Craft Beer Connoisseurship: Is Price Worth The Taste?

Craft beer is becoming increasingly expensive, and there are several reasons for this. Firstly, craft beer is produced in small batches by small or family-owned breweries, which means they cannot benefit from economies of scale like larger manufacturers. Secondly, craft beer uses high-quality and expensive ingredients such as hops, yeast, and barley, which can be affected by crop failure, increased global demand, and other factors. Thirdly, craft breweries tend to pay more taxes due to their smaller quantities and face stringent licensing regulations that increase operating costs. Additionally, distribution costs are higher for craft beer as it is often not found in larger supermarkets. Marketing and branding expenses also contribute to the overall cost. Finally, the unique and complex flavor profile of craft beer, along with its local and organic nature, justifies the higher price for consumers who value quality and sustainability.

Craft beer is more expensive due to the small batch production

Craft beer is often more expensive than regular beer due to the small batch production of these brews. The economics of demand and supply apply here: the less of something that is produced, the more it will cost per unit.

Craft beer is made by small breweries or microbreweries, which are sometimes called craft breweries. These breweries tend to produce beer in very small batches, which drives the price up. This is a result of necessity rather than choice.

Craft breweries are often family-owned or small companies, and they may not have the resources to benefit from government subsidies or the support of chartered accountants to reduce their tax burdens. They also often lack long-term contracts for grains, which can increase costs.

Additionally, craft beers tend to be highly complex brews made with expensive ingredients. They are meant to be consumed in smaller quantities and savoured, rather than consumed in larger quantities. The price of these products reflects the time, energy, and cost of making them.

The distribution costs of craft beers are also higher than those of regular beers. Large companies often possess their own distribution channels or can negotiate deals that work out to be more affordable. Small brewers, on the other hand, have a harder time bringing their products to consumers, which further increases the cost.

The unique recipes and ingredients of craft beers increase their price

Craft beer is often more expensive than regular beer due to the unique recipes and ingredients used in its brewing process. Small independent breweries produce craft beer, and they tend to have a limited output per year. These breweries focus on creating a high-quality product with a unique taste, aroma, and appearance, which requires specific, carefully selected ingredients.

Craft brewers use traditional, time-tested brewing methods, which may be unique to their brewery. Some brewers employ longer fermentation processes, requiring special equipment like oak barrels. These techniques enhance the beer's flavour, texture, and aroma. The beer may also be aged for several months in these specific barrels, such as oak or bourbon, contributing to the overall cost.

Craft beers also tend to have a higher alcohol content than regular beers. One way they achieve this is by adding more malted grain during the brewing process, which increases the cost of production. Additionally, the higher ABV (alcohol by volume) percentage in craft beers results in higher duty charges, further adding to the price.

The small-batch production and specialised ingredients of craft beer contribute to its higher price compared to mass-produced beers, which benefit from economies of scale. The unique recipes and ingredients used by craft breweries result in a premium product with a higher price tag.

Rising ingredient costs are passed on to the consumer

The price of craft beer is largely determined by the cost of its ingredients. Barley, hops, yeast, and water are the primary components of beer, with barley being one of the most important. In recent years, the price of barley has been impacted by various factors, including crop failure, increased global demand, changes in land use patterns, and urbanization. This has resulted in an increase in the cost of raw materials for breweries, which has been passed on to the consumer in the form of higher beer prices.

The Russia-Ukraine conflict has also played a significant role in rising barley costs. Russia and Ukraine are major producers of barley, accounting for 30% of global exports. The disruption to barley exports from these countries due to the war has affected international supplies of raw materials, impacting small breweries particularly hard. Small brewers often don't have long-term contracts for grains and use more malt per barrel than large brewers, making them more vulnerable to price increases.

In addition to barley, hops are another key ingredient in beer that has experienced price increases. Hops are used in larger quantities in certain styles of beer, such as NEIPAs, which can drive up the cost of production. The type of hops used and the quantity required can vary depending on the recipe and style of the beer, but they are generally a significant expense for breweries.

The fermentation process is another important factor in the cost of craft beer. This process can take anywhere from a few months to several decades, and the longer the fermentation, the higher the cost. Additionally, the preparation of alcohol requires a lot of effort to ensure it is done correctly, which adds to the overall cost.

Other factors that contribute to the rising cost of craft beer include packaging, distribution, brewery management, salaries, and taxes. These costs can vary depending on the size and location of the brewery, but they ultimately play a role in the final price of the beer.

Overall, the rising ingredient costs are a significant factor in the increasing price of craft beer, and these costs are passed on to the consumer in the form of higher prices. While this may make craft beer more expensive, it is important to note that the unique recipes, small-batch production, and complex flavors of craft beer also contribute to its higher price compared to regular beer.

Distribution costs are higher for craft beers

Craft beers are often more expensive than their non-craft counterparts, and one of the reasons for this is the higher distribution costs incurred by craft breweries.

Craft breweries, or microbreweries, are typically small, family-owned businesses or small companies. They tend to produce beer in small batches, which already drives the price up. On top of that, small brewers often struggle to bring their product to consumers due to higher distribution costs.

Large beer companies often have their own distribution channels, or at least have the scale to negotiate affordable deals. Craft breweries, on the other hand, often lack the resources to benefit from governmental subsidies or other policies that could reduce their costs.

In addition, craft breweries may not have long-term contracts for grains, leaving them vulnerable to price fluctuations. For example, the Russia-Ukraine conflict disrupted barley exports, affecting small breweries that use a lot of malt, which is made from barley. The conflict caused barley prices to soar, and craft brewers had to pass these costs on to consumers.

Other factors that contribute to the higher costs of craft beer include the expensive ingredients used, the time and energy required for production, and the unique recipes and techniques employed by craft breweries.

Taxes and import duties also affect the final price

In the United States, the Alcohol and Tobacco Tax and Trade Bureau (TTB) handles all of the federal regulatory issues, paperwork, and licensing for breweries. The standard tax rate for beer is $18 per barrel. Brewers can qualify for a reduced tax rate of $7 per barrel for the first 60,000 barrels they produce if they plan to produce less than 2 million barrels in that calendar year. After 60,000 barrels, the tax rate jumps back to $18 per barrel. Brewers producing less than 60,000 barrels brewed a total of 8 million barrels in 2016. At a tax rate of $7 per barrel, that equals $56 million in revenue. Total beer taxes in 2016 were $3.6 billion.

In 2020, the Taxpayer Certainty and Disaster Tax Act made permanent most provisions of the Craft Beverage Modernization and Tax Reform Act (CBMA), which reduced tax rates on beer and distilled spirits. The CBMA also allows foreign brewers to assign the $16 reduced rate to importers who elect to receive it, with a transition in 2023 to a refund system of providing the benefit of assigned reduced rates to importers.

While tax cuts are often framed as benefiting small "craft" brewers and distillers, in reality, most of the cuts go to big producers. According to the Joint Committee on Taxation, the tax cuts reduce total alcohol revenues by $4.2 billion over the two years they are in effect, a cut equal to about 20% of total alcohol excise tax revenues in those years. For every $20 of alcohol tax cuts in the legislation, only about $1 actually goes to true craft brewers or small distillers. Most of the revenue—the other $19—goes to larger producers and importers. This is largely because of new or expanded opportunities to evade or avoid the limits on what qualifies for the lowest tax rates.

In addition to taxes, there is also import duty charged whenever a product is imported into a country. In the case of craft beer, if it is imported rather than prepared in the country, there will be a certain percentage levied by the customs agency for importing it. Another thing to consider is that craft beer tends to have a higher ABV (alcohol by volume) percentage in comparison to regular beer, which in turn affects the amount of duty that is levied on it.

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