The introduction of technology through a variety of platforms has greatly affected a number of different industries, including automobiles and oil production. Technology has changed the automobile industry through the introduction of electric vehicles (EV) and modernization of fracking practices. According to an article in BBC News, “Fracking is the process of drilling down into the earth before a high-pressure water mixture is directed at the rock to release the gas inside”. In correlation with increased technology and automobiles, is the concern over oil prices for the general public and corporations. Although oil prices are impacted by many things, from technology such as fracking, to war and peace in conflicting regions, the main contributor is the battle over changes in supply and demand.

Significant economic events will also impact the amount of oil consumption. For example, Iran’s re-emergence into the world’s top oil producers will help to increase supply, which could eventually surpass demand. When supply is greater than demand, prices of oil will decrease so that people will be attracted to buy more gasoline at that moment. This will also be used as a tactic during times of economic turmoil, when the general public does not have the funds to spend money on gas. During the Financial Crisis of 2008, people were so worried about the outcomes of their financial investments that they saved all the extra money they had for necessities. People decided to make the switch from driving their own cars to using public transit as a means to save money. As seen in Figure 1, the
re was a decline in US petroleum consumption between the years of 1949 to 2014 after each war and econ
omic crisis. The average price per gallon of gasoline in the United States fell from $4.08 in June 2008 to $1.61 in December 2008. A shortage of demand for the supply that was available, created a surplus in gasoline and the need for a reduction in prices. As a result, there is a direct correlation between world economic events and supply and demand of oil, leading for a change in prices.

Over the last several years, United States production of oil has nearly doubled. This has lead to more competition, forcing Middle Eastern exporters to find new areas to sell to. Although Russia has constantly been through economic issues, it continues to hold its rank as the number one oil producer. The current price of crude oil hovers around $51.18 per barrel according to Reuters. In comparison, a barrel used to sell at above $100 at the midpoint of 2014. It is believed that this is a result of large oil companies reducing investments in new technology and exploration for new oil. According to a research report produced by RBC Capital Markets, “projects capable of producing more than a half-million barrels of oil a day were canceled, delayed or shelved by OPEC countries alone last year, and this year promises more of the same.” To reiterate the question that people ask of what drives a change in oil prices, it is a result of supply and demand, but as a result of competition. Companies are pulling out of new opportunities to find oil because the costs outweigh the benefits. In the past, drilling for oil created a cash cow that families like the Rockefeller’s were able to establish untouchable fortunes as a result. Surging United States’ production of oil has created cheaper prices for Americans due to cheaper transportation and importation costs and the ability to export oil to other countries. With increased competition among corporations and on a global level between countries, the supply for oil is increasing at a rate that demand is unable to keep up with.

The introduction of electric vehicles has increased competition among the automobile industry. EV sales are increasing month-to-month in comparison to the same month during the previous year. However, this is not enough to keep up with total vehicles sales. The introduction of electric car dealerships, such as Elon Musk’s Tesla, has created a new target market for those who want to drive environmentally friendly vehicles. Total vehicle sales have increased from 2009 to 2016 by about 74.5%. September U.S. auto sales reported strongly at 17.8 million vehicles. Total electric vehicle sales during the month of September was reported at just below 17,000 units. The previous numbers are important to refute rumors that an increase in electric vehicles on the road will lead to a decline in oil prices. Ryan Lance, CEO of ConocoPhillips, stated that EVs “won’t have a material impact for another 50 years”. Yes, there is major growth in the industry and an increase in population of people who are looking to buy plug-in vehicles, but there is not enough competition to all-gasoline cars to disrupt oil production.

The Organization of the Petroleum Exporting Countries, also known as OPEC, plays an important role in determining the supply and production of gas. The oil minister of Saudi Arabia, Ali al-Naimi, is determined to keep oil production consistent in 2014. OPEC has the power to decide to cut production as a means to increase prices and revenue. Mr. al-Naimi firmly believes that keeping oil prices where they were would help to stimulate global economic growth. To show the rarity of reducing production, back in September, members of the organization agreed to cut production for the first time in over eight years. Fast forward to today, Russia’s Vladimir Putin showed support for OPEC’s proposal to “freeze oil production in order to reverse the slump in global prices”. He stated that oil prices have decreased by more than 50% in two years due to surplus production. Not only would freezing oil production raise the low prices of oil, it will also help to prevent price fluctuations in the future. Putin is in favor of freezing production, or reducing supply, to raise prices so that Russia can remain the dominant power of the oil industry. Currently, oil and gas make up 70% of the entire country’s export incomes, resulting in a decrease of about $2 billion for every dollar that oil prices fall. The organization is aiming to cut about 700,000 barrels per day at its next meeting on November 30, 2016 in Vienna, Austria. Many nations fail to reach agreements at these meetings because they are greedy or are involved in political battles with one another. For example, the proxy war between Iran and Saudi Arabia, two of the world’s largest producers of crude oil, has created tensions that would force them to refuse agreement in order to prove a point. There is no question over the strength of OPEC and its ability to make a decision that could either raise or cut the price of oil. However, as mentioned previously, the simple issue over whether prices will be increased or decreased comes down to worldwide supply and demand.

There is not a single, clear-cut answer to determine what the main force behind the change in oil prices are; however, we can correlate the change to surpluses and deficits in supply and demand. Economic events, such as the Iranian Revolution in 1979 and the Financial Crisis in 2008, were main contributors to changes in supply and demand for oil. The revolution created an oil shock throughout the United States, when oil exports were severely cut from Iran, decreasing supply. The economic crisis in the U.S. affected the other end of the spectrum, leading to a decrease in demand from oil consumers throughout the nation. Competition amongst oil producers around the globe has increased significantly over the last decade, forcing companies to slash prices in order to attract buyers for an excess supply. Lastly, OPEC, the dominant oil production coalition, has the most control over the oil industry and the ability to make decisions regarding prices and production. Talks about freezing production are lingering throughout Europe, specifically Russia, with hopes to reduce the supply and increase prices. Overall, each example provided refers back to the simple economic principles of supply and demand. When supply is greater than demand, prices go down; and, when demand is greater than supply, prices go up. Oil consumption and production are resulting forces of supply and demand.

Works Consulted

BBC News. “Opec Oil Output Will Not Be Cut Even If Price Hits $20.” BBC News. N.p., 23 Dec. 2014. Web. 10 Oct. 2016.

Cox, Lydia. “The Surprising Decline in US Petroleum Consumption.” World Economic Forum. N.p., 10 July 2015. Web. 10 Oct. 2016.

EIA. “U.S. Natural Gas Total Consumption (Million Cubic Feet).” U.S. Energy Information Administration. N.p., 30 Sept. 2016. Web. 11 Oct. 2016.

Krauss, Clifford. “Oil Prices: What’s Behind the Volatility? Simple Economics.” The New York Times – Energy & Environment. The New York Times, 29 Sept. 2016. Web. 11 Oct. 2016.

Reuters. “Auto Sales Down in September Even After Bigger Dealer Discounts.” Fortune – Auto. N.p., 3 Oct. 2016. Web. 9 Oct. 2016.

US Energy Information Administration. “World’s Top Oil Producers.” CNNMoney. Cable News Network, 22 July 2016. Web. 10 Oct. 2016.

Wise, Alana. “A Legendary Investor Thinks Electric Cars Will Raise the Price of Oil.” A Legendary Investor Thinks Electric Cars Will Raise the Price of Oil. N.p., 25 Sept. 2016. Web. 27 Sept. 2016.

Ninety-seven percent of the world’s global water supply is salt water and of the 3% remaining, only 1% is available for human consumption. Economics is all about scarcity, and like any other scarce resoruce, water and water shortages can create investment opportunities.

The introduction of a water market in the United States – specifically in the western region of the nation, where demand is increasingly high and supply (conversely) is shrinking – could potentially aid water crises in states like California, which has a history of shortages and droughts.

In countries like Australia and Chile, where water-trading markets have already been implemented, water usage has decreased dramatically, while simultaneously curbing waste. There — of course – have been issues raised among critics, who view the trading of water rights as a privatization of water and an attack on the commons, whereby only those who can afford and are willing to pay for the commodity are given access to a life– supporting resource. These concerns can be addressed with proper policy making that will guarantee a minimum supply to households.

Australia has the largest system of water trade in the world. The development of the nation’s water-trade market came about as a response to severe drought and water shortages.  The country introduced its market in 1983 as a way of reallocating the resource to sectors that demonstrated the most need and productive use of the resource. Citizens are given rights to a share of the water that is available in the Murray-Darling basin, located in South Australia, annually. Instead of basing allocations off of a specific quantity, the shares system reflects appropriate amounts of water actually available in the Murray-Darling during a given year. Australia’s Market is highly regulated and operates on a cap-and-trade system that sets a limit on the amount of permits given to water extractors and irrigators and creates a market for the resource.  The first “pilot interstate water trading project” launched in 1998 and made the trade of permanent water entitlements possible.  Today, a growing number of temporary, usually annual, trade allocations take place through the use of electronic exchanges and third parties, such as lawayers and brokers.  Cap-and-trade is commonly used in environmentally minded economic policies as a mechanism for controlling the amount of impact on the environment. The European Union attempted an approach to controlling greenhouse gas emission via a cap-and-trade policy, but the program is generally regarded as a failure due to an over issuing of permits that created an ineffective system where there was no need to buy or sell the emission permits (Sky News).

The cap in Australia’s case is the amount of water available for use.  Water is distributed via water rights administered by the country’s governing body. For Australia, the system resulted in a reduction of waste in overall water usage because it accounts of yearly rainfall and shortages.  In years where the country faced particularly dry weather conditions or drought, the price of water rose but the number of trades off-set the rise in price: “People used the market to move water where it was needed – and valued – the most. Water-intensive crops such as cotton and rice were temporarily phased out as the water needed to grow them became more valuable than the crops themselves,” (Lustgarten, The Atlantic).  The average price of temporary water rights has for the most part flucuated between $10 and $85 a megaliter (Curran, Forbes).

The water market has essentially allowed the users themselves to make decisions – rather than political bodies — about water usage. In doing so, Australia’s use of water supply has created financial incentive for smarter use: “Farmers in an irrigation district that had porous dirt ditches, for instance, began to line them with concrete, saving millions of dollars’ worth of water that would have otherwise seeped into the earth,” (Lustgarten, The Atlantic).

Similar ways of reducing water usage and cutting waste could be utilized in agricultural regions of states like California. In fact, modern technology has been developed to cut water use by up to 50 percent, though farmers are not motivated to adopt these technologies because of the current water laws set in place. California’s state water law was established in the 19^th century during the height of the gold rush, “based on the old miners’ code: first in time, first in right,” (Coy, Bloomberg Businessweek). This prior-‘appropriate water rights doctrine’ – now over 160-years-old – gives first dibs to the first person who takes a quantity of water from a source for “beneficial use.” In doing so, it gives that person the right to continued use of that quantity from the source, for his expressed purpose.  There is essentially a use-it or lose-it mentality that has de-incentivized users to conserve.

(Johnson, Grist)

The current market California operates on has had some success, but because of ambigouty in the out-of-date laws, it is hard for sellers to prove the water they are selling is legally there’s, which have left many potential buyers and sellers ambivalent about entering into trades. If water policies were modernized to reflect the current economic priorities via measures like the implementation of a water market farmers may feel more encouraged to sell off their surplus, rather than let it go to waste.

An additional problem raised by California’s agricultural sector is the economic out-put ratio of water consumption. Farms in the state consume 80% of water while only generating 2% of gross domestic product for the economy. While the agricultural sector is intertwined with other economic categories, such as transportation and warehousing and finance and insurance, which — to a degree –rely on the thousands of farms that utilize their services, there can simply be no arguing the disparity in amount of water usage in the agricultural sector (Ross, Los Angeles Times).

Water markets could check the use of water, shifting agricultural production toward higher-value crops and away from low-value crops that often demand higher amounts of water. Like in the case of Australia, rather than displace farmers by limiting access to available water, the water market could lead to a behavior change in the agricultural sector, especially in areas plagued with drought, by encouraging a switch to crops with higher-value and/or lower demand for water. For example, decreasing the amount of alfalfa crops, which require a large sum of water and can be produced in states with richer supply, while increasing the amount of vineyards and tomato crops, could improve the gross domestic product of the agricultural sector.

Clarifying water rights is a necessary step towards solving California’s drought crisis. Laws that are concrete and clearly defined will make trading water a whole lot easier because, in order to trade, stakeholders must first understand what it is they are selling. A state law passed in 2014 aimed at regulating and monitoring the pumping of groundwater in the state is indicative of steps being taken by the government to enact a regulatory body for the resource. However, these laws will not take full effect until 2040 (Coy, Bloomberg Businessweek).

In the meantime, improving the information about water availability and calculating how much can be utilized without harming the environment would paint a clearer picture of how the resource should be managed. Additionally, building a central regulatory system and repository of information could aid in the establishment of appropriate water valuation (Hanak, Public Policy Institute of California).

The state has already experiment with a cap-and-trade program to cut greenhouse emissions.  The program, which began in 2014, has efficitively reduced overall pollution and is on track to achieve 1990 levels by 2020, a more than 15% reduction from 2015 (Hiltzik, The Los Angeles Times).

California has one of the most extensive water-supply systems in the world and the largest out of any states. The infrastructure the state currently has is entirely sufficient for storage and supply of water to farms, industries and growing cities, but conservation – as previously stated — has yet to be incentivized. The development of ground water aquifers for conservation would allow irrigators to store water in times of surplus, just like a savings account, thus softening the strain placed on the supply of the resource during dry spells (Manning, Reason).

SOURCES:

http://www.latimes.com/opinion/op-ed/la-oe-0602-ross-sumner-water-agriculture-20150601-story.html

http://www.waterfind.com.au/water-trading-explained/

How to bet on the price of water

http://www.theatlantic.com/magazine/archive/2016/03/a-plan-to-save-the-american-west-from-drought/426846/

http://www.ppic.org/main/publication_show.asp?i=1177

http://www.bloomberg.com/news/articles/2015-08-06/to-ease-california-s-drought-make-water-easier-to-trade

https://ww2.kqed.org/science/2014/09/17/what-to-know-about-californias-new-groundwater-law/

https://www.arb.ca.gov/fuels/lcfs/workgroups/lcfssustain/hanson.pdf

http://news.sky.com/story/water-trading-from-rainfall-to-cashflow-10348114

http://voxeu.org/article/price-precious-commodity-water-trading-australia

http://www.latimes.com/business/hiltzik/la-fi-hiltzik-captrade-20160728-snap-story.html

California has a real water market — but it’s not exactly liquid

In today’s climate, music is very easy to consume.  We are able to access any type of music through the phones that we carry around with us at all times and are able to pick and choose each individual song we want to listen to.

Many music industry experts believe that this year, 2016, will be the year that our current music climate changes.  They believe that this year will be the year that the market will correct and stabilize and will determine which firms will be able to survive the consolidation of the music consumption streaming market.

Although there are many various streaming companies currently in the market, they all offer slightly different benefits for the consumer and attract different sectors of the population.

One of the obvious current leaders is Spotify.  Founded in 2006, Spotify is the largest streaming service in the United States today, with over 40 million paid subscribers. 

Competitor, Apple Music, which has only been released for about a year, has 17 million paid subscribers for comparison.

While the streaming services were once considered enemies of the record labels, today, the major record labels have all created partnerships with the services for exclusive releases and deals for their artists.

While the amount of physical record sales has declined dramatically since the creation of iTunes, for the past year, record labels and the music industry as a whole have showed dramatic growth.

According to recent numbers published by Billboard, the industry is looking to have the highest numbers of growth and sales since 2009.  Currently, over 411 million units, measured in “total album consumption units” have been sold in the first three quarters of 2016. These numbers are set to meet 2013 album sales total (415.4 million) and surpass the 2009 sales number set at over 489.8 million albums.

The Recording Industry Association of America (RIAA) midyear report found that the overall industry, not just record sales, was up over 8.15% since 2015 as well.

Many attribute this growth and success to streaming services, as they have created alternative revenue sources for the artists and music industry.  A few years ago, many downloaded their music illegally and no profits were shared with the artists.  Today, streaming services pay out the artists who have songs on their platforms.

However, one of the biggest problems and criticisms of the music industry today is that the profits from streaming are nowhere near the physical streaming sales numbers.  Although Spotify nor Apple Music does not release the actual payout numbers to artists, leaked reports reveal payments of $0.006 per stream by Apple Music.  Additionally, according to Spotify, they pay out 70% of revenue to rights holders for each stream, which averages out to $0.006 and $0.0084 per stream.

These numbers per stream are tiny; it is estimated that the payout for each stream is between $0.004 and $0.008 depending on each service.  For the larger artists who receive radio play and are on major labels, this can be a huge revenue stream, with annual payouts ranging from $100,000 to $500,000 per year.  However, for the small artists who might only have a few thousand fans on Spotify or Apple Music, this can be detrimental to their income and ability to survive, as they are receiving little money based on their amount of streams and exposure.

Many smaller artists have criticized streaming services for their lack of payout, and believe that the streaming services should change their compensation models. However, it is not just small, indie artists that believe this should change.

In June 2015, Taylor Swift posted a Tweet criticizing the Apple Music launch.  She believed that the service should pay out artists during the three-month trial period, which at the time, they were not planning to do.  In a letter entitled, “To Apple, Love Taylor,” she wrote, “I’m sure you are aware that Apple Music will be offering a free 3 month trial to anyone who signs up for the service. I’m not sure you know that Apple Music will not be paying writers, producers, or artists for those three months. I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company.”

Apple VP Eddy Cue responded, on Father’s Day nonetheless, that Apple would be compensating the artists during the trial period.  With this single tweet, Swift was able to alter the business model of a huge media and tech conglomerate like Apple and was able to stand up for all of the smaller artists who do not have a voice as powerful and as large as Swift, creating a larger change in the streaming industry. 

While there are many who are outspoken against streaming, for many artists, platforms like Spotify have helped to launch their careers and gain exposure that they could only previously dream of.

For example, Hozier, an unknown artist previously, was able to launch his career with the help of Spotify.  In 2013, he was introduced into a Spotify artist discovery program and added to a playlist, and eventually was added to more, increasing his daily streams from an initial 15,000 streams worldwide per day to over 2 million a day (Billboard).  With the support and push of Spotify, Hozier was introduced to over 11 million new fans over the course of two years.

Streaming services can provide success to the lesser-known artists, but many people are weary of the services, as there is an influx of firms in the market that has is constantly changing and evolving.

At today’s current point, the streaming services in the market are still in the development and start-up stage.  Many, including Spotify, are not yet profitable and are having a difficult time remaining present in the current market.  Even companies like Pandora, which has been in business since 2000 has reported losses of millions in the past few quarters.

So, if the companies aren’t making money but have millions and millions of customers, how will they ever make money?

The solution, many industry executives and trend predictors believe, is to move away from a “freemium model” and transition to one that is only paid.  In the current economic climate, “freemium” means that companies like Spotify and Pandora offer a free, ad-supported version as well as a paid version for their customers.  Many believe this will begin to vanish very soon, as Apple Music only offers a paid version and profits would largely increase if everyone was forced to pay for a streaming service if they wanted access to it.

With these new changes, some services like Pandora and Spotify will change, encouraging and pressuring consumers to pay for access to a streaming service.  However, will new players in the market choose to create a free model to play with these tech giants?

SoundCloud, a popular site for remixes and unofficial music, is being seen as the next purchase for Spotify.  Many believe this would be a smart move, as SoundCloud needs help finanacially and the purchase would diversify Spotify’s catalogue, as it would include more original content and more indie label releases.

While there has been no decision released for Spotify to purchase SoundCloud, the industry is constantly evolving.  There are many players in the market currently and it will be important for the consumers to accurately express their wants and needs in the streaming market so that the companies best suited for the consumer and industry survive.

Three years ago, Spotify and streaming were words that were uncommon in our everyday vernacular.

Sources

http://www.billboard.com/biz/articles/news/record-labels/7534386/heres-why-2016-is-set-to-be-music-industrys-best-year-since?utm_source=twitter

http://www.billboard.com/articles/business/6656722/spotify-spotlight-support-major-lazer-hozier

http://fortune.com/2016/09/29/spotify-soundcloud-acquisition/

http://www.digitaltrends.com/music/apple-music-vs-spotify/

http://www.digitalmusicnews.com/2016/05/24/apple-music-pays-every-country-worldwide/

http://time.com/3940500/apple-music-taylor-swift-release/

Beer, it’s everywhere— from the your local pub, favorite football stadium, it’s even in your home. So what kind of economic impact does beer make in the United States and the craft brewery capital of San Diego? In 2014, small and craft breweries contributed $55.7 billion to the U.S. economy and supported over 424,000 jobs with 115,000 of those directly at breweries or brewpubs. With all this money in craft beer, it’s easy to see why in 2014 the 120 breweries in San Diego generated a local economic impact from wages, revenue and profits of $600 million. San Diego is the “craft brew capital of America” because of the support it has from local government and the strong San Diego Brewer’s Guild, which has allowed the industry to grow and create more local breweries and tourism.

San Diego’s craft brewery scene started in the 80s when California legislation was passed to legalize the brewpub. It also made commercial production and sale of beer in restaurants and home brewing legal, giving beer enthusiasts the chance to capitalize on their hobby. After California made this leap, home brewers started swapping recipes, experimenting and built the framework for the production for beer in San Diego that exists today. In fact, the story of two best friends who formed the Karl Strauss Brewing Company is one and the same.

After Prohibition, large breweries such as Budweisser dominated the market but Chris Cramer and Matt Rattner were determined to change this after a trip to Australia inspired them to open a brewpub of their own. On February 2, 1989, Karl Strauss Brewing Company opened their doors in Downtown San Diego and kick-started the craft brew revolution. Soon, their brewery grew and inspired some of their employees to open their own breweries that compose the local craft beer culture in the San Diego community today. According to the founder of Karl Strauss, Chris Kramer, “One of the reasons why San Diego has become such a mecca for craft beer is we started off with a group of individuals who were friends and collaborative rivals.” This is still true today and is the reason why San Diego’s craft brewery scene is so vibrant. Renowned breweries such as Pizza Port and Ballast Point were both started by former employees of Karl Strauss. The small craft brew circle that started at Karl Strauss and promoted the art of beer making is one of the reasons why San Diego craft brewing is successful today.

sandiegohistory.org

The idea of “family” may have started with Cramer and Rattner in 1989 but it’s the San Diego Brewer’s Guild that allowed the craft brew industry to continue to grow in San Diego. Founded in 1997, the guild was created with two goals: to promote San Diego’s brews and to create an open line of communication between brewers. Craft powerhouses like AleSmith Pizza Port, Stone Brewery, Green Flash and Karl Strauss are all members of this coalition making it easier for brewers to unite within San Diego. In addition, the guild has over 134 affiliate members that are firms, corporations and people who manufacture/sell products used in home or commercial brewing. Each sector of the guild promotes their mission to, “promote… locally brewed beer through education and participation in community events.” The SDBG also has a robust calendar online of events that occurs almost daily from “yoga and beer” to “rare beer breakfast.” In fact, beer is so imbedded in the culture that the Mayor of San Diego declared June as Craft Beer Month in 2011. Because of this, every year multiple breweries host a series of events including the San Diego International Beer Festival and meet frequently to educate the community about the benefits of craft beer.

Breweries are vital to the tourism sector of San Diego because is not seasonal, it occurs year-round with a full calendar of events. Many breweries offer facility tours and tastings in addition to their taprooms where people can become educated on the beer making process year-round. Many of the larger beer events also occur in San Diego’s off-season for tourism in autumn and spring, which can be seen below. The most notable event is San Diego Beer Week in November hosted by the San Diego Brewer’s Guild. Breweries are also packed at peak tourism season in summer when their seasonal, summer session ales become available and Craft Beer Month in June.

NUS Institute

The San Diego Brewer’s Guild hosts the most popular beer event, San Diego Beer Week, which has allowed the growth of the industry, education of beer enthusiasts and positively impacted San Diego hospitality industry. According to the San Diego Tourism & Marketing District (SDTMD), in 2009 San Diego Beer Week booked 1,000 hotel rooms and generated $115,500 in revenue when they only invested $22,320 in the event. Compare this to four years later in 2013 where the same festival generated a total of $789,794 and booked 5,943 hotel rooms with an initial investment of $68,936 with SDTMD—that’s almost seven times the original revenue made. This growth is due to the “boom” of the industry in 2010, where nearly 40 breweries opened between 2009 and 2011. Beer Week has a wide variety of events that are either put on by independent breweries or the guild themselves culminating in the San Diego Brewers Guild Festival. Attendees can also go to “Beer College” and receive an extension-brewing certificate from UC San Diego or a professional certificate in the business of craft beer from San Diego State University. Beer Week enhances the mission of the guild to promote local beer through education and participation in community events while also making an impact on the tourism sector of San Diego.

voiceofsandiego.org

In San Diego, breweries are a fast growing business sector because of the tourism and tax revenue it generates. The expansion of breweries in San Diego translates to a boom of jobs and contributions to the local economy through these jobs, revenue and taxes to the City of San Diego. In 2011, the direct economic impact in San Diego County was $299.5 million generated by breweries and brewpubs, this is more than one and a half times the economic impact of Comic-Con International San Diego. In this same year, the industry made $660.8 million in sales and created 2,796 jobs. However, in 2014, the craft brew economic sector had an economic value doubled in the region of $600 million. This figure is generated based on San Diego’s 120 local breweries and their revenue, profits, wages and jobs the industry produces. To give you an idea of the level impact this is, the economic impact Super Bowl XLIX had on the state of Arizona was $500 million. The money generated by this industry goes to the local government from retail, real estate and property, income and sales taxes. In fact, California breweries paid around $850 million in local, state and federal taxes in 2012.

The local government has created policies that allow the industry to flourish in San Diego and keep breweries within their county. In 2013, they created the Microbrewery Ordinance, which changed the municipal code to allow beer manufactures to operate full-service restaurants within a brewery as an accessory of use if this environment did not exceed more than 25 percent of the total floor area. Thus, breweries can be permitted as restaurants in all commercial and some industrial zones. Thanks to the government, these restaurant add-ons to breweries can create more income and jobs to further enhance the local economy. Stone’s World Bistro and Garden in Escondido is a prime example of this, where their restaurant is the third most visited attraction in San Diego after the San Diego Zoo and Legoland.

The city also formed the Business and Industry Incentive Program as a way to keep breweries in San Diego instead of moving to other cities. It provides businesses with flexible economic development incentives if they provide revenue and jobs that promote city taxes and encourage business development in underdeveloped parts of San Diego. If they can prove this, the government could persuade breweries through fee reimbursements to keep their businesses in San Diego. These fees, which represent city permit fees and are determined by the City Council approval, can be reimbursed in the form of property taxes and taxable property. It is because of these policies that the government allowed Ballast Point and AleSmith to expand their brewery facilities within San Diego County to Miramar. In the case of Ballast Point, the brewery wanted to move but with this deal, the city will reimburse them for the additional tax revenue they would have received from an expansion project if they chose to expand in Miramar instead. In addition, the local government would give back 50 percent of future sales tax at the expanded location until they paid back the brewery for the municipal fees they would need to pay to move their facility. This represented a $156,000 reimbursement from the City of San Diego to Ballast Point. It may seem one-sided but the City would now collect $35,000 more in taxes a year at the new location for Ballast Point after their three-year reimbursement period ends. Because of this partnership with the city, breweries have the chance to stay in San Diego, create innovative beers and communicate to a robust tourism industry.

ballastpoint.com

Craft beer is more than a delicious drink— it’s an economic factor that affects local, statewide and the national economy. In fact, craft breweries make up most of America’s beer market and saw production volume increase 16 percent from January to June in 2015. San Diego is a hub for this type of innovative beer market because the government works with the community to grow the industry and brewers are a tight-knit community that promotes the art of beer together within the San Diego Brewer’s Guild. These two factors are the reason that San Diego has its own IPA category of beer and produces more than 2,000 unique beers annually. If the local San Diego community keeps supporting the craft beer industry and the San Diego Brewer’s Guild stays true to their message, there is a chance that the beer bubble won’t bust for a while longer and small batch brewers will continue to succeed.