Not just tariffs: Ridiculous state laws are holding back breweries, wineries, and distilleries
Nevertheless, while the tariffs have made national headlines for harming American industries, similarly, costly state-level policies that affect alcohol have received less media attention. Like tariffs, however, state protectionism also hurts the booze industry by increasing production costs and raising prices for consumers. Consequently, while Trump’s tariffs deserve criticism, efforts to push back against protectionist policies should not be confined to the national level.
Consider the story of Nan Bailly, a Minnesota winemaker who has owned Alexis Bailly Vineyard since taking over for her father in 1990. Her home state mandates that she buy a majority of her grapes from inside the state, even though Minnesota grapes are subject to harsh conditions and make notoriously acidic wine. As a result, Bailly cannot effectively source grapes that would make her wine more flavorful. Accordingly, her consumers must either pay a premium for a less-flavorful, more-acidic wine or buy out-of-state wine instead.
Last year, Bailly and the Institute for Justice sued the state over this requirement. Although the case was initially dismissed, it is now in the appeals process. However, similar in-state grape policies existin at least eight other states. These rules are just a microcosm of backward booze laws.
Most states have a three-tier alcohol distribution system that requires legal separation between producers, wholesalers, and retailers of alcohol. This means that producers such as breweries or distilleries must sell through a distributor in order to place their products in retail stores. Imposing artificial middlemen into the distribution process merely raises prices and creates a legally mandated monopoly at the wholesale level.
One manifestation of the three-tiered system is “post-and-hold” rules, which are present in more than a dozen states. These require wholesalers to post their prices and then to maintain them for a specified period of time. This reduces incentives for wholesalers to decrease prices and can create a form of tacit collusion that leads to higher prices for consumers. For exampffle, one study concluded that post-and-hold laws could increase the price of certain kinds of alcohol by up to 30 percent.
Another form of protectionism involves restrictions on how businesses can sell alcohol. For instance, Indiana has a law preventing gas stations and convenience stores from selling refrigerated beer. This arrangement benefits licensed liquor stores in the state that are allowed to sell cold beer. Similarly, other states like Virginia mandate certain ratios of alcohol-to-food sales in restaurants, which protects traditional restaurants at the expense of high-end cocktail bars and speakeasies.
Reforming these outdated laws is more important now than ever. The alcohol industry has become one of the key growth sectors of our modern economy. In 2017, its revenues totaled $71.7 billion; a number that is greater than the gross domestic product of more than 130countries.
Additionally, the number of alcohol producers has increased eight-fold within the last decade, and over the last year, breweries, wineries, and distilleries added more than 14,000 manufacturing jobs to the economy. This is the second-most of any industry in the country and illustrates the high consumer demand for craft alcohol.
Furthermore, there is ample evidence that protectionist policies negatively impact the industry’s growth. As Jacob Burgdorf has noted for the Mercatus Center, states that allow brewers to distribute their own beer rather than forcing them to work through middlemen have more breweries than those that do not. Put simply, protectionism prevents producers from giving customers what they want at the best prices possible.
The alcohol industry ultimately operates as a case study in how protectionist policies at both the national and the state level hurt growth and limit consumer choice. Trump’s tariffs exemplify this nationally, while legal strictures like Minnesota’s in-state grape requirement and the three-tier system demonstrate it on the state level. In both scenarios, businesses are often forced to raise costs and curtail investment in new innovations.
If consumers want to receive more products for a lower cost, battling protectionist policies is an essential step. This applies at the state level as much as on the national stage.
