No consumer goods maker is safe from the fickle tastes of the consuming public. Not even brewers of beer.
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Due to rising health consciousness among consumers, beer consumption dropped 2.8 percent from 2015 to 2018, according to alcoholic beverage tracker IWSR. Beer has declined from about 60 percent of total U.S. alcohol consumption in 1998 to around 47 percent in 2018, IWSR data show.
Unfortunately for the beer industry, at the same time changing consumer tastes are diverting revenues into other drink categories, rising aluminum prices are increasing the costs of producing a six-pack. The U.S. government’s imposition of 10 percent tariffs last year on aluminum imports resulted in higher aluminum prices -- plain and simple.
American aluminum consumers rely on imports for about 90 percent of the material they use, and despite lifting of sanctions on Russia and removal of tariffs on Canadian production in May, some 35-40 percent of the aluminum imported by U.S. consumers remains subject to tariffs, which directly impacts prices. Beer companies and many others have felt the effects of that.
With its revenues declining for many reasons including consumer tastes and health focus, the beer industry is attempting to regain its footing by lobbying the government to override these market dynamics through enactment of the Aluminum Pricing Examination Act (the APEX Act), which would vastly expand the power of the Commodities Futures Trading Commission and the DOJ by granting them authority to set the price of aluminum.
In defending the APEX Act, Pete Coors recently acknowledged he has given up on market forces and sees “government intervention” as “necessary.” Coors would double down on government interference in the proper functioning of markets instead of focusing on price negotiations with aluminum can suppliers. History shows that government intervention typically means that consumers pay. Anyone who remembers the oil and gas shortages of the 1970s can attest to that.
In 1971, the Nixon administration’s implementation of price controls on oil and gas led to a disastrous decline in oil and gas exploration and development in the U.S., making the country more dependent than ever on foreign oil. This dependence set the stage for the 1973 and 1979 oil shortages that saw Americans lining up around the block at gas stations that were sold out within hours.
Artificial price caps ignore market forces and impact the key factor that should be a determinant of prices, global and local supply and demand. Following external events like major hurricanes Katrina and Rita, which drove gas prices up significantly, the FTC studied the issue. The FTC concluded that the market worked well – without evidence of price gouging or manipulation- and that price controls would have made the situation worse, increasing costs for consumers.
Supporters of the APEX Act falsely claim collusion to justify government interference in aluminum prices. The improbable focus of their frustration are price reporting agencies such as S&P Global’s subsidiary Platts, which simply aggregates and reports the prices gathered by its real-time survey of aluminum buyers and sellers, bringing transparency to an otherwise opaque market. At best ill-informed and at worst self-serving, the allegation is like accusing the Wall Street Journal of fixing the share prices it publishes.
Passage of the APEX Act won’t spur rising demand for beer and may have unintended consequences that cause significant harm to American consumers. The precedent set by this legislation that government price-fixing is a solution with a positive outcome is a slippery slope. It won’t help American producers of aluminum either. Brewers should be seeking out new revenue streams and producing products consumers want to drink, not trying to game the market through government price-fixing.
Martin Fraenkel is President of S&P Global Platts, a division of S&P Global and the leading independent provider of information and benchmark prices for the commodities and energy markets. Based in London, Martin is a member of the S&P Global Operating Committee.