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Sunday, 19 July 2015 20:48

Brewers bemoan paying state fees that fund wine industry

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Michigan craft brewers want to change state law so their license fees can be used to support research for the state’s hops and barley growers, not a competing craft beverage sector. Currently, every dollar of license and renewal fees paid by alcohol manufacturers and wholesalers is earmarked to the Michigan Grape and Wine Industry Council. Michigan craft brewers want to change state law so their license fees can be used to support research for the state’s hops and barley growers, not a competing craft beverage sector. Currently, every dollar of license and renewal fees paid by alcohol manufacturers and wholesalers is earmarked to the Michigan Grape and Wine Industry Council. COURTESY PHOTO

Michigan-based craft brewers want to change state law so the annual licensing fees they pay can go to benefit research and promotion for their industry rather than support a competing craft beverage sector.

Under current law, every dollar that alcohol manufacturers pay in licensing fees to the state is earmarked to fund grape research for Michigan’s wine industry.

While state officials appear to be in no hurry to change a program they believe is working, a growing number of executives in the state’s nascent craft brewing industry are calling for those licensing dollars to be put to use in ways that help foster their agricultural supply chain, namely for Michigan-grown hops and barley.

For brewers, changing the law is a matter of fairness and seeing some benefit from the fees they pay every year.

“It just doesn’t make any sense anymore,” said Jason Spaulding, president and co-owner of Grand Rapids-based Brewery Vivant, referring to the present law.

Currently, all non-retailer license and renewal fees for entities such as craft breweries, distilleries and brewpubs are directly earmarked to fund the Michigan Grape and Wine Industry Council under the Michigan Liquor Control Code.

The council uses those funds for wine grape research, promoting Michigan’s wine industry and the operational costs for the council, said Gordon Wenk, the chief deputy director of the Michigan Department of Agriculture and Rural Development (MDARD) who also chairs the Grape and Wine Industry Council.

While the license fees for breweries are minimal, the fact that those dollars go to research that is of no benefit to the craft beer industry has some executives crying foul.

[RELATED: EDITOR’S NOTEBOOK: Beer industry should not fund wine/grape research]

“It’s always been a bit of a rub for me,” said Larry Bell, founder of Bell’s Brewing Inc., in a recent interview with MiBiz. “Every manufacturer and wholesaler of alcohol in the state of Michigan, when we pay our license fees, those are earmarked dollars that go directly to the Michigan Grape and Wine Industry Council. So as brewers, we’re funding grape research.”

There’s little evidence that similar funding structures for wine industry councils exist outside of Michigan, sources said. While some states’ brewery licensing fees have gone to support roads, schools or other projects in the past, Paul Gatza, director of the Boulder, Colo.-based Brewers Association, does not know of another state with similar legislation that uses fees levied against one beverage industry for the benefit of another.

“The fact that the money is direct from a licensing fee that comes not only from wineries is unfair and anticompetitive,” Gatza said in an email to MiBiz. “It seems hard to reconcile that research funding for wine is being paid for by the beer industry at a time when there is significant barley and hops research needed.”


FUNDING A FLEDGLING INDUSTRY

The Michigan Grape and Wine Industry Council was established as part of MDARD in the mid-1980s to promote the state’s grape and wine industry as a feasible value-added agricultural product.

At the time, the industry needed significant backing to fund research and development for farmers working with the grape crop, which requires a decade to produce an economically viable yield, Wenk said.

“The mission stays true today, decades later,” Wenk said. “Because of the complexity of the wine industry versus the brewing industry in terms of getting started, I think the work of the council is very important, and we’d like to see that continue in the same way that it is.”

While Spaulding acknowledges the funding earmark may have been applicable when it was enacted years ago, he argues that times have changed and the fees paid by the state’s craft brewing industry should be applied for its benefit.

“You have an industry (in craft brewing) that already creates a lot of jobs and could create more jobs as we’re able to tie in agricultural aspects to it,” Spaulding said.

Like the wine and grape industry years ago, the hops and barley supply chain for the brewing industry today faces many complex agricultural challenges, said Scott Graham, executive director of the Michigan Brewers Guild.

“The malting barley and hop industry is in the same position that the grape and wine industry was in,” Graham said.

Like wine grape growers, hop farmers must wait multiple years to get a productive harvest, and at the same time, they’re also learning to fight new problems that hamper crop yields such as downy mildew, a complication unique to Michigan’s climate.

The growth potential for Michigan agriculture could be significant given the pending demand for production and processing of hops and malted grain. Nationwide, the Brewers Association expects companies to invest approximately $500 million to scale up hop production to meet demand from U.S. breweries that it projects to reach 110 million pounds by 2020.

Michigan has approximately 400 acres of farmland dedicated to growing hops, according to previous reporting by MiBiz. That number is expected to double by 2016 as Traverse City-based Mi Local Hops LLC breaks ground on 400 new acres of hop production.

Wenk of MDARD was quick to point out that the Michigan Grape and Wine Industry Council has collaborated with the state’s hop growers on projects, including one this year to combat the current downy mildew problem.

Apart from the license fees, MDARD has granted $274,000 since 2010 to organizations providing research and analysis for the hops industry through its Strategic Growth Initiative and the U.S. Department of Agriculture’s Specialty Crop Block Grant program.

The approximately 200 Michigan craft brewers generated approximately $608 million in overall economic impact in 2014, according to data from the Michigan Brewers Guild. However, economic comparisons between the beer and wine sector are difficult to make since the most recent study of the state’s wine industry is a decade old, according to Jennifer Holton, director of communications for MDARD.


COLLABORATIVE APPROACH

The state legislature has not yet taken up brewer’s concerns over the application of their licensing fees. However, Graham of the Brewers Guild has entertained some “thoughts” on how to address the issue.

Graham proposed including brewers on the Michigan Grape and Wine Industry Council, as well as growing the organization’s funding base to be able to sequester some of its budget to research benefiting breweries.

“I would open it up broader and not say, ‘I’m going to poke you in the eye to get my piece,’ but rather ask what can we do together for both beer and wine,” Graham said. “It would be a more pragmatic approach that would unite brewers and wine makers instead of creating ill will.”

But Brett VanderKamp, president of New Holland Brewing Company LLC, suggests a different approach.

Instead of bringing together competing interests and possibly creating new layers of bureaucracy, VanderKamp would rather the money for the licensing fees be freed up to be used at each individual brewery’s discretion.

“If this money is going to the Grape and Wine Council and the wineries want to participate in it, then by all means let them,” VanderKamp said. “But if it’s going directly to them, I’d just as soon not pay it.”

Read 5726 times Last modified on Tuesday, 21 July 2015 10:06

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