Distilling Industry

The distilling industry is that part of the food and beverage industries engaged in clarifying, flavouring, blending and aging alcohol to make potable spirits (eg, brandies, grain spirits, rum) and establishments which manufacture ethyl alcohol, whether they are or are not used in potable spirits. Manufacturers of methyl, butyl or isopropyl alcohol are considered part of the chemical industries. The distilling industry is a world-class multinational industry; in fact, Canadian distilled spirits products are internationally renowned for quality and consistency.

In 1995 Canadian distilleries employed 13 700 workers, directly and indirectly. The distilling industry is also one of Canada's largest exporters of finished goods, exporting in excess of $600 million in finished goods on a yearly basis.

The industry in Canada generated $2.6 billion worth of economic activity (GDP) in fiscal 1993-94. In addition to finished products, part of the stillage or refuse from grain distilleries has been turned into useful byproducts, eg, supplements in cattle, poultry and hog feeds.

In 1995 Canadians consumed approximately 118.8 million litres of domestic and imported distilled beverages. This amount was substantially less than the 1980 total of 198 million litres, and the decrease can be attributed to a change in lifestyles and to high taxes on distilled spirits. As a result of a large difference in tax rates between Canada (83%) and the US (42%), smuggling has become a major threat to the industry and government revenues. At least 4 million cases (12x750 ml bottles) of American and foreign produced products are sold illegally in Canada every year, resulting in a $1 billion loss in federal and provincial revenues.

History

The earliest settlers in New France imported their beverage alcohol from France, usually (because of high transportation costs) high-proof brandies and liqueurs. The first distillery in what is now Canada was probably established by Intendant Jean Talon; there is evidence that the brewery he ordered built in 1668 contained a still. As West Indian rums became available relatively cheaply, there was little incentive for settlers to establish a domestic distilling industry until the latter half of the 18th century, when heavy shipping duties began to make West Indian rum prohibitively expensive. Thus, the first recorded distillery was established at Québec City in 1769 to produce rum from imported molasses.

After the arrival of the Loyalists, whisky from grain began to be produced throughout the grain-growing areas. At that time, millers received a tithe (one-tenth) of all the grain they milled in payment. Some operators turned their surplus into whisky, which was usually easily sold in the neighbourhood and enjoyed the added advantage of being cheaper to transport than grain or flour. Canadian spirits were in demand in the US at least as early as 1861. Some millers abandoned the flour-milling industry and, by 1840, over 200 distilleries were operating in Upper and Lower Canada. Some of the leading distillers began operations in this early period including Hiram Walker, who established his enterprise in 1858.

Distillers played a vital part in WWI, since alcohol was a necessary product for various war materials. Every distiller contributed to the war effort and one entire plant was converted to the manufacture of acetone, a component of the smokeless explosive cordite. The wartime need for alcohol led to the adoption of prohibition in all provinces except Québec (which, in 1919, briefly prohibited the retail sale of distilled spirits). Prohibition was repealed at different dates in the other provinces, between 1921 and 1930. PEI was the exception, retaining prohibition until 1948.

Spirits rationing was common in many areas during WWII, largely because alcohol was again required for wartime purposes. In 1942 all Canadian distilleries began production of war alcohol and, from 1943 to 1945, produced 68 million litres of high-proof alcohol annually.

Even before its development into an industry proper, distilling had been under government regulation. For example, John Graves Simcoe, first lieutenant-governor of Upper Canada, issued 51 still licences during his first year in office. Shortly after the turn of the 19th century, the first government distillery inspectors were appointed and, in 1846, a law was enacted regarding strength requirements. The federal government's power to pass laws relating to the import or manufacture of spirits in Canada was established under the Constitution Act of 1867; the same Act gave the provinces control of the retail spirits trade.

The Canadian government enacted its first "adulteration of food" legislation in 1874, prompted by the quantity of adulterated spirits being sold. Common additives were salt, tobacco, opium, Indian hemp, copper sulphate and salts of lead or zinc. The Food and Drugs Act, passed in 1954 and now administered by Health and Welfare Canada, includes careful definitions of standards for all types of spirits and specifies packaging and labelling requirements.

The department maintains a staff of inspectors to ensure the observance of the regulations (see Food Legislation; Regulatory Process). Also, the excise division of Revenue Canada has specially trained officers to carry out the rigid regulations governing distillers and their products in every phase of the distilling, bottling and packaging operations. The offices and equipment they use are provided by the distillers and are located on their premises. A label marked, for example, "distilled," "blended," "bottled in bond," "under Canadian Government supervision," guarantees that the regulations have been carried out.

Duties were levied on alcoholic beverages imported into Canada from earliest colonial times; however, the first tax (one shilling and 3 pence per gallon) was imposed on Canadian-produced spirits in 1794. Today's federal excise duty stands at $11.066 per litre of pure alcohol. To this is added a 15% sales tax on the duty-paid value of the goods. The provincial governments also tax distilled spirits at approximately 59.5%. After each province repealed prohibition, it introduced government-controlled liquor stores.

Today distillers may sell only to provincial and territorial liquor boards (except for Alberta) which, in turn, sell distilled spirits products in government-run retail stores. The Alberta government fully privatized the retail network for beverage alcohol in September 1993. The warehousing and distribution are also in the process of being privatized. The federal government collected $680 million from the legal sales of spirits. The provincial governments collected more than $1.8 billion.