Massachusetts Reverses “Buy Local” Mandate for Brewers

Public Outcry Forces Rule Reversal for Massachusetts Craft Brewers

Despite the recession, one segment of the US market, at least, has been steadily growing. This sector has supplied a constant boon of jobs, tax revenue and craft beer. Yes, I’m talking about beer. While “big beer,” brands like Bud, AB-inBev and MillerCoors, have suffered right along with the rest of the economy,  craft breweries have seen increasing growth in sales and profit. Much of that growth is owed to states deregulating and reforming regulations to make it easier for small breweries to enter and stay in the market. Smart lawmakers around the nation have recognized the potential tax revenue and job creating power of the booming craft beer movement and have encouraged new brewers to open operations in their state.  As a result of this competition for craft breweries, states have been repealing laws that have sat virtually untouched since prohibition. Unfortunately, some states are taking steps in the wrong direction, whether in an attempt to leach money from the burgeoning market or to protect other interests. One example is the attempt made last week by the Massachusetts Alcoholic Beverage Control Commission to enact a new licensing requirement on small brewers that would have driven them out of the market. Luckily, the move was quickly reversed in the wake of vocal opposition from around the country.

When the Massachusetts Alcoholic Beverages Control Commission (ABCC) announced the requirement that “farmer-brewers” in the state must obtain at least 50% of their ingredients from their farms, it became apparent that such a requirement would have forced most of those brewers to obtain a different kind of license. This license would be far more expensive and make it difficult, or impossible, for small breweries to compete in a market dominated by “big beer.”

Under the state law, “farmer-breweries” are classified as those breweries that derive some of the ingredients for their beers from on-site farming activity—it does not specify how much must be “locally grown.” Obtaining this license offered brewers significant benefits and made Massachusetts an attractive location for a start-up brewery. For example, a farmer-brewer’s licensing fee is only $500 compared with the $10,000 for a manufacturer’s license. More importantly, having a farmer-brewer’s license allows craft brewers to skip the middle tier of the three-tiered distribution system: that is, they can sell their beer directly to customers. Non-farmer brewers in the state are prohibited from selling their products to retailers, restaurants, or bars—they must first sign contracts with distributors (aka middle-men) to sell their product in the state. This isn’t a terribly big problem for large brewers whose products are widely known and who have enough money to buy their way out of distribution contracts. However, small brewers, whose products are harder to sell, have notoriously difficult time getting out of distribution contracts even if their distributor refuses to sell their beer. Farmer-brewers can bypass this process as they are allowed to sell their product directly to restaurants, bars, retail outfits and they are also allowed to offer on-site tasting to customers who visit the brewery. This carve-out for small brewers is not only helpful, in most cases it is necessary for them to continue operating in Massachusetts.

The 50% “buy local” rule would have been impossible to meet for most of the state’s 2 dozen small brewers and would have likely prompted local farmers to increase the prices of their products in the face of rising demand, further increasing the cost of brewers doing business in Massachusetts. Despite the reversal, some brewers have expressed regret in choosing to open their operations in Massachusetts, and I am betting that despite the ABCC ultimately choosing to support craft brewers in the state, the whole debacle will encourage breweries-in-planning to avoid settling in that state.

It’s wonderful that public outcry from brewers, journalists, and beer lovers around the nation forced the ABCC to reconsider and ultimately reverse the new regulation. However, it was a worryingly close call and demonstrates the need for constant vigilance among beer lovers—especially as small brewing grows and captures more of the market. The incentives for state agencies and lawmakers to attempt to make a buck from a successful business only become greater with increasing success. Based on a recent report from the Brewer’s Association that shows a 15% increase in production for small brewers in the last year, it seems that small brew is definitely on the rise and it’s up to beer and freedom lovers to make sure government gets out of the way and stays out of the way of this vibrant industry.