Measures to support the development of the Irish craft-cider sector 1 The Irish Apple Growers’ Association Pre-Budget Submission July 2015 Executive Summary Profile of Cider Industry in Ireland The cider-making industry in Ireland is composed of two sectors. There is a large industrial scale sector producing relatively inexpensive product for mass consumption, and a small craft sector producing for a niche market at higher prices. The craft cider sector represents a little over 1% of the total cider market. Although the craft sector is small, it is very labour intensive, with an employment contribution of about ten times more on a per unit volume basis compared with industrial scale production. It also supports three times more orchard employment per litre produced compared with industrial production, due to the fact that industrial ciders are produced using large quantities of water and sugar (as a cheaper alternative to apple juice), whereas craft ciders utilise juice from Irish-grown apples instead. In the related drinks category of beer, micro-scale breweries now have about 10% of the total market. With appropriate supports, it is envisaged that craft cider production could emulate this success. Priority Issues for Budget 2016 To support the development of the high-value artisan cider production sector, and to remove barriers to sales and distribution of craft cider, the following measures are proposed as a priority for Budget 2016: The upper excise band for cider should be removed. The result would be a single rate of duty of €94.46/hectolitre, for all ciders of volume from 2.8%-8.5%; and An Artisan Cider Manufacturers License should be established for annual production quantities up to 1,000 hL. Such a license would permit both retail and wholesale sales. Measures to Support the Development of the Sector in the Medium Term Over the medium term, further changes to the excise and licensing regimes to support the development of the craft cider industry should be introduced. These include: Similar to the reliefs provided to the micro-brewery sector, it is proposed that a 50% duty rate would be applied to all cider-manufacturers for the first 200 hectolitres of output produced annually; The requirement for a bonded warehouse for producers of less than 200hL per annum should be removed; and The current wine retailer license for on and off licences should extend to cider sales. Economic Benefits of Proposed Changes Craft cider currently has a little over 1% of the total cider market. If it were to mimic the success of craft beer and achieve market penetration of 10%, this would result in a growth in annual production to 7 million litres annually. This would result in increased employment of almost 100 extra FTE’s in apple production, and 70 in the cider production, with more in marketing and sales. Encouraging a switch to consumption of craft product would also result in a VAT gain for the state. The typical premium at retail level for craft cider is €2 to €3 per litre. At €2/litre, an additional 7 million litres of craft cider substituting for the same volume of industrial cider, would result in additional sales value of €14m, the VAT content of which would represent an additional €2.6m to the exchequer annually. In addition, if the higher excise band were amalgamated into the existing main band, Irish Craft Cider has the ability to compete with, and substitute for, imported wine. The placing of premium ciders on the drinks lists of the best restaurants in Ireland would support our image as a country producing top quality food and drinks and enhancing our tourism industry. 2 Table of Contents EXECUTIVE SUMMARY ........................................................................................................................... 1 PROFILE OF CIDER INDUSTRY IN IRELAND ..................................................................................................................... 2 PRIORITY ISSUES FOR BUDGET 2016 ................................................................................................................ 2 MEASURES TO SUPPORT THE DEVELOPMENT OF THE SECTOR IN THE MEDIUM TERM ................................................... 2 ECONOMIC BENEFITS OF PROPOSED CHANGES ..................................................................................................... 2 1 PROFILE OF THE IRISH CIDER AND PERRY INDUSTRY ..................................................................... 4 1.1 OVERVIEW OF THE SECTOR .................................................................................................................... 4 1.2 BARRIERS TO GROWTH OF THE CRAFT CIDER SECTOR IN IRELAND ................................................................... 4 2 PROPOSED CHANGES TO THE EXCISE AND LICENSING REGIME – PRIORITIES ................................ 6 2.1 CURRENT EXCISE REGIME ...................................................................................................................... 6 2.2 PROPOSED CHANGE TO EXCISE REGIME .................................................................................................... 7 2.3 CURRENT LICENSING REGIME ................................................................................................................. 8 2.4 PROPOSED CHANGE TO LICENSING REGIME ............................................................................................... 8 3 ADDITIONAL MEASURES TO SUPPORT THE DEVELOPMENT OF THE SECTOR ................................. 9 3.1 REDUCED DUTY LEVELS FOR SMALL-SCALE PRODUCTION .............................................................................. 9 3.2 ADDITIONAL PROPOSED CHANGES TO THE CIDER LICENSING REGIME............................................................... 9 4 ECONOMIC BENEFITS OF PROPOSED CHANGES .......................................................................... 10 4.1 EMPLOYMENT .................................................................................................................................. 10 4.2 ADDITIONAL TAX RETURNS TO EXCHEQUER ............................................................................................. 11 4.3 ADDITIONAL BENEFITS ........................................................................................................................ 11 APPENDICES ......................................................................................................................................... 11 APPENDIX I - ARTICLE 13 OF COUNCIL DIRECTIVE 92/83/EEC ............................................................................ 11 APPENDIX II – CRAFT & SMALL-SCALE CIDER PRODUCERS IN IRELAND .................................................................... 13 APPENDIX III – LABOUR INPUT OF CRAFT CIDER - SURVEY OF PRODUCERS ............................................................... 14 APPENDIX IV –COST OF PRODUCTION DIFFERENCES BETWEEN INDUSTRIAL AND CRAFT CIDER PRODUCTION ................... 16 APPENDIX V – CARBON SEQUESTRATION IN ORCHARDS ...................................................................................... 17 3 1 Profile of the Irish Cider and Perry Industry 1.1 Overview of the Sector The cider-making industry in Ireland comprises two sectors. The more dominant sector is that producing cider at a large or industrial scale. The cider made by this method is manufactured predominantly using sugar, water and flavours, with about 30% apple content. There are a small number of domestic manufacturers in this category, who in 2014 produced about 58 million litres of output, with imports of a similar product of a further 8 million litres. Employment in the industrial cider manufacturing sector is small, due to the high levels of automation, and lean corporate structures. Employment in apple production as a raw material for this sector in the Republic of Ireland is about 25, and in Northern Ireland about 100. There are at least 12 smaller-scale craft cider producers, who, in 2015, will produce close to 1 million litres. Seven of these are also commercial growers of apples themselves. These small-scale cider producers have, with one exception, started operations in the past five years. The product they make comprises little or no added sugar and water (over 85% apple content), and is therefore considerably more expensive to manufacture, and sells at a premium price1. In the wider apple production sector, there are 40 commercial producers of apples in Ireland, supporting 58 full-time and 236 part-time employees. All apples used in craft cider production are sourced in the Republic of Ireland, and employment in apple production for this sector is about 8 FTE’s. Direct employment in craft cider manufacturing is about 10 Full Time Equivalents (FTE’s), with a further 10 in sales and marketing. For cider production, this represents ten times more people employed per unit volume produced than is the case for industrial-scale manufacturers. In the related drinks category of beer, micro-scale breweries now account for about 10% of the total market. If the aim of reaching a 10% total cider market penetration with craft ciders were met, assuming a static market size, an extra 70 people would be employed in production, and close to another 100 would be employed to grow the extra apples required. In addition, many cider makers are planning to launch products that compete directly in the wine category, as lower-alcohol alternatives to wine, to accompany food in wine-style bottles, essentially as the Irish-made alternative to imported