Sunday, March 12, 2006

Barriers to market entry

Please note, I do not use any of the products mentioned below. So my interest is purely academic. They are interesting because they show non-price barriers to market entry and increase my suspicion that our so-called free-market is something of a myth.

The first of these is rabbit, and then, thinking about rabbit, I remembered something I had read about hard cider (fermented, alcohol-bearing apple juice). Both readings are presented below. In both cases, it seems to me that there are barriers to market entry for these products created by government regulation. Not that Americans would be swilling cider over fried rabbit in case these barriers did not exist. It is just that myths whether they be religious or economic, need to be examined critically.

In the New York Times magazine, Randy Kennedy (The Way We Eat) extols the culinary virtues of rabbit, and laments that it is extremely hard to find fresh rabbit for sale. Why is this so?

The short answer is that modern Americans - except maybe during World War II, when rabbit was sold cheaply because of food shortages - have never fully accepted Orcytolagus cuniculus as food. Perhaps as a result, Congress doesn't mandate inspection of rabbits. If they want a voluntary federal inspection, processors must pay, which pushes prices up. And since many stores won't carry non-U.S.D.A.-approved meat, rabbit is harder to find.

What I read about hard cider was long ago, when a fellow graduate student extolled its virtues to me. IMO, cider, unlike beer or coffee, is not an acquired taste. No chance of me finding that write-up again. Google however is helpful, and confirms most of my recollections. America had a long history of cider drinking. It has gone from being a daily drink to being a niche product. Apparently, the reasons are quite complex, according to this excellent essay. Nevertheless, barriers were put on cider as compared to beer, post-Prohibition.

Another curious factor seems to have been added to the mystery early in the century, however. Evidence exists that the beer industry, keeping a wary eye on its once formidable rival, perhaps aware of the fact that cider continued to rival beer consumption in England and Canada, bought up what little remained of the cider industry. And as if this wasn't enough, in the Federal alcohol regulations of 19?? [sic], for unexplained reasons, cider was expressly prohibited for sale if it contained any added preservatives. What made this suspiciously noteworthy is that wine and beer were not subject to the same restrictions. They could continue to be sold across state lines even though they contained sulfites and other preservatives. Only cider was so restricted. The result, of course, was to forestall the redevelopment of any cider industry. This explains why today cider can be sold at farm stands but that there is only a tiny cider industry which is just now trying to become national. It is hard to avoid the conclusion that the beer industry did its part to make sure that cider would never again become America's favorite low alcohol drink.

I have a vague memory of reading about discriminatory taxes against cider in many states as well, but that might just be my memory playing tricks on me.

With the apple-juice industry in the US facing increased international competition, some are looking to revive cider production.

PS: a little more search found me this.

(This article appears in the April 1996 issue of the Wine Business Monthly.)
Washington Recognizes Hard Cider Category

Washington state is among the first to place hard cider in a lower excise tax category, similar to the rate charged for beer. E. & J. Gallo was behind the new law, which includes pear hard cider.

From 1997
American cider producers won a significant tax break in legislation recently passed and signed into law. Currently, cider from large producers is taxed at a rate comparable to luxury drinks like champagne although it has half the alcoholic content. Ciders are, however, most often marketed alongside craft-brewed beers in quality taverns and alehouses. The bill gives relief to apple growers and cider producers by reducing the federal excise tax from $1.07 per gallon to 22.6 cents per gallon -- the same rate as microbrewed beer.

So perhaps my memory is not so off the mark.