Food Fight

Oh, Manitoba. Just when you start looking sane, you go back to your old wacky ways.

Recall that Manitoba is the province where you can't sell a potato without, well, hassles.*

Now, read this one and weep. Since I was a kid in Manitoba, the government made much fuss about agricultural diversification, wanting farmers to move to more processing and oddball thin-market crops.

The Cavers at Harborside Farms are a great example of how this can be done well. They raise Berkshire hogs outside of Pilot Mound, a small town a couple hours southwest of Winnipeg. They started curing hams following old Italian recipes. Bartley Kives reports:

In May, Manitoba Agriculture Food and Rural Initiatives awarded a $10,000 prize to Harborside Farms, after inviting owner Pamela and Clinton Cavers to compete in a contest called the Great Manitoba Food Fight in Brandon.

The cash prize for the Cavers' pastured-pork prosciutto was intended to help the couple further commercialize the cured meats they had been producing on their farm since 2008, using traditional Italian recipes.

In June, inspectors from a different branch of MAFRI ordered Harborside to stop selling all of its cured meats, known in culinary terms as charcuterie, which had appeared on the tables of higher-end Winnipeg restaurants such as Pizzeria Gusto and Bistro 71/4.

The Cavers, who also hoped to sell their product at De Luca's Specialty Foods, claim they complied with the order.

But on Wednesday, as University of Manitoba environment students were about to tour the Harborside grounds, a pair of inspectors drove up and seized the couple's entire inventory of charcuterie -- about 160 kilograms of the cured pork and beef products known as prosciutto, lonzino, capicollo, bresaola, salumi and soppressata.

The Cavers said they were each handed $600 fines.

"The fine was for selling food unfit for human consumption. This was the same food the agriculture minister ate in May," said Pamela Cavers, referring to MAFRI Minister Ron Kostyshyn, who tasted Harborside's prize-winning prosciutto at the contest in May.

So, was anything wrong with their cured meats? No. Absolutely nothing. But they didn't follow the approved process. Why? Because there wasn't one. They were following traditional processes, the food was safe, and they'd asked the government for advice on making sure they were also compliant with any process specs that the government might wish to impose.

The provincial inspectors took no issue with any aspect of the farm aside from the charcuterie operation, whose entire processes they deemed unsatisfactory, Pamela Cavers said. A June inspection yielded an order to build a separate drying room and acquire instruments to monitor pH levels and moisture, among other issues, she said.

The Cavers said they had been attempting to obtain specific guidelines for producing artisanal charcuterie, but could not receive direction from the provincial food development centre in Portage la Prairie.

"They said they had no idea what to compare it to," she said, adding officials had no experience with charcuterie. She said a call to the minister's office during the Wednesday raid yielded advice to call the chief veterinary officer. "They didn't even know what charcuterie was," she said.

Were the Cavers selling unfit food? No. An informed correspondent tells me that Manitoba Health has no adopted procedures as yet for dry cured meats. The Cavers tried proving that their product was safe, by various bacteria, moisture, and pH tests at the Portage Food Lab. But there's no standard that the government could point to showing whether it was good enough.

Because Manitoba Agriculture, Food and Rural Initiatives (MAFRI) does not have Manitoba Health standards against which they can judge things, they just took all of the Cavers' stuff. Even if the Cavers perfectly followed all of the Italian standards, they're still in violation of Manitoba law. Because they're not following Manitoba standards. Because nobody has written any Manitoba standards.

A rational province would, where no official provincial standard exists, simply adopt an existing proven standard from an outside trusted source and verify that a Manitoba producer's practices meet that standard. Alternatively, perhaps somebody in Manitoba should start trying to get approval to sell chocolate-coated cotton.

There's a petition up here wishing that the Manitoba government be sensible. I hope it's successful.

* See:

• Canadian agriculture is completely screwed up
• Manitoba potato monopoly
• More Manitoba potatoes
• Manitoba potato monopoly...update
• Manitoba potatoes - again!
• Ceasefire in the spud wars

Liquor traps

Gordon Tullock warned us that once substantial rents accrue to some regulatory provision, it gets hard to change the regulation even if it is spectacularly inefficient. He illustrated the case with New York's taxicab medallion system: the restriction on the supply of cabs doesn't help the drivers but instead drives up the price of the asset in fixed supply, the medallion itself. Abolishing the medallions would bring prices down for dispersed consumers but would impose substantial capital losses on the medallion-holders.

There is a way out of transitional gains traps: tax the winners to pay off the losers. But it's awfully hard to implement. Opaque transfers are opaque for a reason: voters do not understand them and regularly oppose things that would make them better off. Tullock's biggest lesson then is that we should never ever get into transitional gains traps in the first place as they are just so very hard to escape.

Today's edition: liquor permits. Cities like restricting the number of liquor outlets, reckoning that they can thereby reduce the number of problems caused by drunks. If the restriction is binding, then the licence to sell alcohol becomes an asset for the owner. If the restriction is really binding, it can be a really valuable asset. Witness Flemington, New Jersey [ht @MarketUrbanism]:

Local officials who want a more lively town center and a development team seeking to restore a landmark hotel were hoping to put a new watering hole on Main Street. Then they ran smack into New Jersey's strict, Prohibition-era alcohol laws, which restrict the number of liquor licenses per town. Flemington had just three—two belonging to establishments in strip malls and one for a Veterans of Foreign Wars hall.

Having a decent bar, it turns out, is helpful to reviving small downtowns, development experts say. So, in February, the developers came up with a novel but expensive solution, buying the Italian restaurant that owned a license and eventually transferring it to the downtown hotel. The price: about $1 million for the permit alone.
...
The Union Hotel owners' arduous journey to opening a bar is emblematic of a conundrum facing small downtowns across New Jersey. In a state making efforts to reverse decades of sprawling suburban development, a shortage of liquor licenses has emerged as a hurdle to rejuvenating Main Streets, according to development consultants and planning groups.
...
The ramifications have been felt across the state. Local officials in Glassboro, N.J., a South Jersey borough of about 18,000 people, said their $300 million public-private downtown development plan has been set back because it only has seven liquor licenses, with one changing hands recently for $700,000, said Joe Brigandi, the borough administrator. It has made it difficult to attract a new downtown restaurant, he said.

Meanwhile, Manitoba's emergence from the liquor dark ages is hindered by the existing rent-holders. The Winnipeg Free Press's Bartley Kives* documents the insanity of the prior liquor regulations, with 12 different highly prescribed liquor licences that often require venues provide services of negative value to their customers. Live music requirements ban the use of DJs for some licencees, for example.  But Kives also sees the transitional gains trap:

And more politically, the province isn't prepared to undermine entrepreneurs who've invested heavily in restaurant-lounge concepts such as Earls, Moxies and the Keg, which have proven extremely successful in recent years.

"We're not going to step all over people who've invested in infrastructure," said Chomiak, referring to independently owned restaurants as well as the chains.

In Manitoba, Earls-style venues have stolen the club-going clientele away from hotel beverage rooms, suggested Jim Baker, president and CEO of the Manitoba Hotel Association.

Decades ago, hoteliers opposed liquor-regulation reform in fear of losing market share to stand-alone venues. Today, hoteliers are more concerned about the prospect of legalizing alcohol-delivery services -- which would harm beer vendors -- than they are with the idea of more small clubs serving alcohol in downtown Winnipeg.

Baker said he would also like to see the province ease up on regulations governing minors in beverage rooms, especially in rural areas where banquets and fundraisers would present a business opportunity if people under 18 were allowed on-site.

"There's a need to see how these people can use the larger rooms for other purposes," said Baker, who cautiously supports the idea of regulatory reform. "We want to be part of this discussion."

Hotel, restaurant and club owners are also united in their desire to see liquor inspectors ease up on the enforcement of minor infractions such as improper paperwork. That sort of cultural change is coming as part of the creation of a new regulatory agency, Chomiak said.

There's a great Masters thesis to be written applying the Peltzman model of regulation and deregulation to liquor law in Manitoba.

New Zealand has been a minor oasis of sanity relative to these kinds of cases. Australia, as I understand things, has sufficiently restrictive liquor permitting laws in some parts of the country that people buy hotels just to be able to run the permitted liquor outlet attached to the hotel. I worry that NZ's move to greater local control of licensing options will wind up letting local activists restrict the supply of new licences, to the hoozahs of existing permittees, and move us into the trap. Read New Jersey and Manitoba as cautionary tales.


* When I was in Manitoba, I remember Kives having had the entertainment beat (though I could have that wrong; it was a long time ago). Now, every time there's a great piece in the Winnipeg Free Press, it's from Kives (and here and here). I wonder how long it'll be 'till he's scooped up by one of the national papers.

Exempting the elderly

New Zealand and Christchurch having been a bit depressing lately, other than last night's rather nice 77-44 vote in favour of allowing same sex marriages in addition to civil unions, it is sanity-enhancing to look a bit at lunacy elsewhere.

While New Zealand funds education from general taxation revenues and ensures that schools in needier areas receive enhanced funding, Manitoba, and much of North America, mainly funds its schools out of local property taxes. There are potentially good Tiebout reasons for doing this as some people prefer paying more in taxes for better schools, it also makes it harder for schools in poor areas to provide decent services.

From 2015, Manitoba seniors will be exempt from the education portion of the property tax bill. Says Finance Minister Stan Struthers, "These seniors who paid a lot of taxes over their working careers as they raised families, I think they deserve a break."

Let's leave to one side for now the obvious equity problem here that letting the relatively wealthy elderly off the hook for a bundle of services that they don't currently consume might well invite relatively poorer young people to request exemptions from the portion of their taxes that go to pay for government services never consumed by young people: the Canada Pension Plan, Medicare coverage for Altzheimers', government-funded old folks' homes, the Royal Canadian Air Farce... I'd be pretty surprised if net government funding didn't already strongly favour the wrinklies.

The bigger problem is the long-term fiscal outlook when the political incentive is to pull back from taxing the wealthy elderly. Now there are reasons why property taxes on the elderly can be politically unpalatable. Suppose that you've owned your house for 60 years, its value is bid up by a bunch of families coming in because of the local school, and you suddenly can't cover the property tax bill. This will be a problem for any land tax system, any capital gains tax system that taxes unrealised gains on the family home,* or systems supporting local education out of local levies on property values.** There are plenty of ways that the elderly homeowner could re-optimise: reverse mortgages could tap the equity, or the homeowner could sell to someone who values the local amenity and move somewhere else in town.

But if policy should be moving towards a tax base that can withstand a large proportion of taxable-income poor but asset-rich individuals with strong demand for government services, Manitoba's move isn't encouraging.

New Zealand at least has been making some moves in the right direction. We've been shifting the tax base from income to consumption. We don't tax capital gains, and for good reason. But whenever retirees cash out some of their portfolios to fund current consumption, they pay the 15% GST. I'd also expect that we'll be scheduling increases to the age of superannuation eligibility after the next election.

* Systems taxing only realised gains have other problems. And systems exempting the family home entirely have still other problems. Seamus has a rather lengthy series of posts on the topic, some of which are here indexed.

** Note also that we can also get big problems in rural school districts: townies are income rich but have less land wealth; farmers are land rich but will have incomes that fluctuate a lot year to year. If the school levy is a fixed proportion of the land value, the farmers bear a very large share of the school district's costs. I have no particular view as to what's fair here other than a generalised view that a progressive consumption tax would be rather better than all of this mess.

Banning craft beer

My old home province of Manitoba didn't quite make commercial brewing of craft beer illegal. But they might as well have. Bartley Kives delves into the morass of Manitoba liquor regulations. Keep in mind that many of these regulations are the kinds of things that New Zealand's neo-prohibitionists would support. Fortunately, things look set to ease up in Manitoba. A bit.

Here's Kives:

Right now, licence holders are not overly pleased. There are 12 different liquor-licence categories in the province, each with its own set of rules and annoyances.

For example, hotels may obtain a licence to sell alcohol in a "beverage room," but only if they also have a liquor licence for a "dining room," which must remain open when the beverage room is open. As well, hotels can only obtain a beverage-room licence if liquor authorities grant something called a hotel certificate, an official stamp of approval the Manitoba Hotel Association dislikes because it may apply to businesses that actually function as long-term rental-apartment blocks, as opposed to actual hotels where tourists and business travellers stay for a short period of time.

Restaurants, meanwhile, may also obtain a dining-room licence, but must ensure alcohol sales do not exceed 60 per cent of gross revenue. Restaurants may also obtain a "cocktail lounge" licence where customers do not have to purchase food, but the combined restaurant-lounge must still maintain the 40-60 food-to-alcohol ratio.

There's also a cabaret licence, which does not demand any food sales but does require licence holders to exhibit two hours of live entertainment every day. That entertainment must be visible from every room in the venue and must not involve recorded music.

As a result of these regulations, hotels that rent out space to pizza parlours in an effort to fulfil the dining-room requirement of their beverage-room licence have been hit with violations when the sole dining-room employee goes out to deliver a pizza.

Popular restaurants with lounges are forced to turn customers away simply to maintain food-to-alcohol ratios. And cabarets cannot satisfy the live-entertainment provisions of their licences by booking club DJs, many of whom are among the biggest draws in live music today. That's because of a literalistic interpretation of a cabaret-licence provision against recorded music, which was created to protect jobs for musicians in the age of jukeboxes.

It gets worse:

When cabaret owners offer to circulate a guitarist, accordion player or some other wandering minstrel around a level with no live stage, they are told those musicians must be miked up and broadcast, too.

"Even they say it's stupid," Kendrick said.

Hua, meanwhile, was forced to puzzle over which licence would best serve the Rec Room, his new Pembina Highway sports lounge, which will feature foosball, Ping-Pong and arcade games. "There's no licence for an entertainment hall that has Ping-Pong," he lamented.

And once you have a whole industry in place that has fixed investments based on a set of stupid regulations, it's harder to get rid of the regulations:

John Scoles, the proprietor of the Times Change(d) High & Lonesome Club, a Main Street roots-music venue, said he believes small venues will benefit the most from liquor-licensing reform.

"Small venues are the ones that struggle the most to meet licence requirements," said Scoles, who found the right formula for his own small venue in 2004 when he converted it into a private club from a restaurant and lounge.

"It never seemed success in this business was based on entrepreneurial ingenuity. It was based on what parameters you were forced to observe. Nobody could just have a great idea. They had to have a great idea that was shaped by something else."

But Manitoba isn't moving toward a free-for-all. For example, the new liquor-and-lotteries act will still require restaurants to maintain some form of food-to-alcohol sales ratio, Chomiak said.

There's a social benefit to serving meals with booze, he said. And more politically, the province isn't prepared to undermine entrepreneurs who've invested heavily in restaurant-lounge concepts such as Earls, Moxies and the Keg, which have proven extremely successful in recent years.

"We're not going to step all over people who've invested in infrastructure," said Chomiak, referring to independently owned restaurants as well as the chains.

Kives reports that there are zero brew pubs in Manitoba - population about 1.2 million.

Manitoba has a state monopoly on liquor sales: the Manitoba Liquor Control Commission. They keep prices fairly high. The province has a 0.05 drink driving limit.

And yet alcohol is a factor in over 40% of all traffic accident fatalities in Manitoba (2007 figures). In New Zealand, alcohol and drugs are implicated in about 30% of traffic accident fatalities. The total number of deaths will be higher, as we have roughly four times Manitoba's population and our roads are terrifying.

Note that percentages in the table below can add to more than one hundred as accidents can have multiple causes.

Table 26a from the same document shows about a ten percentage point drop in the fraction of accident fatalities involving alcohol from the late 1980s / early 90s to present. 

I hope that the local-level regulatory activity enabled under New Zealand's recent revisions to alcohol regulations do not wind up making parts of New Zealand look like my old home province.