Proposed beer tax hike brews trouble for barley and brewing industry

Posted on February 29, 2024 by Vauxhall Advance

As one of the earliest, widely grown grains in Canada, barley shares a long and trusted history with the brewing industry that it supplies. Renowned by brewers globally for its consistently high quality, Canadian barley stands as a national success story.

Yet we find ourselves in a familiar predicament with Canada’s already high beer tax rates poised to increase, squeezing an industry on the ropes.

All stakeholders in the beer value chain – barley farmers, brewers, their employees, hospitality businesses, and the millions of beer-loving Canadians – have a vested interest in having the federal government reconsider the 4.7 percent beer excise tax increase set to automatically take effect on Apr. 1.

While the policy of tying annual increases to a complex inflation-indexing formula may have seemed reasonable during periods of stable inflation, in the present situation where costs are rising, including the expenses of cultivating barley and manufacturing beer, the annual beer tax increase risks aggravating the sector’s current challenges.

In 2023, beer sales in Canada, on a volume basis, reached a 48-year low of 19.3 million hectoliters (a hectoliter is equivalent to 100 litres or approximately 26.4 gallons). Rising interest rates and higher prices from food to housing are forcing Canadians to think carefully about where they spend their disposable income. For many, that pint of beer with friends at the local pub is simply not in the cards these days. This is reflected in the fact that draught beer sales in Canada remain well below where they were prior to the pandemic in 2019.

Canada’s barley sector, comprising breeders, seed and grain companies, maltsters, and brewers, plays a crucial role in employing thousands and bolstering the Canadian economy. The spin-off economic benefits are numerous, with the beer industry contributing an estimated $5.7 billion in taxes to federal and provincial governments annually.

Each year, the brewing industry purchases an estimated $120 million worth of barley from 21,000 Canadian farmers and supports 149,000 jobs across the Canadian beer value chain, ranging from the farmer who grows the barley to the truck driver who transports the beer, to the neighbourhood pub staff who pours and serves the beer to patrons. With domestically made beer accounting for more than 88 percent of all beer purchases in Canada, Canadian consumers can take comfort in knowing they’re supporting local farmers, rural communities, and the broader agriculture sector.

However, farmers and malting companies which convert barley into malt, have experienced a decrease in domestic demand from Canadian brewers in recent years due to a slow beer market post-pandemic. Federal beer tax hikes that don’t take market factors such as reduced sales, increased expenses, a struggling hospitality industry, and diminished consumer confidence have only worsened the situation.

Last year, representatives from Canada’s barley value chain united to request a hiatus on the automatic excise tax increase. While we were grateful for the government limiting the increase to two percent, this was a temporary one-year respite, and market conditions have continued to deteriorate since then.

Canada currently bears some of the world’s highest beer taxes. While crucial for provincial and federal revenues supporting vital sectors like healthcare, striking a balance is essential to prevent undue strain on this key industry.

Canadians from coast to coast are looking for a reprieve from inflation and rising prices. And people in the barley and brewing sector would like action to avoid yet another hit to their bottom line.

Canada’s barley value chain urges the federal government to review the proposed beer tax increase in this year’s budget and consider a freeze at current rates or an extension of last year’s cap, a sign of support and encouragement for this very Canadian industry.

Peter Watts is the Managing Director of the Canadian Malting Barley Technical Centre, an independent, national association representing Canada’s full barley value chain.

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