The Competitive Enterprise Institute has organized a timely letter opposing the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act. The aim of the law is to largely overturn Granholm v. Heald by making it easier for states to sustain discriminatory barriers to interstate commerce by shifting the burden of proof to challenges to discriminatory laws. It would also basically eliminate Pike “undue burden” challenges to alcohol regulation.
Houston Lawyer says:
Is there any function for an alcohol wholesaler other than to print money and then to spread it around to polititians to make sure the gravy train keeps coming?
July 27, 2010, 4:26 pmneurodoc says:
I know that Congress wouldn’t enact legislation to serve the narrow self-interest of a group of wealthy donors at the expense of the rest of us. So what arguments can be made on behalf of the legislation? As I recall one was that something must be done to prevent minors from ordering alcoholic beverages online or intercepting those shipped to their parents, which is pretty unconvincing to me. What others do proponents offer up for what looks like naked protectionism, with those being protected not those of us who are not wholesalers of beer, wine, and liquor?
Also, where do we see how our own representatives have come out on this?
July 27, 2010, 5:09 pmTN Atty says:
Neurodoc–in our state, the arguments from the other side of the “bootleggers and baptists” confederation are simple and consistent: “Alcohol Bad–Good to make purchasing more difficult.” (And don’t confuse us with the increasing weight of medical studies on moderate booze intake.)
The revolutionary proposal of allowing wine to be sold in grocery stores is one of the Q&A topics in the upcoming governor race–and, naturally, a fine source of campaign funds for everyone. Folks’ heads would explode if a serious effort were made to allow liquor to be sold in all counties/cities.
July 27, 2010, 7:49 pmArthur Kirkland says:
This issue seems important, the interplay between federal and state control of alcohol beverages. If only there were a Constitutional provision on point. Oh, wait . . .
July 27, 2010, 8:33 pmShelbyC says:
Your browser doesn’t seem to be displaying the text between the lines, a problem usually not present on lefties’ browsers :-).
July 27, 2010, 9:35 pmOrenWithAnE says:
Yes, there is the traditional idea that distributors provide value by buying in bulk and selling complete truckloads of varied goods. This relieves the small merchant (with say, only a dozen stores) from dealing directly with each manufacturer and likewise the manufacturer from coordinated small deliveries to thousands of merchants. There is very good economic sense in centralized distribution.
All of this should be perfectly possible, of course, in a competitive market. My point is that if and when that day comes, there will still be wholesalers and distributors.
July 27, 2010, 10:56 pmArthur Kirkland says:
There is an additional point with respect to alcohol beverages, which incline regulation more than do most beneficial products. States established the three-tier system for a reason (actually, for two reasons, one of which was overblown). It is easier to respect dismantlers who at least attempt to understand the reasoning underlying that which they propose to dismantle.
July 27, 2010, 11:44 pmJmaie says:
Arthur, it almost sounds as if you don’t consider alcohol a beneficial product…
July 28, 2010, 2:57 amRandom Wine Geek says:
At this point, the primary reasons the three-tier system exists are to collect taxes and to use the power of government to shield large wholesalers and distributors from competition. Oren is correct that wholesalers and distributors would exist without the forced three-tier system. But in the absence of three-tier laws, they would take a much different form.
Whether or not to sell through a wholesaler and distributor should be a business decision by the producer, not a state-imposed mandate. If I’m a small winery in California who only expects to sell 50 or 100 cases of wine in a state, it may make much more sense to me to sell directly to a couple of retailers who I expect can move my product, and I may get no benefit at all from a wholesaler or distributor.
Consumers can be hurt by the arrangement as well. If I can cut out a tier that provides me with absolutely no value, and the 25% to 35% markup (at least) the wholesaler gets for doing absolutely nothing, customers will likely pay less. Everyone who has a right to a benefit from the sale wins, and the only loser is the loser who did nothing to earn a cut.
But producers don’t have that option in most states. Regardless of how useless a wholesaler may be, the producer must pay them. It’s basically a protection racket. Franchise states like Georgia are even worse. In Georgia, for example, once a wholesaler has a brand, the wholesaler effectively owns the brand. If producer wants to change wholesalers, the producer has only two choices: somehow persuade the wholesaler to release the rights to the brand or completely stop selling products into the state for two years.
I wouldn’t have a problem with a wholesaler that negotiates an exclusivity arrangement with the producer in exchange for the wholesaler’s commitment to spend money marketing the product and building sales for the brand. In that case, both sides can determine the terms of the exclusivity arrangement and can protect their respective interests. But in a franchise state, the wholesaler gets exclusivity even if it actively subverts the brand, by pushing a competing product, for example. But the current system gives all of the cards to the wholesalers and they spend money like a Republican-controlled Congress to keep them.
The WSWA, and the large wholesalers that dominate it, do a great job of using concerns about tax avoidance and underage consumption and religious opposition to alcohol sales as a smoke screen to maintain the state protection for the wholesaler industry. But it is the massive flow of money from the second tier to legislators, not those concerns, regardless of their legitimacy, that prop up the draconian three-tier system.
July 28, 2010, 11:04 amArthur Kirkland says:
If beer were root beer, the preceding analysis would be more credible. Small producers sometimes chafe against many aspects of the regulatory system (even those that were designed and continue to protect their interests, because their understanding is lacking); their proposed solution is customarily to eliminate (or exempt themselves from compliance with) regulation. I believe society and the alcohol beverage industry would suffer if the regulatory system were dismantled. Adjustment seems worthwhile, and in some cases overdue, but the small producers’ position rarely appears to be more than uninformed, selfish complaints.
July 28, 2010, 12:58 pmArthur Kirkland says:
Alcohol beverages are wonderful, in a number of ways. I wish this site would institute a “Beer Of The Week” feature and enable me to contribute the content. Moderate consumption of alcohol beverages makes life better in a number of ways.
July 28, 2010, 1:02 pmjmaie says:
I guess it’s true that tone does not come across in writing. I did not expect a serious answer, in as much my comment was not intended to be serious. Oh well…
July 28, 2010, 1:20 pmArthur Kirkland says:
jmaie:
I was not sure about tone, so I tried to provide a straightforward, informative, friendly response.
July 28, 2010, 1:46 pmRandom Wine Geek says:
What harms do you believe the alcohol beverage industry would suffer if producers were permitted to bypass the second tier? The second tier would likely be harmed, at least to the extent that the value added services provided by wholesalers and distributors don’t justify a voluntary position in the supply chain, but I’d view that as a feature, not a bug.
I’m open to learning something here, and readily acknowledge that I’m just a well-informed amateur, not an expert. Can you be a little less obscure about the benefits that you believe the legally-mandated three-tier system brings to the table?
July 28, 2010, 4:39 pmArthur Kirkland says:
States rely on wholesalers to be familiar with, and to be accountable for violations of, regulatory requirements (including traceability of transactions and tax payments, promotional restrictions, delivery regulations and reporting requirements). Wholesalers also, directly or indirectly, finance the regulatory system. Producers (especially smaller, out-of-state producers) are generally and understandably unwilling or unable to comply with the licensing, fee, delivery and reporting requirements, and many regulators (I acknowledge that memories and standards have faded, and that too many modern regulators lack understanding of the public policy issues and relevant regulatory principles) are understandably unwilling to rely exclusively on retailers (let alone on Federal Express and UPS) for compliance.
Unless one is prepared to return (at least figuratively) to the day of the open saloon — which inclined somewhat reasonable citizens (aware of the predictably ugly consequences) to enact Prohibition — and invite alcohol to resemble tobacco with respect to tax-evasion smuggling, establishing a free-for-all for all or some industry participants seems unwise to me.
On the other hand . . .
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September 9, 2010, 11:55 am