Craft breweries facing increased steel, aluminum costs — and warn that costs may fall to consumers

GILBERT, Ariz. (FOX News) -- When it comes to the US-China trade war tariff talks, what's on tap for craft breweries is dealing with the ripple effects of this impacting their bottom line.

"The cost of these tariffs are only one or two cents a can of beer, so that doesn't seem like a lot but…there's sort of a bullwhip effect that a small cost upstream ends up being amplified as it moves downstream," Dale Rogers, Arizona State University logistics and supply chain management professor, said.

It's flowed to craft breweries like OHSO Brewery in Arizona, which is feeling the effects of costs going up from their steel and aluminum suppliers, including their kegs. Josh Goodstein, production manager of OHSO's Gilbert location, said they've already seen "price jacks" for the kegs -- over the last year, a $2,000 increase per 100 kegs -- and that the keg manufacturers anticipated it coming to this point.

"These tariffs are pretty threatening to the craft brewery industry," Rogers said. "These guys, many of them tend to be fragile… for the most part, the folks that are in it are small businesses, they're not big businesses, they don't have a lot of access to capital. It's harder for them to be resilient to what seems to the industry as an unnecessary, artificial change in the pricing structure due to these tariffs. And remember, tariffs are really attacks."

Goodstein had said on May 10, 2019 that more items were anticipated to be added on to the 25 percent tariff on steel list, including kegs, iron steel tanks, cask drums -- which comprises a lot of the equipment they use to make beer.

"Right now, there's a 25 percent tariff on stainless (steel) and a 10 percent on aluminum," Goodstein said. "And just those little bits, pennies -- our margins are so tight, it's almost impossible for us to pass that on to consumers and not absorb a chunk of that ourselves… You're literally indirectly affecting the cost of everything that we purchase locally. So, it's not getting money from elsewhere, its getting money from the people that are purchasing these goods, which are all of the local business and small businesses."

Every piece of stainless steel equipment OHSO Brewery uses to make beer, from the tanks to the kegs to the cans you buy from the store, have some materials in them from China. Even if their suppliers are American, some of the raw materials in the steel are from China.

"The people that really feel the pinch of the Chinese tariffs right now are disproportionately the small breweries," Goodstein said.

Rogers said the tariffs are even hurting the large breweries as well, because of the cost of aluminum. Rogers said U.S. aluminum suppliers "have taken advantage" of the tariffs and charged brewers as if there were tariffs on all aluminum. In the U.S., beer cans are comprised of about 70 percent recycled metals and 30 percent aluminum, he notes.

Jeff and Leah Huss are feeling the effects of the tariffs. Their company, Huss Brewing, is the third largest craft brewery in Arizona, and they also rely on steel and aluminum for their business in Tempe, where they can 50 percent of their beer.

Jeff said he went to one of their suppliers and they were all out of lids and Leah also noticed something different when checking one of their invoices:

"I discovered on one of our invoice things was a disclaimer about our tap handles that come from China through an American company -- they don't have any tariffs on them yet but they are just giving a heads up that that might be something in the future," Leah Huss said. "In regards to the cans, it seems to be an every-changing situation and one that anyone and everyone keeps talking about in our industry. Much like the rest of the ingredients that we use in the process of canning and getting our beer to market, we will not adjust the pricing of our six-packs or twelve-packs and pass those on to the consumer."

Leah Huss said that tariffs, "just like any other fluctuation cost of product… definitely affects our bottom line."

Retail sales of craft beer increased in 2018 by 7 percent, up to $27.6 billion, making up more than 24 percent of the $114.2 billion U.S. beer market, according to the Brewers Association.

Susan Dubois is a registered nurse who consumes beer like many other Americans and also enjoys making it herself. She agreed that tariffs are going to hurt craft breweries because they "don't have giant profit margins."

"These folks are just trying to make a living… They're small business owners and five more cents on something," Dubois said. "It hurts them. It really does hurt them."

And for the everyday American, Rogers thinks the tariffs will start showing up more in price tags as consumers shop.

"With the most recent round of tariffs that President Trump just put on, it's likely that consumers will … get to pay off increased prices on a lot of stuff," Rogers said. "The first round of tariffs was painful to a lot of companies but in some cases they ate the cost of those and didn't pass on a lot of the increase to consumers. But this time around, they're probably going to have to. There's going to be some products where you just -- it'll be unlikely that anyone will be buying, say, for example, backpacks that come from China."

President Trump, however, said tariffs are rebuilding the steel industry, and that it's booming.

"We placed a 25 [percent] Tariff on 'dumped' steel from China & other countries, and we now have a big and growing industry," President Trump said in a tweet. "We had to save steel for our defense and auto industries, both of which are coming back strong."

Dubois said "there's no reason to have a trade war with anyone."

"I think that President Trump is poking the bear… This is going to cost the American consumers a lot of money," Dubois said. "It's going to hurt us. It's going to hurt the average worker."

For entrepreneur Tom Maoli, who partnered with Trump in 2009 to found a classic car show, he said aluminum tariffs undermine Trump's pro-job, pro-growth agenda and that these tariffs will "drive the price of Americans favorite drink up and cause consumers to shell out more for their can of Bud."

"While long overdue, I think the president is right on target with his analysis and assessment of the situation as China has been eating our lunch for years," Maoli said. "But as usual, his approach has been his issue since he has taken office. I think this is a dangerous game… This trade war has become a serious uncertainty for U.S. businesses and consumers, and has put pressure on U.S. markets."

The Arizona Craft Brewers Guild joined craft breweries from all 50 states in Washington to lobby for keeping their taxes from doubling. The Craft Beverage Modernization and Tax Reform Act is set to expire at the end of 2019 and would increase the federal excise tax by 100 percent from $3.50 gallon to $7 gallon.

Goodstein is calling these taxes, along with the tariffs, a "two-headed monster attack on small businesses and breweries."

Though there was a recent announcement of steel and aluminum tariffs being lifted in Mexico and Canada, there is still concern from craft breweries over the China tariffs.

"Nothing is settled yet," Rob Fullmer, Arizona Craft Brewers Guild executive director, said. "However there is no denying our lobbying efforts on the hill [on Thursday] have had an impact.

"Sure there is [concern], but also you can't live in fear, you just have to go out and operate and have hope and faith that everything's going to work out for the best," Leah Huss said.

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