Economics21

search
Close Nav

A Toast to Beer Deregulation

commentary

A Toast to Beer Deregulation

October 11, 2017

This Saturday marks the 39th anniversary of the deregulation of home brewing by President Jimmy Carter. While its effect is often overstated, this law did help promote the rapid increase in the number of craft breweries—small, independent beer producers—and create today’s vibrant beer industry.  Two other legislative measures played a more significant role in the growth of craft breweries and the increase in choice, innovation, and quality of American beer since the 1970s.

The bill that President Carter signed on October 14, 1978 did not deregulate the beer industry, but it did deregulate home brewing. Illegal since Prohibition, adults were now able to brew up to 100 gallons of beer every year. Though a debate still rages over whether this deregulation led to the craft beer explosion, at least some thanks is deserved. The law gave American adults the opportunity to learn brewing methods and, since it has been estimated that 90 percent of craft brewers begin as home brewers, it seems that this experimentation helped create future skilled craft brewers.

While the home brewing bill contributed, two other deregulatory measures also deserve credit for the surge of new craft breweries. The first was a decrease in the federal excise tax on beer. A bill signed in 1976 by President Gerald Ford reduced the tax from $9 to $7 per barrel for a brewery’s first 60,000 annual barrels, and only breweries with fewer than two million barrels per year were eligible. The 20 percent tax cut was a boon for the few existing small breweries and lowered the barrier to entry for new microbreweries.

The second major deregulation was state legalization of brewpubs.  Beginning in Washington State in 1982, a wave of legalization spread across the country over the next two decades and brewpubs, breweries with restaurants or pubs on the premises, are now legal in all fifty states. For small breweries, brewpubs offer an easy way to distribute the beer they produce, circumventing the logistic or regulatory challenges of distribution to other bars or restaurants. By lowering the barrier to entry, the legalization of brewpubs made it easier to start new breweries and contributed to the increase in craft breweries.

Although it is not entirely clear which of these laws played the largest role, it is evident that deregulation created conditions that promoted the establishment of new craft breweries. A 2015 study on the growth of breweries between 1980 and 2012 found that “laws and regulations that once would have thwarted the growth of the craft beer segment are being whittled away, albeit slowly.”

While the authors correctly identify that the deregulation of the beer industry still has a long way to go, the effect of the current deregulation has been astounding. In 1979 there were 90 breweries in the U.S., and today there are 5,301 breweries, of which 5,234 are craft breweries. More breweries have increased consumer choice and kept prices low. Craft breweries contributed $68 billion to the U.S. economy and provided almost half a million jobs in 2016.

Deregulation promoted innovation in the industry.  Before the craft brewery explosion, major breweries offered a homogeneous selection of generally watery beers. The proliferation of new breweries and increased competition encouraged small breweries to experiment with new methods and ingredients, from using foraged ingredients such as dandelions and elderberries to barrel ageing.  This experimentation has created greater beer variety and further increased consumer choice.

Competition has markedly improved quality and in turn inspired an active craft beer community. Travelocity has even created a beer tourism index to help travelers decide which cities to go to for the best craft beers. And Europeans, long some of the most strident critics of American beer, have begun to recognize the benefits of deregulation of the beer industry. While British comedian Eric Idle colorfully compared American beer to water in 1982, Europeans are starting to develop a thirst for American craft beers, with exports to Western Europe growing 33 percent in 2015. At the 2017 European Beer Star competition, American beers won 33 awards, edging out beers from around the world to win gold in 12 of the categories.

The 40-year rise of American craft beer demonstrates the ways deregulation encourages improved quality, innovation and increased choice. Even if President Carter does not deserve all of the credit, the wave of deregulation in the beer industry has lowered barriers to entry and promoted competition. Whether the next cold beer you drink is a cheap pilsner, a chocolate porter, or a lemon infused IPA, you can thank deregulation for your options.

David Kemp is a writer and researcher in Washington D.C. Follow him on twitter at @dkemp320.

Interested in real economic insights? Want to stay ahead of the competition? Each weekday morning, e21 delivers a short email that includes e21 exclusive commentaries and the latest market news and updates from Washington. Sign up for the e21 Morning Ebrief.

e21 Partnership

Stay on top of the issues that matter to you most



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
Close