Chris Varcoe: Why beer and politics don’t mix

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This is a story about beer and business, and what happens when they’re mixed with politics.

Mostly, though, it’s about what happened to Calgary couple Mike Tessier and Bo Vitanov when they opened their own beer importing agency — and saw their business side-swiped by government policy designed to help Alberta craft brewers.

The tale could have quietly ended there: small business loses out to big bureaucracy.

Instead, the Calgary entrepreneurs fought back and won.

Now, Finance Minister Joe Ceci must decide whether to appeal a ruling that Alberta lost before an Agreement on Internal Trade panel for discriminating against out-of-province firms, or reconfigure its own grant program to craft beer brewers.

However it plays out, this battle has become as bitter as a flat pint of warm suds on a summer day.

“This government meddled in the market, just like with so many other things they’re doing. They decided who the winners and losers ought to be,” said Vitanov.

“It’s had a very specific impact on our market and it’s going to take a long time to sort itself out.”

In 2009, the couple opened Artisan Ales Consulting in Calgary, bringing in quality out-of-province craft beer from Quebec and Europe for their customers.

A former refrigeration mechanic with a talent for home-brewing, Tessier decided to make beer his business.

“The art is in the glass. When a brewer gets it right, it’s heaven,” he said.

But that passion became intertwined with politics when Rachel Notley’s NDP government decided in October 2015 to change existing liquor rules.

At the time, Alberta had graduated beer markup levels — a profit the government collects for supplying and distributing liquor in the province — based on a brewer’s size.

For smaller outfits, the markup was as little as 20 cents a litre.

The NDP government instead hiked the markup on all beers made by operators outside of the New West Partnership Trade Agreement — Alberta, Saskatchewan and British Columbia — to $1.25 per litre, in a bid to “promote made-in-Alberta products.”

Facing complaints the changes were a barrier to interprovincial trade, Alberta altered the rules again last August.

The government raised the markup to $1.25 per litre on all beer, regardless of where it is produced or the size of the brewer.

A new grant program was also introduced, essentially offsetting the higher markup, but paid only to Alberta companies.

Ceci insists the changes fostered the creation of a value-added industry in the province, and notes 18 new craft brewers have opened since the program began.

“It’s economic development, it’s employment, it’s diversification. These things are all necessary,” he said in an interview.

“There are entrepreneurs who want to get into this business and for a long time they’ve been shut out. They’re finding fertile ground now in Alberta.”

Whatever the intentions, the policy was clearly discriminatory.

The changes angered other provinces — particularly Saskatchewan — and out-of-province breweries because it put them at a competitive disadvantage.

It also drove up the price of Artisan’s imported product, frustrating Tessier and Vitanov, and beer consumers faced higher prices at the till.

The shift amounted to about a $3 increase for a six-pack of non-Alberta beer.

After the changes, Artisan’s profits plunged by 86 per cent. Sales fell by a third over the course of the year.

“It just slaughtered us,” said Vitanov.

With assistance from Derek From, a lawyer with the Canadian Constitution Foundation — and with the Saskatchewan government obtaining intervener status — Artisan made a complaint to the dispute resolution process of the 1995 Agreement on Internal Trade (AIT).

They argued Alberta’s changes violated the deal’s free-trade provisions between provinces.

“Alberta is so unsophisticated they actually brought in a blatantly unconstitutional tariff barrier,” From said. “They helped the local industry by harming other businesses.”

In a 2-1 decision, a three-member panel agreed.

When Alberta’s markup provisions and grant program to domestic firms “are considered as a whole . . . these clearly discriminate against the beer products of non-Alberta breweries in the sale of those products within Alberta.”

Tessier’s reaction was one of vindication, although he considers the victory bittersweet.

“We’re not getting our business back,” he said.

Saskatchewan Liquor and Gaming Authority Minister Jeremy Harrison said he’s pleased with the decision, noting rules within the trade pact and the New West Partnership about subsidizing business must be respected.

“It’s not only anti-competitive in an interprovincial sense, it’s costing Albertans more to buy beer because of this policy,” Harrison said.

Small Alberta craft breweries, who have benefited from the grant program, support the government’s existing policy. They don’t want to see it end unless another mechanism is adopted to assist their burgeoning sector.

“No matter what happens, if you want to have a thriving craft brewing industry in Canada, you have to have in place something that levels the playing field against the global multinationals, who have a 10 to 20 times cost advantage,” said Terry Rock, executive director of the Alberta Small Brewers Association.

Rock believes there is good reason for the government to appeal the ruling, which determined Alberta should repeal or amend its beer markups and related grant program within six months.

Ceci isn’t tipping his hand on what Alberta will do next, but notes one of the three panellists agreed with the government’s position.

“Other provinces do this as well for their industry. They may do it in different ways, but they do it. They do things that prevent our liquor from getting on their shelves in those provinces,” he said.

“We still believe we’re one of the most trade compliant open liquor systems in the country.”

But the ruling says otherwise.

Meanwhile, the owners of Artisan Ales are celebrating their victory and planning to move forward after a trying year.

“They have basically knocked us back to Year 1 in terms of sales,” says Vitanov.

“Our real hope is they lower the tax. That’s kind of good for everybody.”

Chris Varcoe is a Calgary Herald columnist.