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Updated: Wed, 30 Apr 2014 08:00:00 GMT | By James Cowan

The big but oft-ignored benefit of privatizing liquor-job creation.

Drink more beer, create jobs


lcbo

(Brent Lewin/Bloomberg)

There's not much industry left in the Toronto industrial park that's home to the Amsterdam Brewery . Where once there was a Colgate-Palmolive plant and the Canada Wire and Cable company, there's now a Home Depot, two high-end grocery stores and a cupcake shop. Those worried about Canada's declining manufacturing sector would find no hope in the Leaside Business Park-except for the brewery, which produces more than 300,000 cases each year with double-digit annual growth.

Any other Canadian manufacturer who managed to expand in the midst of five years of economic tumult would be nurtured by politicians like a rare orchid. But brewers, vintners and distillers in this country are more often stifled than encouraged. As provinces make tokenistic tweaks to liquor distribution, the debate focuses on public health and tax revenues. Rarely is it said that better liquor laws could create jobs.

With most Canadians still stuck buying from government-owned liquor sellers, perhaps we should be thankful for the meagre reforms now underway. Saskatchewan opened its first private liquor store in late March. Manitoba this spring allowed hair salons to serve wine and beer. Ontario announced a pilot project of 10 provincially run liquor "kiosks" in supermarkets.

But you can't satiate a thirst with a drip here, a drop there. What's needed in these provinces is the systemic overhauls undertaken by Alberta in 1993, which privatized all booze retailers, and British Columbia in 2001, which created private competitors to the government-owned stores. In both cases, there were clear economic benefits. There are now 1,333 retail liquor stores in Alberta, compared with 208 before privatization. Along with this increased number of outlets came a nearly fourfold increase in employees within the sector.

Increasing competition can nurture an entire industry. Back in 2001, B.C. had 66 wineries and zero craft brewers, compared to 214 and 30 today. Through private competition, the province effectively created more shelf space. There are roughly 1,000 wines currently produced in B.C., but government-run stores stock only 260 of them, according to a speech given last year by Ian Baillie, executive director of the B.C. Alliance of Beverage Licensees. The remaining 740 were sold through private stores. Ontario producers lack this second option, meaning 2,800 Ontario wines-or 93%-never receive retail distribution beyond the vineyard.

More competition can create opportunity for producers without depriving the government of any revenue. The B.C. government maintained control of the importation and distribution of alcohol in the province, with private distributors buying from it. Revenue from the liquor distribution branch increased to $911 million in 2012, up from $890 million in 2011. Of that, 56% came from private stores. Increasing competition also increased the tax base.

So governments aren't helping anyone when they shackle an innovative growth industry to an antiquated supply chain. Back when there were two big brewers, a monolithic retailer was more viable. But as the market has diversified (craft beer sales now represent 19% of B.C.'s beer market), niches and specialities develop; yet there's no allowance in most Canadian markets for a store that offers, say, only lambic beers or just fine whiskeys. It's like requiring all computer manufacturers to sell their products at a Radio Shack-from 1982.

Nowhere is this refusal to modernize policy to match the market more evident than in Ontario's Beer Stores. In 1927, the province handed control of its stores to a consortium of local brewers who produced most of the product sold. But those domestic breweries were bought over the decades by foreign conglomerates. In what other industry would Canadian politicians tolerate-let alone champion-handing control to a foreign cartel? Unless politicians across Canada embrace competition in the booze market, homegrown manufacturers will succeed in spite of them-not because of them.

James Cowan is deputy editor of Canadian Business

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