750,000 annually. For Labatt and their Agricola St. plant, this was found money, and probably the result of yet another threat to shut the place down. For everyone else, it changed very little since the number was calculated on the markup advantage they were receiving on their NSLC sales, except that it seems the $750,000 figure was not tied to the 15,000HL production limit very well, as it apparently gets maxed out at 11,000HL. Oops. But what it does seem to succeed at is in preventing a growing craft brewer from expanding into the space between 15,000HL annual production and what you might call a “small commercial” brewer, say 50,000HL a year, like the former Sleeman Dartmouth plant was. They couldn’t make a go of it there since they were paying full commercial beer markup, so they shut it down. There is an argument to be made that there needs to be some classification in between craft brewing and commercial brewing that makes that size of an operation viable, but we don’t have that.
I could go on at length on other aspects touched on in the two op-eds, like my puzzlement at the employment and payroll figures cited by Ms.MacDonald, the seeming return to NSLC being directed in terms of policy and operations by the Department of Finance, utterly at odds with the intent of the 2001 LCA, and how the NSLC Board feels about all of this. From a personal standpoint, it makes me sad to see that we seemingly are now not too far away from the same sort of broken relationship between small local producers and the NSLC that we had at the turn of the century. What a shame.
Second Thoughts 