Tariffs: Up and Down the Arizona Craft Brewing Supply Chain

It may be stating the obvious to say that a tariff on any commodity will have a repercussion all along the supply chain it touches. Yes, that includes our favorite locally brewed beers.

In Business Magazine spoke with Rob Fuller, executive director of the Arizona Craft Brewers Guild, to learn how President Trump’s recent tariffs impact these businesses and the businesses that serve them — specifically, the 301 tariff on Chinese stainless steel and the 232 tariff on aluminum.

“The entire process of brewing requires stainless steel — the brewing kettle, fermentation vessels, large tanks, all the fittings and pipes, and the kegs [the beer] is put into,” Fullmer says, noting, “A lot is Chinese-sourced. Even American companies that fabricate use it or a portion of it.”

Members of the Guild were in Washington, D.C., in early June when the tariffs were announced, and were able to communicate some of their concern to legislators. Recalls Fullmer, “There was an announcement that the equipment involved in brewing would be exempt from the tariffs.” But that left a huge gray area. “We heard it was just vats and tanks,” he says, observing that the legislators’ idea of what brewing equipment is, is a lot different from what is actually used. “The exemption is not clear regarding fittings and hatch doors,” which are on the vats and tanks.

The result of that lack of clarity is, in itself, causing uncertainty — and, therefore, hesitation — in an industry that Fullmer describes as having been growing quickly and is attached to other businesses. “Even casually increasing production is becoming a gamble,” he says. “When you invest money in equipment, you have to have a keen sense of what the return is on your investment.” In industries that depend on using that raw stainless steel in fabricating parts or combining parts to support the breweries here, the tariff uncertainty is, at the least, causing delays “because no one knows how to price anything.” For instance, Fullmer says, “Depending on when the equipment could hit the Port of Los Angeles, it could cost 25 percent more.

More and more breweries have been getting into the packaging market, and this is where the tariff on aluminum hits home, Fullmer explains. “The can is the product that allows them to explore the packaging industry,” he says. Breweries have been producing cans of beer in limited quantities as a promotional product, for instance, with the couple-of-cents-per-package cost being too small to pass on to the distributor or retailer. “Smaller breweries might be shut out by being priced out or given minimum quantities that they can’t order.” While that’s a “might be” that hasn’t happened yet, impact on cost of shipping has been seen. “When the tariff was announced, the Midwest Aluminum Premium pricing index immediately went up.”

On the other side of the brewery process, breweries are impacted because farmers are impacted by a retaliatory tariff on American pork. Breweries use grain in the brewing process, and the spent husks are packaged and sent to farmers to use for feed. “When farmers are getting tariffed, they’re not selling as much” — so they don’t need all those spent husks. While the husks were not a revenue stream — “We don’t charge for it; we just give it to the farmers.” — losing that outlet means the spent grain will have to be sent to a landfill. So, there’s waste disposal cost along with a sustainability setback.

“Our businesses are interested in helping the economy,” Fullmer makes clear. “But there’s not a lot of clarity regarding these items, which are deemed ‘national security’ (the mechanism President Trump used for his executive order).” It is also yet to be seen if there will be other retaliatory tariffs that will hit the brewing industry.

Snapshot

There are approximately 92 independent businesses in Arizona’s craft brewing industry, which, because some of them have multiple breweries, restaurants and tap rooms, represents more than a hundred breweries with more than a hundred bar/restaurant breweries, according to Rob Fullmer, executive director of the Arizona Craft Brewers Guild.

Shares Leah Huss, co-owner and operator of Huss Brewing Company, “Huss Brewing Company uses just over three million cans per year. Yes, the tariffs will have an impact on the cost of our cans from the manufacturer, but the situation is ever-changing and the ultimate outcome remains to be seen. We do not plan to pass the cost increase on to our customers and remain hopeful that this situation will not create a shortage for our brothers and sisters in the brewing industry, as well as ourselves. We’re concerned about the ultimate outcome, but also acknowledge that sometimes, with situations such as these, it is just the cost of operating a small family-owned business.”