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| This booklet was published by the U.S. Departments of Agriculture and Energy in 1982. |
According to the American Craft Spirits Association, there are 3,069 active craft distilleries in the U.S. That number has grown about 10 percent per year for the past decade.
Compare that to 50 years ago, when the number of licensed distilleries of all kinds in the United States, including industrial alcohol, fell to fewer than 100. Fewer than 20 of those made whiskey. Except for a few artisanal brandy distilleries, all of them were big.
Before that, it was different.
The FET, the hated tax that sparked the Whiskey Rebellion, was repealed by Thomas Jefferson in 1802, reinstated briefly after the War of 1812, then reimposed in 1862 to fund the Union’s side in the Civil War. It has been with us ever since.
With taxation came licensing, and larceny. The tax collection system was deeply corrupt from inception. Alexander Hamilton anticipated that, so he designed it to encourage large-scale over small-scale distilling. It would be more practical, he reasoned, to police a small group of large taxpayers rather than a large group of small taxpayers. He wasn’t wrong. Great Britain had experienced and addressed the problem the same way.
So, for the convenience of government, the beverage alcohol industry was pushed in that direction.
Even with that bias built into the system, the United States had thousands of licensed distilleries throughout the 19th century, and untold numbers of unlicensed ones. Until the second half of the century, whiskey-making was primarily an adjunct to farming or milling. Only after steamboats and railroads radically improved transportation did distilling evolve into an industry.
By late 19th century there were still 6,000 to 7,000 licensed beverage alcohol distilleries operating in the U.S., many of them large even by modern standards. After 1900, as Prohibition picked up steam, the number of beverage alcohol distilleries rapidly declined until it reached zero on January 1, 1920, at least officially.
Legal beverage alcohol distilling resumed on a small scale in 1929 to replenish dwindling stocks of medicinal whiskey. It resumed in earnest after Prohibition was repealed four years later. Many new distilleries were built in the 1930s.
The reborn industry was not only licensed for tax purposes, but also heavily regulated for public health and safety reasons so, again, it was designed to favor large-scale producers and distributors and discourage little guys.
This time it succeeded. Little guys were duly discouraged. After 1933, there were never more than a few hundred licensed distilleries in the U.S., almost all large. What small distilleries there were usually were attached to some other business, such as a winery or cidery that wanted to make a little brandy.
Then came the Energy Crisis of 1973. As Americans became aware of their dependence on imported oil, the search began for domestic alternatives. Ethanol, which had powered some of the first automobiles, was an obvious option. Blends of gasoline and alcohol, “gasohol,” became a popular way to extend the petroleum supply using alcohol distilled from renewable, U.S.-grown feedstock, principally corn.
In 1982, seeking to grow the still-nascent fuel ethanol industry, the U.S. Departments of Agriculture and Energy teamed up to publish Fuel from Farms, a Guide to Small Scale Ethanol Production.
The Fuel from Farms initiative encouraged farmers to set up small distilleries to produce ethanol from their grain or other agricultural products. This did not threaten food supplies, it argued, because American farms had much more productive capacity than they used.
Farmers would control the process. They could reduce their own fossil fuel use by converting farm equipment to run on ethanol. That way they could become energy self-sufficient.
Fuel from Farms streamlined licensing and regulation but made a stern effort to exclude beverage alcohol from the equation. It didn’t work. The ‘fuel’ part never took off, but farmers and others got the simplified applications and lower fees extended to distilled beverage production as well.
The first to take advantage of this new opportunity were several West Coast winemakers who wanted to make fruit spirits, such as Germain-Robin, Jaxon Keys (Jepson), Charbay, Osocalis, St. George, and Clear Creek. St. George then got into vodka. Clear Creek got into malt whiskey.
Also in the 1980s, the Justice Department relaxed antitrust enforcement leading to consolidation in many industries, including distilled spirits. The big got bigger and fewer in number. Soon Jim Beam absorbed National Distillers and the corporate roll-up that eventually became Diageo acquired American whiskey makers Stitzel-Weller, Glenmore, Medley, and Schenley.
In theory, when any industry consolidates into a small number of large players, that creates opportunities for smaller, more nimble competitors. In distilled spirits manufacturing, however, the barriers to entry were uniquely high because of alcohol’s post-Prohibition tax and regulatory regimes. Add to that the unique capital requirement of aged spirits production.
Although federal regulations had become less onerous, most states still had restrictions, so many early craft distillers became reluctant lobbyists. States such as California, New York, Tennessee, and Kentucky, that already had active distilled spirits industries, were easiest to crack.
In Kentucky and Tennessee, for example, the ‘big guys’ had already gotten the law changed to allow limited direct-to-consumer sales at their distilleries, to take advantage of tourism growth.
Some states, in revising their laws, followed the model and rationale of Fuel from Farms and favored farm-based operations. One was New York, where Tuthilltown Spirits founders Ralph Erenzo and Brian Lee were surprised to learn it was easier to start a farm-based distillery than the rock-climbing resort they had planned originally.
Successful lobbying efforts for craft distilleries always emphasize economic development benefits. Distilleries can complement a community’s existing agricultural, tourism, and hospitality businesses. They create new jobs and pay taxes, often at higher rates than other business types.
Nothing motivates politicians like the promise of increased tax revenue.
Craft distilling grew slowly through the 80s and 90s. It suddenly took off as the 20th century transitioned into the 21st. (This probably is part one of a multi-part series. Stay tuned.)
