For Immediate Release February 28, 1996

The Brewing Fear Over Beer

By Ari Armstrong

"I will make it a felony to drink small beer," announces a villain in Shakespeare's play Henry the Sixth. The Colorado Legislature isn't going that far, but there is a move afoot to crack down on Coloradoan's freedom to enjoy beer from small brewpubs.

David Reitz, director of liquor enforcement at the Colorado Department of Revenue, helped write a bill which would 1) limit the total amount of beer any single brewpub could brew, 2) limit the ability of brewpubs to distribute their beer to restaurants and liquor stores, and 3) prohibit brewpubs from selling take-out beer during Sundays and certain other times (the same as liquor stores).

The rationale Reitz gives for restricting the output of brewpubs is that while the 1988 legislation which legalized brewpubs only intended to give brewpubs the ability to brew and sell beer in their own establishments, the new law is needed to return the Colorado brewpub to its original purpose.

But the fact that Colorado's brewpubs have been more successful than some originally anticipated is not a very good reason for restricting them now. If you go into a liquor store, and have the choice of buying bottled beer from a local brewpub, what's wrong with that?

The Colorado Beer Distributors Association, which helped Reitz draft and present the bill, offers a more sophisticated argument for another restriction in the proposed bill: the part that would restrict brewpubs' ability to distribute their beer to stores and restaurants.

Under the "three-tier" system of the beer industry, no single company is allowed to brew, distribute, and sell beer. Each function must be performed by a separate company. The prohibition of "vertical integration" in the beer industry is borrowed from the federal antitrust laws.

Even if you buy the general antitrust argument against vertical integration, it doesn't apply in the case of brewpubs. Brewpubs are such a tiny percentage of the beer industry that worrying about them monopolizing the market is like worrying that the Albanian army may conquer the United States.

In reality, the "three-tier" system merely grants special privileges to special interest groups. It forces beer brewers to hire separate distribution firms even if the brewers could distribute the beer cheaper themselves. This of course raises the price of beer for the rest of us. In truly free competition, beer distributors would keep their jobs, but only if they maintained high quality and low prices.

In attempting to restrict the freedom of brewpubs, the beer distributors invoke the noble language of antitrust. But a couple years ago, the beer distributors (the companies which pick up the beer at, for example, the Budweiser factory, and deliver it to liquor stores and bars), got the legislature to give them permanent monopolies. In other words, the guy who delivers Budweiser to your local liquor store has a monopoly on that service, and it is against the law for anybody else to compete with him in supplying Bud to that store.

Supporters of the brewpub restriction bill argue that the law should be the same for everybody. If the big brewers can't distribute and retail beer on their own, why should brewpubs be able to do it?

Equality under the law is indeed an excellent goal. Of course, only the small brewpubs actually want to brew and distribute and retail; the big brewers don't.

And, in a broader context, the alternative to imposing the three-tier system on everybody is to not impose it on anybody, and allow each beer company to do those things at which it proves best.

The Colorado House of Representatives recently passed the brewpub crackdown but in a less draconian form than originally proposed. Brewpubs would still have a cap imposed on how much they could produce, but the cap is now fairly high. Brewpubs would also have to use outside distributors to deliver large annual quantities of their product to liquor stores, but they would allowed to deliver a certain amount on their own. The ban on take-out beer being sold on Sundays would also be imposed.

Having passed the House, the bill now heads to the Senate, and, if it passes there, on to the Governor for signature or veto.

Ari Armstrong is an economist and a research associate with the Independence Institute, a think-tank in Golden.

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.
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