Craft Alcoholic Beverage Industry: Overview and Regulation

Craft Alcoholic Beverage Industry: Overview and Regulation

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Updated July 21, 2021
Craft Alcoholic Beverage Industry: Overview and Regulation
American production of craft alcoholic beverages—whether
for facilities with between 100,000 and 750,000 proof
beer, wine, liqueurs, distilled spirits , cider/perry, mead, or
gallons. Separate data are also not available for craft
fermented drinks—has increased in recent years in response
liqueurs.
to rising demand. In 2020, there were an estimated 21,745
businesses producing craft beverages in the United States,
Table 1. U.S. Craft Alcoholic Beverage Market, 2020
with sales of roughly $32 billion annually (Table 1). Sales
Selected Craft Definition
Number
Sales
%Total
from craft alcoholic beverage businesses account for
Operations
($bil ion)
Sales
roughly 8% of total annual U.S. alcohol sales.
Spirits (<750,000 proof gal.)
2,265a
6.1a
2.3%
Beer (<6 mil ion barrels)
8,764
22.2
23.6%
In July 2021, President Biden announced an executive order Wine (up to 49,999 cases)
10,716
3.7b
5.5%
Total
21,745
32.0
≈8%
on “promoting competition in the American economy”
Source: CRS from ACSA, Brewer’s Association, and Wines & Vines.
intended to address market concentration across a range of
Notes: Data wil vary under different “craft” producer definitions.
industries. The executive order includes actions intended to
a.
Data for distil eries with <100,000 proof gal ons are not available.
“protect the vibrancy of the American markets for beer,
b. Partial estimate, reflecting direct-to-consumer wine shipments only.
wine, and spirits, and to improve market access for smaller,
independent, and new operations.” Congress has previously
Beer
taken steps to support smaller alcoholic beverage producers.
The Brewers Association defines craft brewer as producing
It passed the Taxpayer Certainty and Disaster Tax Relief
annually fewer than 6 million 31-gallon beer barrels—about
Act of 2020 (P.L. 116-260), which made permanent
83 million cases (24 12-ounce cans/case). In 2020, there
temporary reductions in federal excise taxes on alcoholic
were 8,764 craft breweries in the United States with retail
beverages (Table 2). These industries also receive indirect
sales of $22 billion—about 24% of the U.S. beer market,
support through agricultural research and farm programs in
according to the Brewers Association. By volume, craft
periodically updated omnibus farm bill legislation.
beer accounted for about 12% of the total U.S. beer market,
highlighting the relatively higher market value of craft beer.
Definitions of Craft Beverages
There is no statutory or universally agreed upon definition
Beer includes both malt- and sugar-based hard seltzers (27
of what constitutes craft production in the U.S. beverage
C.F.R. Part 25). Additional federal labeling and advertising
industry. The concept of what is considered craft is often
rules apply to malt-based hard seltzers (27 C.F.R. Part 7).
controversial. In general, the craft beverage industry is
characterized by small-scale production—usually by
Wine
independent or startup companies—and by localized
Small-scale wineries span a more diverse range of business
production and distribution, including direct-to-consumer
sizes and product categories. Wines & Vines, an industry
sales. Often the term artisan is used to indicate small-batch
marketing company, defines a small vintner as one that
production or the use of non-traditional ingredients (e.g.,
produces 5,000-49,999 cases of wine annually. A very
alternate grains, herbs, and botanicals) in production. Some
small vintner is defined as one that produces 2,378-4,999
definitions also focus on the degree of innovation, on-site
cases, and a limited production vintner produces fewer than
venues, and community involvement.
1,000 cases. Wines & Vines reports there were 10,716
wineries in the United States producing up to 49,999 cases
Distilled Spirits
of wine in 2020. Total retail sales data for this market
The American Craft Spirits Association (ACSA) defines a
segment are not readily available. A possible proxy—
small-scale distilled spirit plant as producing less than
direct-to-consumer shipments—were valued at $3.7 billion,
750,000 proof gallons, or about 394,314 cases (12 750-
but this likely understates overall sales for smaller-sized
milliliter bottles of 80-proof spirits/case) annually. ACSA
wineries.
reports there were 2,265 small-scale distillers in the United
States in 2020 with sales totaling $6.1 billion, or about 2%
Wine industry statistics include not only grape and other
of total annual U.S. spirit sales (Table 1). In contrast, the
fruit (or rice) wines but also other types of agricultural
American Distilling Institute defines a craft distillery as
wines, such as cider and perry (made with apples and pears,
producing up to 100,000 proof gallons annually (about
respectively) and mead (considered a honey wine).
52,575 cases) and corresponding to levels eligible for
Depending on how it is produced and its alcohol content,
reduced federal excise taxes (Table 2). However, there is
some cider, perry, and mead may be considered to be more
limited data and information on this segment of the
similar to beer. Separate industry statistics for cider, perry,
industry. Available data indicate that there were 1,703
and mead production are not readily available, but many of
active permits for distilleries producing fewer than 100,000
these producers are likely smaller-sized operations. It is not
proof gallons in 2019, along with another 45 active permits
clear, however, whether reported wine or beer sales include
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link to page 2 Craft Alcoholic Beverage Industry: Overview and Regulation
ciders, perry, and mead. Separate data are also not available
for other types of fermented drinks , such as kombucha.
Table 2. Selected Excise Tax Rates on Distilled Spirits, Beer, and Wine
Production Tier to
Excise Tax Rates per Unit
Excise Tax Rates per Unit
Beverage
Which Lowest Excise
That Apply for the
That Apply to Higher
Tax Rates per CY Apply
Lowest Production Tier
Production Tiers
Distilled Spirits
First 100,000 proof gal ons
$2.70
$13.34-$13.50
Beer
First 60,000 barrels
$3.50
$16.00-$18.00
Still Wine

≤16% alcohol by vol. (incl. mead)
First 30,000 wine gal ons
$0.07
$0.17-$1.07
>16% alcohol by vol.
First 30,000 wine gal ons
$0.57-$2.15
$0.67-$3.15
Artificially Carbonated Wine
First 30,000 wine gal ons
$2.30
$2.40-$3.30
Sparkling Wine
First 30,000 wine gal ons
$2.40
$2.50-$3.40
Hard Cider
First 30,000 wine gal ons
$0.164
$0.17-$0.23
Source: CRS based on tax rates from TTB, “Tax and Fee Rates,” at https://www.ttb.gov/tax_audit/taxrates.shtml. CY = calendar year.
Notes: The Tax Cuts and Jobs Act (P.L. 115-97) temporarily reduced many alcohol excise tax rates for CY2018-CY2019. Those temporary
changes were made permanent by P.L. 116-260. For beer, wine, and distil ed spirits, some reduced tax rates and tax credits may be available if
certain criteria related to production, processing, or foreign assignments apply. For beer, the reduced rate applies only to a domestic brewer
who produces 2 mil ion barrels or less per calendar year. The wine rates are effective rates after wine gal on credits are applied.
Finished Product Regulation
U.S.C. §1454), and other FDA implementing regulations.
The Alcohol and Tobacco Tax and Trade Bureau (TTB)
FDA labeling requirements cover ingredient and nutrition
within the U.S. Department of Treasury is the primary
facts, allergen declarations, standards of identity, and other
federal regulatory agency responsible for licensing,
product identification information. FDA is also responsible
advertising, labeling, tax, and formulation of alcoholic
for food facility registration and safety inspections.
beverages at distilleries, breweries, and wineries. TTB
establishes standards and guidance on how alcoholic
Excise Taxation
beverages may be produced, labeled, and sold in the
TTB collects and enforces taxes and fees on the production
marketplace. TTB’s principal authority is through the
and sale of alcoholic beverages (26 U.S.C. Subtitle E).
Federal Alcohol Administration Act (FAA, 27 U.S.C.
Excise taxes are levied at the manufacturer and importer
§§201-219a). As such, TTB regulations specify certain
level based on the per-unit production or importation of
“standards of identity” for the several classes and types of
alcoholic beverages (i.e., spirits, wine, beer) for sale in the
distilled spirits (27 C.F.R. Parts 5.22, 5.27, and 5.35), beer
U.S. market. Although beer and wine may be produced for
and malted beverages (27 C.F.R. Part 25), and grape and
at-home consumption without paying taxes, distilled spirits
other agricultural wines, including cider and mead (27
may not be produced for sale without paying taxes and
C.F.R. Part 24). TTB standards of identity establish a
without prior approval to operate a still. Violations can
common name and set the content for a product, defining its
result in criminal penalties (26 U.S.C. §§5601-5602).
composition and prescribing both mandatory and optional
ingredients. If the appropriate content or labeling
The Tax Cuts and Jobs Act (P.L. 115-97) temporarily
requirements are not met, the product is considered
reduced tax rates on beer and distilled spirits and provided
misbranded and in violation of U.S. laws. TTB also
tax credits for wine, which effectively lowered the rates
oversees designations and reviews petitions to establish
(CY2018-CY2019). P.L. 116-260 made those changes
new or expand existing American Viticultural Areas in the
permanent (Table 2). The $3.50 reduced tax rate for beer
United States, identifying and delimiting particular grape-
applies only to a domestic brewer who produces 2 million
growing regions based on certain distinguishing features.
barrels or less per calendar year. For wine and spirits,
reduced rates apply for specific base production levels after
In some cases, the Food and Drug Administration (FDA) is
which higher graduated rates apply, therefore providing an
responsible for the regulation and labeling of some low
advantage to producers that produce under the lower tier if
alcohol wine and beer that fall outside TTB’s jurisdiction.
they meet certain criteria. Lower tax rates also apply for
These generally include wines containing less than 7%
certain meads and low alcohol wines.
alcohol by volume (ABV); wine coolers and ciders and
wine made from non-grape fruits or from other agricultural
Agricultural Ingredient Support
products (such as saké); and some beers made from a
The alcoholic beverage industry also receives support
malted barley substitute (such as corn, rice, or wheat) or
through a range of agricultural research and farm programs
made without hops and not considered to be malt
that are periodically updated by omnibus farm bill
beverages. These types of wine and beer products, however,
legislation and administered by the U.S. Department of
may be subject to food labeling and packaging regulations
Agriculture (USDA). For example, products used in the
under the Federal Food, Drug, and Cosmetic Act (21 U.S.C.
production of wine, mead, cider, and beer—such as fruit,
§§341 et seq.), the Fair Labeling and Packaging Act (15
honey, and hops—are considered specialty crops and
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Craft Alcoholic Beverage Industry: Overview and Regulation
receive support from USDA programs that support market
Renée Johnson, Specialist in Agricultural Policy
development, research, and export and product promotion.
Sean Lowry, Analyst in Public Finance
Wine is also considered a specialty crops if it contains more
than 50% of the specialty crop by weight, exclusive of
IF10973
added water. The production of grains used to make beer
and distilled spirits—such as corn, wheat, rye, and barley—
is also broadly supported through USDA farm programs.

Disclaimer
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