Sunday, 22 January 2017

Small Brewer's Duty Reform Coalition

I've oft raised concerns regarding SIBA, the trade organisation of independent brewers. Over the past two years or so I have moved towards a position of working closely inside SIBA to achieve change through engagement rather than shouting from the sidelines. Arguably this is a more responsible and constructive activity1.

I am a member of the Policy Committee, which is currently looking at various issue that are becoming more public, notably progressive beer duty(PBD)2, and access to market3. These two issues are extricably linked in many ways.

SIBA originally started out life as the Small Independent Brewers' Association. It was decided some time ago to change the name to Society of Independent Brewers, but for the sake of simplicity retain the original acronym. One can have a view on the appropriateness of the change, and the subsequent closer working relationship with the likes of BBPA, regional brewers and even major multinationals.

Things are coming a little bit to a head. There is the recent formation of a coalition of brewers named "Small Brewers Duty Reform Coalition" (SBDRC) who are now looking to change the duty scheme to favour what is called "The Squeezed Middle". See the details here. I believe this to be a threatening and aggressive move, especially as many of the protagonists are SIBA members. It does not help us to work sensibly to produce a fair and cohesive strategy for the future of PBD.

If you have been following this blog so far this year you will note that I am greatly concerned about overall saturation of the beer market; great for beer drinkers, but not so for brewers large and small. The whole market is being squeezed significantly. Indeed, we feel like we are the squeezed bottom4.

The basic premise for the perceived need to change PBD is that there is a barrier to growth and there may be some merit in looking at that. Without going into detail, it is difficult to grow beyond 5,000hl due to the structure of relief as the increase of duty at 5000hl is very sharp. There is another much less convincing argument that it is unfair that brewers over 60,000hl get no relief at all, as they still fail to have economies of scale. Frankly, it is complete nonsense to imagine a muti-muillion pound businesses see similar diseconomies of scale compared to micro-brewers and to conflate the two issues is dishonest.

SIBA have nicely and robustly countered the SBDRC announcement with its own press release.

I want to voice here my own Hardknott centric view on all of this. Micro-breweries are going out of business. I hear of one gone into receivership just this week. Other micro-brewers are either activating or considering significant retraction of activities. Much of the reason for this is because the "squeezed middle" are driving down prices, and significant to all of this is recent huge mandated  price drop for SIBA members into Enterprise Inns.

If we change the nature of PBD significantly we will see the "squeezed middle" using any duty benefit to further drive down the price in the market increasing damage to an already struggling micro-brewery industry. The only true benefactors will be PubCos and brewers with significant pub estates. There is already significant evidence to suggest that the vast majority of duty decreases of any sort are simply demanded by retail chains to improve their bottom line.

The work done behind the scenes to deal with these issues is complex, sensitive and contains significant alternative perspectives. I simply put my point of view across here, but it is one that I would expect most brewers of our size (1200hl/yr) to agree with. It is also worth noting that I represent around the average size for SIBA members, and therefore would expect SIBA to take as much notice of me as they would of any brewer bigger than me.

Further more, very few SIBA members are above 5000hl, over 90% of SIBA members are below 5000hl and benefit from full duty relief, essential for their very existence. The remaining 10% or so appear to be significantly more powerful in shaping SIBA policies and certainly carry more weight and have more resources to help influence policy.

One would expect SIBA to defend PBD completely and utterly. Up until recently this is exactly what has been happening, and I am hopeful that this will continue to be the case. I am significantly scared that this may change if we do not fight very strongly against SBDRC and some of the noises being made by larger organisations.

Part of the problem is that SIBA has grown now to include some fairly big brewers. Brewers can now be a member of SIBA even if they brew a colossal 200,000hl per year. This represents businesses that turn over tens of millions of pounds per year. They are huge. It is inconceivable that they can relate to the difficulties faced by 90% of SIBA members.

Now, SIBA is a democratic organisation, which in itself begs the question as to why we have allowed ourselves a position where we have such giants in our camp. I believe there is a core reason behind this, and my main reason for writing this post. Change is made via regional meetings, representation is sent via trusties to the board. Additionally, there is a route for major changes to be made via motions to the AGM. If I understand correctly, these motions have to first be approved at regional level for onward consideration by the board before finally being presented at national AGM (BeerX) for a vote.

I see there being some significant flaws in this process. Firstly, many of the brewers below 5000hl are working their butts off just to stay afloat and cannot afford the time or fuel to travel and engage with this process. I believe the direction SIBA would take would be significantly different if many more members engaged.

This is the key message behind this post. I am considering two motions to the AGM. One that ties any change to PBD to a significant, meaningful and proactive change to access to market for brewers below 5000hl. The second motion would question the rationale behind having membership over 60,000hl and the associate membership category, perhaps demanding a referendum on the policy to determine if the membership is happy with the status quo. My reason for this second motion is that I believe members over 60,000hl significantly compromise SIBAs ability to act for the majority of the membership.

For these, and other motions from other breweries to be successful we require as many sub 5000hl brewery representatives to attend both regional AGMs and the National AGM at BeerX in March.

If any micro-brewery cannot attend then there is an option for proxi-voting, which I would strongly urge members to activate.

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1Although sometimes frustrating from the point of view of this blog, as to write publicly regarding some issues would be unprofessional. Equally, there are comments I'd like to make from a Hardknott perspective that would be in disagreement with a broader view of SIBA in general. This part is hugely frustrating. Hardknott has a unique ethos towards beer and it is important to get that message out.

2Progressive beer duty is the scheme whereby small brewer's diseconomies of scale are partly helped by a reduction on the amount of tax we pay. Without this duty us small brewers would have an incredibly difficult time competing in the market and there would certainly be much less choice in the beer world. If we lose this relief many brewers will find it difficult to continue and we would see significant shrinkage in the micro-brewery market.

3A significant proportion of the pub market is tied to particular brewers. This might be through ownership of the freehold of the pub, or it might be through less obvious barriers through ownership of dispense equipment.

4With apologies, we know who to blame for this phrase, and suitable admonishment has already been administered.

7 comments:

qq said...

It's an interesting one. I've long thought that the response to mid-size breweries bitching about duty is for them to get on a plane and start pushing exports hard, like Robbies have with Trooper. It's the logical next step.

Also the Treasury are in no mood for free handouts, so if you want a cut in duty then you need to explain how it's going to benefit the Treasury in the long term. I think there's maybe a deal to be done that is cash-neutral to the Treasury, that introduces a new band for domestic duty at say 4000-8000 that is only applied to breweries that export >20% of production, or over 4000hl you have to earn a duty discount by exporting a litre to get a litre with duty off. I don't know how the numbers would work (maybe you'd have to export >50% to exclude enough breweries to make it cash-neutral), but you get the general idea, to get the duty break you have to be helping the country by reducing the balance of payments.

The other big objection is that the mid-size brewers will take any duty savings and recycle them into growing their tied estate, which is the last thing that's in the public interest (in general). On the other hand, the Treasury will have no problem with them investing in brewing kit (and warehouses and eg canning lines) that help them produce more duty-able stuff. So perhaps the angle to push is for some kind of super-investment allowance specific to the production of duty-able drinks, whereby investment in brewery kit can be offset against duty, but not pubs. (although some kind of limited exception can be made for onsite taps, you want to structure it so that people can't get massive tax breaks on their City office block by putting a 100l kit in the basement)

[previously got an error message posting in one go - too long?]

qq said...

The SIBA price drop with Enterprise seems nuts, although I'm sure it was done at gunpoint.

Now that beer in a variety of styles is being brewed all over the country, perhaps the way to get more margin into the hands of pubs and breweries is to encourage more local drinking, to reduce the margin of middlemen. If you want a gobful of citrus, you no longer need to have beer trucked halfway across the country from Aberdeen or Oakham, you can get it from the brewery down the road. So perhaps the guest ale thing could be recast explicitly in terms of LocAle. The ticker obsessives wouldn't like it but they will still have freehouses to go to, meanwhile the "mildly interested" will still get decent beer in a variety of styles, but supporting local businesses.

Given recent concerns about the quality of cask, perhaps tied tenants could "earn" a free-of-tie line by passing a "pub MOT" (which would look rather like CaskMarque inspection, perhaps mixed with CAMRA beer ratings). Gives them a financial incentive to look after their beer - the pubcos wouldn't like it but hopefully they would see that a pub that looks after its beer will busier and paying more wet rent in general.

Or just go the whole hog and say that a tie can apply to top-fermented or bottom-fermented beers, but not both. :-) OK, that's not going to happen - but with the likes of Heineken buying more pubs it might be timely to have something in place with respect to lager brewery ties, otherwise we're going to see an awful lot of Caley and Theakston....

Whilst we're on the subject of ties, a pet niggle. Going to the pub is one of the few commercial transactions where the government restrict your ability to travel afterwards (ie drink driving laws). So local monopolies have far more impact than in department stores or whatever. So if I ruled the world, I would at the very least have a rule that said no one brewery can tie (not own, but tie) more than 40% of the pubs within a licensing district. It would stop what happens in places like Faversham where there's one free house and the rest of the pubs are Sheps - it's no coincidence that the micropub movement began a few miles away.

And breathe....

Denzil Vallance said...

I'm with you Dave. One other tried and true tactic is to "Out" those calling for reform and explain to the public that these people don't like choice.

Dave Bailey said...

The NW Region AGM was yesterday. Both my motions were passed for onward consideration by the board.

Hopefully the board will agree they can proceed to the National AGM in March. This is an engaging and appropriate democratic process that will be better the more members attend, or are able to lose a vote by proxy. Please take part.

Parakeet said...

No matter if these are passed to the AGM agenda, it is imperative for the majority of small SIBA members to get their proxy votes organised. Last year's AGM motions had perhaps 80 votes cast across a membership of over 500. Not very representative.

hipster said...

Dave,

I notice that SIBA have now declared themselves as "the voice of British Brewing" Whereas I thought they represented the UK craft Brewers and were the voice of the small independent brewer.

Also one of the great perceived benefits for the small brewer members who cannot afford expensive consultants to design their beers or assist with brewing problems , was the free brewing advice service that was offered with the assistance of Campden a SIBA partner. This service while not used frequently has now been withdrawn.

Your blog comments are noted and the benefits for the sub 5000hl brewer provided by SIBA seem to be disappearing . Perhaps this is something to do with the membership fees being linked to production capacity - the big "independent brewers" pay a lot more so probably expect a greater return.
I note membership is even open now to brewer associates who produce >200000 Hl for a cost of £2000 on the application form. Is there no upper limit?

With regard to Beerflex or SIBA direct delivery -Surely they should be making a stand against price cuts and helping to sustain the value of products . The discerning drinker as the few remaining are , want a quality craft product . If the pub doesn't sell a selection of quality craft products , customers use alternative pubs.
If Pub-cos don't want to pay the price , they shouldn't be supplied. Many pubco landlords have the opportunity to a fair rent and be untied to their pub chain. SIBA should be marketing to these tenants and not the PUBCOs then both tenants and brewers will have a fair deal.

Did the membership have any say in the price cuts to pubcos ?

Kind regards

hipster@beers.guru

Dave Bailey said...

Hipster,

I am not in favour of dropping the "working for the smallest brewer" and I am very much against the idea that SIBA should be the voice of British brewing.

The rationale behind this eludes me I am afraid.