Friday, 19 February 2010

Cider duty to rise?

Apparently the government are contemplating a significant rise in cider duty. Now, I remember the last time I mentioned this subject I was accused of having no idea what I was talking about, so I will try to tread carefully. But it’s very noticeable that draught Strongbow, although only 4.5% ABV, sells in pubs at a similar price to Guinness and Stella, and well above the price of cask beers of comparable strength. Does that mean that Strongbow is more expensive to produce, or that Bulmers are making a higher profit margin on it?

On the other hand, it is equally noticeable that the most bangs per buck you can get on the off-licence shelves comes from 2- or 3-litre PET bottles of cider, either white or “standard” brown. Often the price per unit of these ciders is only about half that of the super-strength lagers that attract so much criticism. Nobody can tell me that people are drinking this stuff because of the refreshing taste and not because it gets you pissed cheaply.

So it could be argued that the fact that the duty on cider is much lower than that on beer is at the same time featherbedding the dominant player in the cider market and encouraging irresponsible bottom-end drinking.

I am well aware that there are many small independent cidermakers who might suffer from an across-the-board duty increase. But, provided that there was a cider equivalent of Progressive Beer Duty to protect them, it is hard to justify the retention of a duty differential between cider and beer.

10 comments:

  1. It's very easy to justify a duty differential between cider and beer for all kinds of reasons. The economics of cidermaking are very different to those of brewing, and have more in common with winemaking, though sadly without the premium price which quality wines achieve, which is a major part of the problem.

    Unfortunately, the vast majority of what is sold in this country as 'cider' is in fact cheap, low juice content, industrially produced alcopop. IMO, there is no justification for the lower tax rate on this section of the 'cider' market, though the cider industry's main lobbying body, the National Association of Cidermakers, not surprisingly disagree with this view.

    Most, if not all cidermakers agree that a sliding scale of taxation in line with that which brewers benefit from is the way forward, albeit with a very low starting point for very small-scale producers such as us, who would otherwise not be in a position to make anything from their hobby, and would therefore thow in the towel to the benefit of nobody.

    However, it is my opinion that a sliding scale of duty based on size of production is only part of the solution, the main issue is around juice content. Pure juice cider is incredibly expensive to produce, but sadly does not command the kind of price which makes it a viable business at the small-scale level. Taxing pure-juice cidermakers at the same punitive level as the cheap alcopop 'ciders' would leave craft cidermakers with two choices. Reduce the juice content of their ciders so as to remain finacially viable, or stop selling their craft cider at little or no profit.

    From our perspective, if we had to pay duty rates at the level of the smallest micro-brewer, it would be a very simple decision. We would continue to make cider as a hobby, but instead of selling it, therby generating interest for local pubs and festivals, as well as income tax on sales, we would simply distribute our ciders and perrys to friends and family, drink more of our own produce (of which we currently drink very little, prefering to support our local pub) and visit pubs less. I doubt we would be the only small-scale producers taking this approach....

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  2. I agree Karen and Mark. We produce a small amount of cider every year; we sell to three pubs and local festivals. It is just a hobby, if we had to pay duty we would just have to up our prices and people would probably pay it. BUT the paper-work that would come with due diligence, abv recording etc, the stuff that goes with micro-brewing, would make the whole process unviable. This may only affect a few cider produces in the UK, but is something that is special about this country. I suppose that is what this blog is about, fighting for this country’s individuality which being eroded by the neo-prohibitionists etc.

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  3. AIUI there is a level below which cider can be produced without any duty being applied - I don't see that this proposal will stop that.

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  4. When Kristy called for this change, I resisted supporting it as I simply didn't know enough about the subject to make a judgement. I suspected there is more to it at the craft end, but saw no reason for the industrial producers to be advantaged.

    Thanks guys. I get it now. It's a combination of ingredient and scale basically. I am sure a clever bit of legislation is devisable, but will it be clever enough to protect small producers? If it happens, let's hope so.

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  5. To there credit, the NACM continue to vigorously defend the continued existence of the duty exempt limit. This current proposal will probably not affect the exemption, but this is a legal anomaly in the EU and is therefore always under threat.

    The exemption was initially introduced for a very good reason. Small-scale traditional cidermaking, of the type practiced by hundreds of farmers, smallholders, and craft producers such as ourselves, would cease to exist as a commercial proposition without it. The level of production at which the duty exemption applies (7000 litres) was set to protect traditional farm cidermakers, and reflects the fact that even at it's most expensive, this level of production cannot be considered viable as a stand alone business. This is still true today, with no small-scale cidermakers making a living from cidermaking alone AFAIK. ie. it's a paying hobby at this level.

    The proposed duty hike has the potential to put medium scale pure juice producers such as Sheppy's, Burrow Hill, Aspall, Gwynt-Y-Ddraig etc. into serious decline at a point when they are enjoying the first period of sustained growth for decades. Most smaller local producers who are above the duty exempt level, such as Ross-on-Wye, Gwatkin, most Devon and Somerset producers, would likely be put out of business.

    The larger regional and national cidermakers would have the choice of taking a massive hit on profits, or cheapening their 'ciders' even further. Good result all round then...

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  6. "it is hard to justify the retention of a duty differential between cider and beer"

    It's quite easy, actually. Cider is not beer.

    Whatever the justification for this tax rise, the main problem to my way of thinking is that it isn't going to end here. The camel's nose is poking into the tent again.

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  7. The principal factor which helps to explain the different tax levels between cider and beer, is the long term investment required in orcharding by cidermakers.

    Cidermaking at any level above hobby scale is entirely dependent on the vertical integration of orcharding and cidermaking. To grow a cider business requires a secure supply of fruit. Orcharding is a long term commitment, factored over some 25 years. A new orchard, even of modern bush plantings, will not come into useful crop for at least 5 years. As we know, orcharding in the UK has been in serious decline for decades, however, it is no coincidence that new large-scale plantings of orchards have occured during recent years of lower taxation of the cider industry. This is a direct result of improved confidence within the cider industry that their market will contine to grow, and therefore the long-term investment in orcharding can be sustained.

    My prediction is that if tax on cider goes up significantly, fruit contracts will be re-negociated downwards, driving many contract growers out of apple growing. Contract growing for cider is a marginal business already. Direct planting by cidermakers such as Westons, Bulmers, C&C etc. will be scaled back or even ceased.

    I understand this is the main thrust of the industrie's argument against a hike in duty for cider. Whether a healthy and sustainable future for UK orcharding is considered more important than the supposed health of drinkers remains to be seen...

    I hope some in the brewing industry, and SIBA members in particular read these comments, it may give them a better understanding of the issues, and perhaps help them take a less black-and-white approach. Perhaps the cider industry have been too slow in explaining the complexities affecting the cider industry, but as I've already said, this may be down to being seriously compromised by their support for drinks which only bear a passing resemblance to 'cider'.

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  8. I'm sure a scheme could be devised which retained the duty exempt limit, charged duty for small commercial producers at the same rate as at present, but equalised duty with beer for the large-scale industrial producers.

    But I'm very sceptical about any proposal to vary the rate of duty on a qualitative basis, as such tests are open to abuse and it is not in my view the role of the State to make value judgments between different forms of alcoholic drinks.

    And I hardly think Frosty Jack's contributes much towards UK orcharding ;-)

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  9. What a pile of middle class toss. There is no reason for any craft producer of anything to get anything by way of a tax break. The economy is not best served by small scale inefficient production being maintained through the use of perverse incentives. Would you guys argue that bespoke tailoring ought to get a tax break so the rich banker pays less tax for his thousand dollar suit than the 18 year old kid buying a cheap off the peg for his first job interview? Would you argue for a tax break for the rich banker buying a hand built car? Also why is it okay for nice middle class people to get as pissed as they like on nice craft grog whilst it’s morally reprehensible for the poor to sit in their squalid council houses and drink a bottle of cheap grog that you don’t like in front of the X factor?

    Either craft cider has a market or it does not. Tax breaks for inefficient small scale producers are immoral and benefit only those able and willing to pay.

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  10. Bottles of Strongbow were a "life-saver" to many a penniless student back in the mid-1970's. I should know, as I was one!

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