U.S. liquor and wine being removed from a store in Ontario, on Feb. 3.Supplied/AFP/Getty Images
Government liquor stores from B.C. to Nova Scotia are emptying their shelves of U.S. products as a retaliatory response to U.S. tariffs. Something is hiding in those empty spaces – a big opportunity to open up liquor retailing in Canada to more competition, greater interprovincial trade and expanded consumer choice.
Filling those spaces with Canadian-produced alcohol products will require politicians to force their provincial liquor retailers to, at long last, ease restrictive rules that make it far too difficult for craft distillers, brewers and vintners to secure a retail presence, even as they – at long last – remove restrictions on interprovincial liquor sales.
Earlier this month, the provinces and territories promised to swiftly break down interprovincial trade barriers that have long stymied the Canadian economy. “This unjustified tariff on Canadian goods has provided impetus for Canada and first ministers to take a bold and united stance to decrease internal barriers to trade,” Internal Trade Minister Anita Anand said as she announced the agreement.
The very first thing they promised to fix is the movement of alcohol across the country, starting with direct-to-consumer sales, which was only supposed to take weeks to come into effect. This was the low-hanging fruit among complex regulations over matters like labour mobility. But the urgency of the original announcement seems to have stalled – cross-jurisdictional work on that single measure is being described as being in the early stages, with key details still to be determined.
The barriers to Canadian producers run deeper still. British Columbia dominates the craft distilling industry in Canada, with 85 craft distillers producing a wide range of entirely made-in-B.C. spirits. There’s even a bourbon-style whisky that has won international gold. But only three companies have managed to get a handful of their products on B.C. government liquor store shelves, because the province demands the lion’s share of the sale price.
The province’s agriculture minister wants to see more B.C.-made products on liquor-store shelves. But a slow-moving bureaucracy (and politicians’ unwillingness to confront that inertia) has not shifted from policies drawn up a decade ago. Rather than action, the only commitment is to promise additional signage later this spring to point consumers to Canadian products, and to “continue to work with industry to align priorities with broader policy objectives.”
One of those broader policy objectives might be to revisit the province’s (perhaps unintentional) determination to keep craft distillers from growing. Their annual production volumes are effectively capped at 50,000 litres – a single bottle more and they face prohibitive markups.
B.C. says it can only do so much to replace U.S. liquor with Canadian offerings. Government liquor stores are required to balance limited shelf space with customer demand to ensure effective market competition, and the criteria for shelf placement ensures that they maintain “a fair and equitable market for all wineries.”
Other provinces are similarly cloistered. Ontario, one of the provinces that has pulled U.S. products, is directing consumers to a collection of over 3,000 local Ontario-made and Canadian-made spirits, wine, cider, beer and ready-to-drink beverages, on a new ‘Eh list’ on lcbo.com. Precisely one of those products comes from a B.C. craft distiller, underscoring the lack of free trade within the country today.
If the provinces want to demonstrate that they are serious about internal free trade, they could make the commitment to open up their liquor retailing systems to products from across the country (and force their liquor retailing bureaucracies to scrap market-throttling rules at the same time).
An innovative approach could turn today’s disruption into lasting growth. The model is already in place. The 1988 Canada-U.S. free trade deal threatened to devastate wine producers in B.C., so the province chose to innovate. It cost B.C. and the federal government a total of $28-million to save an industry that produced, at the time, $150-million in annual retail sales. Working with industry, the Vintners Quality Alliance program was launched. That investment has paid off in ways nobody could have predicted: today B.C. has a globally recognized, multibillion-dollar wine industry that even drives the tourism sector.
A similar opportunity lurks in the empty shelves of provincial liquor stores across Canada.