The Canadian brewing industry has had to contend with considerable changes. There has been a decline in the consumption of “brand name” products per capita. In addition, microbrewers who supply the position markets have seen an increased demand especially for specialty products.
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The Canadian beer market, just as the market in US, is dominated by giant commercial breweries like Labatt and Molson (Hoover’s Incorporated, 2007). While the beers produced by these breweries are easy to drink, they fall short of flavor. In order to get the taste of real Canadian beer, one would have to try out the Canadian independent brewery beers. A good example of such beers is the Alexander Keith’s IPA, which has been brewed in Nova Scotia since early 1820s (Sneath, 2001). The beer has been described as an English-type pale alcoholic drink with a soft and sour finish. It is very popular in Canada and is quite different from the light lagers produced by Labatt and Molson (Marsh, 1988).
Competition in the brewing industry is dominated by the Ontario Craft Brewers (OCB), who took home an impressive 16 medals at the premier of the 2006 Canadian brewing awards (Hoover’s Incorporated, 2007).
Most breweries are located in Ontario, British Colombia and Quebec with 54, 33 and 15 establishments respectively. The rest are spread out in Alberta (5), Nova Scotia (4), Newfoundland (4), Manitoba (2), New Brunswik (2) and Saskatchewan (1) (Thompson, 2006).
Ninety two per cent of the Canadian beer market is produced at the domestic level. Domestic beers are sold in categories depending on how they are packaged. Hence, they are classified as draught, bottled and canned beers. The Association of Brewers in Canada notes that between 1994 and 2004, the sales of canned beer rose by 6.7 per cent to 23 per cent, the sales of draught beer decreased by 1.4 per cent to 10 per cent, while bottled beer sales decreased by 5.4 per cent from 72.3 per cent (Hoover’s Incorporated, 2007).
Factors that influence the demand and supply in the domestic market are:
- Employment. There has been an 18.8% decrease in employment since 1994, from 10, 974 people to 8,912 people in 2004 (Hoover’s Incorporated, 2007).
- Profitability. The profitability of the Canadian beer market has been affected by certain factors. In order to maintain profitability, the local brewers have been striving to improve their production efficiency while operating on minimum costs (Hoover’s Incorporated, 2007). An indication of profitability has been seen in the value added per production worker, with the peak last seen in 1999 (Hoover’s Incorporated, 2007).
- Trade-Related Factors. Foreign brands brewed under license also hold a sizable share of the Canadian beer market. American brewers have adopted licensing agreements as the most economical and efficient way to get their products into Canada. Transportation of bottled products is very costly (Marsh, 1988). With the shortage of two important beer-making ingredient, barley and hop, in Canada, most microbreweries have had to modify their specialty brews (Marsh, 1988).
- Quality Assurance. The Canada-based Breweries have been able to obtain licensing contracts with leading breweries in US and other offshore breweries to produce their brands in Canada (Thompson, 2006). This is in line with the international recognition of the excellent quality and accessibility of the Canadian malting barley (Thompson, 2006). As such, there has been an immense stability in the brewery capacity and an improvement in high-paying jobs in Canada especially over the last 10 years when the domestic beer consumption has been flat (Thompson, 2006).
From a technological point of view, the Canadian brewing industry is as highly developed as any other in the world (Marsh, 1988). This has been coupled with intensive research in the fields of microbiology and biotechnology (Thompson, 2006). As a result, there has been progress in getting yeast strains that are more alcohol-tolerant and produce low-calorie beer. The use of exclusive brewing processes has been employed in the processing of low-alcohol beer, seasonal beers, and low-carb beers as well as in the production of ice brands (Marsh, 1988).
On the hand, the vagaries of weather experienced in Europe and Australia as well as the introduction of subsidies on bio-fuel (ethanol) by the US and Canada governments has resulted in hops and barley crop declines, thus creating problems for the industry (Thompson, 2006).
The drawbacks of the competitive market system and the need for government intervention?
For competitive markets to be efficient there is need for information, product quality and location. When the provision of government services by service sector firms has insufficient or no competition, the market may not deliver an efficient outcome that is also free from waste.
Why competitive markets fail?
Though markets may sometimes fail disastrously, it does not mean that all markets fail, or that faith should be lost in the ability of markets to allocate goods and services. Most markets work well enough. Somehow, the daily needs of millions of people are met through our market system. For the most part, at the marketplace one can find what they want. The market foresees needs and has the goods and services ready and waiting when one walks through the door of a store.
Sometimes one may not always find what they are looking for. Stores may stock out, oversupply or not have what one wants. But, most of the time one does find what they are looking for and does not have to wait long to get it. Thinking about it, it is amazing that many diverse actions of many individuals are efficiently coordinated into an economic system that does a pretty good job of providing for our needs, responding to changes in our tastes, and providing incentives for technological advancement.
Is there an economic role for the government to play? Why or why not?
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Yes, there is an economic role for the government to play for the following reasons:
Market failure is one reason why the government must continue to be involved. Public policy only works where there is sufficient institutional capacity. With lack of institutional capacity, well-intended policies often lead to poor outcomes and even greater corruption. There is a clear need for the governments to intervene in markets more so when there is a risk of market failure Governments may excuse this by saying that intervention is in the public interest. Basically, failure in market may occur where there is no economic efficiency.
Government intervention occurs in instances where markets do not operate like they should. In simple terms, sometimes markets do not efficiently allocate the scarce resources and in a way that achieves optimal societal welfare.
- Tax reform: Mostly, tax reforms that abolish multiple rates and exemptions plus limit the discretionary powers of tax officials, also help to reduce corruption and enhance economic efficiency. Tax rates and structures should match institutional capacity in addition to strengthening it over time.
- Reduction of Public expenditure: When governments are under pressure to reduce the share of the public wage bill in the budget but find it politically hard to do so, corruption may increase. In such situations, an authorized reduction in the wage bill translates into yet lower real pay for government employees. Pay cuts result in the loss of workers and the demotivation of those who remain. Consequently government performance is affected leading to lower resistance to corruption.
Governments should just put in place and enforce incentives that seek to motivate competitive behavior. Oversight is needed in order that a stable and competitive market place is produced and maintained.
Hoover’s Incorporated. Hoover’s Handbook of World Business 2007. California: Hoovers Inc.
Marsh, James H. The Canadian Encyclopedia: A-Edu: Ontario: Hurtig, 1988.
Sneath, Allen Winn. Brewed in Canada: The Untold Story of Canada’s 350-Year-Old Brewing Industry. Dundurn Press Ltd., 2001.
Thompson, Henry. International Economics: Global Markets and Competition. Michigan; World Scientific, 2006.