Malus: A Forethought 1

The best Ontario made beverage that I tasted over the course of the last three years wasn’t a beer. It was a cider.

I had been signing copies of Lost Breweries of Toronto at the Only Café’s Winter Beer Fest in 2015 and I’d been sat next to the cider producers on the coffee bar side of the pub. I had not really intended on drinking anything despite being at a beer festival. That involves getting up and wandering around, which is a poor decision if you’re selling books from a table. The thing about selling books at a bar or beer festival is that people have a tendency to bugger off with copies. Sometimes they’ll do it as you’re sitting there! It’s an act so brazen that you sort of have to admire the cheek; a gesture of defiance against Big Literacy.

Sobriety was wearing rather thin by the third minute when, during setup, a couple of framed pictures fell off the wall on to my head. A bad afternoon was shaping up to be miserable, but fortunately Chris Haworth from West Avenue had the next booth over. I had had a number of his ciders over the previous couple of years, but this being a festival he kept producing strange variants and one offs from the inside of the jockey box when he wasn’t pouring his Heritage Dry for festival attendees. There were single varietal ciders like Gold Dust (All Golden Russet) and fruit blends like Cherry Beach (It may have been Cherriosity, but it certainly involved cherries.) Eventually, though, there was North by West Ice Cider.

North by West Ice Cider is a wild yeast fermented cryoconcentrated Ice Cider. What you expect from Ice Ciders is a cloying sweetness, but here in the little plastic tasting cup was just concentrated sunlight; not one dimensional sweetness, but dramatic juxtaposition. It was warming despite the fact it was ice cold. It was sweet, but only so that bright contrapuntal tartness, acidity and funk could play off it. Conceptually, Ice Cider is meant as a dessert companion, but accompaniment in this case would have simply muddled the intensity of the experience.

It’s rare that you drink something so clever that you become confused and stare in silence at it for a period of time. It shocks you out of the room. I love it when that happens.

Over the last three years I’ve been one of the judges at the Ontario Fruit and Vegetable Convention’s Cider Competition. It takes place at the Scotiabank Centre in Niagara Falls and features judges from various walks of life. Some from agricultural industry and some from apple growers. Some beer writers and some wine writers judge. To be honest, I’m not sure how much I knew about cider going in, but I’ve been reading up over the last three years. (Periodically as a goal for myself with the fitbit, I’ll set Wholefoods in Yorkville as a destination so that I can buy and eat an apple variety I’ve never tried before. I blame this on Rowan Jacobsen’s Apples of Uncommon Character. I’ve arranged to go and visit Siloam Orchards in Uxbridge late this summer so that I can get a better sense for cider varietals.)

Technical details aside, the quality has been improving rapidly.

Confusion seems to be a hallmark of Cider in Ontario, at least from a writing standpoint. Both the wine and beer writers seem to want to view it as their own territory, but no one is really staking out a claim. Cider really lives an odd shadowed life somewhere in the middle. Fruit based, but consumed in the manner of beer.  Periodically appropriate for occasions that it is not really priced for or priced out of occasions where it would be suitable.

The difficulty is that Cider has been an afterthought from a regulatory standpoint. If you go and look up the Federal Excise definition of Cider, you’ll see that there isn’t one. According to the Canadian Excise Act of 2001, Cider counts as wine on the basis that it is:

(a) a beverage, containing more than 0.5% absolute ethyl alcohol by volume, that is produced without distillation (except distillation to reduce the absolute ethyl alcohol content) by fermentation of (i) non-grain agricultural product

At the time of that legislation, cider was not really on anyone’s radar as a separate product. It has exploded since then. Between 2009-10 and 2013-14, it more or less quadrupled in sales at the LCBO from $15.7 Million to $60.3 Million. It’s frequently cited as the fastest growing segment of the market, but it seems to me that the hype has somewhat outpaced the reality.

Having covered Craft Beer in Ontario for a long time, I know something to be true: When you’re dealing with a monopoly, sales expand at approximately the rate that you allow sales to expand. While the cider segment has certainly quadrupled in sales, the makeup of the category is such that Ontario Ciders really only make up 8% of that volume. The rest is foreign imports and multinational companies and cider from other provinces. I’ve nothing against cider from other provinces, but I’m not sure there’s anyone really clamoring for South African cider in Ontario.

Now, recently, there’s been an announcement that Cider will be sold in grocery stores. That’s all well and good. The volume of cider sold will increase by a certain amount as a result of that, but I’m not sure that the percentage of Ontario produced ciders will increase as a result of that. While expansion of opportunity is necessary, the problem is multifaceted.

Because Cider is classified as a wine but consumed like beer, its treatment through sales channels is more than a little inequitable. While there are high end Ciders out there which get barrel aging treatment and extra attention, the majority of Cider is in direct competition for the consumer dollar with beer. It’s in the same package sizes and drunk in the same circumstances and therefore must compete on price.

The challenge is that in Ontario and at a Federal level, Excise for beer is based on volumetric production in addition to alcoholic content instead of simply on alcoholic content. Even that’s not so bad. When you’re dealing with the LCBO as a monopoly supplier of your beverage to the public and you’re a cidery, you’re in some serious trouble.

If you look at the LCBO’s pricing calculators for beer, you’ll notice that for a six pack that costs $13.95, absent the bottle deposit and HST, the LCBO is actually charging you $11.81. The brewery is charging the LCBO $9.56 for that six pack. While the LCBO is making quite a reasonable $2.25 off of the sale, that’s only 19% of the cost. It’s something like a 24% markup and the brewery gets 68.5% of the listed price out of which they pay excise.

If you look at the LCBO’s pricing calculators for cider, which will go into effect on June 20, 2016, Ontario Cideries are dealing with an increased markup of 56.6%. Now, while that’s a slight break compared to the 62.6% markup on imported cider, we can maybe learn a little more by breaking that down with a little back of the napkin math.

Let’s take a cider at random: Spirit Tree’s Draught Cider (now in cans, and goes great with Korean Barbeque.) at $3.15 a can. If you remove the $0.10 deposit for the can and the 13% HST ($0.3965), what you’re left with is the LCBO charging $2.65 for that can. Of that amount only $1.69 is actually going to the cidery. It’s actually a little less than that, I suspect, because of environmental fees and levies on refillable containers. Call it $1.65. That’s 52.3% of the listed price.

This is before dealing with the $0.295 per liter in excise tax (about 13.95 cents). All this means that you’re getting something like $1.50 for that can or just about 47.6% of the listed price.  (Thanks to alert reader and cider man Nick Sutcliffe for pointing out that while Ontario cideries are in fact licensed and audited by Excise, they don’t actually pay Excise tax. I’m as baffled as you are.)I suspect that when you take into account research, development, labour, materials, packaging, transport and marketing, you’re just barely breaking even.

Now, the cider boom in Ontario is a pretty recent development and it seems to me that we’re missing a trick here. If, from a regulatory standpoint, we were to redefine cider in an amendment to the Excise Act as its own category and allow that change to permeate down to provincial levels, we might get to a position where the reward for making world class ciders was more significant than a dusty GLINTCAP trophy on a high shelf.

While Cider is probably going to continue being somewhere between wine and beer from a purely territorial standpoint, the imported ciders are of a piece with beer in terms of pricing and our producers of cider have to be treated more equitably in comparison with our producers of beer. Imagine the potential for expansion if Ontario’s Cideries were charged markup comparable to Ontario’s brewers. If they got 68.5% of the listed price instead of 52.3%, it would be a sea change. Literally a 50 cent bump per unit in the case of my example.

Cider has the potential for more immediate impact on vertical integration with apple growers and agriculture than does beer. While people are growing barley and hops in Ontario, we’re just nascent in that development. With apples, we grow 400 million pounds of them in a good year. This has the potential to be a literal economic windfall with value added to an agricultural product at every step of the way. Cideries would do better, apple growers would do better and that, in turn, means that rural communities would do better. With a little planning and by diversifying varieties in orchards, Ontario could actually be a world leader in Cider.

Without increasing the margin that Cideries make off of the product they’re selling in competition with much larger multinational firms, that’s just not possible. The grocery store concession is a good one in terms of volume, but without additional margin on product as well, expansion to fill that volume is going to be slow going. Ontario’s Cideries require some attention and I’m hoping that we’ll see some sacrifice of short term profit in the interest of growing Ontario producers in the long term.

Having judged the OFVC Cider Competition these last three years, I can tell you that there’s marvelous stuff out there and that the entirety of the field is improving. At this rate, you’re never going to get to taste it unless something pretty significant happens.

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