State laws have big impact on small brewers

Jacob Burgdorf, Clemson University economics Ph.D., candidate, researched craft brewery distribution laws.

CLEMSON, S.C. — States with laws restricting craft brewers from directly distributing their products have limited beer drinkers’ choices in pleasing their palates, and South Carolina residents are among them.

Research released by Clemson University indicates “vertical restraints” on small-beer manufacturers’ ability to directly distribute their products has stunted the entry of new U.S. brewers into the industry.

The Clemson research, conducted by Jacob Burgdorf, economics Ph.D. candidate in the College of Business and Behavioral Science, examined state laws from 1984 to 2013 in the U.S. The study found that states that did not limit craft brewers from acting as wholesalers of their products had approximately 75 percent more brewers entering the market than states that did. Other policies, known as beer franchise laws, which restrict breweries from terminating contracts with wholesalers and in some cases mandate granting wholesalers a distribution monopoly in its territory, also have negative effects on entry, the research concluded.

“Our research shows a correlation between restrictions on a small brewing company’s ability to distribute directly to retail outlets and the number of new brewers entering the business,” Burgdorf said. “Most specialty brewers start out as very small enterprises and it may be costly for them to find or negotiate small-volume sales with a wholesaler. The more restrictive the laws are, the fewer breweries entering the market. There is a noticeable decrease in the number of new brewers in states with more restrictive laws relative to those without them. ”

Case in point is South Carolina, which does not allow a breweries to distribute their own beers to retailers and enforces franchise laws for small brewers. Though the Pint Law, enacted in 2013, has somewhat improved the playing field for small brewers in the state, the federal government had issued only 6.3 brewery permits per million people in South Carolina that same year. In contrast, North Carolina, which allows small brewers to self-distribute and passed an exemption to franchise laws for small brewers in 2012 had 12.7 brewery permits per million people in 2013.

“Much of this difference can be attributed to the restrictiveness of laws, and this holds for other states also,” Burgdorf said.

Overall, retail beer sales in the U.S. top $101.5 billion annually, with craft breweries accounting for $19.6 billion of that, according to the Brewers Association, a trade group for small and independent craft breweries. In 2012, the association reported craft breweries contributed $33.9 billion to the U.S. economy and provided more than 360,000 jobs to the nation’s workforce.

According to the Brewers Association’s most recent published data (2013), small and independent craft brewers in South Carolina produced nearly 47,000 barrels and had a $254 million impact. Also in 2013, North Carolina produced nearly 264,000 barrels and had an economic impact of more than $791 million, according to the Brewers Association.

“It’s very important that small brewers have opportunities for market access through limited self-distribution, direct sales and other avenues to interact with beer lovers,” said Bart Watson, chief economist of the Brewers Association.

According to the South Carolina Brewers Guild, the economic impact of craft beer is now estimated at more than $275 million in South Carolina, due partly to recent legislative changes. The 2013 Pint Law has already created a $13.7 million economic boon for South Carolina and will result in nearly $71 million in additional impact, plus hundreds of jobs, the guild said. Approximately 21 breweries and 14 brewpubs are open in South Carolina.