This blog originally appeared in the Houston Chronicle on 3/5/2013.

 

“Anti-competitive” – “tantamount to price controls” – “a government-sponsored price-fixing cartel.”

These were among the descriptions offered in the Texas Capitol during this morning’s public hearing regarding SB 639, the proposal supported by the Wholesale Beer Distributors of Texas over the objections of the state’s craft brewers and its other large distributor group, the Beer Alliance of Texas.

Listening in on the hearing, the rhetoric from two state business leaders and a conservative-leaning public policy expert was striking.

“That is very simply a government-sponsored price-fixing cartel,” said Mario Loyola of the Texas Public Policy Foundation.

Loyola, whose bio includes articles and op-eds in conservative publications, appearances on the Glenn Beck program and a stint as state policy adviser to former Republican U.S. Sen. Kay Baily Hutchison of Texas, said one provision of the bill would force manufacturers to charge one price to distributors in all circumstances but allow the distributors to sell at any price they wished.

“From the consumers’ point of view, that’s the worst of all possible worlds, restricted output and  higher prices at every level,” Loyola said. “In fact, the law, in our view, should be amended in exactly the opposite direction.”

I‘ll have a more complete story about the hearings in tomorrowtoday’s Houston Chronicle. Read it here.

I would note that the bill also drew opposition from the Texas Retailers Association, the Texas Association of Business and other groups. Even Anheuser-Busch went on record against the bill. Here is a text of the testimony from a Texas-based VP for the beer giant:

Senator Carona, members of the Senate Business and Commerce Committee:

My name is Keith Diggs, I live in Dallas and serve as Region Vice President of Sales for Region 5, which of course includes Texas.  I want to take this opportunity to thank you for your leadership over the summer months, working with Sen. Van de Putte and the TABC on our state’s alcohol laws.  That work has been inclusive, transparent and comprehensive.  Again thank you.

Anheuser-Busch has a long rich tradition in Texas. In the late 1800’s we had an ice house just outside of Houston and at the turn of the century, Adolphus Busch had a state-of-the-art hotel built in Dallas- bearing his name. The Adolphus Hotel remains in Dallas as you all know (and as an interesting aside) it was the first public building to feature central air conditioning in Texas. Additionally, we operate a state-of-the-art brewery in Houston, in addition to the Longhorn Glass Plant.

I’m here today to oppose SB 639 – which would establish a government price control for beer (but only from brewer to wholesaler).  I respectively urge your opposition to this unprecedented legislation because it is anti-competitive, anti-consumer and bad for Texas.

As you know, Texas is a vast and diverse state where local market conditions vary widely.  And although beer is unique, like other consumer product companies who depend on free-market principles to price their products, a brewer’s ability to compete in those various marketplaces would be restrained if a mandated, single government price were to be put into place.

Importantly,  free-market pricing flexibility  is needed to respond to changing competitive conditions, e.g. discounts by competitors, especially where a competitor only sells in certain locations as well as respond to varied market conditions (consider the Dallas Metroplex versus Wichita Falls or McAllen).

When the government introduces artificial restraints in free markets, history has consistently shown that prices rise. As the first tier in the 3 tier system, brewers need to take into account both the best and worst market conditions, as well as  the most and least efficient wholesalers , the manufacturer/brewer needs to cover its cost in all markets. Price controls will eliminate pricing flexibility, ultimately forcing us to raise prices to levels reflected in the most expensive markets, resulting in Texas consumer paying more for their beer.

Brewers are much less likely to discount or promote if statewide uniformity is mandated by the government. Wholesalers will pass that increased cost, plus whatever else they might want to add on in terms of price, onto the retailer, who in turn will pass it on to the consumer.

Put another way, the brewer /importer sets what is called a Price to Wholesaler, the wholesaler sets Price to Retailer and the Retailer the ultimate Price to Consumer.  We can only recommend to the wholesaler what he may wish to sell to the retailer, based on market conditions.

Government mandated uniform pricing will hamper any brewer’s ability to compete in local unique markets and events. No special promotions for the Super Bowl because we and every other brewer would have to offer it statewide. Advertising spends to support Fiesta in San Antonio could be a thing of the past because a similar spend would have to be implemented throughout the state.  All major sports teams and special events within the state would be impacted.

Respectfully this proposal is not the result of the summer interim hearing on alcohol laws. The trade association promoting this chose to attend meetings but not to fully participate. This idea was never raised at any of those meetings while other interested parties exchanged ideas and discussed ways to promote the state’s best interest.

Finally, it is unclear what problem needs to be solved.  The system works well and free market, flexible pricing is the best way to keep prices low and competitive for consumers.

Thank you. I would be happy to answer your questions at this time, to the best of my ability.

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