Government Hurting Brewers with Regulations

July 3, 2014

Federal, state and local government regulations impose barriers for startups in the craft brewing industry, explain Matthew Mitchell and Christopher Koopman of the Mercatus Center.

These regulations lack economic justification and tend to be most burdensome for newer and smaller firms, giving incumbent firms and industries an advantage and limiting competition and innovation.

Mitchell and Koopman surveyed a number of barriers to entry within the brewing industry:

  • Brewers need federal approval before they can sell their beer or label it with their brand, which can take up to 100 days. Sometimes, formulas also require approval, which can take another two months.
  • States layer additional -- and often duplicative -- rules on brewers, including license requirements. In Virginia, licenses can be denied for a variety of reasons if regulators decide that the brewer lacks moral character or if the state decides that there are enough brewers in the area already.
  • Once in business, brewers are hamstrung by franchise laws, which require that they sell their beer through distributors instead of directly to consumers. Generally, these arrangements hurt consumers.

These regulations cost time and money, and they keep would-be entrepreneurs from entering the brewing industry. Mitchell and Koopman found that there are a dozen different regulatory steps in Virginia that a brewer must complete before he can sell beer.

One craft brewer was even told that he had to install a hood for a food oven before he could begin operating -- even though he did not even own such an oven! Similarly, another brewer was nearly unable to operate because he lacked the equipment to handle raw chicken, despite the fact that he uses no raw chicken in his brewing business.

Policymakers should get rid of these regulatory burdens, allowing brewers to succeed or fail based on the quality of their businesses, write Mitchell and Koopman.

Source: Matthew Mitchell and Christopher Koopman, "Bottling Up Innovation in Craft Brewing: A Review of the Current Barriers and Challenges," Mercatus Center, June 4, 2014; Matthew Mitchell and Christopher Koopman, "Trouble Brewing for Craft Beer," U.S. News & World Report, June 3, 2014.

 

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