Strength In Numbers


Just weeks after the CBIA was formally disbanded to make way for the Independent Brewers Association (IBA), the body has released the results of research showing that Australia’s independent beer industry now includes more than 400 breweries in its ranks, generating $740 million in economic output in one year.

The results of the Independent Brewing Industry National Economic Evaluation are the most comprehensive compiled to date and mark the start of a concerted campaign to lobby the government for more support. They were released this morning, following months of research and assessment by economic group Essential Economics, and show just how fast the craft sector has grown in recent years.

Its findings, gathered from 116 industry respondents out of a possible 325, found that the independent brewing sector has increased tenfold from 2006 to 2016, with the number of breweries as at June 2016 sitting around 380. One year on, that number is now closer to 420.

During 2015/16, the independent brewing industry employed the equivalent of 2,390 full time staff, produced 59 million litres of beer, and contributed $74 million in excise duty to the Federal Government.

That last figure is one on which the IBA is keenly focused as Australia’s excise tax rate for beer is one of the highest in the world, equivalent to 54 cents per standard drink of alcohol. This compares to 37 cents in Canada, 35 cents in the United Kingdom, 28 cents in the United States, and 26 cents in New Zealand.

IBA chief executive Chris McNamara says they will be using the research to lobby both Federal and State Government better for improved support for the rapidly growing beer industry. The first step, he says, is getting brewers in front of their local representatives, particularly while Federal Government enjoys its winter recess.

“We wanted to get this information out to brewers and give them some tips on how to get that meeting with their local pollie and just start having these conversations with their local MPs,” says Chris.

“What we’ll be doing from an IBA point of view is that, for those breweries who are in Scott Morrison’s seat or any of the other key politician’s seats, we’ll be trying to get along with the brewers to the meetings so we can have a chat to the movers and shakers.”

Those conversations serve the purpose of having brewers “tell their story”, which can range from the constraints of excise, issues with access to market, and the need for tourism support.

“While we all sit around and wait for the ACCC to hand down their report [on the business practices of Australia’s biggest beer companies], it’s still really important for brewers to be in front of MPs saying these are the constraints to our business,” says Chris.

“We’re up against this duopoly. ACCC has been sitting on this report for a really long time and haven’t handed it down. It’s just explaining about all the things that are holding us back. While some things done are great, there is still a lot more that we could do.”

Beyond exploring the potential economic benefits of a growing beer industry, the report also recommends a range of excise reforms to assist with the industry’s flow of capital.

They include increasing the brewery tax refund – potentially in line with the $350,000 rebate offered to the wine industry; indexing that refund against excise changes to ensure they are balanced; extending the excise settlement period beyond its current seven-day turnaround; and lowering the excise on 30 litre kegs.

“But the first step to that is educating politicians about what the size of the industry is,” says Chris.

“It’s an education document to tell them to take a look at us. This is what we’re about, this is our contribution to the economy, this is what we can do if we’re given further support.”


HELP YOURSELVES


The IBA campaign is one that could build on recent successes. Last month, the launch of the Inner West Brewery Association (IWBA) in Sydney was attended by local members and a mayoral candidate; three days later, Anthony Albanese MP (pictured above at the IWBA launch) garnered cross-bench support for his call for a fairer tax system and more support for the craft beer sector. 

Both moments were well received by brewers and beer lovers alike. Yet there are warnings that tax reform may not be the panacea the industry hopes for in these increasingly competitive times. 4 Pines founder Jaron Mitchell believes the fight for excise reform could result in a remarkably different outcome and believes it's important for individual businesses to focus on the viability of their own operations. Instead of levelling the playing field with the wine industry, Jaron says chasing excise rebate dollars could simply result in a race to the bottom.

“I think it’s one of the stupidest things I’ve seen,” says Jaron, who decided against joining the Craft Beer Industry Association due to its initial inclusion of craft brands owned by multinational brewing companies – something resolved by May's vote.

“There’s no industry on the planet that has benefited from artificial relief from a government. Essentially, it creates a vacuum for inefficient people who are wasting resources to get a $350,000 rebate. If you can’t run a brewing business based on fundamental economics, you shouldn’t be running a brewing business.”

Jaron believes if the wine industry rebate was removed tomorrow, the vast majority of wineries would not survive, as their business models wouldn’t be sustainable enough to take the hit. 

Breweries, given the same rebate, would simply pass it on to the consumer through lower keg prices, taking away any long-term cashflow benefits for the brewery and bloating the industry with brewers with flawed business models.

“Sure, maybe in the short-term Mum and Dad Brewer chuck an extra $200,000 in their pocket, they employ two more people for $150,000, and everyone’s singing,” says Jaron.

“But then the guy around the corner says, ‘Hang on, I’m not selling enough beer’, so he drops his kegs down to $180 because he can now, and that becomes a race to the bottom from the trading perspective.

“They’re not becoming more efficient, they’re just trading away this excise they already got. Then eventually there’s no profit left, and eventually they have to start laying people off. Yes, it causes bloat, but it also means nobody is better off in the long run. All it achieves is that consumers pay less for beer.”

Instead, Jaron would support extending the excise settlement period so it fell more in line with brewery cashflow. Its current seven-day turnaround could kneecap small businesses with limited incoming capital.

“Our average debtor cycle is 55 days but we’re paying excise at seven. We’ve got a 48-day funding gap and it just gets worse as it goes along. Your business gets bigger so you never catch up to it.

“In New Zealand it’s payable quarterly. If we moved to that, that’s the kind of thing that would help guys get off the ground and manage cash flow. It would help you to properly run a business instead of exhausting cash at 48 days. Ninety days is far more reasonable.”


BEYOND EXCISE


IBA’s new chairman, Ben Kooyman of the Endeavour Beer Company (above left with business partner Andy Stewart), says excise reform would just be one part of the association’s strategy to improve the lot of the independent brewing industry.

Over the second half of 2017 they will be focusing on advocacy with both State and Federal Governments, whether that be on excise reform, access to market, support for tourism, or other issues. They will also be looking to increase awareness through trade media, tourism bodies and direct to consumers.

Yet, Ben says, there is momentum around the excise discussion and it’s important to keep that train moving.

“It’s hard to quantify if it’s the biggest issue, but there’s certainly momentum there and widespread awareness in the recent weeks and months, so we obviously don’t want to be silent on these issues. I think it could make pretty substantial changes to the industry if we do get changes to it.”

As for the risk of it simply propping up businesses for little long-term gain, Ben says the IBA is focused on building a sustainable industry full of quality businesses.

“We hope it doesn’t prop up businesses that only have a short-term need, but instead would be beneficial to those medium to long-term earners.

“We want to create sustainability in the industry not just through lower taxes but in building public awareness of our independent producers versus the bigger companies out there, including the big ones who put out labels masquerading as small companies.”

Yet, despite his lack of fondness for the proposed changes, Jaron says 4 Pines will indeed be joining the newly formed IBA as a member.

“I didn’t see the purpose of CBIA before because there was already a beer association operating in Australia,” he says.

“But now there’s an independent angle, that gives it a proper mandate. People love buying from small and local businesses – that’s a sellable tool the industry can work with. To the four or five percent of Australians who care where their produce comes from, that’s who we can target.

“Let’s say there’s $500 million to $1 billion worth of spending that people could put with an independent producer. That seems a far bigger prize to be grabbing than a little bit of excise, and that’s where I’d say we should concentrate our time and energy.”

The key thing is a multidimensional approach, as more money in the back pocket of brewery owners might make people happy now, but it offers no vision for the future of the industry, says Jaron.

“It’s a silver bullet for the person of the day, because for the next four or five years it looks glorious. But it’s just not sustainable. It’s not taking the ten or 20-year view and that’s where it’ll all fall down.”


Key Findings

The Independent Brewing Industry National Economic Evaluation had the following findings:

  • The independent brewing industry had 380 participants as at 30 June 2016. It is now more than 420.
  • 65 percent of those businesses are based outside of the capital cities.
  • The industry produced 59 million litres of beer in 2015/16, generating $280 million in revenue.
  • It employs almost 2,400 full time equivalent workers, totalling 73 percent of all employment in the brewing industry in Australia. Those workers are paid approximately $90 million in wages.
  • It supports a further 17,210 FTE positions in the wider economy.
  • It generated $740 million in economic output in 2015/16.

About the author: Kerry McBride is a reformed newspaper journalist who has taken the well-trodden path from Wellington to Melbourne. Her love for bad puns is matched only by her love of hoppy beers and Hallertau Funkonnay.

Hit enter to search or ESC to close