Canada Gazette, Part I, Volume 152, Number 24: Regulations Amending the Food and Drug Regulations (Beer)

June 16, 2018

Statutory authority

Food and Drugs Act

Sponsoring agency

Canadian Food Inspection Agency

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The Government of Canada is proposing to amend the compositional standards for beer and ale, stout, porter and malt liquor to allow for innovation within the beer category while still preserving product integrity and to better reflect the tastes and needs of consumers.

The current beer standards, under the Food and Drug Regulations (FDR), have not undergone a major amendment for at least 30 years. The industry is seeking the use of more ingredients than is currently permitted by the compositional standards. Language in the current standards has created ambiguity over the years and needs to be replaced by clearer statements and by measurable criteria. Additionally, there is currently one standard for beer and another one for ale, porter, stout and malt liquor that are virtually identical, which is confusing and unnecessary.

The beer standards are currently exempted from the labelling of food allergens, gluten sources and added sulphites, which provides less information to the consumers.

Background

Food and Drug Regulations and food compositional standards

The Food and Drugs Act (FDA) and the Food and Drug Regulations (FDR) set out requirements regarding health and safety, composition, labelling, treatment, processing, sale and advertising requirements that apply to food.

There are over 300 food compositional standards prescribed under the FDR. Food compositional standards are a set of established requirements, including technical specifications and other criteria (such as ingredients, strength, potency, purity and quality), that define a particular food with its associated common name. Foods that comply with the requirements of the standards are referred to as “standardized foods.”

Standards provide consumers with predictability for specific foods, for example jam, Camembert cheese, bread or beer. In addition, standards are intended to protect consumers from fraudulent products and to help them make purchasing decisions by reducing confusion.

The requirements for compositional standards under the FDR are applicable when the food products are inter-provincially traded or imported into Canada.

Beer, ale, stout, porter and malt liquor compositional standards

Many alcoholic beverages including beer have compositional standards prescribed in Division 2 of the FDR. Those alcoholic beverages are considered standardized. For example, there is one compositional standard for beer, and another standard, nearly identical, for ale, stout, porter and malt liquor. These compositional standards outline specific requirements (e.g. mandatory ingredients) that must be met for a product to be labelled, packaged, sold or advertised as beer or as ale, stout, porter or malt liquor.

Standardized beers, ales, stouts, porters and malt liquors are currently exempt from the requirement to show a list of ingredients, as are all standardized alcoholic beverages. Standardized beers, ales, stouts, porters and malt liquors are also exempt from declaring food allergens, gluten sources and added sulphites on their label.

Alcoholic beverages

Alcoholic beverages that do not meet the requirements of the compositional standards are considered unstandardized alcoholic beverages, which may be labelled as “alcoholic beverages,” “coolers,” “malt-based beverages” or other such names, depending on their composition.

It is also possible to use a modified common name to describe a standardized beer that has ingredients added to it in addition to those already permitted in the compositional standards. For example, since flavouring preparations are not currently permitted in standardized beer, an appropriate modified common name for a beer to which blueberry flavour has been added would be: “beer with blueberry flavour.” The resulting product is considered an unstandardized alcoholic beverage.

Unstandardized alcoholic beverages are required to display a list of ingredients and must clearly identify the presence of any food allergens, gluten sources, or added sulphites.

Industry

Over the past two decades, the Canadian brewing industry has experienced changes both in its structure and operating environment. The industry has been reorganized considerably through mergers, acquisitions and new microbrewery start-ups.

According to a reportfootnote1 released by Statistics Canada in 2017, beer is Canada’s most popular alcoholic beverage. Although average beer consumption has shown a slight decline over the last few years, the number of brewing facilities has increased from 62 in 1990 to over 750 in 2017. Consumer interest in having access to a variety of alcoholic beverages has fuelled the growth of new products and, as a result, there has been a proliferation of new domestic and imported offerings.

Objectives

The objective of the proposal is to amend the FDR to modernize the compositional standards for beer and ale, stout, porter and malt liquor by

(1) reducing duplication by having one compositional standard for all types of beers regardless of style, and one source of information for food additives;

(2) expanding the definition of beer to allow for the use of new ingredients and flavouring preparations to enable innovation and better reflect market developments;

(3) maintaining the integrity of beer by setting objective measures; and

(4) clarifying existing requirements to reduce inconsistencies.

Other labelling amendments are also being proposed to provisions of the FDR to protect the health of Canadians by providing them with the necessary information on the label with respect to food allergens to make informed purchasing decisions. These labelling amendments would apply to all beer sold in Canada, inclusive of intra-provincial trade.

Description

Definition of beer

The proposal includes an allowance for the use of other micro-organisms in addition to yeast in the fermentation starter culture. This would allow brewers to take advantage of changes in manufacturing and allow for continued innovation.

In addition, the current requirement to “possess the aroma, taste and character commonly attributed to beer” would be removed in recognition that different beer styles or types have different attributes. This element is proposed to be replaced in part by a limit in the percentage by weight of residual sugar in final products. This change would maintain the integrity of beer and provide a more objective measurement.

Maximum percentage of residual sugars

The proposed standards would require beer to contain no more than 4% by weight of residual sugars. Residual sugars are sugars (as defined in the FDR) that are still present in beer after the fermentation process is complete. This would provide an objective measurement to distinguish beer from malt-based beverage products (e.g. coolers), which are generally sweeter and associated with a percentage of residual sugars above the 4% by weight limit. It would replace the current element of the beer standards related to possessing “the aroma, taste and character commonly attributed to beer,” which could be subjective. It would also be intended to reduce consumer confusion with regard to sweet alcoholic beverages currently advertised as beer.

While most beers have a low level of residual sugars, the 4% limit was established to take into account specialty beers that may have higher levels. Targeted sampling by the Canadian Food Inspection Agency (CFIA) and Beer Canada indicated that most beers are below the 4% limit with the exceptions being beer with juice blends and barleywines.

Products not meeting this requirement could be reformulated to lower the residual sugars below the limit to meet the beer standards or be sold as an unstandardized beverage with an appropriate common name (e.g. “a blend of beer and grapefruit juice”).

Given the growth in flavoured malt-based beverages, it is important to provide industry, consumers and regulators with the necessary tools to differentiate between those very distinctive product categories: beer and malt-based beverages.

Carbohydrates

In 2012, the CFIA developed guidance material setting out the policy intent of the FDR beer and ale, stout, porter and malt liquor standards. The guidance clarifies that the term “carbohydrate matter” is intended to mean an ingredient whose single largest component is carbohydrate and that is used to assist in fermentation, or to enhance the flavour, body, or colour of the product.

The proposed beer standards have been drafted to reflect this policy intent. They allow for ingredients that could be used as sources of carbohydrates and provide examples in a non-exhaustive list.

Herbs and spices

The proposed changes to the beer compositional standards include the allowance to use herbs and spices as part of the beer product formulation, during the course of manufacturing. Herbs and spices whose single largest component is carbohydrate, which is used to assist in fermentation or to enhance the flavour, body or colour of the product, have been permitted as “carbohydrate matter” through the 2012 CFIA guidance; this proposed change would provide additional clarity in the regulations regardless of the carbohydrate content.

Flavouring preparations

A flavouring preparation includes any food for which a standard is provided in Division 10 of the FDR. Flavouring preparations are used in the manufacture of foods to impart or modify an odour or taste. To facilitate innovation and increase consumer choices, the proposed beer standards would specifically allow the use of flavouring preparations in standardized beer. It is proposed that the use of a flavouring preparation would then trigger an additional requirement for a mandatory declaration that a specific flavouring preparation was used as part of the common name on the label (e.g. “beer with blueberry flavour”). This would clearly identify to consumers that flavouring preparations were added to a beer without hindering product availability or innovation for brewers.

Food additives

A food additive is any chemical substance that is added to food during preparation or storage and either becomes a part of the food or affects its characteristics (e.g. caramel for colouring).

Health Canada has long maintained positive lists of permitted food additives, which set out the conditions of use for each specific food additive (that is, the foods in which each additive may be used, the maximum concentration of each additive, and any other conditions of use). Historically, these positive lists have been set out as tables in Division 16, Part B of the Food and Drug Regulations (FDR). As part of efforts to more efficiently regulate food additives, these positive lists were recreated as the Lists of Permitted Food Additives which were incorporated by reference into Marketing Authorizations for food additives in October 2012. These Lists replace the Division 16 tables, which are no longer actively used and will be repealed. Health Canada published a transition guide to help ensure that affected stakeholders are aware that the Division 16 tables are no longer being updated and that the Lists of Permitted Food Additives must be consulted. Health Canada will repeal the redundant Division 16 tables once it has completed the analysis of all of the associated consequential amendments that will be required to the FDR when the tables are repealed.

The current beer standards specifically name food additives permitted in beer, ale, stout, porter and malt liquor. The full conditions of use for these food additives must be determined by consulting the Lists of Permitted Food Additives (Lists). Rather than identifying each specific food additive in the beer standards, which duplicates information already in the Lists, it is proposed that the standards include a general provision that allows for the presence of permitted food additives. This would align the compositional standards with the approach that is already used for a number of other commodity standards and which Health Canada plans to apply to other food standards in the FDR. Specific food additives permitted in beer products, including ale, stout, porter, and malt liquor, and the permitted maximum levels of use will remain in the Lists. As noted above, the Lists were established in October 2012. There is a high degree of awareness of these Lists in the food industry, including beer manufacturers, as a result of proactive communication and consultation efforts by Health Canada. The food industry needs to consult the Lists for the most up-to-date information on the use of permitted food additives, including those permitted in beer products.

With the proposed changes to the standards, some unstandardized alcoholic beverages may become standardized beer and some standardized beer may become unstandardized alcoholic beverages. The food additives permitted for unstandardized alcoholic beverages differ from those permitted for standardized beer. Brewers of unstandardized alcoholic beverages that would become standardized beer could lose the ability to use some additives in their products and would have to apply to Health Canada to have the additives assessed for use in standardized beer. The food additives currently permitted for use in standardized beer would not change under this proposal.

Processing aids

A food processing aid is a substance that is used for a technical effect in food processing or manufacture (e.g. substance added to minimize the foaming in the kettle or fermenter during beer processing). Its use does not affect the intrinsic characteristics of the food and results in no or negligible residues of the substance or its by-products in or on the finished food. The proposed amendments would remove the listed processing aids from the standards. The FDR do not typically list processing aids in compositional standards, with the exception of the standards for beer, wine, honey wine and pectin. Removal of the listed processing aids from the beer compositional standards would make them consistent with other food standards.

Repeal the standards for ale, stout, porter and malt liquor

Ale, stout, porter and malt liquor are defined by the industry as types or styles of beer. However, the number of styles or types of beers available currently in the marketplace far exceeds ale, stout, porter and malt liquor. It is proposed to repeal the standards for ale, stout, porter and malt liquor in their entirety to eliminate the duplication with the beer standards, as they allow for the same ingredients as beer.

The proposal would result in one standard for all beer styles or types. If an alcoholic beverage meets the requirements of the beer compositional standards, the common name “beer” would have to appear on the label. This common name would continue to depend on the alcohol content of the beer (e.g. light beer). A declaration of the beer style or type (e.g. ale, stout, porter) would be considered as supplementary labelling information.

Food allergens, gluten sources and added sulphites labelling

Currently, prepackaged standardized beers, ales, stouts, porters and malt liquors are exempt from the food allergens, gluten sources and added sulphites labelling requirements of the FDR.

The proposed changes to the beer compositional standards would allow for the introduction of ingredients that could include food allergens, gluten sources or added sulphites and which were not previously permitted in the manufacturing of standardized beer. The risks associated with the potential introduction of these new ingredients, as well as those ingredients previously permitted (e.g. wheat, barley, sulphurous acid), would be addressed through an amendment to the FDR removing the existing labelling exemption. This would ensure the health and safety of those consumers who must avoid these ingredients and would enable informed consumer decisions. With the removal of the exemption, brewers would be required to identify food allergens (e.g. wheat), gluten sources (e.g. barley) or added sulphites (e.g. sulphurous acid) in their list of ingredients (if voluntarily provided by the manufacturer) or in a food allergen, gluten sources or added sulphites statement (e.g. “contains sulphites”).

Standardized beers are exempted from declaring a list of ingredients. If a manufacturer discloses its ingredients on the label in a voluntary manner, then food allergens, gluten sources or added sulphites could be declared as part of that list.

Coming into force

These proposed amendments would come into force once they are published in the Canada Gazette, Part II.

There is a proposed transition period that would allow brewers to continue to use the requirements under the current FDR for a period of two years in order to provide sufficient time for stakeholders to make necessary labelling or formulation changes. Regulated parties may follow either the former requirements or the new requirements during the two-year transition period. At the end of the transition period, the new requirements must be applied.

Benefits and costs

The cost-benefit analysis assessed the potential impacts (i.e. costs and benefits) representing the differences between the baseline and regulatory scenarios.

The baseline scenario describes the situation given the current federal regulatory framework. It also takes into account the provincial requirement in British Columbia of a 4% residual sugar limit for beer. Therefore, there would be no costs to businesses to meet this provision in British Columbia.

The proposed beer compositional standards are applicable to interprovincially and interterritorially traded and imported products. However, in some cases provincial liquor boards are using the FDR as guidelines or policy. As a result of these decisions, it is possible that some Canadian manufacturers who do not trade any of their affected products interprovincially and interterritorially may still be required to comply with the proposed beer compositional standards. However, since these practices are external to the proposed amendments, the analysis excluded any such costs. It is also important to note that beer sold intraprovincially may not have to be distributed through a provincial liquor board, as the distribution scheme may vary by province or territory.

The detailed methodology, assumptions and descriptions have been fully documented in a cost-benefit analysis report that is available from the CFIA upon request. The impacts are briefly reported below.

Affected stakeholders

The following stakeholders would be impacted:

Brewers;

Distributors and/or retailers, including provincial liquor boards;

Government (CFIA, Health Canada); and

Consumers and general public.

Qualitative benefits

Note that the health-related benefits [(f) to (i)] below are consistent with those previously reported by Health Canada in its enhancement to labelling requirements for food allergens declarations on prepackaged foods (2012).footnote2

(a) Product innovation

It is proposed to allow flavouring preparations to accommodate industry innovation. The CFIA proposal would allow the use of flavouring preparations in beer with a mandatory declaration on the label as part of the common name. This would clearly identify to consumers that flavouring preparations were added to a beer.

Product innovation would be supported, particularly at the time when the market is growing for flavoured products.

(b) Removal of duplication of standards

It is proposed to repeal the standards for ale, stout, porter and malt liquor in their entirety to eliminate the duplication with the beer compositional standards, as they allow for the same ingredients as beer. This duplication is viewed as creating unnecessary labelling complications for brewers. The proposal would result in one standard for all beer styles.

(c) Provision of clearer and more objective measures of standards to maintain the integrity of beer

The current standards require beer to “possess the aroma, taste and character commonly attributed to beer.” This requirement would be removed to promote innovation and flexibility to meet the changing tastes of consumers. It would be replaced in part by a residual sugar limit established at 4%, by weight, as a clear and objective measure to maintain the integrity of beer versus sweeter malt-based beverages.

(d) Support of product development

Modernizing the beer compositional standard would facilitate industry compliance with the regulatory requirements by providing a clearer and more objective standard. The proposal would minimize confusion in interpreting the standards that may cause delays in product development. For businesses, it would mean avoiding sales losses whenever product development is delayed or if a product is pulled from the market if found non-compliant with the regulatory requirements.

(e) Enhanced protection of human health

Standardized beers are not required to carry an ingredient list. Beer must be made from barley and/or wheat, but beer could also possibly contain other food allergens, gluten sources or added sulphites depending on the individual product. Given the greater varieties of beer being launched in the market because of new flavours and added ingredients, the proposal to require enhanced labelling of food allergens, gluten sources and added sulphites would help consumers with allergies or sensitivities in deciding which product to consume.

Scientific evidence has clearly linked certain foods and food ingredients with adverse reactions when consumed by individuals with food allergies, celiac disease or sulphite sensitivity. These reactions for individuals can range from mild to severe and, in some cases, the reaction can progress to anaphylactic shock and death.

Food allergies, celiac disease and sulphite sensitivity affect approximately 1.75 million Canadians. The proposed labelling changes, which would apply the same enhanced food allergen, gluten source and added sulphite labelling requirements to beer as is already applied to other prepackaged foods, would contribute to the assurance of the health and safety of these consumers and enable informed consumer decisions.

(f) Prevention of adverse reactions to product ingredients

Increased awareness related to products containing food allergens, gluten sources and added sulphites may prevent adverse reactions to food allergens requiring medical care. For beer consumers, increased awareness as a result of the new standards related to labelling would potentially result in reduced adverse reactions to food allergens and/or sulphites following implementation of the regulatory amendment.

(g) Reduced costs and improved quality of life for individuals with food sensitivities

Adults with food sensitivities need to know whether or not the ingredient they should avoid is in the food or beverage they are considering purchasing or consuming. Specialists in treating food sensitivities advise not purchasing products that do not have a list of ingredients (unless there is label information provided on priority food allergens, gluten sources, or added sulphites), to read the product label every time they make a purchase and to verify the label of a product at least three times (when they purchase it, when they unpack and store it, and when they consume or serve it). Whenever they feel that the information provided on the label is incomplete or unclear, consumers are advised to call the manufacturer or importer to obtain additional information.

There would be cost savings associated with the time saved by individuals with ingredient sensitivities in identifying and verifying information about the products that they purchase and consume.

Increased awareness from food allergen labelling on products would also contribute to an improved quality of life by reducing uncertainty and fear among food-sensitive individuals and their families and enabling an increased opportunity for socializing. Although those with allergies, celiac disease and sensitivities only represent a small proportion of Canadians (approximately 5%), some of these would be beer consumers who would be provided with the opportunity to identify and select the most appropriate products prior to their consumption.

Monetized costs

(a) Labelling (labour and capital)

The proposal to fully apply the enhanced mandatory labelling declaration of food allergens, gluten sources and added sulphites, and to require any added flavour to appear as part of the common name would require businesses to relabel their products (recognizing, however, that products that are currently considered unstandardized are already subject to the enhanced food allergens, gluten sources and added sulphites labelling requirements). In addition, beverages that would exceed the 4% residual sugar limit may not be sold as beer or use beer as a common name, and therefore would have to be relabelled. Also, some existing beer would be reformulated to meet the 4% residual sugar limit and therefore might also need to be relabelled to reflect the changes in the ingredients. For brewers that would need to relabel their products, there would be additional labour (e.g. redesign of label) and capital (e.g. printing plates) costs.

(b) Product reformulation (labour, other)

Some breweries that manufacture beer with more than 4% residual sugar may decide to reformulate their products by changing the recipe to meet the requirement in order to continue selling their product as beer. This decision would largely depend on a number of factors including the potential price and demand, and on the tax structure. There would be additional labour and other costs (including testing) depending on the complexity of the reformulation, the distribution of the product and the implications for relisting with provincial liquor boards.

(c) Testing of residual sugar (labour, other)

Some breweries would conduct tests on select products to determine if the level of residual sugar of their products is in compliance with the proposed requirement. For breweries and provincial liquor boards, the tests may be conducted in-house or outsourced to a third party.

(d) Familiarization of new regulatory requirements (labour)

The proposed amendments would change the requirements for how a beer would be defined (e.g. sugar content, which is measurable) and impose administrative reporting requirements for some stakeholders. Therefore, all stakeholders would need to spend some time to become familiar with the new regulatory requirements.

(e) Labour cost of submitting an application to Health Canada on use of food additives

The proposed updated beer compositional standards would allow some products that are currently unstandardized to be marketed as a standardized beer. This may result in the need for some stakeholders to apply to Health Canada for the use of certain food additives in their beer. The application process requires that information be submitted to Health Canada.

Methodology

An industry survey was the primary data source used by the CFIA to determine the impacts of the proposed regulatory changes. The survey was distributed to 800 beer industry stakeholders (associations, manufacturers and importers) in July 2017. In total, 37 responses were received and breweries who responded 89% of domestic beer production in Canada.

(a) Overarching assumptions

Monetized costs were estimated over 10 years.

Costs are reported in 2012 prices and discounted to 2019 (year of registration) using a 7% discount rate.

There would be a two-year delay in the coming into force (i.e. compliance required in 2021).

The standard cost model was used to estimate costs related to impacts on labour (time). The model reflects the time required for individuals to perform a task, the individuals’ wage rate and how often the task must be performed. The cost estimate was made for a single unit, and then the total cost estimate results were calculated by multiplying the estimated cost per unit by the total number of units.

There are 580 beer manufacturers and 12 provincial liquor boards.

The wage rate per hour is $31.50 (including overhead).

Table 1 presents the number of impacted businesses, the average number of labour hours per product, and the average number of products affected per impacted business. The estimates from the survey (by business size) were extrapolated to the entire industry to determine total estimated costs. The numbers in parentheses in the third and fourth columns are for small (s), medium/large (m/l) and big (b) businesses.

Table 1: Number of impacted businesses, number of labour hours and number of affected products

Number of Impacted Businesses Average Labour Hours per Product Average Number of Products Affected per Impacted Business Labelling 263 (45%)note* 19

(s: 4.6; m/l: 1.8; b: 51) 40

(s: 21; m/l: 13; b: 104) Testing 77 (13%) 0.74

(s: 0.77; m/l: 0.58; b: 0.58) 11

(s: 12.2; m/l: 7.8; b: 9.5) Reformulation 23 (4%) 87

(s: 80; m/l: 100; b: 100) 2

(s: 1; m/l: 3.5; b: 3.5) Learning 592 (100%) 1 NA Food additive application to Health Canada 8 (1.4%) 2.5 9

Notes Note * This reflects the two-year delay in the coming into force and survey findings indicating that 31% of beer manufacturers are already compliant with the food allergen declaration and/or do not manufacture beer with food allergens, gluten sources or added sulphites. Return to note * referrer

(b) Other specific assumptions

1. Labelling (one-time/compliance costs)

Breweries that routinely change their labels every two years or less would not carry additional labelling costs.

Breweries that only manufacture and sell products intra-provincially would only carry costs to meet the proposed mandatory food allergen labelling requirement.

Breweries that sell any products inter-provincially would meet all the proposed requirements. The same product sold intra- and inter-provincially would have the same label.

Printing plates would cost $431 per product for small businesses and $6,250 per product for medium/large businesses.

There would be no labelling costs for imported products as foreign breweries would carry the change in labelling cost.

2. Testing

One in five provincial liquor boards would conduct testing. On average, 500 products would be tested, with ongoing testing conducted four times per year.

Outsourcing testing would cost $125 per test. footnote 3

3. Learning costs

Refer to the “‘One-for-One’ Rule” section of this Regulatory Impact Analysis Statement for details.

4. Submission of food additive application to Health Canada

Refer to the “‘One-for-One’ Rule” section of this Regulatory Impact Analysis Statement for details.

Estimated results

All monetized costs are summarized in tables 2 and 3. Benefits have been presented qualitatively.

Table 2: Compliance costs (2012 prices, 2019 present value [PV] base year, 7% discount rate, 10-year period)

Total (PV) Annualized Value Labelling $4,649,289 $661,954 Reformulation $283,063 $40,302 Testing $531,642 $75,694 Total compliance cost $5,463,994 $777,950

Table 3: Administrative costs (Can$, 2012 prices, 2019 PV base year, 7% discount rate, 10-year period)



Total (PV) Annualized Value Learning new regulatory requirements $15,222 $2,167 Submitting an application to Health Canada $530 $76 Total administrative costs $15,753 $2,243

Table 4: Costs, benefits and distribution

First Year

(2019) Third Year

(2021) Final Year

(2029) Total

(PV) Annualized Value A. Quantified and monetized impacts: COST (in millions of $, 2012 prices) Costs Beer industry



Total costs 0 $5.88 $0.01 $5.48 $0.78 B. Qualitative impacts: BENEFIT Positive impacts Beer industry Accommodates product innovation.

Provides clarity in the use of ingredients and food additives to avoid confusion.

Provides clearer and more objective measures of standard to maintain the integrity of beer.

Supports innovation and product development.

Removes duplication of standards. Canadians Enhanced labelling information assisting consumers with food allergies, celiac disease or sulphite sensitivity to make informed choices.

Prevention of accidental ingestion of beer containing food allergens, gluten sources, or added sulphites by individuals with sensitivities to those substances and reduction in adverse reactions.

Reduced time for beer consumers with beer ingredient sensitivities in searching information.

Improved quality of life for beer consumers with ingredient sensitivities and their families.

Improved confidence among consumers due to consistent application of the labelling requirements across all prepackaged foods and simplified educational messaging to consumers on enhanced labelling.

Wider range of products available which would be considered to be beer. Government Reduced costs in resolving interpretation of standards with industry. C. Negative impacts Small craft breweries may experience difficulty in complying with the proposed requirements because of limited financial resources.

Some products may not meet the proposed beer standards and would have to be sold as an unstandardized alcoholic beverage and would not be represented as beer.

Changes may have the potential to impact international trade with countries that do not have the same beer compositional standards.

Notes Note 1* The analysis covered a 10-year time period (2019–2029). Because regulated parties would be allowed to comply with either the current or the amended FDR for a period of two years, it was assumed that monetized costs would be carried starting in the third year (2021). Returns to note 1* referrer

Given that the brewing industry of Canada is dominated by three major multinational companies who control approximately 90%footnote 4of retail sales, these companies would carry 40% of the costs. On a geographic basis, Ontario would carry the largest share of the costs (34%), followed by Quebec (26%) and British Columbia (13%). By sector, beer manufacturers would carry most of the costs (91.4%), but provincial liquor boards, as the sole or largest distributor and retailer of beer in each of the provinces and territories, would also be impacted (8.6%).

In 2016, per capita consumption of beer in Canada (based on legal drinking age) was 77.1 L, down 2.9% from 2015.footnote 5 Over 2012–2016, the average annual rate of decline was 1.6%. This decline occurred despite the number of brewing facilities increasing by over 100% over the same period, triggered by consumer interest in access to new product offerings. Therefore, although the proposed amendments would strengthen innovation and further allow for new product offerings, they are not expected to have any impact on the rate of beer consumption. Furthermore, the proposed amendments would not result in a decline in the price of beer or any other alcoholic beverages, or have any impact on socio-economic variables that may influence the demand for alcoholic beverages (e.g. income, unemployment).

Some of the survey respondents (primarily small craft breweries) raised some concerns related to lost revenue and/or market share resulting from the proposed amendments. However, it is expected that any potential losses would ultimately be captured/gained by other brewers in the industry. Therefore, there would be no overall cost impact to industry related to these concerns.

“One-for-One” Rule

The “One-for-One” Rule applies, because the proposed regulatory amendments would impose incremental administrative costs associated with learning the new regulatory requirements.

Following the “One-for-One” Rule, a 7% discount rate and a 10-year forecast period for the valuation of INs and OUTs were used. The price base year is 2012 (values are in constant 2012 prices), and the present value (PV) base year for the valuation is 2012 (i.e. the impact of all INs and OUTs was discounted back to 2012).

The proposal is considered to be an “IN.” The total annualized administrative impact for all businesses would be $1,397 or $2 per affected business.

The standard cost model was used, and the key assumptions are documented below.

1. Learning costs

A total of 592 industry stakeholders would have to learn the proposed regulatory requirements to determine the impact on their business. It was assumed that one employee per business would need to learn the proposed regulatory requirement and it would take one hour to complete the task.

2. Submission of food additive application to Health Canada

Based on survey responses, only eight breweries were estimated to be impacted. Based on a review of the application form, the average time to apply to Health Canada was estimated at 2.5 hours. The time includes writing a cover letter and completing the food additive submission checklist, but excludes any potential time for gathering information that may also need to be included in the package. A follow-up information request was sent to a sample of survey respondents in an attempt to collect this information. The response indicated that the time would be highly dependent on the specific products/additives affected (which is currently unknown), and from where the information would be sourced. Therefore, due to lack of information, any potential costs for the gathering of information could not be estimated.

Table 5 presents the estimates of the administrative impacts for the “One-for-One” Rule.

Table 5: Estimated annualized values of administrative impacts for the “One-for-One” Rule (Can$, constant 2012 prices, 2012 PV base year, 7% discount rate)

Cost/Benefit Type Task Description Annualized Values Learning new regulatory requirements Familiarization with the information obligation $2,167 Complete and submit application Complete application form $76 Total annualized administrative impact on all businesses $1,397 (in constant 2012 dollars,

2012 PV base year) Estimated number of affected businesses 592 Average annualized administrative impact per affected business $2

Note: Total average annualized administrative impact on all businesses may not add up due to rounding. The results are expressed in the PV base year of the coming into force (2019).

Small business lens

The small business lens (SBL) has been applied. Using the Treasury Board of Canada Secretariat definition of small business (fewer than 100 employees), there would be an estimated 555 small businesses affected by the proposed amendments, which represents 94% of total beer manufacturers and liquor boards.

The SBL requires that two regulatory options for small businesses be assessed with one of the options being chosen for regulatory implementation. The results of the SBL analysis are presented in Table 6.

1. Initial option

The initial option for the proposed regulation is that all-sized businesses would need to comply with the proposed changes to the Regulations as soon as they come into force in 2019. The estimated total annualized costs to small businesses would be $428,900 (or $773 per impacted business).

2. Flexible option (recommended option)

The flexible option is the option the CFIA would recommend for the implementation of the proposed amendments (i.e. it was the regulatory scenario assessed in the cost-benefit analysis). Businesses (including small businesses) would be provided a two-year transition period for stakeholders to make adjustments to their current business operations. The option is intended to result in a higher industry compliance rate.

The estimated total annualized costs to small businesses in the recommended option would be $258,935 (or $467 per impacted business). This represents a cost savings of $169,965 (or cost savings of $306 per impacted business).

Table 6: Regulatory flexibility analysis statement (Can$, constant 2012 prices, 2019 PV base year, 7% discount rate)

Initial Option Flexible Option

(Recommended) Short description Immediate implementation Two-year transition period

(delay in implementation) Number of small businesses impacted (administrative impact) 555 555 Annualized Value

(2012 $) Present Value

(2012 $) Annualized Value

(2012 $) Present Value

(2012 $) Compliance costs $426,574 $2,996,075 $256,903 $1,804,380 Administrative costs $2,326 $16,339 $2,032 $14,271 Total costs (all small businesses) $428,900 $3,012,414 $258,935 $1,818,651 Total cost per impacted small business $773 $5,428 $467 $3,277 Risk considerations Small businesses may not be ready and the possibility of non-compliance is likely to be high Health-related concerns over food allergens are not immediately addressed

Note 1: Numbers may not add up due to rounding.

Note 2: The analysis covered a 10-year time period (2019–2029).

Consultation

In March 2014, Beer Canada (a voluntary trade association of over 40 brewers who collectively account for 90% of the beer brewed in Canada) provided the CFIA with draft modernized beer compositional standards, resulting from broad consultations with Beer Canada’s members.

From 2014 to 2017, the CFIA conducted consultations on proposed changes to the beer and ale, stout, porter and malt liquor compositional standards. These consultations took place as an online questionnaire and as a notice of intent in the Canada Gazette, Part I. The intent of the consultations was to obtain an understanding of stakeholders’ knowledge and views of the proposed changes, and to document the gaps, challenges and issues they identified.

A wide range of stakeholders commented during the consultations, including breweries of all sizes, national associations, provincial associations of microbreweries, provincial liquor boards, consumers, health professionals, the beverage industry and international partners. Most of the elements of the proposed beer standards were well supported by respondents, inclusive of breweries of all sizes; however, some elements received mixed support.

On July 28, 2017, an economic survey was also distributed to over 800 industry stakeholders to assist in developing the cost-benefit analysis for the proposed amendments to the beer compositional standards.

A World Trade Organization (WTO) notification was also issued during consultations to provide Canada’s international trading partners with an opportunity to provide comments on the proposed changes to the standards.

There was strong support received for

Repealing the standards for ale, stout, porter and malt liquor

Allowing for the use of mixtures of yeast and other micro-organisms for fermentation

Removing the “aroma, taste and characteristic” requirement

Clarifying the term “carbohydrate” by providing a non-exhaustive list of examples

Allowing the use of herbs and spices

Removing the listing of food additives in the standards to rely on Health Canada’s Lists of Permitted Food Additives

Allowing flavouring preparations, if declared as part of the common name on the label

Maintaining status quo for cereal grains

Adding a 4% limit of residual sugar in the final product

Maximum level of residual sugar

Given that the maximum level of 4% residual sugar was a new approach for maintaining integrity of beer, there were considerable discussions amongst stakeholders.

The Quebec Liquor Board (SAQ), the European Union and The Brewers of Europe expressed concerns that some specialty beers may contain higher levels of residual sugars, while understanding that the proposed limit would be beneficial to differentiate beer from malt-based beverages.

Analysis was conducted on specific styles of beer that were identified through the consultation feedback as potentially exceeding the limit. Based on domestic and imported product testing, most styles of beer have a percentage by weight of residual sugars in the final product of less than 4%.

Since the majority of brewers, including provincial microbrewers associations, provided their support for this element of the proposal as a way to clearly distinguish standardized beer from sweeter malt-based beverages, the CFIA has determined that there was sufficient support to proceed with establishing a limit in residual sugars and concluded that this requirement would achieve its purpose of characterizing beer.

Food allergens, gluten sources and added sulphites labelling

Consumers, including members of the food allergy community, made up the majority of respondents for this element of the proposal. They were very supportive of repealing the exemption for beer from the mandatory labelling of food allergens, gluten sources and added sulphites. They indicated that allergens should be declared on all food products, including beer. Brewers who submitted comments were not supportive of this change as they did not want to lose the current exemption. They believed that consumers were aware of the presence of barley and wheat in beer. After taking into consideration comments received and the new ingredients that could be added to beer, and given that it is not required to carry a list of ingredients, for food safety reasons, it was determined that the exemption would be repealed.

Regulatory cooperation

United States

The requirements for malt-based beverages in the United States are not identical to the proposed Canadian beer standards mainly because the United States does not limit residual sugars. However, the amendments are not expected to hinder trade of U.S. beers imported into Canada.

The proposed amendments to the labelling requirements would better align Canadian requirements with those of the United States, as standardized beers would now require that food allergens, added sulphites and added flavouring be labelled.

International

There are currently no international standards for beer and, as a result, the compositional standards and regulations for beer differ from country to country.

Many international trading partners, including the European Union, require food allergen labelling on beer.

With the proposed amendments, all imported beer would be required to comply with all aspects of the proposed regulatory requirements, including the 4% residual sugar limit and the food allergens, gluten sources and added sulphites labelling requirements.

Statistics from 2015 indicate that imported beer from the United States (3%) and Europe (6.7%) make up a small portion of the domestic beer market. The purpose of the proposed amendments is to allow brewers to take advantage of innovations in brewing and to better reflect market developments within the Canadian brewing industry while maintaining the characteristics of beer. There are no internationally recognized standards for beer. While the current standards and proposed changes differ in some respects from those of international trading partners, the proposed changes would not greatly impact trade.

Federal responsibilities

Health Canada is responsible for establishing standards for the safety and nutritional quality of food under the FDA and the FDR, which are enforced by the CFIA. Specifically, the CFIA is responsible for the administration and enforcement of the non-health and safety food provisions (e.g. food compositional standards) under the FDR.

Provinces and territories

Under the Importation of Intoxicating Liquors Act, provinces and territories were given full control over the importation of alcohol into their jurisdictions. Given federal jurisdiction over imports, imported beers for sale would have to comply with the proposed beer standard in the FDR.

Beer traded intra-provincially only would not be subject to the beer standards in the FDR unless such requirements are referenced by the provinces or territories. The provinces and territories regulate beer within their jurisdictions by their applicable laws and policies. Some have their own definition for beer that applies in their jurisdiction while others reference the federal regulations.

Some of the provinces and territories (such as British Columbia, Alberta, Saskatchewan, Ontario, Quebec, New Brunswick and Prince Edward Island) refer to the FDR and other federal legislation as guidelines. In British Columbia, the Liquor Distribution Branch has implemented a policy allowing beer to contain a maximum of 4% of residual sugars, which would be aligned with the proposed federal standards.

The non-health and safety components of standards of composition do not apply for products only traded intra-provincially.

Rationale

The proposed amendments to the FDR would fulfill the Government of Canada’s commitment to modernize the beer compositional standards. It is anticipated that the modernization of the beer compositional standards, developed in consultation with stakeholders, would bring benefits to the beer industry, impacted regulated parties, producers and consumers.

This modernization is intended to address marketplace realities, support industry innovation, and enhance consumer offerings by

allowing for innovation;

addressing duplication and inconsistencies in the current beer compositional standards;

enhancing labelling information for consumers; and

providing additional clarity to regulated parties and consumers.

Implementation, enforcement and service standards

The proposed amendments would come into force once they are registered in the Canada Gazette, Part II. Regulated parties may follow either the former requirements or the new requirements during the two-year transition period. At the end of the transition period, the new requirements must be applied.

The CFIA’s ongoing monitoring of the beer industry includes inspection and complaint follow-up of domestic and imported beers in the marketplace. Operational procedures will be amended to include verification of the new labelling and compositional requirements.

Contact

Kathy Twardek

Director

Consumer Protection and Market Fairness Division

Canadian Food Inspection Agency

1400 Merivale Road, Tower 2

Ottawa, Ontario

K1A 0Y9

Telephone: 613-773-5489

Fax: 613-773-5603

Email: labelling_consultation_etiquetage@inspection.gc.ca

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, pursuant to subsection 30(1) footnote a of the Food and Drugs Act footnote b, proposes to make the annexed Regulations Amending the Food and Drug Regulations (Beer).

Interested persons may make representations concerning the proposed Regulations within 90 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Kathy Twardek, Director, Consumer Protection and Market Fairness Division, Canadian Food Inspection Agency, 1400 Merivale Road, Tower 2, Ottawa, Ontario K1A 0Y9 (fax: 613-773-5603; email: labelling_consultation_etiquetage@inspection.gc.ca).

Ottawa, June 7, 2018

Jurica Čapkun

Assistant Clerk of the Privy Council

Regulations Amending the Food and Drug Regulations (Beer)

Amendments

1 Subsection B.01.010.1(5) of the Food and Drug Regulations footnote 6 is repealed.

2 Subsection B.01.010.2(5) of the Regulations is repealed.

3 Section B.02.130 of the Regulations is replaced by the following:

B.02.130 [S]. (1) Beer

(a) shall be the product of the alcoholic fermentation by yeast or by a mixture of yeast and other micro-organisms, of an infusion of barley or wheat malt and hops or hop extract in potable water;

shall be the product of the alcoholic fermentation by yeast or by a mixture of yeast and other micro-organisms, of an infusion of barley or wheat malt and hops or hop extract in potable water; (b) shall contain at most 4% by weight of residual sugars; and

shall contain at most 4% by weight of residual sugars; and (c) may have added to it during the course of manufacture any of the following ingredients: (i) cereal grains, (ii) honey, maple syrup, fruit, fruit juice or any other source of carbohydrates, (iii) herbs and spices, (iv) salt, (v) flavouring preparations, (vi) pre-isomerized hop extract, (vii) reduced isomerized hop extract, and (viii) food additives to which a marketing authorization applies and that are set out in the Lists of Permitted Food Additives published on the Health Canada website.

may have added to it during the course of manufacture any of the following ingredients:

(2) If a flavouring preparation is added to a beer, the name of the flavouring preparation shall be added to the common name on the label.

4 Section B.02.131 of the Regulations is repealed.

5 Section B.02.132 of the Regulations is replaced by the following:

B.02.132 The qualified common name or common name set out in column II of the table shall be used in any advertisement and on the label of a beer that contains the percentage of alcohol by volume set out in column I.

TABLE

Item Column I



Percentage Alcohol by Volume Column II



Qualified Common Name or Common Name 1 1.1 to 2.5 Extra Light Beer 2 2.6 to 4.0 Light Beer 3 4.1 to 5.5 Beer 4 5.6 to 8.5 Strong Beer 5 8.6 or more Extra Strong Beer

Transitional Provisions

6 (1) These Regulations do not prohibit the sale of beer in accordance with the Food and Drug Regulations as they read immediately before the day on which these Regulations come into force.



(2) This section ceases to have effect on the second anniversary of the day on which these Regulations come into force.

Coming into Force

7 These Regulations come into force on the day on which they are registered.