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10.2006

Massachusetts Beverage Business

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Article By: Andy Crouch

No one ever said growing up was easy to do. Maturity begets responsibility and so follows the necessity of prioritizing efforts, goals, and interests. Be it graduating from school, entering the workforce, raising a family, or running a craft brewery, everyone eventually has to become an adult.

At the recent Craft Brewers Conference, the annual gathering of members of the Brewers Association, keynote speaker Sam Calagione spoke in rhyme and colorful metaphor of the precarious coming of age for craft brewers. Once filled solely with the joys of making small batches in kitchens and little brewhouses, present-day craft brewers toil day-by-day in a system rife with daunting hurdles and formidable, driven competitors. In the thick of this environment, Calagione urged fellow small brewers to keep track of their respective goals and passions during the aging process. "Our commitment to having one-another's backs is more important now than ever," he said. "As big breweries and big distributors court our reinvigorated growth, we need to be careful that any alliance we make doesn't compromise the unique terroirs we have worked so hard to develop. We do not view one another as faceless competitors. We look at each other as similar-minded individuals - groups of people equally committed to the betterment of a beer drinking society."

It's really not all doom-and-gloom in the business of maturing. Like the best of adults, craft brewers have not lost touch with the inner child passions that caused them to forsake regular nine-to-five jobs, complete with their pesky defined benefit plans and dental insurance coverage. As Calagione told that group of like-minded businesspeople, "We are not in the business of growth, we are in the business of making world class beer - growth is just a by-product of our business. Money is a means to our end and not an end in itself. I don't think we should give a crap if it takes us 12 or 17 or 2O years to achieve the 1O% mark. We should never be consumed with prioritizing growth. The reason we got into trouble eight years ago is that some people started to think that was what we were all about."

The ADULT in the ROOM If the craft brewers are the teenagers coming to grips with their identities, then the Brewers Association (BA) occupies the role of the benevolent adult figure. Established in 2OO5 through the merger of the Association of Brewers and the Brewers' Association of America, the new group seeks to better the interests of the brewing industry and to promote brewing knowledge and quality beer among the public. As the craft brewing industry has grown up, so has the BA. Once focused on homebrewing events and a single beer festival, the group now seeks to speak with a unified voice on behalf of small brewers. The group's goal is clear: "By 2O1O, America's craft brewers will have 5% market share, will be recognized as making the best beer in the world and will be politically influential enough to secure fair legislative and regulatory treatment for craft brewers."

With these considerable goals in mind, the Brewers Association has shifted its focus to include increased public relations efforts and legislative advocacy. While the group remains dedicated to promoting and celebrating the small, independent and traditional culture of American craft brewers - best demonstrated through the Great American Beer Festival (now in its 25th year) - the BA now also seeks to vigorously defend the interests of the industry in legal and political arenas.

The BA regularly lobbies members of Congress and federal agencies on behalf of brewery members regarding a range of issues and the group is beginning to enjoy some returns on its investment of time. On June 6, the United States House of Representatives gave unanimous consent to House Resolution 753, "commending America's craft brewers for their many and varied contributions to the nation's communities, economy, culture, and history." Primarily sponsored by Representatives Sherwood Boehlert (R-NY) and Peter DeFazio (D-OR), and with 7O additional Congressmen co-sponsoring the measure, the resolution passed in 6O days and helped promote American Craft Beer Week.

With financial assistance from the United States Department of Agriculture, the BA created its Export Development Committee (EDC). In perhaps the surest sign of the strength and maturity of the industry, the association targets specialty beer importers and distributors in Europe, Asia and Canada with promotional efforts designed to increase their awareness and appreciation of the flavor, diversity and quality of American craft beer. Members of the EDC include representatives from Dogfish Head, Shipyard Brewing, Sierra Nevada, Flying Dog, and Boston Beer, among others. Since 2OO5, the EDC has sponsored reverse trade missions and export targeted seminars at its events, participated in numerous international beer festivals and trade shows, including recent shows in Stockholm and Italy, and conducted a market research study of the Chinese market for imported American craft beer.

The BA recently concluded its annual export survey in preparation for submitting the group's application for continued export assistance funds from the USDA. For the third consecutive year, the survey demonstrated that American craft beer exports increased substantially, with growing of 14% in 2OO4. The survey cited Western Europe as the best market for American craft beers.

KEEPING an EYE on LEGISLATIVE MATTERS The BA continues to represent the interests of small brewers on a range of legislative issues, including taxation, direct shipping and processing matters before the Alcohol and Tobacco Tax and Trade Bureau (TTB). The BA has been particularly active in addressing recent notices of federal rulemaking relating to beverage alcohol labels.

In response to a petition filed by several consumer advocacy groups, known as Notice No. 41, the TTB is considering some controversial changes to the labels on beverage alcohol containers sold in the United States. Offered by the Center for Science in the Public Interest (CSPI) and the National Consumers League (NCL), the petition covers issues ranging from ingredient lists, alcohol information and a new government caution.

In order to "provide the American public with adequate information as to the identity and quality of beverage alcohol products", the petitioners asked the TTB to require beverage alcohol labels to include the product's alcohol content, the serving size of the container, the amount of alcohol and calories per serving, list of ingredients (including additives), the number of standard drinks per container, and a governmental opinion as to moderate drinking for men and women.

The petitioners cited consumer demand for the new information in making their case for the new regulations. In one study cited by NCL and CSPI, the Global Strategy Group, an independent Washington DC-based polling and market research firm, found strong support for including serving sizes, calorie content, alcohol content, and a list of ingredients on the labels of beverage alcohol products. The petitioners argue that providing consumers with this additional information will help them make more informed choices about their consumption of alcohol and help those who are allergic to some ingredients and additives. The petitioners also cited, without providing a source, that such new labeling would help reduce consumer confusion over the different types of beverage alcohol and the amounts of alcohol in each product.

In reviewing existing laws, the petitioners cited some peculiar disparities in the labeling of beverage alcohol. Specifically, they note that wines and hard ciders containing less than 7% alcohol by volume are not subject to the TTB's regulations. The Food and Drug Administration (FDA), which requires nutritional information, including calorie counts, to appear on the label, instead govern these products. Malt beverages, including beer, are not required under federal law to carry this information, or list the alcohol content. Only light beers must disclose certain nutritional information. As CSPI and NCL point out in their petition, existing alcohol labeling laws strain credulity to explain why a 7% a.b.v. wine should be required to include nutritional and alcohol information, while all beers and those wines above that alcohol level should be separately regulated and thus exempt.

By far the most controversial and inherently political element of the petition is the request that labels contain detailed information about alcohol levels, serving sizes and recommended amounts of consumption. While the petition's proposed label would include relatively innocuous "alcohol facts" and statements, such as the beverage's alcohol by volume and the amount of alcohol in terms of fluid ounces, it also includes an icon relating the number of standard drinks per container and the US Dietary Guidelines advice on moderate drinking for men and women.

A MATURE BEER INDUSTRY RESPONDS to the PETITION

Following receipt of the petition, several beverage alcohol producers contacted the TTB and requested permission to begin voluntarily providing such alcohol information on their products. After soliciting comments on an interim rule, the TTB decided to postpone any decision until completion of the formal rulemaking process.

In response to the petition, the TTB requested public input and assistance in formulating possible new rules for alcohol labels. During the extended comment period, thousands of consumers, brewers, alcohol industry organizations, and other special interest groups weighed in on the petition. Even in areas where most involved agree to consider regulation, several outstanding issues remain. For allergens, brewers are concerned that they may be required to undertake expensive package redesigns to alert consumers to ingredients, such as finings, that bear no chance of harming them. "To some degree, because the fermentation and conditioning processes remove a lot of the ingredients that go into a batch of beer, those ingredients are not recognizable in the final product," says Paul Gatza, director of the Brewers Association. "If there is going to be a regulation [on ingredients], the Brewers Association wants it to be voluntary for brewers."

While the allergen issue is a particularly difficult proposal to oppose due to the potential risk to consumers, beverage alcohol producers have urged the TTB to proceed cautiously before imposing any new regulations. Industry groups, including the National Association of Beverage Importers (NABI), point out that in order to best serve affected consumers, allergen warnings should be based upon proven scientific evidence that the ingredients will cause harm to the drinker. "Consumers need to trust that the allergen labeling information is reliable and not be subjected to precautionary statements where the statement will be ignored based upon, for example, prior experience consuming the food in product in question," said NABI's President, Robert J. Maxwell, in his comment to the TTB.

The BA's Gatza himself worked on the TTB's allergen working group, doing research on cross-contact between potentially allergenic and non-allergenic ingredients in breweries. "We don't want to dissuade people who are looking for something to drink," he says. "We want them to feel like they can drink something rather than be afraid of drinking the products of craft brewers." Despite its opposition to mandatory labeling, the BA does acknowledge the seriousness of the issue raised by the allergen proposals. "If it's a matter of public safety then we believe it should be on there."

In responding to the petition, BA president Charlie Papazian expressed the concerns of members that new labeling requirements could significantly increase the cost of business operations for small brewers. The group conducted a survey of 97 small packaging breweries and reported "that mandatory ingredient and nutrition labeling requirements would significantly increase small brewers' costs of doing business and deter the creativity and innovation that has made craft brewing both popular and profitable as small businesses." More than 91.8% of the survey respondents reported that Notice 41's proposed labeling requirements would require a significant change in their labeling, labeling equipment, supplies, or labeling processes. Any cost increases would be passed on to distributors, retailers and, ultimately, to consumers.

The BA's smart, coordinated approach is already showing signs of success. On July 26, 2OO6 the TTB published both an Interim rule and a Notice of Proposed Rulemaking, Notice No. 62, in the Federal Register concerning the labeling of allergens in alcohol beverages. Under the interim regulations, producers, bottlers and importers of malt beverages, wines and distilled spirits may voluntarily declare the presence of milk, eggs, fish, Crustacean shellfish, tree nuts, wheat, peanuts, and soybeans, as well as ingredients that contain protein derived from these foods, in their products. The TTB has opened the proposed labeling requirements and the compliance time frame for public comment until September 25, 2OO6. The voluntary nature of this proposed rule mirrors the action the BA requested the TTB take on the petition.

Far from the early days of the fledgling, naive craft beer movement, small brewers and their representatives now have to pay attention to previously unconsidered business issues. Now officially grown-ups, the BA and its members are keeping a close eye on the federal rulemaking process as it has implications that could resound throughout the beverage alcohol business.

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