Thank you very much.
Mr. Chairman, honourable members, thank you for the invitation to appear this afternoon as part of the committee's study on the labour shortages and productivity of Canadian small and medium-sized enterprises.
My name is Luke Chapman, and I am VP of federal affairs for Beer Canada, a national trade association comprising 48 member brewing companies that account for 90% of the beer produced in this country. We are the sole national inclusive association representing Canadian brewers of all sizes and all regions. Our member brewing companies are heavily invested in Canada. Over 85% of the beer sold here is made here by Canadian workers using Canadian-grown agricultural ingredients.
Prior to the pandemic, brewers directly employed nearly 19,000 Canadians and the production and sale of beer supported 149,000 Canadian jobs, from the western Canadian farmer growing the high-quality malt barley required to produce beer, to the many businesses along the supply chain, including packaging and label manufacturers, to the restaurant staff that serve our beers to millions of adult drinkers across Canada.
Most of the well over 1,200 breweries operating in Canada are small, local family-owned and entrepreneurial businesses. For many of these smallest producers that depend on their on-site taprooms for sales, the impact of the COVID-19 pandemic was especially difficult.
Since early 2020, brewers of all sizes across Canada have been on a roller coaster ride. In a typical year, more than 20% of all beer in Canada is sold and consumed at restaurants, bars, festivals, concerts and other social events. With the COVID restrictions placed on these occasions, brewers had to adjust their business models to respond to a new reality—first, by producing hand sanitizers and then by shifting to canned beer production for home consumption.
Unfortunately, a temporary uptick in packaged beer sales for home consumption has not been enough to offset a drastic decline in the draft beer typically sold in restaurants, bars and other venues. As a result, over the past two years, total beer sales in Canada have declined by nearly 4%, or, to put it another way, by the equivalent of nearly 460 million fewer cans of beer sold in just a two-year period.
As brewers and our partners in the hospitality sector look to emerge and recover from the impacts of the pandemic, supply chain disruptions and delays are contributing to rising production costs, including historically high prices for key ingredients like barley and other cereal grains, as well as packaging materials, including cans and bottles. Already-high malted barley prices have jumped another $40 to $45 per tonne. Similarly, aluminum can prices are up 25% to 30% since the beginning of the year, with suppliers requesting exponentially larger minimum order sizes and order lead times.
Despite mitigation efforts by brewers, Canadian consumers and businesses that depend on beer sales for revenue, like restaurants and bars, are already experiencing the effects of the rising beer production costs, as retail beer prices have increased by 5% so far in 2022, alongside rising fuel and labour costs. New costs are on their way, including an estimated $75 million in industry-wide capital investments needed to respond to the government's ban on certain single-use plastics—specifically for our industry, the replacement of plastic ring carriers with alternative packaging types.
The Canadian brewing industry is fully committed to doing its part to support the government's effort to eliminate plastic waste, but brewers are being told to expect delays in the purchase and installation of the required new equipment due to global supply chain bottlenecks. It is imperative that the government account for these costs and challenges in finalizing its regulations banning certain single-use plastics by providing brewers with sufficient time, ideally three years to make the transition.
While some of these challenges facing brewing companies are outside the control of a national government like Canada's, in our view it is also imperative for the government to not further contribute to the problem. In this respect, the increases in federal beer excise duties in April 2020, 2021 and 2022 that were allowed to proceed were counterproductive and harmful, as brewers and our customers in the restaurant and bar business were struggling to keep their businesses afloat. Because these annual increases are automatically indexed to inflation, brewers and our partners in the restaurant and bar business are looking at a federal beer tax increase that could be as high as 6% to 7% next April, which represents an estimated $50 million in new beer taxes in just a one-year period.
This automatic approach to taxation is simply not sustainable over the long term. As a case in point, from 2017 to 2021, the federal government's excise duty revenues from beer grew by 24% according to the Public Accounts of Canada, during a period when beer sales declined by 6.5%.
Given these circumstances, we are requesting that this committee recommend the repeal of the automatic annual increases in beer excise duty rates that are being imposed without any debate or vote by members of Parliament. Eliminating future automatic annual federal beer tax increases will provide Canadian brewers of all sizes with much-needed additional cash flow to respond to the operational and market challenges at a critical time for the industry.
Thank you for your time and considering our comments.
I'd be happy to answer any questions.