Mr. Chair and honourable members, thank you for the invitation to appear this morning as part of the committee's study of the subject matter of Bill C-47.
My name is Luke Chapman. I'm the vice-president of federal affairs for Beer Canada, the only inclusive national trade association for Canadian beer companies. Our membership includes 48 small, medium and large-sized breweries, which when combined account for 90% of all beer produced in our country.
Domestic brewers are heavily invested in Canada. Last year, 88% of all beer purchased and consumed here was made here by some of the 20,000 Canadians directly employed by brewing companies.
The value chain for brewing, packaging, distributing and selling beer in Canada is long and interconnected. For a pint of beer to reach your glass, brewers depend on western Canadian barley farmers, can and bottle manufacturers in central Canada, and truck drivers and restaurant and retail staff from across the country.
When all the steps in the production, distribution and retail process are considered, the production and sale of beer in Canada supports 149,000 jobs, generating over $13 billion in economic activity and $5.7 billion in taxes. Currently, federal and provincial taxes and markups account for almost half of the retail price of beer, giving Canada the title of having the highest beer taxes among G7 countries.
I think we can all agree that beer is a social beverage. Enjoying a beer with family or friends at a backyard barbeque or sports event, an outdoor summer concert or a neighbourhood pub provides great social and community benefit. In a typical preCOVID year, restaurants, bars, concerts, sporting events and other public venues accounted for nearly a quarter of all beer sold in Canada.
It's not surprising, then, that the restrictions placed on social gatherings over the past few years due to the COVID pandemic had a dramatic impact on the Canadian beer market, with the total volume of beer sales declining by 6% over the past three years. Draft beer sales, which primarily occur at restaurants and bars, are still 25% below where they were prepandemic, in 2019.
As brewers were grappling with where and how they were allowed to sell their beer during the pandemic, inflation began to take hold, presenting a new set of difficulties and challenges.
For brewers, the concerns were twofold. First, in 2021 and into 2022, the cost of producing, packaging and distributing beer started to rise rapidly, with key inputs like barley and packaging materials up by as much as 60%. Second, the impact of rising inflation on the annual and automatic federal beer excise duty rate increases—which are determined using a formula that is tied to inflation—was also a concern that was front and centre.
Since the automatic indexing of federal beer excise duties was included in the 2017 federal budget, beer taxes have increased every year. While we continue to be concerned over this automatic approach to beer taxation and its negative impacts on the Canadian beer and hospitality sectors, we recognize that CPI inflation was relatively stable for most of the period between 2017 to 2022. As a result, the annual increases amounted to an average of around 2% over that period.
While the past automatic increases were not inconsequential, as we monitored CPI inflation throughout 2022 we reached the conclusion that this year's increase was likely to exceed 6%, making it the largest federal tax increase on beer in the last four decades.
As a result of the effort and support of MPs from across parties—some of whom are in this room today, so thank you—we were pleased to see the government address our immediate concern by including in the 2023 budget a 2% cap on the 6.3% excise duty rate increase that would otherwise have gone into effect this past April 1.
While this temporary one-year cap was not all that our coalition of barley farmers, unionized brewery workers, restauranteurs, consumers and breweries had been advocating for, and while our position remains that the continued use of automatic excise increase is neither appropriate or effective—particularly in an era defined by high inflation and declining beer sales—we do view a temporary 2% cap as a fair compromise. We certainly welcomed and appreciated that it was included in the 2023 budget.
In this respect and in conclusion, we encourage the adoption of section 124 of the budget implementation act to reduce the scheduled increase in federal beer excise duties from 6.3% to 2%, retroactive to April 1.
We thank the members of the finance committee for the opportunity to provide our perspective, which we hope will be helpful as they review and consider Bill C-47.
I'm happy to answer any questions after the other witnesses. Thank you.