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Home , Kirsty Duncan

45 O’Connor Street, Suite 650 Ottawa, K1P 1A4

Luke Chapman Interim President

1.613.552.8479 [email protected]

BY E-MAIL May 8th, 2020

The Honourable Deputy Prime Minister and Minister of Intergovernmental Affairs House of Commons Ottawa, Ontario K1A 0A6 [email protected]

RE: COVID-19’s Impact on Canada’s Beer Sector

Deputy Prime Minister:

I am writing to you on behalf of Canada’s brewing companies who, like many other businesses, are dealing with a combination of stagnant or declining revenues and rising costs in the face of the COVID-19 pandemic.

Canadian brewing facilities produce 85% of the beer sold in Canada. The Conference Board of Canada estimates beer sales support 149,000 jobs, $5.3 billion in wages and $5.7 billion in government tax revenues. In 2019, Canadian brewers paid nearly $700 million in federal excise duty alone.

We applaud government’s support efforts to date, notably the Canada Emergency Wage Subsidy and Canada Emergency Business Account, which are providing relief to businesses and easing the economic impact on . But at the same time, we are hearing from many brewers that more sector-specific interventions are required. The Ontario government’s decision last week to suspend their provincial beer tax increase planned for June 1 will prove to be helpful to brewers. We are asking for your government to follow Ontario’s lead and implement two immediate and one future support measure that will allow brewing companies to survive and recover from this crisis.

We are calling on the to immediately:

• Defer upcoming monthly excise duty payments until September, and • Roll-back the 1.9% excise duty increase that went into effect on April 1.

www.beercanada.com

We are also asking that the government work with the brewing industry over the coming weeks to develop a temporary, short-term Expired Beer Tax Credit to off-set the financial cost of having to reimburse restaurants and bars for expired untapped keg beer which has a short shelf life as it is not pasteurized. In addition to losses in the market, the proposed tax credit would also help to off-set the financial cost due to the loss of keg inventory which brewers had been building up moving into the busy months of the year. Unlike other beverage alcohol products, beer is highly perishable and must be sold and consumed within a narrow timeframe or else be disposed.

As the COVID-19 situation changes daily, brewers are facing increased pressure to close or adjust their businesses due to liquidity issues. In the context of the evolving situation, it is difficult to say for certain what the end impacts will be. However, a recent Beer Canada survey of brewing companies found that:

• Half of respondents reported a decline of revenue in March/April of 26% or more. • Nearly three quarter of respondents are expecting a decline in revenue of 26% or more over the summer months, and • Half of respondents estimate they have enough cash flow to survive only a few more months to a maximum of six months.

The reporting of steep declines in revenue only tells one part of the story. As brewers try to adapt their business models to the new reality, many have seen their expenses increase by 50% or more. These new expenses include the increased costs for packaging materials, delivery trucks and the payroll hours that accompany deliveries. As a result, breweries find themselves in a situation where they are ineligible for certain government support programs but are also losing money.

On top of all of this, at the end of May many brewers will be expected to remit their excise duty payment for all beer produced in April, which is typically one of the higher production months of the year as the industry prepares for the busy summer selling season. Unfortunately, due to COVID-19, social gatherings, concerts, and events continue to be cancelled or postponed.

This puts brewers in a difficult cash flow situation where they may have to remit excise duty on beer that they have produced and packaged but may take longer to sell. In addition, in Canada excise duty rates go up as a brewery produces more beer throughout the year due to the tiered rate structure that applies to the first 75,000 hectolitres of annual beer production. As a result, for many brewers the overall excise duty rate on beer produced in recent and future months is likely to be higher than beer that was produced earlier in 2020. This reality is amplified by the most recent excise increase.

Brewers were extremely disappointed that during this crisis, the government chose to raise excise duty rates by 1.9% on April 1. While a 1.9% excise duty increase may seem small, it amounts to an estimated $15 million in lost cash flow to the sector over the course of this year – money that could be better used to pay staff and suppliers. This most recent excise hike is the fourth since 2017, adding up to a cumulative increase of an estimated $60 million in industry excise payments.

In addition to the cash flow challenges posed by excise duty payments, many brewing companies are taking a financial hit by reimbursing restaurants and bars for untapped kegs which contain beer that will

ultimately extend past its shelf-life. Similarly, the loss of keg inventory buildup at breweries further adds to the negative cash flow position. Beer is the only perishable beverage alcohol product, meaning that if it is not selling it is eventually going to go bad. Currently there is no recourse for brewers to recover the costs associated with this loss of keg inventory, reimbursement of restaurants and bars, collection of kegs and disposal of the beer.

To help off-set the costs associated with untapped keg beer, Canadian brewers are proposing a temporary, short-term tax credit to provide much-needed compensation for returned keg beer and brewer inventories of keg beer which have expired. The proposed Expired Beer Tax Credit would apply to 2020 tax filings and come to an end on December 31, 2020. It also would be limited to losses attributed to expired product and only be available if the brewery is in possession of the product on the date that it reaches the end of its shelf-life.

Thank you for the opportunity to share our comments with you. Brewers have played a leadership role in helping Canada combat the spread of COVID-19 whether it be through the donation of foods and resources, or the production of hand sanitizers. We hope to combine our leadership and knowledge with yours to ensure that brewers can survive and fully recover from COVID-19 so we can continue to contribute in meaningful ways.

We look forward to receiving your response to this letter in the coming days.

Sincerely,

CC:

The Honourable , Minister of Innovation, Science and Industry Ryan Dunn, Chief of Staff to the Minister of Innovation, Science and Industry The Honourable , Minister of Public Safety and Emergency Preparedness Zita Astravas, Chief of Staff to the Minister of Public Safety and Emergency Preparedness The Honourable Marie-Claude Bibeau, Minister of Agriculture and Agri-Food Alison Porter, Chief of Staff to the Minister of Agriculture and Agri-Food The Honourable Jean-Yves Duclos, President of the Treasury Board Marjorie Michel, Chief of Staff to the President of the Treasury Board The Honourable Kirsty Duncan, MP, North , MP, London Centre The Honourable , Minister of Health Sabina Saini, Chief of Staff to the Minister of Health The Honourable Mélanie Joly, Minister of Economic Development and Official Languages

Dan Lauzon, Chief of Staff to the Minister of Economic Development and Official Languages The Honourable , Minister of Finance Elder Marquez, Chief of Staff to the Minister of Finance The Honourable , Minister of Employment, Workforce Development and Disability Inclusion Taras Zalusky, Chief of Staff to the Minister of Employment, Workforce Development and Disability Inclusion