Alcohol Producers in Texas Must Unite For their Right to Produce

As discussed in my latest “Alcohol Regulation Roundup” post, a representative for brewing giant, Anheuser-Busch (AB-InBev) testified at a Lone Star State Senate committee hearing last week to express the company’s opposition to what’s known as the “Craft Beer Bill.” HB 602 would deregulate a sector of the Texas beer market by allowing small brewers to sell a limited amount of beer to customers who visit the brewery. The reason for AB-Inbev’s opposition is that the bill excludes brewers in the state who producer more than 75,000 barrels of beer annually; in 2008, Anheuser Busch produced more than 100 million barrels of beer throughout its 12 breweries in North America. When Anheuser-Busch’s Houston, Texas, location opened in 1966, it had the capacity to brew 900,000 barrels of beer a year. However, as consumption in the US rose, the Houston facility expanded production and by 1982 was producing 3.5 million barrels a year. In 1994, the Houston plant alone employed more than 1,000 people.

As noted here by Texas Watchdog writer Mark Lisheron, it might seem strange that Anheuser would take the time and energy to fight a bill that (even if it did apply to large brewers) would not affect their bottom line in any significant way. It seems strange, that is, until you learn that the wholesalers have once again been pulling strings behind the scenes.

“Small brewers were encouraged to add a brewery output stipulation to the bill by the Wholesale Beer Distributors of Texas. Ostensibly, as Keith Strama, an attorney for the suds lobby, told the committee, “The bill was designed to promote local breweries as they gain market share.”

InBev had supported the bill in its earlier form until they realized that a provision added to the bill would limit participation to small brewers only. This sort of discriminatory treatment is an issue that Anheuser-Busch has made a point to address in each state where it comes up (just this week, they lost their fight to keep Illinois craft brewers from being allowed to self-distribute).

This is not the first time Texas wholesalers have gotten down and dirty in the politics of Texas alcohol distribution. Distributors in the state have singularly and as a group spend countless hours speaking to legislators, writing to media outlets, and spend millions each year to protect their monopoly on the distribution of alcohol; meaning, preventing producers such as wineries and brewers from selling their products directly to consumers or stores.

Nothing since the repeal of Prohibition in 1933 has been more dear to the wholesalers than their nearly absolute control of the flow of alcohol through them from producer to retailer.

In 2001 the liquor and beer wholesalers banded together with religious representatives to block a bill that would have legalized online sales and shipping of wine for Texas residents.

In 2008 the Wine Retailers Association released a study showing that alcohol wholesalers between the years of 2000 and 2006 gave more money to campaign contributions in Texas than in any other state. Furthermore they gave more in political contributions than the combined total of all gambling and casino interests, retail interests, food interests and all business services in the state. During that time the Texas Legislature passed prohibitions on out-of-state retailers shipping to Texans and limitations on in-state retailers shipping to Texans, both moves protective of and supported by state alcohol wholesalers.

In 2007 the liquor wholesalers gave $1.7 million to Texas lawmakers to oppose a bill that would have allowed package stores to sell directly to restaurants — cutting the wholesalers out of the deal.

As a result of the wholesaler’s efforts, Texas has some of the odious and inefficient laws regarding alcohol sales in the nation. For example:

• As the legislation this blog addresses says, Texas breweries may not sell beer to visitors to their facility and they can’t sell directly to retailers — they may only sell their beer to distributors (wineries may sell wine at their vineyard).
• On the other hand, brewpubs in the state may not sell their product in stores. They can only sell beer on-site. A bill, HB 660, if it passes through the Texas legislature (and isn’t killed by the Governor) would amend this law.
• In Texas, “beer” is defined as a malt beverage that contains at least .5 percent  alcohol by volume (ABV) but no more than 4 percent ABV. Any “beer” with an ABV above 4 percent is considered “ale.” As such, many craft beers (including a beer, the proceeds of which would have benefited victims of Hurricane Katrina) are blocked from the Texas market because they are labeled as “beer,” but contain a higher ABV than allowed for the word “beer” in Texas.
• The entire Encyclopedia Britannica is banned in Texas because it contains a recipe for making home-brewed beer.

Craft brewers, who have been increasing their market share year after year around the nation, should have rejected the wholesalers’ demand that they add a production cap, on principle. Clearly, craft beer can survive and thrive in the Texas market based on consumer demand for high-quality beer; they should focus their energy on ridding the state of protectionist laws that favor one kind of brewer over the other rather than seeking special privileges simply for being “small.”

Large brewers, too, if they truly want equity under Texas law, should stop pushing legislators and using the maze of outdated laws to control their craft-brewing competitors.

It is time for big beer and little beer, as well as winery owners and distillers to join forces and demand freedom for all alcohol production and distribution. As the state’s Sunset Advisory Commission noted in 2007, the alcohol distribution system in the state is “a corrupt system that no longer serves the public interest and protects the wholesale distributors of alcoholic beverages in Texas,” and called for the state to dismantle the system.

While Texas is an extreme example of the end result of what happens when alcohol is treated in a discriminatory manor, the same is true for almost every state in the nation. It’s time to end the three-tier distribution and the discriminatory treatment of alcohol under U.S. law.