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Fight about the three-tier system in the US: beer distributors vs big brewers & large retail chains

Beer Distributors Say Yes To Middlemen

How can you tell when a particular industry feels threatened? One telltale is when its trade group issues a report promoting how many jobs the industry in question supports.

The National Beer Wholesalers Association today put out a 125-page report detailing the economic benefits of the current system that governs beer distribution in the United States – a so-callled “three-tier” system developed as part of the legal framework to repeal Prohibition. (The aim then was to prevent beer brewers and liquor distillers from acquiring too much power over the sale of their wares to consumers.)

The NBWA report says beer distributors directly employ 130,000 people and generate some $54 billion to the gross domestic product.

The NBWA study comes less than a month after the Competitive Enterprise Institute, a conservative Washington, D.C. policy shop, launched a broadside against the three-tier system, saying the existence of legally-protected middlemen drives up consumer costs and threatens the vibrancy of the craft beer industry by making it harder for microbrewers to sell their beer directly to bars or retail stores.

The CEI white paper was in turn a response to a December broadside from the liberal-leaning New America Foundation that called for protection of the three-tier distribution system as a barrier to big brewers’ efforts to establish hegemony over the U.S. beer market. An article in a recent edition of Washington Monthly argued that allowing big beer and liquor producers to control distribution and drive down consumer prices for alcoholic beverages could lead to an increase in excessive drinking.

Some big beer producers — such as SAB Miller and Anheuser Busch-InBev NV — and some big alcohol retailers such as big-box discounter Costco, have been skirmishing with beer distributors for several years trying to weaken the hold distributors have over the business. InBev executives have suggested in interviews that they’d like to have more control over distribution the better to assure that more Budweiser and other InBev brews are on the shelves at lower costs.

The jockeying among the interests in the beer supply chain reflects many larger disputes over whether government regulation of commerce protects consumer interests, or the interests of incumbents who profit from the regulatory status quo.

Fortunately, whether because of the three-tier system or despite it, it’s relatively easy to find a bar in any decent-sized city with a wide choice of flavorful brews that can push aside, if temporarily, worries about how tangled the U.S. economy is in laws designed for another era.

By Joseph B. White