the economic role and outlook for oregon’s craft industries · 12.09.2014 · breweries,...

OFFICE OF ECONOMIC ANALYSIS

The Economic Role and Outlook for Oregon’s Craft Industries

OLCC Commission Task Force Meeting

September 12th, 2014

Mark McMullen

State Economist


The Role of the Craft Alcohol Cluster in Oregon’s Regional Economy

2


Craft Industries In the Jobs Data

3

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000

Drinking Places

Brewpubs

Wholesalers

Wineries

Liquor Stores

Breweries

Distilleries

Oregon Employment

Missing Industries Include: Hops, Barley and Grain Producers, Equipment Manufacturers, Specialized Industry Consultants and Business Services


-10%

0%

10%

20%

30%

40%

50%

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Alcohol Cluster Employment Breweries, Wineries, Distilleries, Beer/Wine/Alcohol Wholesalers, Beer/Wine/Liquor Stores, Drinking Places

United States Oregon

+4,500 Jobs

+54,700 Jobs

What Great Recession?

4


Oregon’s Comparative Advantage

5

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Oregon Employment, Share of U.S.

Alcohol Cluster

Total Nonfarm


Broad Regional Footprint

6

0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

SE Oregon

South Coast

Willamette Valley

Southern Oregon

Statewide

Portland MSA

NE Oregon

Central Oregon

Columbia Gorge

North Coast

Alcohol Cluster as Share of Employment, 2013


Alcohol Cluster Employment by County

7

2013

Oregon Office of Economic Analysis

>75%

15-75%

+/- 15%

-15-75%

<-75%


$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

Food Services &Drinking Places

CropProduction

Wineries FoodManufacturing

Breweries Distilleries Wood ProductsManufacturing

Average Pay Per Oregon Worker, 2013

Craft Industry Jobs Pay Better than Many Consumer Industries


Brewing: New Breweries Spread In Oregon, While Mature Firms Look to Other Products and Markets

-

10,000

20,000

30,000

40,000

50,000

Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Barrels of Beer for Oregon Consumption 12 Month Average

Legacy Breweries

Other Existing, Pre-2005

Big Start-Ups

Other Start-Ups

Legacy: Bridgeport, CBA, Deschutes, Full Sail, Portland, McMenamins, Rogue Big Start-Ups: 10 Barrel, Boneyard, Burnside, Crux, Double Mountain, Fort George, Gigantic, Good Life, Hop Valley, Hopworks, Ninkasi, Pfriem, Worthy

54%

10%

27%

9%

22%

6%

53%

19%

Brewing Gains Share of Total Statewide Gain

from 2006 to 2014

Legacy Breweries Other Pre-2005

Big Start-Ups Other Start-Ups


Exports Have Doubled During the Recovery

$0

$2

$4

$6

$8

$10

$12

$14

$16

1996 1999 2002 2005 2008 2011 2014YTD

Mill

ions

Oregon Alcohol Exports

Beer Liquor Wine


Brewing: A Lot of Little Guys, but the Big Brewers Still Dominate Oregon Sales

0.8% 4.2%

12.1%

26.2%

66.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Cum

ulat

ive

% o

f Pro

duct

ion

Cumulative % of Breweries


Brewing: Little Evidence that Craft Beer Market Has Become Saturated

0%

1%

2%

3%

4%

5%

6%

0

1

2

3

4

5

6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Oregon Breweries Going out of Business

Number, lhs Rate, rhs


Demand Backdrop: Determinants of Alcohol Sales

13


Income Growth Fuels Sales—Particularly Among Middle-Wage Households

14 0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

1.1%

0

200

400

600

800

1000

1200

Allconsumer

units

Lessthan

$5,000

$5,000to

$9,999

$10,000to

$14,999

$15,000to

$19,999

$20,000to

$29,999

$30,000to

$39,999

$40,000to

$49,999

$50,000to

$69,999

$70,000to

$79,999

$80,000to

$99,999

$100,000to

$119,999

$120,000to

$149,999

$150,000and

more

Average annual spending on alcoholic beverages (Dollars, Left)

Share of total spending (right)


Alcohol Sales Are Very Sensitive to the Business Cycle

15

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Alcohol Spending GDP


Demographics: Millenials vs Boomers

16

0.50%

0.60%

0.70%

0.80%

0.90%

1.00%

1.10%

1.20%

0

100

200

300

400

500

600

Allconsumer

units

Under25

years

25-34years

35-44years

45-54years

55-64years

65-74years

75 yearsand older

Average Annual Spending on Alcohol (Left)

Share of total spending


Demographics: Age-Based Alcohol Sales Forecast

17

0.82%

0.84%

0.86%

0.88%

0.90%

0.92%

0.94%

345

350

355

360

365

370

375

380

385

390

395

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Estimated Average Annual Volume of Alcohol SalesBased on Oregon Age Mix

Estimated Share of Spending on Alcohol Based onAge Mix


Demand Backdrop: Composition of Alcohol Sales

18


Hitting the Town: The Kids Have Grown Up

19

32%

33%

34%

35%

36%

37%

38%

39%

40%

41%

42%

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Share of Alcohol Consumed at Eating and Drinking Places


Hitting the Town: Preferences Over Time

20


21

For More Information

Standard Contact: 155 Cottage Street NE Salem, OR 97301 (503) 378-3405 [email protected] www.oregon.gov/das/oea

Social Media: www.OregonEconomicAnalysis.com @OR_EconAnalysis

Department of Food Science and Technology

Oregon State University

Bill Boggess Executive Associate Dean

OLCC Meeting, Bend OR

September 12, 2013


Program Breadth

Fermentation Sciences

Agricultural Inputs Grapes Milk Barley, malt, hops Barley Wheat

Products Wine Cheese Beer Bread Bread


Fermentation Sciences TECHNICAL UNDERPINNINGS: Applied Economics Business, marketing Animal & Rangeland Sciences Dairy research, operations Biological & Ecological Engineering Bioenergy and biomaterials Crop & Soil Science Breeding: hops, barley, wheat Food Science & Technology Enology, brewing, cheese, bread Horticulture Viticulture, small fruits Oregon Wine Research Institute Microbiology Fermentation microbiology

Food Science & Technology

OSU Seafood Laboratory - Astoria

Wiegand Hall - Corvallis

Food Innovation Center - Portland


Second-oldest U. S. Food Science program (1918) One of only two national programs in Fermentation Science Launched in 1996 with major gift from Nor’Wester Brewing Breadth: Enology, brewing, artisan cheese, artisan bread

In-depth expertise: Flavor chemistry, sensory science, food processing, food safety, bio-fermentates

Expanding into distilled beverages and ciders

Rapid 10-year growth of OSU’s Fermentation Science program parallels that of the Oregon’s fermentation industries

OSU Food Science - Fast Facts -


FST Undergraduate enrollment

0

20

40

60

80

100

120

140

160

180

200

220

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Enro

llmen

t

Academic year (beginning in Fall)

*


B.S. Degree in Food Science and Technology Food Science 29% Fermentation Science 58% Enology & Viticulture 13%

OSU Food Science Undergraduate Degree Programs*

* Approved programs by Institute of Food Technologists


Graduate Research 37 Graduate students: 24 M.S. 13 Ph.D. Fermentation students: 9 M.S. 3 Ph.D.


Training students to be brewers

Photos courtesy of Lynn Ketchum


OSU Pilot Brewery 2-barrel brewhouse / 6 fermenters

Photo’s courtesy of Steve Werblow

Hops & Brewing Research Shellhammer Lab

• Investigating the sources of citrus aroma/flavor from hops

• Hop harvest maturity influences on oil quality

• Basic studies on dry hopping • How hops affect beer flavor stability • New methods for assessing beer

bitterness intensity • Foam stability, reduced iso’s

Bitt

erne

ss In

tens

ity

Time tmax

Imax Area

Duration


OSU Mini-malter

Photo’s courtesy of Lynn Ketchum


Enology & Viticulture Program


Enology & Viticulture Program E&V Undergraduate Option (Teaching)

– Focus: Developing strong understanding of foundational sciences – Scientific application to winemaking and hands-on training – Teaching winery (Withycombe Hall) and vineyard (Woodhall) – 50+ students in Enology and Viticulture – Graduates placed in wineries in OR, WA, and CA


Research Focus – Understanding factors impacting wine quality; precursors; closures – Positive and negative contributions from microorganisms – Chiral isomers related to wine flavor and aroma impact – Collaboration with Oregon Wine Research Institute team including

viticulturists, flavor chemists, sensory scientists – Influence of yeast on grapes and in the winery – Regional

differences? Winery differences? Commercial yeast vs. naturally present yeast? Role in producing unique, premium quality wines?


Enology Extension Program - Providing wine producers with new information and skills - Applying research results and identifying emerging problems


OSU’s first student venture product


Savor Education Beaver Classic™ Artisan-style cheese • Developed and produced by OSU

Food Science students • Milk from cows in OSU Dairy Center • Oregon characteristics / alpine

tradition • Nutty taste with creamy, buttery and caramelized flavors “Savor fine artisan cheese while supporting our students and preparing them for careers in the food and dairy industry.”


Employers of OSU Ferm. Sci. Grads

Anheuser-Busch MillerCoors Boston Beer Company Deschutes Brewery Full Sail Brewing McMenamins’ Rogue Ales Widmer Brothers Brewing

Willamette Valley Vineyards King Estate Winery Argyle Winery Adelsheim Winery E&J Gallo Chateau St. Michelle Hogue Cellars Tilamook County Creamery Rogue Creamery Tumalo Farms


The Future: Distilled Spirits


Oregon State University

Bill Boggess Executive Associate Dean

OLCC Meeting Bend, OR

September 12, 2014

OREGON’S CRAFT INDUSTRIES ECONOMIC BENEFIT IN THE AGRICULTURAL

SECTOR

Lindsay Eng Director, Market Access & Certification Programs

OREGON HOPS Hop production began in Oregon in 1932. • Oregon is 2nd largest producer in US. • 17% of the United States market share • 5% of hops grown in the world. The majority of hops in Oregon are grown in Marion County with some grown in Polk County. Oregon grows about ten varieties of hops on about 6183 acres. Quality Assured – all hops produced in Oregon are required to be inspected. • The Hop inspection services provided by the ODA provide an official independent analysis

of hop quality that facilitates transactions between hop growers and hop processors. • The presence of leaf, stems and especially hop seeds can alter the character/flavor of the

hops and ultimately the price paid to the grower or processor. • This ODA official inspection, authorized and licensed by FGIS, protects both the growers

who have invested large amounts of time and money to produce the hops and the processor who must guarantee its buyers and brewers they are receiving high quality hops whose flavor and aroma are vital and consistent.

OREGON HOPS

Production by Variety 1000 lbs NASS data 2011 2012 2013 3-yr change

Cascade 425 623.5 627.1 48% Centennial 370 394.6 Fuggles 75.3 Golding 222.7 Liberty 143.2 126.7 Magnum 123.4 146.1 146.2 18% Mt. Hood 404.5 392.6 346.2 -14% Nugget 3332.1 3353.5 3422 3% Perle 159 64.8 Sterling 164.7 197.8 20% Super Galena 545.5 483.6 396.4 -27% Tettnanger 114.4 91.1 Willamette 1337 1504.7 824.7 -38% Experimental 60.7 Other 1270.6 1333.5 1770.6 39% 0

500

1000

1500

2000

2500

3000

3500

4000

NuggetWillametteOther

SPECIALTY CROP BLOCK GRANTS FY 2011 • Promoting US Grown Hops through creation of education and

promotional materials • Includes trade show signage and visit to Anheuser Busch HQ • Achieved goal to keep Oregon hop acreage over 3500

FY 2012 • Promote the use of Oregon grown public hop varieties to craft

breweries and home brewers • Hop Commission attended several brewers and beer festivals

throughout the state • Will develop a new website which will include a public hop variety

manual

SPECIALTY CROP BLOCK GRANTS FY 2014 (Pending) • Creation of an online database for promotion of public hop

varieties • Continuation of 2011 grant to educate brewers, but information will be

posted online and on mobile app • Varieties developed by the USDA Hop Breeding Program (public hops)

make up about 95% of Oregon-grown hops

OREGON WINEGRAPES

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

0

5,000

10,000

15,000

20,000

25,000

2007 2008 2009 2010 2011 2012 2013

Acres

Tons

Varietals (by production tons) 2010 2011 2012

Pinot Noir 16,765 23,726 28,565

Pinot Gris 5,312 6,046 7,423

Chardonnay 1,503 1,923 2,605

Syrah 947 1,319 2,097

White Riesling 1,861 1,899 1,812

Tempranillo 235 387 631

All others 4,577 6,200 7,043

SPECIALTY CROP BLOCK GRANTS FY 2014 (Pending) • Building an “Oregon Wine Experience” Mobile Application

• Final development of an interactive, educational mobile application • Roll-out of an iPad app to small wineries vineyards throughout the state • Templates will allow for seamless storytelling for wine enthusiasts

visiting the state • Development of Value-Added Applications of Fruit and Wine

Grape Pomace • Research to develop value-added products from pomace • Solutions could include food ingredients and fiber for packaging

OREGON TREE FRUITS • Traditional apple and pear varieties

grown for commercial fresh market • Oregon is 2nd in US for pear

production • Large commercial apple industry

has decreased, but growing in specialty varieties

• Many burgeoning NW cider producers are growers first • Growing estate orchards of cider

apple and pear varieties • Existing industry provides expertise

in growing and producing tree fruit for cider production, infrastructure, and great land

OREGON TREE FRUITS

SPECIALTY CROP BLOCK GRANTS FY 2014 (Pending) • Creation of an organization to manage growth and promotion of

the Mid-Columbia River Gorge cider industry • Includes a collective marketing strategy, business development

classes, and two annual cider focused events • Formation of production standards for the Northwest cider

industry • Establishing production best practices, creating a certification process,

and standardizing definitions (such as craft, cider, and Northwest)

GRAINS • Barley 53,000 acres (2012)

• 3,816,000 bushels produced worth $23,850,000

• Bulk of production centered around the North Central and Northeast regions of the state

• Rye and oats are centered around the same areas of the state with small-scale production of other cereal grains occurring in other areas of Oregon.

• Not a significant amount of malting facilities/infrastructure in Oregon for malted barley

Oregon Beer, Wine, and Spirits

Bill Schuette, Economist Oregon Liquor Control Commission

OLCC’s Role With Craft Industries • License

o Brew Pubs, Breweries, Wineries, Distilleries • Tax (Privilege Tax)

o Collect and audit o Distribution of $0.02/gallon to OR Wine Board o Collect and audit $25 per ton tax for grapes for

the OR Wine Board • Distribute Spirits

o Contract with Distillery Agents to Sell Spirits o 248 Liquor Stores plus 61 Distillery Agents

Oregon Winery Licensees • 954 Winery Licenses (622 Locations) in 2014

o Import, bottle, produce, blend store, transport, and export wines. o Most allow wholesale and retail sales o Multiple licenses may be housed at one location

Oregon Winery Licenses


0200400600800

10001200

Lice

nses

Year


Who Pays Wine Tax In Oregon $9.5 Million in FY 2013 License Type Percent of Tax Collections

Out of State Direct Shippers and Wine Self Distributors

4%

Warehouse 4%

Distributor (WMBW)

89%

Winery 3%

Wine Tax • Table Wine Privilege tax $0.67

per gallon o Less than 14 % ABV o Collected $8.8 Million in 2013

• Dessert Wine Taxed at $0.77 per gallon o Greater than 14.01% ABV o Collected $0.7 Million in Fiscal Year 2013

More on Oregon Wine Tax • Small Winery Exemption

o If winery produces less than 100,000 gallons in calendar year then they can exempt 40,000 gallons from wine tax

o 37 Oregon Wineries paid wine tax in 2013 (out of about 954)

o Applies to In-state and Out-of-State Wineries

o Can be moved between licenses

Oregon Wine Movement From 2013 Tax Records (in and out of state production)

• Table Wine – 27.9 million gallons o 20.5 million gallons sold o 5.0 million gallons exported o 2.4 million gallons exempted

• Dessert Wine – 2.9 million gallons o 1.9 million sold o 0.5 million exported o 0.5 million exempted

Oregon Brew Pubs & Brewery Licenses

0

50

100

150

200

250

300

Oregon Breweries & Brew Pubs

Who Pays Beer Tax in Oregon $6.9 million in FY 2013

License Type Percent of Tax Payments

Brew Pubs /Breweries 15%

Warehouse 34%

Distributor (WMBW) 49%

Wineries (Cider) 2%

Oregon Malt Beverage Production

• Malt Beverage is defined as alcohol under 7% ABV

• Taxed At $0.08 per gallon o No production exemptions

• 43.1 Million Gallons Sold in 2013 from Oregon Brew Pubs and Breweries

Oregon Malt Beverage Production From 2013 Tax Filings

• 84.4 million gallons taxed in FY 2013

• 43.1 Million gallons from Oregon Brewers o 15.9 Million Gallons Sold in Oregon

• 19% of state consumption o 27.2 Million Gallons Exported

• 63% of total production exported

Cider Production • Produced under a Winery License • Taxed as Malt beverage unless over 7% ABV • Estimated to be 30 cider producers in

Oregon in 2014

Cider Producers in Oregon* *estimated

0

5

10

15

20

25

30

35

Oregon Distilleries • 72 Distilleries in July 2014

o Includes 61 distillery agents that can sell retail

• $66 million in Gross Sales in Oregon o 12.5% of total sales o $3.9 million from distillery locations in

2014 • $2.6 million in FY 2013 (49%

Increase)

• OLCC does not track exports from Oregon Distilleries

Oregon Distilleries

Questions?

the economic role and outlook for oregon’s craft industries · 12.09.2014 · breweries,...

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