BI Hill Climb 2019
Ryan and Tasting Room General Manager Chris Costello flew down to D.C. last week for the Beer Institute’s annual Hill Climb, eventually getting stuck down there during that awful storm that shut down everything along the Eastern Seaboard.
However, that simply gave them more time to discuss matters that affect the brewing industry with our local officials. (Or, more accurately, hunker down in the hotel, wait for the storm to pass, and work on their budgets for 2020.)
Regardless, aside from a few networking and social events — where Cape May beer flowed liberally –, they engaged our legislators on two bills up for review: CBMTRA and the APEX Act.
This was Chris’s first visit to D.C. as more than a tourist, and he was fairly impressed.
“It was very exciting,” he said. “For me, it was interesting to see how government actually works. You know, sitting at home, watching on TV, it’s easy to build up an opinion, but it was refreshing to see that our voices can be heard and we can actually make a difference.”
(Could you feel the music swell? “America the Beautiful” growing from the distance? Your chest puffed out with pride?)
Chris was impressed with Ryan during the trip. While Chris was going in a little capraesque, Ryan might be a bit more sorkinesque.
“You could tell he was seasoned,” Chris says with a smile. “One thing I found kinda funny is that he knew how to get around the House building better than the professional lobbyists. At one point, the guy was going one way and Ryan was like, ‘I’m pretty sure we’re supposed to go that way.’ The guy stopped for a second and was like, ‘Oh, yeah, yeah, you’re right….’”
Ryan and Chris met with our House representative, Jeff Van Drew (D-2), Senator Cory Booker’s tax staffer, and Reps. Brindisi (D-22) and Katko (R-24) from New York.
“They’re all cosponsors of CBMTRA,” Ryan says, “so we were there to thank them and remind them of the importance of the legislation.”
Ryan explained to them that, even though we’re a relatively small business 20 miles out in the Atlantic, CBMTRA saves us about $100,000 a year.
“We plow every dollar we get back into the business,” Ryan says, “so we could get a lot of mileage out of $100,000. It’s jobs. It’s investing in the business. Without it, it slows us down.”
As we mentioned in a previous blog, CBMTRA expires at the end of the year, but we hope that it gets extended or made permanent.
“But they’re waiting for a tax extender bill,” Ryan says.
However, even that can be difficult: while the entire New Jersey delegation cosponsored the original version of CBMTRA, voting for the tax act was split on party lines, even though CBMTRA has a veto-proof supermajority in the Senate and is two votes shy of that threshold in the House.
On the other hand, Chris and Ryan were also testing the waters on a new bill, the Aluminum Pricing Examination (APEX) Act.
“Our aluminum prices have gone up,” Ryan says, “costing us an additional $50,000, so that cuts in half the tax savings we see from CBMTRA.”
There is nothing at all transparent about aluminum pricing — it definitely needs examination. You probably wouldn’t expect it to be as volatile as it is, but, here we are, having to lobby our legislators to take a look at things.
One of the first things we need to understand is that aluminum is a commodity, meaning that it’s more-or-less unchanged across the market. Alcoa’s aluminum is the same as Century Aluminum’s aluminum: they’re both mining bauxite, smelting it to aluminum, and sending it into the world. There are nine aluminum smelters in the country and only two American aluminum companies.
However, for some reason, these guys get to decide pricing. Not pricing of aluminum, mind you, because that would be price-fixing. Instead, a rating agency called S&P Global Platts fixes the price of the shipping and handling of aluminum, calling it the “Midwest Premium.”
“The Midwest Premium smells like profiteering,” Chris says. “‘Alright, cool. Hopefully, no one notices this thing going on, and hopefully, we can pass the blame.’”
Essentially, they’re using a “proprietary formula” — meaning, “We’re not going to tell you how we come up with this number,” — and tacking it onto the price of the aluminum.
And, of course, putting this extra money into the pockets of the aluminum producers.
“The price of aluminum has nearly doubled since the beginning of 2018,” Ryan says, “and there’s no market-based reason for it to increase so significantly.”
While you’ve likely heard of President Trump’s tariffs on Chinese aluminum, that shouldn’t affect the price we pay for our cans. We ensure that all of our aluminum is American and Canadian, from recycled aluminum; therefore, it doesn’t really matter what the tariffs amount to on Chinese aluminum. There are no tariffs on Canadian aluminum and we’re certainly not paying tariffs on American aluminum. The Chinese tariffs should have no effect on what we pay.
Yet, it seems that S&P Global Platts is using the rising trade war as an excuse to hike up the Midwest Premium, using fluctuating global aluminum prices as an excuse to make more money.
“It’s seems like smoke and mirrors,” Ryan says.
In a statement to Bloomberg, US Commerce Secretary Wilbur Ross said, “The fact of aluminum’s price going up does not seem to justify a huge increase in the Midwest premium. That premium was originally intended to cover transportation handling costs. Those are not a function of the underlying price of aluminum. In addition, the Midwest premium is now based on a survey of market participants, not actual trading.”
And we really can’t do much about it. We don’t want to raise prices to offset this cost — that’s not fair to you — so we suck it up. Or, more accurately, we throw our weight behind the APEX Act.
“It provides regulatory oversight into the Midwest Premium and how its priced,” Ryan says. “That’s all we’re asking for is oversight. We’re not asking for a discount, we’re not asking for anything. We only want some oversight.”
The APEX Act authorizes the Commodity Futures Trading Commission — an independent agency of the government that regulates derivatives markets — to set reference prices for aluminum premiums.
Aluminum pricing is something that affects all of us in the brewing industry — from us little guys all the way up to Big Brew. It’s rare that both are on the same side of an issue.
“It was interesting to be able to play with some of the big boys — MillerCoors, AB InBev,” Chris said. “It’s important to them, as well.”
CBMTRA doesn’t have as large an effect on the big guys — they’re saving $2 a barrel with CBMTRA, which isn’t as large as the 50% reduction that we see. However, aluminum pricing affects us all at the same rate.
“It’s amazing how much two little laws affect someone as small as we are,” Chris said.
Reportedly, the representatives our guys met with were “open” to APEX. It’s a relatively new bill: it was introduced in October of 2018 but didn’t really begin to see traction until the end of the year. The legislators hadn’t really had the chance to become as familiar with it as they are with CBMTRA until it was reintroduced in both houses in March of this year.
“They wanted to look more into it,” Chris says. “For a lot of them, this was their first time hearing about it.”
“But everybody was really receptive to it,” Ryan says. “They all said they’d look at it.”
And, you gotta start somewhere. Even the American Revolution began with a single shot in Lexington.
“One of the big questions was whether it would be bi-partisan,” Chris says.
We think it should be. At the moment, it has 42 cosponsors in the House — 21 Democrats and 21 Republicans — and 4 cosponsors in the Senate — 2 and 2, so it looks like it’s as bipartisan as it gets.
It’ll take a while, though. A form of CBMTRA was originally introduced back in 2015 and it took two years to get rolled into the tax cuts of 2017. However, there was no major opposition to the legislation — CBMTRA doesn’t have a deleterious effect on anyone except the government. Those two aluminum producers and S&P Global Platts definitely have an objection to APEX.
“It’ll probably be at the last minute,” Ryan says, “in December, before everyone goes on recess.”
It’s an idea whose time has come.
“I think the big thing is that the Midwest Premium has flown under the radar for years,” Chris says. “They’ve finally made a big enough splash that they’ve caught our attention. Now, it’s time to take notice of it.”
Ultimately, Chris came away with a better appreciation for his elected officials.
“Don’t be afraid to speak up to your local lawmakers,” Chris said. “They liked us coming down; they get tired of seeing the same faces in front of them every day. To hear from the people it actually affects, it’s important to them.”
So speak up! Contact your legislators to let them know that you support the APEX Act.