travels of the pilsner in the global economy•phil howard: “craftwashing in the u.s. beer...

Travels of the Pilsner in the Global Economy

Trey Malone

@treymalone3

Assistant Professor and Extension Economist

Department of Agricultural, Food, and Resource Economics

Michigan State University

Wednesday, February 20, 2019 @treymalone3 1

About Me


Origins of Beer• China, 5000bc, Egypt, 4000bc, Europe 3000bc (or earlier)

• 500bc-500ad: Decline of beer in Europe and rise of wine with rise of Roman Empire

• Except in northern Europe where resist spread wine, plus climate limitation


1200s: Huge upstream Technology innovation


• Hops• Increased shelf life • Bitter to balance sweet of barley malt

Why do hops matter so much to MI?


“…terroir is widely understood to make a difference with hops, and brewers frequently show a preference for hops by certain regions.”

“In contrast to the piney, grapefruit notes Brynildson has

imprinted in his head for the Pacific Northwest grown hop, he

found more Mandarin orange in the Michigan

grown cones. It is a showcase of terroir and how a

difference of 2,000 miles can distinctly influence a hop.”


Abstract: “…This preliminary study indicates that

brewers must rely on desired hop varieties from the

same terroir in order to achieve consistent hoppy aromas in their beers.”

• Idaho vs. Washington Amarillo pellets, Pilsner malt

• Trained taste panel (n = 15)


•Reinheitsgebot introduced in 1516• German Beer Purity Law (Hops, Barley, Water)

•Monasteries then secular

•Major source of tax revenue for governments • 1700s, UK, half of government revenue!• Need revenue for the constant wars, and

infrastructure for trade


Northern European Beer Culture Develops

1800’s: Commoditization with modernization

• Midstream innovations developed in the Industrial and Chemical Revolutions

• Yeast discovery (Louis Pasteur, France)

• Steam engine (UK)• Refrigeration (UK)• Glass bottles


• Lager beer (Pilsner)

• Improved consistency/control/ quality

• Pasteurization & refrigeration (AB, 1870s)

• Mechanization/transportation

• Production at industrial scale


1800’s: Commoditization with modernization, cont.

Industrial Revolution: The Rise of Alcohol Legislation


U.S. Beer LawsWorld War I


U.S. Beer LawsWomen’s Suffrage


Bootleggers and Baptists

• Groups who would never meet together but both desire the same outcome can often be found upon closer examination of many government regulations.


Prohibition Worked..!1830’s: 3.9 gallons1900’s: 2.6 gallonsProhibition: 1.2 gallons


…But at What Cost?


a) 1961-2005: beer vs wine vs other alc. drinks


0

50

100

150

200

1961 2005

Global Production (billion liters)

Beer Wine Other

0

50

100

150

1961 2005

Global Revenue (billion dollars)

Beer Wine Other


Shifting consumer preferences in the U.S.

Share (%) of Beer in Total Alcohol Consumption


Changes in global beer consumption


Global consolidation the story of most of the 20th Century

2000: many large breweries in the world

• Interbrew (itself a result of mergers in Belgium then with Canada); largest volume

• Stella Artois, Boddingtons, Beck's, Staropramen, Bass, Leffe, Labatt., Hoegaarden

• Anheuser Busch largest sales, founded 1850s in Missouri by German immigrants

• Heineken



2005: 7 major holdings

• InBev (born from Belgian “Interbrew” and Brazilian Ambev)

2008: bought Anheuser Busch in 2008, to form AB InBEV

2010: 4 major holdings

– AB InBev ( 25% of the world’s beer)


2015: 3 major holdings, begin merger talks

2016: SAB-Miller + Anheuser-Busch InBev

•30% of global beer



Number of Breweries, 1930–2015


The rise of craft beer


Mississippi last state to legalize homebrewing

1979: Jimmy Carter signs

H.R. 1337: Nationally

Legalizes Homebrewing

Malone, Trey and Jayson L. Lusk. 2016. “Brewing Up Entrepreneurship:

Government Intervention in Beer.” Journal of Entrepreneurship & Public

Policy. [Outstanding Paper Winner, Editorial Board].


Why the rise of craft breweries?


Contributors to Craft Beer Revolution

• Demand for Variety

• Increasing Income

• Consumer Associations

• Technology and Capital Markets for Small Brewers

• Inspiration from Traditional Brewers

• Regulations

• and…


Beer Culture is Local


Beer Trade in the World (billion liters, % of production)



Share of Beer Imports in U.S. Beer Consumption

Source: Brewers’ Almanac



Per Capita Beer Consumption (2011, in gallons)

Beer Availability Scores (2014)

Source: Seek-A-Brew (Online)


Mergers and Acquisitions


• Phil Howard: “Craftwashing in the U.S. Beer Industry”• Counted 4-packs and 6-packs in Lansing, MI stores

• “30% of 4- and 6-pack facings recorded in craft beer sections (n = 1145) had ownership ties to big brewers”


Travels of the Pilsner in the Global Economy

Trey Malone

@treymalone3

Assistant Professor and Extension Economist

Department of Agricultural, Food, and Resource Economics

Michigan State University


Malone, T. & D. Chambers. 2017. “Quantifying Federal Regulatory Burdens in the

Beer Value Chain.” Agribusiness: an International Journal.


U.S. Regulations in the Modern Era

Source: Brewers’ Almanac


Malt Beverage Taxes (2012, $ per barrel)

“Strength Wars”

• Section 5(3)(2) of the Federal Alcohol Administration Act of 1935 prohibited displaying alcohol content on beer labels

• Overturned by the Supreme Court in 1995 under violation of Freedom of Speech


Minimum Legal Drinking Age (MLDA)

• In the 1970’s, 29 states lowered the drinking age to under 21 (Craig v. Boren)

• Advocacy groups pressured states to raise the MLDA back to 21

• Uniform Drinking Act (1984) cut federal transportation funds to states that allowed drinking for anyone under 21

Oklahoma,

3.2% beer

1933 1976 1983

21 (men),

18 (women)

18 (men)

18 (women)

21 (men),

21 (women)


Alcohol Content Restrictions

• Arkansas (5%)

• Kansas (3.2%*)

• Minnesota (3.2%*)

• North Dakota (4%)

• Oklahoma (3.2%*)

• Texas (4%)

• Vermont (6%)

* Measured “by weight” as opposed to “by volume”


Franchise Termination Laws

• Limits the power of suppliers to terminate contracts with wholesalers

• Derived from policy recommendations of Fosdick and Scott (1933)

• Three-tier system

• “Tied-house” problem


travels of the pilsner in the global economy•phil howard: “craftwashing in the u.s. beer...

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