Cost of a Pint

Have you ever wondered what makes up the actual cost of your pint of craft beer? Me too.  I searched the interwebs for an answer to that question and to my surprise there was very little information about what actually makes up the cost of a pint. I guess that isn’t really surprising since most of the products we buy have hidden costs. Think about it. Do you know what the actual costs are for an oil filter, a loaf of sourdough bread, or an iPad? We know what we are willing to pay for these items, but do we really know the factors that make up the costs?

As for a craft beer, much of the costs come down to where your beer is brewed. Taxes, ingredient costs, labor, and whether the brewer owns their place of business can radically change the costs associated with producing a pint of beer. The size of the brewer’s setup can also have a large impact on the costs associated with production. A 100 barrel brew house may actually have higher ingredient and labor costs versus a 10,000 barrel brew house, but that aside, let’s speak in generalities. The following assumptions will be made on the basis of an average pint of beer costing $5 dollars.

Let’s say for the average brewery it costs about $50 per barrel (31 gallons) in ingredients to produce your average pale ale, but could go as high as $70 per barrel depending on the brewer’s setup and ingredient costs. If that barrel brings in revenue of $700 a barrel, between 6 to 8 percent of a pint of beer pays for the ingredients. To the average homebrewer that would mean your average 5 gallon batch of pale ale would cost less than $11 (wouldn’t that be nice).  Ingredient costs will also vary with the brewery’s location, shipping costs, and efficiency of their setup. Even a $0.06/lb difference in ingredient costs or a 3 percent difference in malt yield can have a large impact on the bottom line. ⁽¹⁾ If you were running a 10,000 barrel brewery and had a 3% decrease in efficiency that would increase your grain bill by about 15,500 pounds per year. For a million barrel facility that inefficiency would be an additional 1.55 million pounds of malt.⁽²⁾

Taxes are another part of the cost of a pint that will vary depending on the state you live in. Federal excise taxes vary depending on the brewery’s production rates with tax rates starting at $7 on the first 60,000 barrels for a brewer who produces less than 2 million barrels and $18 per barrel after the first 60,000 barrels. ⁽³⁾ That roughly works out to between 2 and 5 cents per 12oz can/bottle of beer. State beer taxes vary from state to state. Alabama has one of the highest beer tax rates with a 60 cent excise tax and 10% sales tax (45 cents) for onsite sales for each pint. That means the average Alabamian is paying 21% of their pint toward taxes versus 5.34% in Wisconsin.

Labor and equipment costs vary widely based on brewery size and equipment setup. Equipment setup can cost between $100,000 on the low side to millions of dollars on the high. Financing setups and paying employees can take a large chunk out of the remaining revenues that don’t go to ingredients and taxes. However, once equipment and/or the building are paid for, then a larger portion of the remaining revenue becomes profit. Of course the end result of more profits may lead the brewer to buy new equipment to make more beer. Whatever the costs that make up a pint, I am happy there are more and more craft brewers out there offering up some very tasty beers.

---

1. Metzger, S. What Does Your Beer Really Cost. The New Brewer. Jan 2012. https://www.brewersassociation.org/attachments/0000/8424/JF_TNB12_Beer_Costing-1.pdf
2. Papazian, C., 1994. Home Brewer’s Companion. Avon Books.
3. Beer Tax Rates by State. Jan 2014. http://www.taxadmin.org/fta/rate/beer.pdf

Beer Consumption Transcends Demographics (mostly)

A recent trip to Europe got me thinking. Wait, wait, before you begin the eye rolls or the sighing, this is not yet another post on the wonders of European travel or a nose lifting espousing of European beer. It was my first trip to Europe and it got me thinking about beer consumption rates and how they compare to the United States and of course my science training took over. I wondered what factors could contribute to or go hand in hand with beer consumption rates? Could it be as simple as the number of breweries, the population per brewery, per capita income, or could it be seasonal temperatures? Obviously there are a multitude of factors at work in determining the impacts on beer consumption, but I was surprised by some of the results.

I started out with looking at the top ten per capita beer consumption countries. It was no surprise that the top ten looked like a line up for a 19^th century polo match, affluent (mostly), white (mostly), and European or former European colonies (Australia, Venezuela). I also looked at some countries with large production rates such as Belgium, Netherlands, and Canada as well as the bottom ten countries in the top 50 for per capita consumption. Some of these countries included Japan, Angola, Namibia, Mexico, and the Scandinavian countries. I hoped by adding some non-European countries that I might see some different trends, but again I was surprised with what I found.

When I began looking at some of the correlations (a mutual relationship or connection between two or more things), I was really surprised by some of the factors that I expected to have an impact on per capita beer consumption had no apparent relation. I was also surprised that production rates, including the number of breweries and population per brewery, had no correlation with per capita consumption rates. Total beer consumption was positively correlated to the number of breweries, total beer production, and summer temperatures. I would have thought winter temperatures may have had a positive correlation to consumption as I know I tend to feel like drinking more in winter.  Interestingly enough as beer consumption increased dairy consumption decreased, but I think this was largely due to countries at the bottom of the top 50 which had low dairy consumption rates (Angola, China, Namibia). When I looked at just the top 15 countries I didn’t see any correlation between dairy consumption and beer consumption rates, but again these were mostly European countries that have relatively the same dairy consumption rates.

The most surprising thing was that I didn't find any relationship between beer consumption rates and income. Studies have found a relationship between income and consumption rates ^(1,2) but those studies mainly looked at in-country numbers or regional comparisons. Even by looking at the bottom of the top 50 list, which has some relatively poor countries, I still didn’t see any correlation between income and beer consumption. Excise taxes also didn’t have any relation to beer consumption. Scandinavian countries have some of the highest excise taxes on alcohol but also have very high per capita consumption rates.

The only factor that seems to be a common thread is being associated with Europe. Most of the countries with the highest per capita consumption rates are European or were colonized by Western European countries. Beer may not have been invented in Europe but that is where it was perfected and has been brewed in its modern form since at least the Dark Ages. Some have made the argument that without beer (and wine) European civilization may not have been as successful as it was without safe drinking water (i.e. boiling/alcohol). Say what you will about European colonialism, but know that we have it to thank for the spread of beer globally. Prost! 

---

1. Österberg, E.L. 2011. Alcohol tax changes and the use of alcohol in Europe. Drug and Alcohol Review. 30, 124–129.

2. Freeman, D.G. 2009. Beer in Good Times and Bad: A U.S. State-Level Analysis of Economic Conditions and Alcohol Consumption. Beeronomics Conference, Leuven, Belgium, May 2009

Data Sources

http://vegetarian.procon.org/view.resource.php?resourceID=004716

http://en.wikipedia.org/wiki/List_of_countries_by_milk_consumption_per_capita

http://www.st.nmfs.noaa.gov/st1/fus/fus11/08_percapita2011.pdf

http://bovbeers.wordpress.com/2011/07/02/number-of-breweries-worldwide/

http://www.brewersofeurope.org/docs/publications/2012/stats_2012_web.pdf

http://www.fin.gov.on.ca/en/tax/bwt/rates.html

http://www.caseysbeer.com.au/?page_id=97

http://chartsbin.com/view/1491

http://www.climatemps.com/countries-a.php

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

http://apps.who.int/gho/data/node.main.A1184?lang=en?showonly=GISAH

http://www.ttb.gov/tax_audit/atftaxes.shtml