Overview of the Distilled Spirits Industry

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Overview of the Distilled Spirits Industry

  1. 1. Overview of the Distilled Spirits Industry Presented by Chris Thiemann, Regulations and Rulings Division and Dave Bateman, Trade Analysis and Enforcement Division
  2. 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. 3. TTB and the Distilled Spirits Industry Chris Thiemann Regulations and Rulings Division
  4. 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. 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. 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. 7. TTB Organization
  8. 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. 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. 10. Rulemaking Updates • Part 19 • Cachaça • Serving Facts Alcohol and Tobacco Tax and Trade Bureau
  11. 11. Alcohol and Tobacco Tax and Trade Bureau
  12. 12. The Distilled Spirits Industry Dave Bateman Trade Analysis and Enforcement Division
  13. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 25. Industry Trends
  26. 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. 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. 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. 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. 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. 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. 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

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