A new US Treasury report has given President Biden the ammunition to radically reform alcohol production and distribution in the United States.
In a 64-page report to Biden, the US Treasury found that American beer drinkers are paying up to $478 million a year more than they should. She also revealed that there are significant barriers to entry into alcohol markets and that many benefits promised to consumers in previous mergers and acquisitions have never materialized. The missive may give the president the incentive he needs to change federal law to make it easier to enter the industry and lower prices.
It could also open up opportunities for rapid growth in e-commerce, especially direct producer-to-consumer sales across state lines.
The report urges nation-wide reforms to outdated legislation that was passed in the aftermath of the Prohibition era and dictates that states themselves revise their own liquor distribution and production laws.
The report, titled “Competition in the Beer, Wine and Spirits Markets,” stems from Biden’s executive order issued last summer to find ways to reduce corporate consolidations and improve competition to protect American consumers, workers and small businesses.
Over six months, the Treasury received submissions from more than 800 consumer groups, industry organizations and other interested parties.
The report hailed the thousands of new breweries, wineries and distilleries that have sprung up over the past decade, but it also details “challenges to the growth of small businesses and new market entrants”.
He recommends a series of reforms, including tougher review of mergers and acquisitions by the Justice Department and the Federal Trade Commission, to “better level the playing field” for small businesses and new market entrants, who tend to fight against big companies with pricing power.
The Treasury also wants different tax rates for producers and reforming “outdated” state and federal regulations — some of which date back to the end of Prohibition in 1933 — to allow new entrants to grow their businesses.
The 1933 legislation introduced the “three-tier” system to separate producers, wholesalers and retailers. This has created a complex patchwork of rules in which individual states govern their own systems, ranging from broad liberalization to state monopolies of distribution and retail.
“The Biden-Harris administration is committed to ensuring an economic environment that promotes fairness and competition,” Assistant Secretary for Economic Policy Ben Harris said when the report was released.
“The report identifies several competition issues in the beer, wine and spirits markets which, if addressed, would allow entrepreneurs, small businesses and new entrants to compete on equal footing with larger big players in the market,” he said.
One of the most constraining constraints put forward is the “post-and-hold” system like that of Connecticut.
Introduced to keep prices high and discourage consumption at the end of Prohibition, the system requires distributors to publish their prices to state authorities and then maintain those prices for a specified period, usually 30 days.
While the details vary from state to state, these laws, according to the report, have hampered the ability of new players to find new markets for their alcohol and helped create a model in which two brewing groups, Anheuser -Busch InBev and Molson Coors, account for two-thirds of the US$94.1 billion beer market in the United States.
This concentration, in which just six companies supply 80% of all beer consumed, has resulted in beer drinkers spending up to $478 million a year more than warranted, he said.
Post-and-hold laws “make co-ordinated pricing between distributors more likely by making it easier for competing companies to make and enforce price agreements. These laws effectively mimic agreements between rivals to fix prices “, says the report.
“As a result, wholesalers are often reluctant to lower prices because these declines become irreversible for the duration of the holding period. This collective reluctance ends up setting a floor price that no one will cross. In addition, the public visibility of these displayed prices allows wholesalers to coordinate their prices, according to the Treasury report.
“We believe they are anti-competitive in that they require businesses (primarily wholesalers) to display their prices and then use the law as a basis to lock in their prices and not react to market circumstances that would otherwise result in a lower prices to stay competitive,” said Natalie Wymer, vice president of communications at the Wine Institute.
“The only supporters of these laws have been the wholesalers themselves who are further protected from competition by these laws,” she said. “The Wine Institute will continue to oppose the expansion of post and detention and will support legislation where possible to reverse these provisions.”
“We are disappointed by the administration’s mischaracterization of America’s thriving beer industry,” Beer Institute CEO Jim McGreevy said in response to the report.
“Not only are consumers ‘benefiting’ from an increasing number of brewers, but the beer industry as a whole is also ‘experiencing an unprecedented level of healthy competition,'” he said.
But the American Craft Spirits Association hailed the report’s support for small independent distilleries and said it should spark “a fresh look at outdated liquor laws that hurt small businesses and limit access to our products.” “.
Wine & Spirits Wholesalers of America said the report ignored how consolidation at other levels created the need for evolving distribution mechanisms to address supply chain and logistics challenges.
In response to suggestions that greater choice and competition would be created by much more lax laws on cross-border shipments, particularly direct e-commerce between producers and consumers, WSWA said that “direct shipment of alcohol to the consumer considerably increases the access of minors to social life”. sensitive products.
“Today’s family wine and spirits wholesalers have never been more competitive, capable and efficient,” he said.
While it is open to Biden to promote Treasury-suggested changes through Congress, much of the patchwork of legislation is overseen by individual states, and so the Treasury is asking them to consider the anti-competitive impact of local laws and franchise rules on small producers.
The report also highlights some state practices that Washington may not be able to change. One is in “franchise states” such as Georgia, which requires liquor producers to stay with a distributor indefinitely unless the winery or distillery can show a “good reason.” to change the arrangement.
The practical effect is that a winery has no recourse if that distributor decides to sell competing products; his only path to Georgian wine shops is blocked.
The report also called on the Treasury Department’s Bureau of Alcohol and Tobacco Tax and Trade to improve labeling rules to protect public health.
What happens to the Treasury proposals now is unclear. Biden wants to be seen as a consumer champion, but his options for action on Capitol Hill could be limited by his narrow majority, which he could lose in November’s midterm elections.
Meanwhile, the army of alcohol sector lobbyists (there were more than 300 registered in Washington in 2017) will plead their case.