Tuesday, 4 January 2011

What does a brewer do when tax increases? (part two)

 What do you do as a brewer when tax increases? Here are options two and three.
"The second of the methods enumerated above by which a brewer may transfer the burden of the tax, is the regulation of the cost price of the barrel of beer so that it may cost him no more under the increased duty than it did under the lesser duty. Any economy in materials, manufacture, wages, or in the expenses of distribution will of course all work in the direction of keeping down the ultimate cost price of the barrel; but it will be generally found that the three factors to be considered in economising in the cost price are those of malt, hops, and duty. The consideration which arises in the minds of those brewers who, to meet an increase in the duty, aim at keeping the cost price of their barrel at somewhere about the old level, is to obtain their raw material in the shape of barley, malt, and hops at a lower price than they have been willing to pay before the increase in duty; and as a complement to this economy in the prices of their raw material, they will ascertain to what extent it is necessary to lower the original gravity of their beer to equalise the cost price of their beers under the now and the old duty. The duty being just as much a part of the cost price of a barrel of beer as the malt, and also being directly proportioned to the gravity of the beer, it follows that in using less malt per barrel brewed we proportionately economise in the duty, and thus we shall find that after we have equalised our cost prices under the new and the old duties, the Chancellor of the Exchequer will still derive a considerable sum from the increase in the tax. If, in the process of the equalisation of the cost per barrel we put in less hops per barrel (as we do, if we put in our hops per quarter), or purchase our malt and hops at a cheaper rate, then the necessary reduction of the original gravity becomes correspondingly less and the Chancellor receives correspondingly more. I believethat some such course of equalisation as is above indicated is in part or in whole the one ultimately resorted to by the majority of brewers on an increase in the Beer Duty taking place. When more than one ingredient enters into the composition of a manufactured article, and when the price of one of those ingredients rises, the manufacturer will certainly endeavour to recover the increase in cost by endeavouring to obtain at a lower price one or more of the remaining ingredients. The duty is an ingredient of beer so far as cost per barrel is concerned, and an increase in duty must force brewers to endeavour to obtain their malt and hops at a cheaper rate."
"The Journal of the Institute of Brewing, vol.7", 1901, pages 57 - 58

Buy cheaper raw materials or use fewer raw materials (i.e. drop the gravity). There's a handy formula given in an appendix showing you how to calculate the drop in gravity necessary to leave the price the same after a duty increase.

Appendix N.—To find the New Gravity at which we must make a Beer
in order to meet an Increase in the Duty.
Let x = new gravity required
G = old gravity at which we have been making the beer
C = cost per barrel at G under old duty
B = total barrels in brew at G
B1 = [(total barrels in brew at G) - 6 per cent.]
E = total lbs. extract in brew
d = old duty per barrel at G
d1 = new duty per barrel at G

then                  E
     x =  -------------------
                     B1(d1 - d)
            B +   -----------

The steps upon which the above equation is founded are these : —

B1d1 - B1d = the extra sum which would be paid on the brew owing to new duty if there were no reduction in gravity, and

B1d1 - B1d
------------- = number of barrels at d which this extra sum represents;

to preserve our cost price we must obtain from our malt,

                                 B1(d1 - d)
                         B + ------------
number of barrels, which, divided into the total lbs. extract, gives the required gravity.

"The Journal of the Institute of Brewing, vol.7", 1901, page 72.
That formula is going to come in so handy. You can't believe how excited I was to find it. I wonder how many brewers used it?

The third option probably sounds weird to modern ears: stop serving over-measures. It was a way publicans tried to tempt customers into their pub. Serve more than a pint as a pint measure. I think it works the other way around now.

"The third of my divisional heads for recovering the increase in the Beer Duty had reference to over-measure. Over-measure is merely a form of competition in the direction of giving the consumer an increasing quantity of beer for a given sum; or, what is virtually the same thing, of charging the consumer less money for a given quantity of beer. It is evident that if the amount of over-measure be decreased, the consumer pays more for his beer, and if the consumer pays more, the brewer can charge more without merely shifting the tax from his shoulders to those of the retailer. To those brewers then who disliked the custom of over-measure, and there were many, the increase in the duty last March doubtless appeared to present an opportunity of "killing two birds with one stone": of decreasing over-measure and of thereby saving the extra tax. To the successful prosecution of this end, there was one sine qua non, an absolutely unanimous agreement amongst the brewers and the retailers. But in the struggle for life, from which the beer trade is no more exempt than are other trades. Competition and Unanimity are not always hand-maidens. As might have been expected, a certain percentage of retailers objected to giving their customers less for their money than they had been in the habit of doing. An agreement amongst competitors to lessen competition must, if it is to prove lasting and effective, be unanimous and must be kept in good faith. An extremely small dissentient minority, certainly one of 10 per cent., and probably one of 2 per cent., would vitiate any agreement of the sort amongst the licensed trade. Above all, such an agreement must be founded upon free-will. In one part of the Midlands where there was a dissentient minority, the majority took the unwise course at the last Brewster Sessions of invoking the aid of the magistrates to compel the dissentients to agree not to give over-measure to their customary extent. Of course the magistrates have no power to regulate the price at which any given quantity of beer is sold by a retailer to the consumer, and the majority of them  who were sensible and fair-minded men intimated as much. One or two took the opportunity of saying that if beer could be sold so cheaply, it ought to be taxed more heavily. It is a great mistake in principle for some members of the Trade to call upon the magistrates to aid them in limiting a form of trade competition which, although it may be distasteful to many brewers and retailers, is, nevertheless, quite legitimate. There is an old adage to the effect that dog should not eat dog."
"The Journal of the Institute of Brewing, vol.7", 1901, pages 59 - 60.

The "long pull" as it was called was still going strong at the outbreak of WW I. It was one of the practices outlawed during the war. Along with "treating" or buying rounds as we would call it. Must have been a barrel of laughs, WW I.


Gary Gillman said...

It's common in Ontario to give a larger measure to a good customer when they order a half as the final drink. Usually the fill will be three-quarters or nearly the pint glass, i.e., the half is poured into a pint glass and you get a few ounces over 10. I think many regulars expect this and will be miffed when it is not afforded to them.

The advent of the pint glass in Ontario is not all that old, it goes back only about 30 years when the faux-English pub came into vogue. Before that, the tavern glass was generally 12 ounces in size and 10 in some places. (It was an inverted bell shape which holds fond memories for some).

I just read that the U.K. may legislate to replace pints and half pints with "schooners" which will be somewhere between 10 and 20 ounces in size. Horrors! Don't they know that Michael Jackson wrote that "centuries of peaceful English life" have shown "a pint is just the right amount to tickle the palate for an expectant moment, rush headlong at the thirst, and demand a courteous amount of time before the next round"? :)


Anonymous said...

Um, what's the logic behind banning the buying of 'rounds'?

Craig said...

I think the third option still happens now, just not with beer. Think about "Buy one get one free" offers or "Same cost, but now with 30% more ____!"

Ron Pattinson said...

Anonymous, to get people to drink less.

Gary Gillman said...

I suppose a rejoinder to my earlier comment is, maybe English life isn't as peaceful as when Michael wrote. That is debatable I think, but even granting it, the pint vs. schooner idea won't fix anything IMO. Binge drinking needs education to fix it, and only that.


Rod said...

"It's common in Ontario to give a larger measure to a good customer when they order a half as the final drink. Usually the fill will be three-quarters or nearly the pint glass, i.e., the half is poured into a pint glass and you get a few ounces over 10"

This is common practice in Franken, where it's called a schnitt.

Unknown said...

Or indeed where I grew up 'a friendly half'.