Evening roundup

Another closing of the tabs:

• "This is troubling because the government is spending hundreds of millions of dollars in subsidy money to improve a recycling rate it can’t even measure." 
• Pattrick Smellie on state of play in NZ craft brewing. 
• I've a column on infrastructure funding and financing in the Local Government Business Forum newsletter.
• Michael Reddell on inflation forecasts and RBNZ monetary policy.
• More grid-scale solar coming in - Genesis to have 500 MW of new solar by 2026. 
• A follow-up on Tamaki redevelopment. It's a neat one. Started under National, completed under Labour, seemed to work...
• Ugh. If Semour here means that dairies would have an easy time getting a liquor licence, rather than even more restrictions on where vapes could be sold, that would be ok. But I don't think he means that.
• On the plus side, on-farm sequestration that stacks up will be included in the ETS. On the downside, another two-year delay on emission pricing for ag methane. 
• On the plus side, National would have better targeting of prescription drug subsidies. On the downside, they'd also have more political direction of which drugs get funded - a list of cancer drugs.
• ACT supports a Carbon Tax Refund - basically a carbon dividend. 
• Scott Wilson with some history of NZ's land transport funding system. A really excellent post, the first of a promised series. 

Stupid GE bans

One cost of regulation is the innovation you never get to see. 

We know about how New Zealand's stupid ban on genetic modification is causing problems for GHG reductions in agriculture. Even field trials of promising rye grasses have to be undertaken over in the US because the government bans them here.*

Michael Donaldson over at The Pursuit of Hoppiness points to another problem. Perhaps even more important than global warming and the climate response. This one's about beer.

Michael writes:

Before I explain just how world-leading this product is, we first need to understand thiols.

Simply, thiols are organic compounds that contain sulphur. They are present in varying levels in different varieties hops as well as other plants.

Thiols come in all sorts of chemical configurations. Most create odours reminiscent of rotten eggs or garlic while others produce can pleasant flavours such as those found in coffee or grapefruit. The thiols that brewers most want deliver potent characteristics of tropical fruit, notably passionfruit and pineapple.

Popular hops such as Citra, Simcoe and Mosaic include plenty of thiol precursors, but New Zealand hop varieties such as Nelson Sauvin, Motueka and Southern Cross have overly high levels of thiol precursors, which is why they are so prized.

Ruffell has always been intrigued by these flavour compounds.

“I’ve been thinking about thiols since around 2013. We have high levels of thiols in New Zealand hops and we don’t really know why and that’s always interested me.”

He then learned that Marlborough-grown sauvignon blanc grapes are unique in the world for their high level of thiol precursors.

Ruffell says there are number of factors that make Marlborough Sauvignon Blanc grapes so high in thiol pre-cursors. Some of it has to do with terroir, some with specific UV light in that part of the world, and he understands there is also “a stress response from plant” so machine-harvested grapes have higher levels of thiol precursors than hand-harvested grapes.

“In 2018 I had this concept which eventually became Phantasm,” he explains.

...

In terms of flavour delivery, Ruffell says thiols are so potent the equivalent of “thimble-ful in a swimming pool” is enough to make an impact.

“I joke about it as MSG of beer — add a little bit and it just helps everything really pop.”

At the moment, the brewers getting the benefit of this flavour bomb are in America, and there’s a regulatory reason for that: genetically-modified yeasts.

To get the best out Phantasm, it helps if you can use one of the new genetically-modified yeasts on the market, known as thiolising yeasts.

New Zealand’s strict regulation on genetic modification (and ditto for Australia, Canada and many European nations) means those yeasts are not available here.

“At the moment Phantasm is almost entirely sold into the United States and that’s because they can use genetically-modified yeasts to unlock the best characters of Phantasm,” Ruffell says.

“We’ve kept Phantasm under the radar here and we sell exclusively to America because of those GMO yeasts. We can get pretty good results with non-GMO yeasts but it’s not quite the same.”

Ruffell expects that to change in the future, noting that Omega Yeast’s Cosmic Punch is an example of a yeast that could have been developed through breeding “but they just have a precise, elegant way of doing it” in the lab. (For geeks, what Omega have done is take the IRC7 gene in the Chico yeast strain, where it’s inactive, and inserted it into London III strain and “connected the pathways” to make it active).

Where ever it’s been used in America, the reaction to Phantasm has been incredible.

Brandon Capps, owner and head brewer at New Image Brewing in Colorado said it helps him create the “ultimate realisation of what hazy IPA could be”. 

“Does it taste like citrus? Does it taste like papaya? Maybe overripe nectarine or plum would be the closest description I can find. It’s just this really interesting flavor that tastes like biting into a piece of tropical fruit.”

Emphasis added. 

Hippies are a problem. 

HT: Glenn Boyle. I'd caught the article on Twitter, saw an interesting new Garage Project beer that I wanted to try, didn't get down to the important stuff below the fold. Glenn read the whole thing. 

* A set of regulations so intractable and impossible to comply with is identical to a ban, so pedants can go soak their heads. 

Taking climate seriously

You can take climate change seriously, or you can behave like the New Zealand government.

Item the first: the government is not keen on authorising some EVs that are popular overseas. 

Minister Wood gave some cautions about their safety ratings, which could be fair enough. 

But then there's this:

The two-seater Citroen Ami has a top speed of 45km/h, can be driven by unlicensed 14-year-olds, and retails for under NZ$10,000.

Paradoxically, [Transport Minister Michael] Wood says the potential popularity of micro-EVs could be in conflict with the government’s commitment to reducing the total number of kilometres travelled by privately owned automobiles.

“There are questions there about whether you help that by bringing in additional modes of car and do you potentially sometimes unhelpfully transfer potentially active modes into that mode.”

So. 

Climate change is the most important thing and warrants government taking dirigiste control over every decision made everywhere in the economy. 

But it's also so unimportant that it can be ignored if one option might encourage people to use a small EV if they might otherwise have used a bicycle. Because what really matters, more than climate change, is government transforming people's lives to fit this government's unique vision of the only permissible good life. 

Item the second: Remember the government throwing money at DB to put in some lower carbon solutions? And my warning that this was either subsidising them to do something they'd have done anyway, or paying for something that wasn't worth it? 

Here's Jeremy Rose:

Heineken – the owners of DB – has committed globally to reaching 100% renewable energy by 2030. And DB has pledged to do the same here.

As reported in an earlier article in the Beer Diaries, Heineken’s Gos Brewery in Austria achieved carbon neutrality as long ago as 2016.

So, at best the government’s $500,000 contribution – about 12% of the cost – towards the new industrial high-temperature hot water heat pump will have only brought forward the purchases by a few years.

If you're taking climate change seriously, you're not paying companies to do stuff they'd already have done on their own. The job is too big to be able to afford doing that. 

Rose's piece also has an extended bit from me on carbon offsetting in brewing. 

Bad beer takes

The Atlantic's Derek Thompson likes craft beer. But his take on its rise in the US doesn't make a lot of sense. And I'm surprised that Noah Smith didn't catch the errors. 

Thompson argues that the complicated morass of American state-level regulations around brewing and beer distribution meant that the big brewers couldn't take the whole field.

At the end of Prohibition, lawmakers felt that smashing these vertical monopolies was critical to promoting safe drinking. After the passage of the 21st Amendment, citizens in all states voted to abolish tied houses by separating the producers, like brewers, from the retailers, like bars. This led to a “three-tier system” in which producers (tier one) sold to independent middlemen that were wholesalers or distributors (tier two), who then sold to retailers (tier three).

By dividing the liquor business into three distinct groups, these state-by-state rules made the alcohol industry deliberately inefficient and hard to monopolize. “The great effervescence in America’s beer industry is largely the product of a market structure designed to ensure moral balances, one that relies on independent middlemen to limit the reach and power of the giants,” wrote Barry Lynn, the executive director at the Open Markets Institute, a nonprofit that researches antitrust issues.

The modern alcohol sector is specially designed to promote variety, in other ways. So-called “thing of value” laws make it illegal for beer producers to offer gifts to retailers in an attempt to purchase favorable shelf space. Other rules make it illegal for producers to buy shelf space, which saves room for smaller brewers to thrive at supermarkets and liquor stores. Altogether, these rules are designed to check the political and economic power of the largest alcohol companies while creating ample space for upstarts.

If the U.S. had long ago allowed a couple of corporations to take over both the distribution and retailing of wine before the Napa Valley renaissance, Lynn told The Atlantic in an interview, Americans would be exclusively sipping three varieties of Gallo table wine. “The reason that didn't happen 50 years ago is because you had this system that was designed to promote deconcentration, to incentivize [retailers] to go out and find the new, the different, the alternatives,” he said. “It was effective in achieving that aim.”

Let's now imagine a country that didn't have these kinds of rules. Where brewers could choose whichever distributor they liked, or sell direct to the public, or sell direct to supermarkets and other retailers, or run it as a brewpub - whatever they wanted. A country where it was easy for supermarkets to get bulk deals with preferred brewers so they faced wholesale prices much lower than some of their retail competitors. And where nothing particularly blocked larger brewers from buying up smaller ones - or from putting in the taps for new bars in exchange for whatever tap access rules they and the bar can agree on.

If you think that gives you an oligopolistic or duopolistic market, think again. New Zealand has none of those dumb rules and has a craft beer scene that rivals the best American states. It's easy for new craft brewers to set up - and I can no longer keep track of all of them. We have concentrated retail markets for supermarkets; one of the chains leaves all of the beer stocking decisions to their local franchise and some of those have superb selection. Craft beer's widely available in pubs, and Lion's purchase of a few craft brewers has made craft even more accessible.

Bottom line: you don't need stupid inefficient rules in order to get good beer. You just need to make sure you don't set rules that make it too hard for new brewers to set up and compete. New Zealand has that, and the beer's great here. 

Alcohol, cancer, and exercise

While the links between alcohol and any particular disorder are irrelevant in the grand scheme of things where the net effects on mortality and morbidity are what really matter, the link with cancer has been getting a lot of airtime - and a lot of attention from the dedicated team at the University of Otago.

And so this is then interesting. The relationship between alcohol and cancer seems to vary by exercise. While there's a straight linear increase in cancer risk with alcohol consumption among those with little physical activity, those engaging in more than 15 hours per week of MET [some measure of exercise] showed a J-curve relationship - albeit one where the bottom part of the J wasn't statistically different from zero.

The paper also finds the standard J-curve in all-cause mortality risk, but less tightly estimated. The base of the curve is lower among those getting more exercise though, so you should then take moderate alcohol use and exercise to be complements rather than substitutes. Or, at least, exercise seems to knock back the cancer risk of drinking to basically nil except at heavy drinking.

For what it's worth, I get my exercise incidentally: chasing children and Pokemon, or chasing Pokemon with the children. Wanting a beer afterwards is nature's way of telling us that we should have a beer after exercise. Evolution gave us these preferences for a reason....

HT: Evan Roberts

Reputational spill-overs: semen beer edition

Some sharks shouldn't be jumped. This may be one.

The Green Man pub on Victoria St is about to launch a stag semen "milked" stout, created by brewery Choice Bros and timed to celebrate the lead-up to Beervana.

With an added measure of "export-quality" deer semen, the secret ingredient may induce gag reflexes in some but pub co-owner Steve Drummond was confident in the brew's success.

"We sort of like, looked at the whole craft beer scene and thought what could we do that's a bit outrageous, a bit Green Man."

The virile beverage is not the pub's first foray into exotic offerings.

The donor stag's name was "Lagoon", if that matters.

I expect that a substantial fraction of pulled pints would be folks trying to induce friends' spit-takes when it's their turn to buy a round.

But there could be another effect.

One of our researchers at The Initiative quipped that fear that this may be served to her might put her off beer altogether, which makes for an interesting reputational spill-over issue.

I wonder whether bars offering these particular pints might do well by using a special glass to signal the ... special contents.

Parting shot from the pub's co-owner:

"There's only one way to serve semen stout and that's handpulling it."

Indeed.

More things that aren't ironic: pub discounts

Somebody's not been listening to Weird Al's grammar advice: irony is not coincidence.

Alcohol Healthwatch's Christine Rogan's mad about a loyalty card scheme that would rebate 5% of members' purchases as student loan repayments. Why? Some of the retailers involved are pubs.

Alcohol Healthwatch health promotions adviser Christine Rogan said it exploited the vulnerable.

"[It's] increasing the risk that alcohol consumption is going to be encouraged through this marketing promotion.

"How ironic that the first [merchants involved] are the ones that encourage students to drink," Rogan said.

Massey University professor Sally Cresswell, who specialises in alcohol policy, said there was a "feelgood" factor to the card but the initial focus on businesses selling alcohol was a sign society still saw alcohol as an ordinary commodity, rather than a drug that should be treated with caution.

"You could just imagine situations where people are saying, 'Oh, well, let's get another round, it's all paying off so-and-so's loan', and I think that's really not appropriate."

But the card's founders say it is aimed at everyone with student loans, which included ex-students.

For a better alcohol-themed use of the word, watch the Canadian classic Strange Brew. Bob & Doug McKenzie go to Elsinore Brewery with a mouse in an empty bottle, trying to wheedle their way into getting a free case. After inadvertently stumbling on Brewmaster Smith's plans on using a special addictive drug in the beer as part of his plans for world domination, Doug McKenzie finds himself with Pam Elsinore, trapped in one of the beer vats, about to be drowned. Brewmaster Smith opens the vat, saying

How ironic. You came here with a mouse in a bottle. Now you are the mouse. ... It's really too bad you won't be around to see the whole world become addicted to Elsinore beer. In a few hours I will introduce my special formula to the public at Oktoberfest. When they drink enough, they will do whatever I tell them.

 See? It's not just coincidence. It's coincidence with that special kinda twist.

The world keeps getting better: beer edition

Max Roser's excellent twitter feed provides regular updates on how the world's getting better.

My new project: 100 charts that show how living standards changed. The 1st one is on health. http://t.co/5kKeYk3aoz pic.twitter.com/nURVkfZnFQ
— Max Roser (@MaxCRoser) January 5, 2015

But it isn't just life expectancy. Consider beer.

In 1998 I moved from Canada to Fairfax, Virginia. Beer options in Canada had been pretty limited: Labatt, Molson, Big Rock, maybe Sleemans if you could get it. In Arlington, I found Sam Adams on tap at Carpool. It was miles better than anything else I'd had before.

Fast forward 17 years. Sam Adams hasn't changed, but the beer world has. They still make consistently good beer, but if it's the best on offer at a bar, well, there's likely a better bar around. Boston Magazine tracks the changes in a great piece that's hard to excerpt - read the whole thing, but in conjunction with this caveat. Some new craft brewers, and too many of their customers, celebrate anti-big more than they celebrate good beer, while ignoring the benefits that their larger competitors have secured for them.

Via Luke Nicholas and Bob King.

Gluten-free, but don't tell anybody

While most of the anti-gluten seems badly overhyped, there are some people for whom gluten poses substantial dietary risk. They need to know if a product has gluten in it. And producers of gluten-free products are generally pretty happy to let potential customers know about it.

Except when the government makes it illegal to tell customers about it.

When I read this, I'm less convinced that New Zealand is outside of the asylum. Here's Scott Anderson on labelling problems at Kereru Brewing.

My friend is gluten-intolerant, and the discomfort the gluten in wheat and barley bring is one of the reasons beer doesn’t feature in her preferred drinks. But she’d heard of the Auro. “I’ve heard it’s the best gluten-free beer around!” she said.

“That’s great to hear,” replied Chris, “you should get some while you can. Because this batch will be the last. Won’t be allowed to sell it soon. Or at least call it ‘gluten-free’.”

Chris explained that the Ministry of Primary Industries (MPI) has recently released new guidance for what can and can’t be used to promote or label beverages containing more 1.15% alcohol by volume, and “gluten-free” is now prohibited.

Later, I checked out MPI’s Guidance for Alcoholic Beverage Claims and Statements, published 6 May 2014, and confirmed that from 18 January 2016:

“…nutrition content claims or health claims must not be made for food containing more than 1.15% Alcohol By Volume (ABV). The exception to this is a nutrition content claim about energy content or carbohydrate content.”

Meaning, from that date, no product labelled or described by the retailer / brewer with such claims can be sold in New Zealand.

A “nutrition content claim” is defined by MPI as:

“…a claim that is made about the presence or absence of a biologically active substance, dietary fibre, energy, minerals, potassium, protein, carbohydrate, fat, salt, sodium or vitamins; glycaemic index or glycaemic load that does not refer to the presence of alcohol and is not a health claim. “Gluten free” is captured under the definition of nutrition content claim.”

It’s interesting to see “gluten free” pulled out for emphasis there by MPI there and in other passages of the Guidance; clearly this has been published to directly inform brewers that they can’t put such a statement on their beers. Because if you’re going to be really pedantic about the above statement, perhaps mentioning a particular strain of yeast might be mentioning the presence of a “biologically active substance”.

And to think, just a couple days ago, I was making fun of America for its beer label dictator.

These regs don't come in until 2016 so there should still be time to fix this. It sounds like gluten is in the unhappy spot of being something not quite serious-enough to be an allergen but probably more important than a "health claim". Were it an allergen, then everybody would be required to put on labels saying "May contain gluten". If it's not an allergen, then nobody's allowed to advertise "gluten-free", because it's bad to associate healthiness with beer, even if moderate drinking is healthy.

If that doesn't work, perhaps SOBA could produce a list of Gluten Free beers, and whatever organisation exists for the no-gluten people could link to it.

Thick markets: Gunnamatta edition

I'd not heard of contract brewing before moving to New Zealand. The craft beer scene started taking off here not long after I arrived in 2003. Brewers would start off in their garages. Then, they'd have to invest in kit to build up a proper brewery or brewpub. By 2008, or thereabouts, the market had thickened up enough to allow a new innovation: contracting for the use of spare capacity in others' plants. This was great for everybody: brewers making capital investments could leave themselves room to grow while renting out currently excess capacity to new upstarts, while new guys could come onto the market without having to raise a pile of money for stainless kit.

And now one of New Zealand's star contract brewers, Yeastie Boys, is heading off to London.

A 50,000 litre batch of beer brewed especially for one million United Kingdom punters has local craft beer brewery Yeastie Boys fizzing at the prospect of tapping into more offshore markets.

But the Wellington-based "virtual" company is conscious of exporting too much beer and losing touch with the local scene, as it looks to establish a physical venue soon.

Last week Yeastie Boys announced it had received one of only 10 worldwide invitations to brew at the JD Wetherspoon's International Real Ale Festival in England, the largest of its kind in the world.

The brewery's Gunnamatta earl grey India Pale Ale, made with Earl Grey tea, would be served in 850 pubs across England during two weeks in April.

These pubs are expected to serve about one million UK beer fans, giving the company which launched its first beer in 2008 its widest European exposure to date.

They're going to be brewing up some Gunnamatta, an Earl Grey IPA, for the festival. I hope they bring some Rex Attitude for the Scots as well.

And now they're looking at investing in some physical plant.

Yeastie Boys was expanding its productions at the three New Zealand sites it brews at, particularly in Invercargill.

"We brew just under 100,000 litres through them a year, we're looking to close to double that this year."

But McKinlay, who works three days a week at Z Energy to help pay the "family bills" for his wife and three boys, said Yeastie Boys would now also look at establishing a physical venue, most likely in Wellington.

"We've always been a really virtual company; we do all the brewing at other people's breweries.

"Now we're looking at a venue, whether it's a brew pub or some sort of warehousing facility where we actually have ‘fill your own taps' or something like that."

I didn't know that Yeastie Boys wasn't yet Stu's full time job. Amazing that he's been able to pull all this off on 4 days-a-week plus evenings.

All of this is possible because New Zealand has sane regulations around brewing and distilling. So long as you pay your excise, it's not that hard to get going. Because the regs don't make it too hard to start up, a thick market developed on the producer side making it easier for other guys to start up - sharing expertise and leasing kit.

And all of it means that I get excellent local beer. With easy entry, you have to do a bit of sifting to find the good stuff. But that's fun too.

Another one drinks a moose

You couldn't get Moosehead Beer in Manitoba when I was a kid. Interprovincial trade barriers stopped retailers from selling a beer that wasn't brewed in the province. And so this SCTV sketch always seemed a bit ironic: it would be easier for a Canadian brewer to sell in some US states than to ship and sell interprovincially. The Economist highlights some of the problems with Canada's liquor boards.

EVERY day thousands of Canadians buy beer and spirits in one province and consume them in another. They are all breaking the law. Under the Importation of Intoxicating Liquors Act, a Prohibition-era statute, this is a federal offence subject to a fine of C$200 ($190) the first two times you are caught. Any more and you risk a jail term up of to six months. ...
Canada’s 13 liquor boards (one for each province and the three territories) have become cash cows for their respective governments. The Liquor Control Board of Ontario, Canada’s most populous province, deposited profits of C$1.7 billion into the government’s coffers last year. Almost all alcohol sold in the province passes through the board before being sold to commercial users and consumers. There are slight differences in the point of sale—you can buy beer and wine in convenience stores in Quebec and from private liquor stores in Alberta—but the common theme is that it all passes through a government body first, which makes money from mark-ups, permit fees and sales taxes (which they receive even if alcohol is sold directly to consumers). With so much money at stake, most of the provinces strongly opposed the move in 2012 to remove wine from the federal law and are likely to do the same when removing beer and spirits from the act is debated. A spokesman for the Canadian Association of Liquor Jurisdictions, the body that represents the combined provincial and territorial boards, defended the status quo last year, saying that the mark-ups on alcohol imposed by the boards helped pay for government services such as health care and education. If individuals wanted to buy wine from another province, they could always order it through a government outlet, he said.

Wine won exemption from the federal law mostly because of pressure from Canada’s 450 artisanal winemakers, who pointed out the absurdity of the current situation. “It is easier for our winery to ship 20 cases of wine to Beijing, Germany, Dubai, or Switzerland than to ship one case to our neighbour, New Brunswick,” Hanspeter Stutz, a vintner from Nova Scotia told a parliamentary committee at the time. Tourism officials and grape growers also backed the move. It is unclear whether Canada’s 200 or so craft brewers and about 20 distilleries carry the same clout.

200 craft brewers in a country of about 30 million: one for every 150,000 people. New Zealand's Brewer's Guild has about 45 small craft brewers (and a few larger ones) for a country of about 4 million people: one for every 89,000 people. And those are just the ones who joined the Guild. Beer Tourist lists 22 breweries in the mid South Island alone.

Investing to please and anger others [updated]

I love Amihai Glazer's little model claiming that voters are motivated by the desire to anger or please others through their vote. The model explains a few anomalies that are otherwise hard to explain, like that voters pay more attention to national election contests than local ones even though the probability of decisiveness in the latter more than makes up for the smaller stakes.

Expressiveness considerations of this sort should not matter in investment markets; expressiveness there gets expensive. And yet we have ethical investment funds for investors who care about that sort of thing. And, yet we have this one.

Moa Beer has been carving out a little niche in getting free publicity by being outrageously blokeishly offensive. When Wellington proposed putting up a Wellywood sign (tacky in the extreme), Moa promised a beer bounty to anybody who knocked it over. They sponsored the Great Easter Bunny Hunt. Gay rights groups haven't been pleased with some of their marketing campaigns. And they've been a bit cute around ASA guidelines regarding swearing in ads. And the Pakistani cricket team isn't pleased either.

Moa's now heading for IPO. Here's their prospectus. If you're running an investments course, this is one to keep on file. They've advertising for Beretta shotguns inside the prospectus, among other things. The Herald has some highlights:

The 132 page blurb channels a mix of the Mad Men TV series and up-market men's magazine FHM, featuring black and white shots of Moa's all-male board and management striking macho poses in sharply cut suits, while attractive women in black skirts, white blouses and ties fondle cigars and bottles of Moa.

A section headlined "Investment Highlights" appears beside one such full page photograph, while in another, Moa general manager Gareth Hughes taps out a cigar into an ashtray a model is holding above her head.

Advertisements in the prospectus include plugs for Aston Martin sports cars and Beretta rifles, while a naked woman on a horse promotes Ecoya scented candles, which Ross floated on the NZX in late 2010.

The prospectus seems designed for those who get expressive benefits from their investment decisions. So, then: will expressive bias against them in the IPO from those who are angered by their strategy be outweighed by expressive bias in their favour?

I'm not considering investing. The University sends a hefty chunk of my pay cheque over to the NZ University Superfund for my retirement; I don't try picking stocks. But if you were a value investor, would you expect that expressive investors would unduly bid up the price, and so you'd be inclined to stay away, or would you expect that IPO-avoidance by ethical types would make this a nice play? I'd lean towards the former.*

I expect that Moa will wind up doing well. Their beer is pretty decent and they're pretty shameless. That's not a bad niche. A small brand can afford to have half the world hate it so long as it gets a few people who love it.

Update: The most obvious model of what's going on is that they're trying to select for investors who like the current marketing strategy so the shareholders won't get mad when they do outrageous things in future. It'll be interesting to see what happens at IPO.

Update 13 November: Their IPO was oversubscribed. Good for them!

* Not investment advice; I've only skimmed the prospectus; form your own judgments, etc.

Ban the bottle

I'm a fan of Charles Tibout's arguments about local government competition: lots of small local governments competing with each other for residents and cooperating with each other for provision of services that are more efficiently provided on a wider scale.

I was surprised when Rodney Hide led the charge for Auckland's amalgamation. The best case I could make for amalgamation would be that the small scale of local government means it has a very hard time attracting talented people to make reasonable decisions; Council policies can be stuck on the stupid setting for rather a while. A merged Auckland encompassing a million or so people ought to be big enough to attract more talented bureaucrats able to make more sensible decisions.

Neil Miller points to one less-than-sensible decision coming out of amalgamated Auckland Council [HT: Nolan @ TVHE]. They're pushing bottle shops to ban single-bottle sales. Neil writes:

Craft beer plays little or no part in the problems around heavy drinking, particularly among younger people.  The streets on a Saturday morning are not awash with bottles of Emerson’s Pilsner ($6.10) nor the car park studded with empty magnums of Liberty C!tra IIPA ($22.10).  The Council has simply made a series of assumptions and come up with a one-size-fits-all “solution” so it can say it is “doing something.”  I doubt any thought was given to the sales of craft beer or the people who want to purchase them responsibly in central Auckland. 

"Something must be done" is a rather persistent problem. And, with a merged Council, craft-beer lovers will have a harder time driving to an outlet that can help them out. I hope that the bottle shops are able to get around it by requiring that people buy at least two bottles and sticking a rubber band around them to make a package when the customer comes to the till.* At least there are mail order options.

Neil again:

However, at this stage the Government is looking to avoid the single container issue saying people with problems should contact the Council as it is their policy.  It seems yet another drift net policy with unintended consequences, something we will probably see a lot more of as Parliament considers the key provisions of the new Alcohol Reform legislation. 

This kind of local nonsense is one of my bigger worries in the proposed Alcohol Reform Bill, which will provide a fair bit more scope to local Councils for alcohol regulation. Compliance costs are higher when retailers face a patchwork of regulations across the country; I would expect local activists with time on their hands have more influence over policy at the local level. I consequently expect the equilibrium to turn rather more meddlesome in most places.

* My local dairy, for a while, sold cans of Coke labelled "Not for individual resale." Above the cans he had a small sign saying "Buy two!". I liked that.

How Beer Created the World

From the "If it's on the Discovery Channel, it must be true" file.



They argue we moved to agriculture in order to get beer.

My biggest complaint? They forget that beer also gave us modern hypothesis testing: Student's t-distribution wasn't given its name because it's useful in undergraduate econometrics; it's the pseudonym that was used by William Sealy Gosset when he published his statistical results. Gosset was a brewer and chemist working for Guinness who needed to know how many trials he needed to run to be confident in his results. And so we have the t-distribution.

I don't put huge confidence in each and every claim, and a lot of the innovations that were pushed by brewing likely would have come anyway for other reasons; it's implausible that somebody wouldn't have figured out refrigeration even if Pilsner had never existed. But would we be so wrong to claim that people who hate beer must also hate civilisation itself?

HT: @MitchellHall

Green shoots

Enough. Time to stop being depressed while looking at downtown Christchurch. Look instead east to Woolston where Alasdair Cassels and his family are getting stuff done.

They started brewing excellent beer under the Cassels & Sons label a few years ago; we bought from them at the Lyttelton Farmers Market. Pre-quake, they started work converting an old brick tannery and industrial buildings in Woolston into a brewpub. The September and February quakes set things back a bit:

The tannery complex itself took a bashing during the earthquake. Alasdair has been restoring the buildings since he bought the 7000sqm site 17 years ago, but, since the earthquake, the cost of the project has skyrocketed. 

"All the bricks have to be taken down and put back up again. It's a big job, a huge job" - one that comes with a $10-million bill, which Alasdair is prepared to pay. He has big plans for the area, including a brew pub - The Brewery.

The brew pub's construction was in full swing before the quake, in the 1870s building that was once the tannery's drying room. Well-known chefs were to create magic using wood-fired stoves, in full view of restaurant patrons, with a pint of Cassels & Sons beer in hand. The old English pub was to open on to a large beer garden, a replica of the one shown on the site's original plans. However, the building did not fare well in the February earthquake and the project was shifted. The Brewery has been rebuilt inside a 1970s building at the Garlands Rd end of the development, which luckily had not yet been cleared for the garden.

They opened a couple of weeks after the June earthquake with some of the best beer in town and the best fries I've had since moving to New Zealand... honestly, the only fries that come close are the ones the women in the kitchen at the Hutterite Colony near our old family farm would hand us kids when we'd come round to buy milk.

And now they're developing the rest of the site for retail - an Arts Centre for the east side of town.

"We were always going to take this next step, but having this hospitality business here underwrites that the area can attract people," he said.

"I think retail will go well, there's very little around here and we've already had interest from tenants."

At over a third of a hectare, the shopping centre will be the size of Merivale Mall, minus the supermarket and Quinns store. Cassels hopes the first shops will be open by June.

He believed the increased need for suburban venues after the earthquakes helped the project get council consent

The September and February quakes damaged an 1870s tannery building Cassels had just restored for a new English pub on the site, destroyed the brewing plant and closed all the outlets stocking its beer.

The family picked up half a million bricks, got the brewery back in business, and built a restaurant and bar in a newer building to sell their product.

The project earned them a heritage award from the Christchurch Civic Trust in November.

To create the shopping centre Cassels will strengthen more of the old tannery buildings, renovating them in a Victorian style to make the most of original industrial features. Insurance proceeds will help fund the development.

The complex, to be known as The Tannery, will include an artists-in-residence studio for arts students, paid for by an anonymous North Island benefactor.

Cassels said the right mix of tenants would help attract patrons from across the city.

And they've now secured more tenants. I love seeing things like this coming up; it's a wonderful contrast to the flattening of downtown.

Cassels' milk stout is excellent but only available at the pub - it apparently doesn't hold up in bottles. Other favourites are Medicinal and The Alchemist.

Destroying a city

The only bit of good news I've been hearing about the Christchurch downtown rebuild is the EPIC technology hub.

Meanwhile, here's Angus McFarlane on what Council's done to downtown:

Councillors sat in stony-faced silence as property owner Angus McFarlane said the "obstructive, dictatorial and impractical" plan was a "rubbish pipedream".

McFarlane, who said he owned more than 10,000 square metres of the city, said the city was in despair before the earthquakes, with a failing central economy and diminishing values.

He told councillors they had made a mess of the city before the quakes, and the draft plan "proves you have got it wrong again".

"You have disenfranchised the landowners, commerce leaders and building groups ... Goodwill is tangible but very hard to replicate and replace when gone. You have all but scared it away."

Property Council New Zealand chief executive Connal Townsend said property owners and developers supported the council's vision for the city centre but were "terrified" by the proposed regulations within the plan.

"You have gone to an extraordinary level of specifics that many members are terrified by."

There was a "high risk" that central-city property owners would reinvest outside Christchurch if the plan's prescriptive nature did not change, he said.

"Once existing owners start to receive their insurance payments, that will give them a lot of liquidity, and we need to keep that invested within the four avenues."

A statement in the plan about extinguishing the existing-use rights of property owners would also discourage investment in the city.

"Those are the magic words which are guaranteed to turn investors off ... That's just not the sort of message that I believe you should be sending."
...

Mayor Bob Parker told The Press McFarlane was "clearly not a happy guy".

Although not personally offended by McFarlane's heated submission, many would find his comments "deeply insulting".

Parker said central Christchurch was failing before the quakes, but he did not agree that the rebuild should be put into the hands of the business community.

"Business people have not been able to find a solution to the failing city in arguably 50 years. The city centre is not just a collection of businesses. There is a massive investment of the ordinary people," he said.

Mayor Parker allows room for massive regulatory takings in the draft plan and then thinks it "deeply insulting" that someone might object.

I'd love to see an iPredict contract on Christchurch population as at next census.

Other minor bits of good news: some rebuilding has been approved. But demolition crews claiming that it's impossible to recover essential business files from the sites they're tearing down still manage to find time to strip out cabinets, furniture and computer equipment for salvage. And building owners are none too pleased about demolition cost overruns.

I was in the beer section at Fresh Choice Parklands (best beer selection in Christchurch) during Saturday evening's 5.5 aftershock. So I had to pick up a couple bottles of Twisted Hop's Red Zone Enigma: the beer that sat in the conditioning tank behind the military cordon from February 22 through to August. We're saving our second bottle in case of anything 5.5 or bigger; hopefully, it'll age for many years.

Traditional beers

From The Smithsonian:

Widely published in academic journals and books, McGovern’s research has shed light on agriculture, medicine and trade routes during the pre-biblical era. But—and here’s where Calagione’s grin comes in—it’s also inspired a couple of Dogfish Head’s offerings, including Midas Touch, a beer based on decrepit refreshments recovered from King Midas’ 700 B.C. tomb, which has received more medals than any other Dogfish creation.

“It’s called experimental archaeology,” McGovern explains.

To devise this latest Egyptian drink, the archaeologist and the brewer toured acres of spice stalls at the Khan el-Khalili, Cairo’s oldest and largest market, handpicking ingredients amid the squawks of soon-to-be decapitated chickens and under the surveillance of cameras for “Brew Masters,” a Discovery Channel reality show about Calagione’s business.

I tried that beer at the Dogfish Head pub on Route 7 in Falls Church with Eli Dourado. Good times.

McGovern argues that brewing helped build civilization (previously covered by Spiegel and noted here.) From the Smithsonian piece:

McGovern, in fact, believes that booze helped make us human. Yes, plenty of other creatures get drunk. Bingeing on fermented fruits, inebriated elephants go on trampling sprees and wasted birds plummet from their perches. Unlike distillation, which human beings actually invented (in China, around the first century A.D., McGovern suspects), fermentation is a natural process that occurs serendipi­tously: yeast cells consume sugar and create alcohol. Ripe figs laced with yeast drop from trees and ferment; honey sitting in a tree hollow packs quite a punch if mixed with the right proportion of rainwater and yeast and allowed to stand. Almost certainly, humanity’s first nip was a stumbled-upon, short-lived elixir of this sort, which McGovern likes to call a “Stone Age Beaujolais nouveau.”

But at some point the hunter-gatherers learned to maintain the buzz, a major breakthrough. “By the time we became distinctly human 100,000 years ago, we would have known where there were certain fruits we could collect to make fermented beverages,” McGovern says. “We would have been very deliberate about going at the right time of the year to collect grains, fruits and tubers and making them into beverages at the beginning of the human race.” (Alas, archaeologists are unlikely to find evidence of these preliminary hooches, fermented from things such as figs or baobab fruit, because their creators, in Africa, would have stored them in dried gourds and other containers that did not stand the test of time.)

With a supply of mind-blowing beverages on hand, human civilization was off and running. In what might be called the “beer before bread” hypothesis, the desire for drink may have prompted the domestication of key crops, which led to permanent human settlements. Scientists, for instance, have measured atomic variations within the skeletal remains of New World humans; the technique, known as isotope analysis, allows researchers to determine the diets of the long-deceased. When early Americans first tamed maize around 6000 B.C., they were probably drinking the corn in the form of wine rather than eating it, analysis has shown.

Maybe even more important than their impact on early agriculture and settlement patterns, though, is how prehistoric potions “opened our minds to other possibilities” and helped foster new symbolic ways of thinking that helped make humankind unique, McGovern says. “Fermented beverages are at the center of religions all around the world. [Alcohol] makes us who we are in a lot of ways.” He contends that the altered state of mind that comes with intoxication could have helped fuel cave drawings, shamanistic medicine, dance rituals and other advancements.

I'll have to make a point of looking for more of the Dogfish Head traditional beers.

Manitoba craft beer

Christchurch, with about 400,000 people, has a huge number of really great craft brewers. A short list, with apologies to anyone I've forgotten (it's not because I don't know your beer, it's because I've forgotten you're from Christchurch):

• Three Boys, whose Oyster Stout is truly excellent; other highlights: IPA, Wheat. I never got a chance to taste Aftershock, the beer that was in the tank when the 7.1 hit. Ah well.
• Twisted Hop. Their Nobokolov Imperial Porter is probably my current favourite NZ beer. Hopefully they'll be brewing again soon.
• Casels & Sons. Medicinal particularly nice.
• Harringtons. Probably produce the best value beers in the country than Wobbly Boot Porter and Clydesdale Stout, though some disagree. Beers that are great for drinking with dinner, but that you don't feel bad about using as base for lamb shanks.

If you expand to the South Island as a whole, with about a million people - roughly as many people as the province of Manitoba, you get to a whole ton more.

I'm in Winnipeg. It's (almost) a craft beer wasteland. Fort Garry is the main local brewer, but honestly, their Fort Garry Dark roughly matches a Speights Old Dark. Not a bad beer - the Old Dark is what I'll get at a Christchurch restaurant that doesn't have proper craft beer - but it doesn't really make the grade. Half-Pints is a recent addition that produces good craft beer - a nice IPA, a fun coffee stout, and a raspberry-tinged beer brewed in support of Winnipeg's Pride 2011 festival. Half-Pints is good. But how can it be that a town almost twice the size of Christchurch and that hasn't had two massive earthquakes has such a bland overall local beer scene?

Stay tuned for tomorrow's post, in which we'll see how Manitoba's alcohol regulations are more devastating to the Manitoba craft brewing scene than were two massive earthquakes for Christchurch's.

Tariff confusion

Simon Power last year promised to continue New Zealand's freeze on unilateral tariff reductions; National opposed Sir Roger's bill to zero rate all tariffs.

And here's just one of the ways in which we're all benefited by National's love for the tariff status quo.

A couple of months ago, Luke Nicholas, brewer of Epic's fine line of hoppy ales, dropped me a note asking what I knew about some new tariff on the glass bottles he was using. His imported bottles jumped in price substantially. So I checked into the working tariff document - nothing new there. I emailed a couple folks in Treasury, who checked with folks in Customs. Nope, nothing there. I was wondering whether Luke somehow got hit by the voluntary environmental glass levy that I'd heard something about. Luke thought it was some play intended to hit a distiller who'd secured a big lot of cheap imported bottles destined for the ready-to-drink market.

Roger Kerr finally figured it out for me after consulting with the Ministry of Economic Development. It turns out that the tariff had never changed but it had been temporarily abated. In 2007, New Zealand's sole manufacturer of glass containers had to do some furnace upgrades that weren't set to be completed until 2009. The company agreed to a temporary tariff concession for glass products of Tariff heading 70.10. The concession was extended until September 2010 when the bottling plant was back to full strength. With the domestic producer again up to full capacity, the tariff was put back in place.

Luke, who only started bottling a few years ago, didn't know he was operating under the temporary benevolence of MED. It's really his own fault for not reading the Gazette where such changes are duly notified. As far as the little guys are concerned, the regs might as well be posted in the basement of the local planning office in a locked filing cabinet in a disused lavatory behind a door saying "Beware of the tiger".

I suppose we should at least be thankful that there was tariff abatement during the interval in which the local manufacturer was unable to supply the market. The local manufacturer, as far as the small brewers of boutique beers are concerned, continues to be unable to supply the market unless you want large lots of the standard DB bottle. But hey, small and temporary mercies.

Glass tariffs in New Zealand protect one manufacturer at the expense of everybody in the country who uses glass. Perhaps every toast raised in the next year ought finish with a curse upon the glass tariff.

Grey market beer

I'd not heard of this one before. @yeastieboys points to controversy over the status of grey market beers: beers imported into a country market without the brewer's explicit authorization. If I were to buy a few cases of some interesting beer from the UK or US, shipping it via surface mail, it probably wouldn't taste the best on arrival if I didn't take precautions to ensure that it were refrigerated and handled properly. An authorized importer will presumably follow whatever guidelines are set out by the brewer; a grey market distributor will take care that varies with the expected effects on his reputation.

Foreign brewers worry that they'll bear the reputational cost if a grey market importer fails to take due care and beer arrives in subpar condition: customers will reckon the brand isn't very good rather than blame the distributor.

I've a few of worries about this line of argument.

First, even in home markets, a brewer's product isn't always sold through authorized outlets with guaranteed fridge temperatures. A bar can buy a keg of any kind of beer, fail to clean its lines, and provide a poor experience to the customer. The beer vendor (barring those that own the taps) can't guarantee that the bar does a proper job in cleaning its lines just like it can't guarantee that a shipper will take due care. Why is the latter that much worse?

Second, importers will still face reasonably strong incentive to handle product with care. Even if the customers can't tell what's a brewing fault and what's due to rough treatment, the beer buyer for a serious outlet ought to be able to. And it's that buyer who chooses whether again to deal with the importer. A retailer who consistently sells quality interesting products will have an easier time in getting customers to try new things than one that sells products that have gone off.

Finally, the reputational damage is likely to be fairly constrained. Beers will only arrive in a country via the grey market if the brewer hasn't reckoned the country worth the effort, if the brewer tries to engage in international price discrimination, or if retailers are insensitive to product quality and prefer product that's been poorly handled but sells at a discount. But retailers also earn reputation. Let's assume for the moment that the grey market supply always provides poor product experience. If a US microbrew figures that the New Zealand market isn't worth exploiting due to the fixed costs and it's subsequently served by a poor grey market, what are the losses to the brand?

• Its reputation within the country is somewhat eroded, making it more expensive for the brewer to open an official channel - they'd have to work to rebuild reputation. But how likely is it that they ever would have sold product here anyway?
• If Kiwis post bad reviews of the beer on the various online beer forums, surely folks would start picking up a fixed effect: glowing reviews from domestic reviewers followed by scathing reviews from folks thousands of kilometers away ought to look to most folks like shipping problems. It's hard to see this as having big reputational costs for the brewer.

The bottom line for beer lovers ought to be that they shouldn't hesitate to buy grey-market beers, but that they should:

• Check the expiry date on product
• Only buy from retailers who care about quality product. If a retailer's chiseling on buying cut-rate imports that arrive in damaged condition, how do we know he's not chiseling on other margins that affect product quality? But if the retailer cares about quality, he's probably making sure to stock from distributors who also care about quality: grey market or not.
• Have a chat with the retailer if they get a bottle that seems off. A good retailer will take it seriously and check other bottles from the same shipment for faults; one that doesn't may not be worth repeat custom.