Mr. Chairman and members of the committee, thank you for the invitation to contribute to your study on the impact of tariffs on Canadian businesses, companies and workers. To that list, I would also add Canada's 10 million beer drinkers.
Beer Canada is the national voice of the domestic brewing industry, an industry that directly employed 14,800 Canadians and paid $1 billion in salaries and wages in 2017. Our 50 members are drawn from all 10 provinces and one territory, operating 62 brewing operations that together produce 90% of the beer manufactured in Canada.
Beer is the leading beverage alcohol category, accounting for 41% of retail dollar sales and 73% of the GDP generated by all domestic beverage alcohol producers combined. The large positive economic impact beer has on Canada's economy stems from its still being a very local industry. Of the beer sold in Canada, 85% is made here in Canada.
Our last estimate on the cost of Canada's countermeasure tariffs on aluminum beer cans, put in place on July 1, is $20 million to $25 million on an annualized basis. The federal government announced earlier this month that it would provide relief from Canada's countermeasure tariffs on a number of products, including aluminum beer cans. This is a very positive development for our industry and very positive for our customers. The tariff costs on cans were a concern for brewers who already are having to pass onto consumers $25 million in additional federal excise tax as a result of two back-to-back tax increases since budget 2017.
While the move to provide relief from Canada's countermeasure tariffs on beer cans is very encouraging, there is more work to be done. Beer Canada urges the committee to examine the issue of possible irregularities in the aluminum market, which appear to have inappropriately inflated the price of aluminum over the past 11 months. My brewing industry colleagues in the U.S. are urging their government to investigate this issue as well.
The sale of beer in aluminum cans has grown in recent years to now make up the largest share of packaged beer sales. A decade ago, bottles accounted for 65% of total packaged domestic beer sales. Cans accounted for just 35%. The ratio is now reversed. In 2017 cans made up 62% of sales.
This transition, a response to changing consumer preferences, has altered our supply lines and the packaging lines inside our breweries. It has, as a result, increased our sensitivity to changes in the price of aluminum. We pay attention to that now more than ever before.
The 355-millilitre aluminum beer can—a 12-ounce container the industry refers to as the “standard can”—is the most popular container size. In 2017 Canadians purchased 2.5 billion cans of beer in the standard can size. Canadian brewers rely on both Canadian and U.S. sources for their standard can requirements. All other can sizes, including the 473-millilitre tall can, are sourced from the U.S. They are not manufactured here in Canada at this time. In 2017 Canadians purchased half a billion cans of beer in the tall can, up 66% from 2013. The tall can is a popular container, especially amongst small brewers.
Brewers, as is the case with all purchasers of aluminum, are encountering pricing irregularities that market observers, including some members of the United States Congress, believe may be a result of unlawful pricing arrangements by aluminum producers, merchants, traders, banks and others. These pricing irregularities for aluminum appear to stem from the Midwest transaction premium.
The Midwest premium is charged to all end-users of aluminum in Canada and the U.S. and is supposed to account for the cost of storage and transportation of aluminum to end-users. This premium has increased sharply in recent months, despite the fact that logistical costs of sourcing metal from around the world have not changed significantly. From November 2017 to now, the premium has more than doubled to over 20¢ per pound. The Midwest premium is set by ratings service S&P Global Platts. It claims that the premium is based on transactional prices, using actual spot transactions between customers and suppliers.
Each end-user, such as brewers, believes that the process is not consistently followed. There is no transparent benchmark that can explain or validate the reference price. Some market participants believe that the premium may be set, not by strict adherence to using transactional data but by a co-operative alignment between aluminum producers, merchants, traders and banks in order to unlawfully fix the reference price.
Canada's brewers and their customers thank the federal government for recognizing the negative impact countermeasure tariffs on aluminum beer cans were having on our industry and on Canadian beer drinkers. The government consulted and took appropriate action, providing necessary relief to help protect the competitiveness of Canada's brewing industry. For the same reason, we ask the committee to examine the issue of possible irregularities in the aluminum market by investigating how the Midwest transaction premium is developed and applied to aluminum end-users.
Thank you very much for the invitation to be here today. I'd be happy to answer any questions.