How could tariffs help local craft distillers?

Aug 20, 2018

There is no end in sight to trade tensions between the U.S. and Canada. Last week, on the one-year-anniversary of the start of NAFTA's renegotiation, President Trump said, "we're not even talking to Canada right now." But at least one local distiller is pleased by the spirit of U.S. tariffs on Canadian products.

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Canada retaliated to U.S. tariffs on steel and aluminum imports, July 1, with a 10 percent surtax on hundreds of items including American whiskey.

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TommyRotter Distillery, at 500 Seneca Street, in Buffalo's Larkinville district, launched three years ago making gin and vodka. Partner and Master Distiller Bobby Finan says last October they added whiskey.  
    
"We've seen pretty solid growth. We expanded across New York state into Massachusetts, Connecticut, Pennsylvania and New Jersey."

Bobby Finan, TommyRotter partner
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And with lots of customers from north of the border they'd like to add Canada to their expansion list. But Finan says it's nearly impossible for small producers to export there.
    
"The way the liquor industry's structured in Ontario, Canada, which is the market you want to be in, the LCBO, the Liquor Control Board of Ontario is one of the largest retailers of liquor in North America. There's a large concentration of population in that province and there aren't mom and pop owned liquor stores like you'd find in Buffalo, New York or all across New York state," Finan said.

Sean Insalaco, Finan's partner, calls the LCBO a monopoly. 

"It's much harder for us to get into Canada than it is for Canadian producers to get into the U.S. And the U.S. market is big. It's open for the most part...even though we have a lot of Canadian customers that come and enjoy our spirits we can't get into that market."      

So, Insalaco, who has 20 years of international business experience, says he's all for the U.S. slapping tariffs on products from Canada and other countries.  
    
"Because it is not fair trade. It's not free trade. Anyone who does anything in international business will tell you it's much easier to do business in the United States than it is abroad. So if we can finally get more dialogue to reduce trade barriers it would be beneficial," Insalaco said.

But if they can't get into Ontario, Finan says, tariffs could ease competition at home from Canadian rye whiskey, which he says, is an easy substitute for bourbon.

"The uninformed drinker can hardly distinguish the difference between the two. Not so much for the connoisseur. But it occupies the same shelf space and is part of the fierce competition in the whiskey industry," Finan said.

Some of that competition is just a few blocks away. Buffalo Distilling opened at 860 Seneca Street, in Larkinville, in 2016.

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So far, their spirits are only sold in New York state. But company co-founder Andy Wegrzyn says they plan to triple production and expand into new markets next year. Wegrzyn says it's a good thing Canadians can't make bourbon.
    
"Bourbon's the protected drink of America the same way Tequila's protected in Mexico and Scotch in Scotland," Wegrzyn said.  

Frank Weber, another Buffalo Distilling co-founder says, retailers can price out bourbon whiskey as high as they want. 

Frank Weber Buffalo Distilling co-founder
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"They can put tariffs on it and people are still going to buy it. I think, that that industry is kind of in a special, kind of a unique area, because of the brand," Weber said.  

And it's only going to keep growing, Wegrzyn says, at least for a while. 

Andy Wegrzyn, Buffalo Distilling co-founder
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"I don't think it'll effect us whether Canadian whiskies come or don't - especially with the rise of the craft spirits locally and regionally - there's going to be someone to step up and take their place," Wegrzyn said.   

And if it's other local entrepreneurs, Weber says, "the more the merrier" because variety will help create a craft distillery destination, he says, that could  draw more visitors and potential customers to Buffalo.