198 (04.07.18)



“Manipulating” Aluminium? Welcome to the Beer Institute

How big beer uses lobbyists to bash in the price of aluminium

In a glass office in Washington, a short stroll from lawmakers on Capitol Hill, a small group of lobbyists, lawyers and public relations officials are working out how to get down the price of aluminium.
    Among them is lawyer Mary Jane Saunders, who once advised fast-sandwich giant Subway on the wording in its adverts. There is also Michael Uhrich, an economist who was head of market intelligence for lager giant Coors. And Travis Gibbons, who has spent much of his career lobbying for over-the-counter drugs.
    But their personal histories are mere small print. Together they are “The Beer Institute”, an industry-wide body that represents the world's largest brewers in the rough and tumble of American politics, winning tax cuts, throwing parties and joshing all stripes of government on everything from trade to binge-drinking.
    Few groups have caused more headaches, especially in the metal market. In 2013, they were instrumental in busting so-called merry-go-round aluminium contracts, forcing Goldman Sachs to scrap its metal warehousing business, after companies were accused of engineering long queues of ingots.
    Five years on and the same group of lobbyists is piling pressure on White House staff to relax metal tariffs, whilst going after news group Platts for the way it reports on aluminium premiums. The market is being warped by “manipulation” and “distorted prices”, the Beer Institute claims, and it is having a “chilling effect” on buyers.

    Beer is big business in the US. Americans drink on average six beers each week, and peak season is now: beer sales usually top $1bn on 4th July. “If you are reaching into a picnic cooler for an ice cold beer this Independence Day holiday, you are in good company,” the Beer Institute says.
    Aluminium cans are meanwhile grabbing an ever-bigger share of the market: easy to stack and quick to chill, US breweries sold 36 billion last year, adding-up to over 750,000 tonnes of aluminium, costing $1bn to $2bn. Second only to taxes, that makes metal the most expensive ingredient in beer, and the Beer Institute has gone after both in turn.
    Led by CEO Jim McGreevy, a square-jawed family man who cut his teeth in political campaigning canvassing for the Democrats in '92, the Beer Institute is a well-run (and heavily-greased) machine. It has lobbied the FDA over restaurant menus, the FTC over advertising, the Department of Transportation over the safe length of trucks on highways and both Houses of Congress over tax reform.
    McGreevy's role includes handing-out awards to Senators, for “friendship” to beer drinkers. Parties held by the Beer Institute for Congressmen and their staff are said to be “widely attended” and the legislation it gets behind is unusually popular: one tax break it backed last year was co-sponsored by 355 lawmakers. “Thanks to our combined and continued lobbying,” the Beer Institute beamed, “federal excise tax relief is finally a reality.”
    Indicating McGreevy's effectiveness, when the Beer Institute last published data showing beer's impact on the economy, the numbers were picked-up by more than 1,000 newspapers in the US. That's almost every one. More impressive were the

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figures themselves: the beer industry employs over 2 million Americans, pouring $350bn into the economy each year, the Beer Institute claims. That's more than one per cent of all US jobs and nearly two per cent of its GDP.
    In fact, only 65,000 Americans are employed in industrial breweries, but it is possible to get the figure above 500,000 by adding in farmers and above two million if you include truck drivers, shop assistants, air hostesses and the hotel trade.
    And yet the Beer Institute has met its match in the popularity and protectionist policies of President Donald J. Trump.
    America once made more than half the world's aluminium, but old smelters, a strong dollar and high energy prices have all pushed the industry into decline, with 50,000 jobs lost in last 30 years, according to the US Bureau of Labour Statistics. Another 102,000 jobs have disappeared from American steel.
    “We are going to put American steel and aluminum back into the backbone of our country,” Trump promised at a factory near Pittsburgh during his election campaign. He has put a 10 per cent tariff on imported aluminium, whilst sanctioning Russia's Rusal, the largest producer outside China, knocking it out of the American market. “It's time to declare our economic independence once again.”
    McGreevy is fighting the tariffs, saying they are a $348m tax on hardworking beer drinkers. “Tariffs on aluminum are a tax on beer,” says John Dunham & Associates, a Brooklyn-based firm led by a former tobacco company economist that the Beer Institute regularly uses to brew-up third-party figures.
    Trump's Commerce Secretary Wilbur Ross has trashed the argument. A can contains three cents of steel or aluminum, he told CNBC, waving a Coke, a Budweiser and a tin of Campbell's Soup. “If that goes up ten per cent, that's three-tenths of a cent. It doesn't mean anything, so all this hysteria is a lot to do about nothing. People are crying that the sky has fallen.”
    McGreevy hit back on CNBC's Power Lunch. “The total beverage alcohol market is a very competitive market, Melissa. That's why these tariffs are so impactful for our businesses.”
    He has meanwhile opened-up a new front against the Midwest Premium, which tracks the cost of getting metal through America's rail network from ports to factories in its heartland. Ever since 1972, news group Platts has reported on the premium by ringing round traders, but similar benchmarks in gold and interbank lending have turned-out to be wide open to rigging. The Beer Institute, which lists “Commodities Oversight” as one of its key objectives, alongside “steering consensus”, is demanding an investigation.
    Beer groups are simply put out, say aluminium analyst, because they are hedged against metal prices, but not against duties and freight. “Nobody wants speculators in their market when they're pushing prices in the wrong direction.”

    Tariffs might add to the beer trade's packaging costs, or to shopper's grocery bills, but the Beer Institute's members, including Heineken and AB InBev, are on thin ice when it comes to accusations of unfair trading. America's four largest brewers hold 80 per cent of the US market and the price of a multipack has gone up as the industry has consolidated, according to a recent paper in Econometrica. That points to “price coordination” (brewers reject the findings).
    After years of retrenching, Amerca's aluminium industry also looks a little anticompetitive. Two decades ago it had 23 smelters. Today there are only six, owned by just two players, Alcoa and Century Aluminum. When Trump signed his tariffs into law, Century stuffed the Oval Office with workers, before putting them up for interviews on Fox News. “We'll sell every



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incremental tonne we can produce,” said CEO Michael Bless.
    Boxed into a corner, beer giant Coors has promised to buy American. “We buy as much domestic can sheet aluminum as is available,” it announced on Twitter.
    One unknown is the role played by commodities group Glencore. It owns 45 per cent of Century and handles all its tonnage. Under Trump's new regime, one of its former traders is restarting an idled smelter. A large physical position has also been amassed in warehouses in New Orleans. “Somebody's bought a huge, stockpile,” one analyst says. “That's somebody taking a physical punt.”
    Trump, for one, thinks his trade policy is working. “We've put tariffs on steel and aluminum,” he said at a factory opening last week, “those businesses are through the roof.”
    The Beer Institute is losing its battle on tariffs. But in lobbying there is always another campaign and McGreevy's attack on the Midwest Premium appears to be gaining ground. 32 members of Congress have written to Trump's Attorney General Jeff Sessions urging him to investigate “possible irregularities” in aluminium (the Beer Institute says it “applauds” the letter).
    Beer and metal have been frothed-up into a question of who has the best message for Trump, one analyst says. “Century's message is very clear-cut: you impose 10 per cent duties, we're going to start-up this big smelter, these guys are going back to work. It makes a lot of sense.”