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Overview of the Distilled Spirits Industry

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  • 1. Overview of the Distilled Spirits Industry Presented by Chris Thiemann, Regulations and Rulings Division and Dave Bateman, Trade Analysis and Enforcement Division
  • 2. Overview • TTB and the Distilled Spirits Industry • Makeup of the Distilled Spirits Industry • Current Industry Trends Alcohol and Tobacco Tax and Trade Bureau
  • 3. TTB and the Distilled Spirits Industry Chris Thiemann Regulations and Rulings Division
  • 4. TTB and DSPs • TTB’s role in regulating the distilled spirits industry • DSP regulations and rulemaking updates • This week’s agenda Alcohol and Tobacco Tax and Trade Bureau
  • 5. TTB’s Role • Qualifying manufacturers of beverage and industrial distilled spirits, producers of alcohol fuel, dealers of specially denatured alcohol, importers and wholesalers • Protecting the revenue (26 U.S.C. 5001) • Ensuring consumer protection (27 CFR part 5). • Ensuring fair trade practices (27CFR part 5) • Conducting quality audits and investigations Alcohol and Tobacco Tax and Trade Bureau
  • 6. TTB’s Role (Continued) • Assisting industry members in understanding Federal laws and regulations as they relate to the industry • Assisting industry members in achieving compliance and satisfying tax liability • Processing MNBP drawback claims Alcohol and Tobacco Tax and Trade Bureau
  • 7. TTB Organization
  • 8. DSP Regulations • Permits • Physical characteristics of DSPs • Recordkeeping • Standards of identity • Labeling • Removal from bonded premises Alcohol and Tobacco Tax and Trade Bureau
  • 9. DSP Regulations (Continued) • Industrial distilled spirits: – Specially Denatured Alcohol (SDA) – Completely Denatured Alcohol (CDA) – Manufacturers of Nonbeverage Products (MNBP) – Alcohol Fuel Plants – Users of Tax-Free Alcohol Alcohol and Tobacco Tax and Trade Bureau
  • 10. Rulemaking Updates • Part 19 • Cachaça • Serving Facts Alcohol and Tobacco Tax and Trade Bureau
  • 11. Alcohol and Tobacco Tax and Trade Bureau
  • 12. The Distilled Spirits Industry Dave Bateman Trade Analysis and Enforcement Division
  • 13. The Distilled Spirits Industry • The beverage alcohol industry in the U.S. contributed almost $448 billion to U.S. economic activity in 2006 • 29% ($131 billion) was from distilled spirits Alcohol and Tobacco Tax and Trade Bureau
  • 14. All Excise Tax Collections (Domestic and Imported) Fiscal Year ending September 30, 2008 Tobacco 44% Wine 5% Distilled Spirits 27% FAET* Beer 2% 22% * Firearms and Ammunition Excise Tax Tobacco is top tax category; Distilled spirits account for 27% of collections.
  • 15. Excise Tax Collections for Imported Cased Goods, Taxes Collected by CBP Fiscal Year ending September 30, 2008 Distilled Wine Spirits 11% 54% Tobacco 13% FAET* Beer * Firearms and Ammunition Excise Tax 0% 22% • Distilled Spirits is the top revenue producer on importations. • For October 2008 – January 2009, Distilled Spirits accounted for 57.6% of import collections.
  • 16. The Distilled Spirits Industry (Continued) • Until 2009 the beverage distilled spirits industry had marked a total of 11 years of consecutive gains • DISCUS estimates industry-wide volume growth of 2.8% for 2008, down from a nearly 6% increase in 2007 • Current tax receipts for the first quarter of FY 2009 show a decline in domestic excise tax collections of 2% and 5.3% imported bottled spirits, with an overall average decline of 3% . Alcohol and Tobacco Tax and Trade Bureau
  • 17. Distilled Spirits Plants Alcohol Usage Calendar Year 2006 Taxable Withdrawals 12% Tax Free 5% Bottled for Export Fuel Ethanol 1% Production at Completely DSP's Denatured 50% Alcohol 20% Specially Denatured Alcohol and Rum 12%
  • 18. Nonbeverage Alcohol • Ethanol consolidation: – After capacity under construction is completed, the top Top Three Producers 65% three U.S. ethanol producers will account Rest of Market 35% for 35% of future U.S. ethanol production Source: American Coalition for Ethanol
  • 19. Ethanol Production (2006) Taxable Tax Free Withdrawals 2% Bottled for Export 4% 0% Completely Denatured Alcohol 7% Specially Denatured Alcohol and Rum Alcohol Fuel Plant 5% Production 64% Fuel Ethanol Production at DSPs 18%
  • 20. Estimated Ethanol Production (2008) Fuel Ethanol Production at DSPs 9% Specially Denatured Alcohol and Rum 2% AFP Production 82% Com pletely Denatured Alcohol 4% Bottled for Export 0% Tax Free Taxable Withdraw als 1% 2%
  • 21. Domestic DSP Activity Production for calendar year 2008: – Whiskey -5.0% – Brandy -1.3% – Alcohol +3.8% Total Production +3.2% Alcohol and Tobacco Tax and Trade Bureau
  • 22. Possible Overproduction of Ethanol Comparison of Production to Required Consumption 18000 16000 14000 Millions of Gallons 12000 10000 8000 6000 4000 2000 0 2006 2007 2008 2009 2010 2011 2012 Production 7200 10300 13500 14500 15000 16000 17000 Renewable Fuel Standard 3800 4600 5400 6000 7400 7400 7500 Source: American Coalition for Ethanol Status Report 07 These figures are the limits solely with the use of corn; new advances in cellulosic ethanol could produce 60 billion gallons of ethanol by 2029.
  • 23. Seven States Account for 69% of Large AFPs ALL OTHERS IA 31% 19% NE 13% WI 5% MN IN 12% 5% KS 7% SD 8% (2007 data)
  • 24. Compliance Concerns • Alternating proprietors • 5010 flavor tax credits: – TTB Expo session Friday afternoon • Gauging – Accuracy – Frequency • Reporting requirements Alcohol and Tobacco Tax and Trade Bureau
  • 25. Industry Trends
  • 26. Industry Trends • Beverage alcohol and the economy • Alcohol fuel plants/ethanol • Consolidation of manufacturers • Debate on lowering minimum age for alcohol purchases Alcohol and Tobacco Tax and Trade Bureau
  • 27. State and Local Taxes • Increasing through much of the country Annual Tax Revenues Commodity Federal State Local Distilled Spirits $4.6 billion $5.7 billion $529 million Beer $3.7 billion $5.4 billion $1.09 billion Wine $877 million $1.6 billion $219 million Source: Distilled Spirits Council of the United States
  • 28. The Economy Today • Alcohol is proving not to be a recession- proof product • Consumers are switching to value brands and larger package sizes • Bourbon is one of few exceptions Alcohol and Tobacco Tax and Trade Bureau
  • 29. Exports • One bright spot for 2008 was growth in exports • U.S. exports in 2008 totaled $1.1 billion: – Primary exported products are whiskies, including Bourbon and Tennessee Whisky – Growth in Australia (+24.3%), Canada (+21.2%), France (+15.9%), Germany (+8.9%) – Emerging markets grew as well Source: Distilled Spirits Council of the United States
  • 30. R&D Developments • From 2000 on, 5th still column • Molecular sieve column • Extractor column • Pressure column • Efficiencies increased 15% on yields • Fermentation process increased alcohol content to 14-16% ranges • Heatless distillation process — 2 columns: – Beer still – Molecular sieve/membrane column • Hydrolysis/cracking processes • Cellulosic ethanol production Alcohol and Tobacco Tax and Trade Bureau
  • 31. Other Trends • Ethanol production is operating at capacity due to energy demands • Capital investment in ethanol plants is entering a new stage as the number of AFP’s under construction is slowing: – Farmers are planting capacity crops – Corn prices are stabilizing • New emerging industry — the Craft Distiller Alcohol and Tobacco Tax and Trade Bureau
  • 32. Contact Information • Chris Thiemann Regulations and Rulings Division, Distilled Spirits Program – Phone: (202) 453-2138 – E-mail: Christopher.Thiemann@ttb.gov • Dave Bateman Distilled Spirits Industry Analyst – Phone: (202) 302-3859 – E-mail: Dave.Bateman@ttb.gov • Rob Crocker Excise Tax Auditor – Phone: (513) 826-0245 – E-mail: Robert.Crocker@ttb.gov