The email suggested the beer be served in glasses smaller than a schooner, but that they be priced the same as a schooner. Source: ABS, Choice, Lion, CUB and IBISWorld. ''And that gives you … an extra $50 per keg to the hotel,'' the executive wrote. Fortunately for the craft brewer, the publican thought the proposal was underhanded and rejected it. ''Can you believe this rubbish? Those guys [CUB] are really coming after you,'' he told one of the sales representatives of the craft brewer. It was, it seems, a rare victory for craft beer - a sector that has exploded in popularity worldwide, but that has struggled to gain a significant foothold in Australia's lucrative draught beer market.

The email is one of a series of documents obtained by Fairfax Media that show the determination of the major brewers to protect their dominance over the beer taps of Australia's pubs and bars. 'In the USA, it's illegal to do what has occurred in Australia' according to Glenn Cooper. Fairfax Media has obtained contracts written by CUB and Lion in 2012 and 2013, setting out onerous conditions imposed on publicans, including tying up more than 80 per cent of beer taps in return for generous volume rebates and the installation and maintenance of beer taps. The Australian Competition and Consumer Commission (ACCC) is conducting a confidential investigation into the draught brewing industry, initially targeting NSW, with visits to numerous brewers and publicans in the past few weeks. Every year, Australians consume $2.5 billion worth of tap beer. As much as 95 per cent of it will be produced by the two multinational beer companies that control Australia's best-known beer brands: Lion, owned by Japanese company Kirin, which sells Tooheys, XXXX and James Boag's; and CUB, owned by London listed SABMiller, which holds the VB and Carlton labels. Other significant players, such as the family-owned Coopers, Japanese giant Asahi Breweries and Coca-Cola Amatil, which recently re-entered the draught and bottled beer market, are also in the mix. This adds to the cutthroat competition for market share in the tap beer market, which is much more profitable than bottled beer and attracts 40 per cent less excise tax.

Craft breweries command a tiny 2 per cent of Australia's total beer market, according to IBISWorld. But craft beer is bucking a long-running downward trend in overall per head beer consumption in Australia, which has declined from 141.7 litres a year at the start of the 1990s, to 93.1 litres last year. Beer consumption is now at levels last seen during World War II, figures from the Australian Bureau of Statistics show. Multiple industry sources estimate craft beer consumption is growing at 13 per cent a year, and the estimated number of craft breweries has jumped from about 86 a decade ago to about 175. The popularity of craft beer in Australia was on show in Melbourne last weekend where - at the Great Australasian Beer Spectapular in Carlton - consumers could sample brews like a Creme Caramel from 2 Brothers Brewery, a Pepper Steak Porter from Brewcult and the Sex, Drugs and Rocky Road - which tasted just like the chocolate and marshmallow treat - produced by Bacchus Brewing Co in Queensland. But the diversity of craft beers on show stood in sharp contrast to the selection on tap at pubs across the country, where every tap in a venue can be occupied by beers (and lately ciders) produced by one of the big multinationals.

One craft brewer, Thunder Road Brewing Company's founder Philip Withers, describes the situation as ''a goldmine for them [Lion and CUB] and a coalmine for the rest of us''. Another craft brewer, Ben Kraus, from Bridge Road Brewers in Beechworth, says the lack of access to tap spots has been a ''huge barrier to growth in craft beer''. ''In Australia, real craft breweries do not have open access to beer taps in venues and broad access to the market … In contrast, it is illegal to have tap contracts in the US,'' says David Hollyoak, who co-founded the Redoak brewery and runs the Real Craft Brewers Association. The stepped-up battle over draught beer is taking place as the two big supermarket operators control an estimated 60 per cent of the packaged liquor market in chains like Dan Murphys, First Choice, BWS, Liquorland and Vintage Cellars. Their determination to drive down suppliers' margins is well known. Coupled with the fragmentation of the beer market as consumers shift from mainstream beer to craft beer and cider, this means the beer giants aren't about to give up their high-margin taps any time soon. Their weapons of choice are pourage contracts, signed between beer companies and publicans, which lock up taps for the exclusive use of one beer company for two or three years.

In return, the publicans get various benefits - refunds on the price they pay for beer, business development allowances, tickets and trips to sporting events, including the upcoming FIFA World Cup in Brazil, and upgraded tap systems and fridges paid for by the beer companies. Current and former publicans say these benefits can be the difference between staying in business or shutting down. And, crucially, the contracts mean the publican gets a guaranteed and reliable supply of the still-popular beer brands controlled by the major brewers. One CUB contract obtained by Fairfax Media, for a venue in NSW, ties up ''at least'' 80 per cent of the taps at the venue concerned, and stipulates that CUB must be the exclusive supplier of draught cider, low carbohydrate, reduced strength and light draught beer. ''The customer must not stock or brand any competitor new-to-market draught cider products or categories, or new draught beer or draught cider products unless mutually agreed with CUB,'' it states. It also requests the publican buy ''directly'' from CUB, barring him or her from sourcing them at a retail outlet, which can sometimes be cheaper due to discounts offered to the big chains.

Most curiously, the contract specifies the competitor range. ''The customer will be permitted to range the following competitor draught beer/draught cider products only, provided the agreed minimum CUB tap representation is maintained: Tooheys New and minor brands.'' It requests sales and market share data, including scan data for each venue. A spokesman for CUB said the pub beer market was highly competitive. He said CUB had contracts with 30 per cent of pubs, clubs and other venues, ''so it's an overwhelmingly open market''. He said it was not unusual for publicans to enter into contracts for the provision of beer, spirits and wine, and it was a long-standing practice for these contracts to contain exclusivity provisions. ''In regard to beer, many of these contracts provide discounts on the keg price, as well as investment in the pub, such as cool rooms, tap lines and fridges etc, and is quite often as a result of a pub going to tender.'' In regard to the email a CUB manager sent to a Melbourne publican to remove a specific craft beer he was selling, the spokesman said: ''The publican decides the price and beer he, or she, wishes to sell, with the beer drinker being the ultimate judge. We can only provide recommendations. If it is too expensive, or not the right quality, it will not sell.''

A Lion trading agreement obtained by Fairfax Media demands exclusive access to 100 per cent of the venue's taps, and specific volume requirements, in exchange for generous rebates and a new tap system worth more than $10,000 - which remains the property of Lion. The contract, signed in 2012 with a Victorian publican, lasts for three years and says: ''You must ensure that the outlet exclusively brands and pours our beer on all of the taps'' and requires it to always stock and promote Lion's Boag's and James Squire brands in pack beer. Another clause states that the agreement covers additional outlets and defines an outlet as ''you, or anyone associated with you, acquires ownership or control''. According to the contract, if a customer asks for a beer without specifying a brand, they must be given a Lion beer, the venue must trial ''our'' new brand initiatives for beer for at least three months, stock ''our'' beer in 40 per cent of the visible beer fridge space and provide preferred positioning (at eye level) for Lion beer in the outlet's bars. Lion declined to comment. The contracts demonstrate that taps are prime property, with the battle for market share taking place over every humble beer tap in every pub and bar in Australia.

It is not just the two biggest brewers that pay rebates or install taps. But their size and dominance means they are able to offer much more generous terms than the tiddlers of the craft beer industry. Exclusive contracts are not uncommon across retail and hospitality and are not illegal. Most coffee shops do deals to sell a specific brand of coffee in return for cups, machines and rebates. Beauty parlours are often tied to certain brands and soft drink operators do exclusive deals with certain outlets. The key issue is whether - to use the wording of section 47 of the Competition and Consumer Act - any such exclusive dealing ''substantially lessens competition''. It this critical question - is competition being harmed? - that the ACCC will weigh up as it gathers information. Allan Fels, the former chairman of the ACCC and now a professor at Oxford University and Melbourne University, says that with the rise of new niche players, these exclusive contracts - even if long-standing - raise serious issues under the act.

''The general approach is if exclusive dealing cuts competitors, especially if it forecloses markets and keeps competitors out, it is generally unlawful.'' Fels says that with craft beer and others trying to get access to hotel outlets, exclusive dealing and related arrangements need the closest examination. ACCC chairman Rod Sims told Fairfax Media that the investigation into draught brewing was confidential. A letter obtained by Fairfax, relating to the ACCC's investigation, includes some curly questions that appear to be aimed squarely at uncovering the extent of the power of CUB and Lion. For example: ''Does your company have an exclusive distribution arrangement with any customers for the supply of draught beer? If so identify those customers.'' Another question asks for the names of venues to which the brewer has offered to supply draught beer but was knocked back.

''Does your business face difficulties in negotiating supply of draught beer?'' another question asks. It is understood a number of Australia's 175 craft breweries and publicans have supplied information to the regulator - including contracts, emails and first-hand experiences. Fairfax Media spoke with a number of breweries, many of which declined to comment directly on the ACCC investigation. But several spoke about the impact the tap contacts were having on the growth of craft beer. Adelaide's Coopers brewery, Australia's third biggest beer producer and still family-owned, holds about 4 per cent of the national market - a long way behind the big brewers, but substantially bigger than any craft operation. Chairman Glenn Cooper says the brewery regards itself as the ''father - or even the grandfather'' of craft brewing in Australia.

Despite Coopers' financial resources and history stretching back 150 years, it too has struggled to maintain its share of pub taps in the face of what Cooper says is ''effectively a duopoly''. Coopers pays for taps to be installed in pubs and offers rebates to publicans. Cooper says the market has become ''more difficult and more expensive'' in recent years. ''I have sympathy for smaller brewers,'' he says. ''The craft or microbreweries don't have the available finances to be able to purchase some of the taps.'' Cooper points to the thriving craft beer market in the US. ''In the USA it's illegal to do what has occurred in Australia … you can't buy 50-60 per cent of the taps.'' Asked why he thought publicans signed up to the contracts, Cooper has a simple answer: ''Money talks''.

Industry sources say that life is hard for pubs that don't sign the contracts. No contract means no discount, which makes it harder to compete on price with other nearby pubs. They are treated as ''spot'' customers and put at the bottom of the list for deliveries. Most concerning is they are not guaranteed supply at peak times. Bigger pub chains, such as those owned by Woolworths-controlled ALH Group, don't have exclusive contracts, and some of the more popular pubs in inner city areas don't need them. Industry sources say the pubs that tend to enter exclusive or near exclusive deals tend to be smaller venues in the suburbs. A former publican in the Wollongong area says if he hadn't done a deal with one of the big two brewers he would have lost his clientele - the contracts were necessary for survival. Publican Liam Matthews, who runs two inner-city venues - Fitzroy's Old Bar and the Public Bar in North Melbourne - refuses to serve on tap any beers owned by CUB or Lion Nathan.

Even in trendy Fitzroy, his venue faced a backlash from patrons when it stopped serving Carlton Draught on tap. But eventually Matthews says ''they just got over it''. ''We stuck it out and we are doing really well again with our beers.'' Some of the smaller brewers he features on tap pay him rebates - which help cover the cost of his liquor licence fees. Without the rebates, he's not sure he'd still be operating. Still, Matthews can't understand why publicans sign up to the big brewers' contracts. ''You don't have to do it their way. If the major companies do offer a contract and have no room for negotiation for the publican, and want all the taps, then that's where the problem lies.''

Shawn Sherlock of Murray's Craft Brewing Co in NSW, says it is getting easier to sell craft beer in inner city pubs. ''Suburban pubs are the next frontier,'' he says. Ben Kraus, from Bridge Road, says the measures used by the big operators - paying for the right to a tap, or paying to install taps - is ''dangerous territory'' for small operators but they are ''starting to creep into craft beer''. ''There's a very finite number of taps that aren't tied up. A pub might have six taps and one that isn't under contract. You might have 10 craft breweries jockeying for that position.'' He urges consumers to speak up if they want more choice. Exclusive contracts and the impact on competition, innovation and choice is a tough and complicated debate. For Thunder Road Brewing Company's Philip Withers it is a nationwide issue. ''Everyone can relate to a good beer. But this case is about much more than just beer.

''It's about giving confidence back to small business manufacturing in this country, encouraging fairness and confidence to take risks, restoring local manufacturing and encouraging local employment. ''A level playing field and a fair go isn't a lot to expect.'' Loading Do you know more? aferguson@fairfaxmedia.com.au, ruwilliams@fairfaxmedia.com.au Follow us on Twitter @BusinessDay