Cheers to Markets for Sustainable Drinks
As I took the first sip of their latest batch—a light sour I’m obsessed with—the narrative of these market dynamics became as irresistible as the brew itself. A quick sample of recent developments in the beverage industry highlights how markets get creative to add value and cut costs under dynamic conditions. Policymakers should take note of how liberalizing and injecting better information into these supply chains would accelerate positive economic and environmental outcomes.
Currently, at least two major market trends are at play. First, the pandemic response has induced massive shifts in consumer behavior and supply chain adjustments. For example, as bars shut down and happy hours went virtual, alcohol consumption declined but retail sales skyrocketed. At the local level, D.C. breweries are creatively expanding retail canning capacity, such as using more 32 oz. crowlers, and engaging in trades of various services and supplies that leverage each brewer’s competitive advantages. At the macro level, this tendency has translated into increased demand for aluminum. This dovetails with the second major trend: increased market valuation of environmental sustainability. Consumer concerns over excess packaging and single-use materials are driving more eco-friendly decision-making. In turn, companies are changing packaging to meet this demand, including the use of more aluminum cans and paper boxes.
In response, firms are now competing to go green, as evidenced by the surge in corporate sustainability commitments. As a result, a comparatively low environmental footprint is an increasing business advantage. Hellbender, for example, is the first east coast brewery to invest in a mash filter and other innovative means to lessen their environmental footprint and increase their bottom line. Their enhanced productivity—they brew batches 25 percent faster than their peers—reduces grain consumption by 18 percent and water by 30 percent compared to most breweries. Of course, the business return on investment (ROI) isn’t limited to conventional productivity anymore; there’s an opportunity to create superior products that yield a market premium. Much of this gets reflected in brand premiums; for example, consumers often seek out a brewery for its eco-reputation.
Good for business; good for the environment. That stein’s always half full.
The aluminum container surge is a key market response that reflects the shift in supply dynamics and consumer environmental preferences. In 2015, about one-third of all new beverage stock keeping units used cans. It has since grown to over 70 percent. For craft breweries, cans now account for 36 percent of sales, up from 25 percent in 2015. It now goes beyond adult beverages, as canning proliferates for products like kombucha, coffee, teas and stuff too daring for my tastebuds like CBD beverages and prebiotic sodas. That’s not merely an incremental change, but a fundamental shift in product substitution that signifies healthy market activity.
Despite such advances, the aluminum beverage market remains constrained in ways that policymakers should keep in mind. These include barriers to trade and limitations in recycling policy and program communications that suppress recycling rates. Policymakers should consider the following:
- Better proliferation of information would improve markets’ abilities to internalize environmental effects in voluntary transactions. Recycling programs often rely on messaging that induces guilt, which are less convincing and can backfire in ways like “aspirational recycling” that contaminate recycling processes with non-recyclable content. Recent research suggests that modifying the frame to a transformational message that communicates what recycled waste can become can make a major difference in recycling rates.
- Many local recycling programs struggle financially because they use materials that are economic to recycle—such as aluminum—to cross-subsidize uneconomic recycling practices. It’s important to restore recycling profitability by eliminating cross-subsidies to keep these programs solvent and achieve environmental improvement. Healthy secondary commodity markets lower production costs for the beverage industry and others, while reducing waste and increasing recycling rates.
- Liberating supply chains at the local through international levels is critical to let markets enable product substitution under dynamic conditions. Reducing regulatory burdens is an obvious choice, but a more basic element is to simply remove artificial barriers to trade. As my colleague Clark Packard notes, tariffs on aluminum hurt domestic manufacturers who were struggling even prior to the pandemic.
As policymakers look to get the economy back on track while benefiting the environment, they should look to empower markets and liberate entrepreneurs like our favorite craft breweries. This would accelerate the powerful trends in free market environmentalism fueled by motivated businesses and thirsty consumers. Perhaps my colleague Jarrett Dieterle said it best in his new book: “Give Me Liberty and Give Me a Drink!”
Image credit: View Apart
