- Before he could start operating, one craft brewer had to install a hood for a food oven. The problem: He didn't own such an oven!
- Another brewer lacked the equipment to handle raw chicken. The problem: No raw chicken is used in his brewing business.
These and other such regulatory barriers for startups in the craft brewing industry are the subject of a report published by the Mercatus Center. Rather than allowing brewers to succeed or fail in a free marketplace based solely on the quality of their businesses, regulators--federal, state, and local--are imposing additional barriers. According to the study, these regulations aren't justified economically. They also tend to be most burdensome for newer and smaller firms, giving older and larger firms an advantage by limiting competition and innovation.
What are some of these barriers in the brewing industry?
- The federal government must approve a new brewer before the firm can label or sell their brand. The approval process can take up to 100 days. The feds sometimes must also approve formulas. This process can add 60 days to the approval process.
- States add additional rules--and oftentimes duplicative rules--on brewers and license requirements, in particular. For example, in Virginia, a brewer must complete 12 regulatory steps before he can sell his beer. One regulation: A license can deny a license if regulators decide a brewer lacks moral character or if the state decides there is a sufficient number of brewers in the area already. Then, instead of allowing consumers to decide directly what beer(s) they want and to allow the marketplace dictate the winners and losers, Virginia regulators require brewers to have a middleman--the distributors--to decide. "Franchise laws" dictate that brewers sell their beer through those distributors.
Obviously, regulations cost time, money, and open the door to sleazy backroom deals and political corruption. More importantly, they make entry into the brewing industry more difficult than it should be for entrepreneurs.
Kind of sounds like the ways that both political parties work to freeze out insurgents who might take their places in elective office, doesn't it?
Let the discussion begin...
To read the Mercatus Center report, click on the following link:
"Bottling Up Innovation in Craft Brewing: A Review of the Current Barriers and Challenges."