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Realizing the Competitive Advantage of Environmental Brewing by Adam Adkin

Posted by: | March 30, 2011 Comments Off on Realizing the Competitive Advantage of Environmental Brewing by Adam Adkin |

The market for foods and beverages labeled “organic,” “sustainable,” and “environmentally friendly” has experienced dramatic growth over the past two decades. By bringing their dollars to this market, consumers have demonstrated that they are willing to pay a premium for goods that provide them with more than a full stomach.[i] This trend is not limited to the market for produce, but is also apparent in the craft beer market.

The term “craft beer” refers to the beer of small brewers that produce less than six million barrels of beer annually and operate independently from larger brewer.[ii] Craft beer brewing is a growing industry. Since 2008, craft beer sales and revenue have consistently increased, and in the first half of 2010, the craft beer market continued to grow while overall beer sales in the United States were down.[iii]

As craft brewers aim to gain a greater market share and distinguish themselves not only from large brewers, but also their peers, many craft brewers have begun to use the term “organic” in their labeling and advertising. The United States Department of Agriculture (USDA) requires that any product labeled organic must be produced from 95% organic content.[iv] However, the USDA permits the use of certain ingredients that are not organically produced without jeopardizing the labeling of a product as organic. One of those ingredients is hops, a primary ingredient in beer.[v]

Some people in the beer industry have sharply criticized labeling beer as organic on account of the hops exception.[vi] Beer producers have expressed concern that craft brewers that produce beer from entirely organic ingredients, including organic hops, are unable to reap a competitive advantage against beer producers that label their beer organic despite using non-organic hops.[vii] Additionally, there are concerns that labeling beer as organic misleads consumers into believing that a particular beer is produced with entirely organic ingredients when it is not.[viii]

Craft brewers whose brewing practices exceed the requirements of the USDA organic label may leverage those practices to attract additional customers. Beer labels and marketing provide innovative beer producers with a means for branding their product and distinguishing it to environmentally conscious beer drinkers. Beer bottles, cases, and other marketing materials provide a canvas on which beer producers may inform potential consumers about the brewer’s environmentally and socially conscious brewing practices. Through these means, craft brewers may distinguish themselves by factual statements about their brewing that go beyond the USDA’s standards for labeling a product organic.

Nonetheless, craft brewers need to be aware of certain risks that their labeling may create. Federal and state agencies, attorney generals, competitors and consumers have been suing companies under state and federal statutes for falsely representing the environmental benefits of their products and misleading consumers with their labeling and advertising.[ix] Additionally, consumers and consumer protection groups are actively using the internet to police environmental marketing and disseminate information about companies making false claims about their products.[x]

One resource that may provide guidance on how to avoid lawsuits for misrepresentation in environmental labeling is the Green Guides. The Green Guides are the Federal Trade Commission’s nonbinding interpretation of the Federal Trade Commission Act (FTCA). The Green Guides provide useful guidelines for companies hoping to market their environmental practices with minimal risk because the Green Guides reflect the principles that govern false advertising under the FTCA.[xi]  

Recent proposals for change to the Green Guides state that companies should not make unqualified environmental claims.[xii] This recommendation reflects the widespread criticism that environmental labeling claims are vague and cannot be corroborated.[xiii] Craft brewers could avoid this criticism, and the risk of FTC scrutiny of their claims, by stating the grounds for their claims. For example, rather than simply stating that a beer is organic, a label could explain that all of the beer’s ingredients, including its hops, are organic. Additionally, rather than stating that a brewery is powered by renewable energy, the case could advertise that photovoltaic solar panels generate a certain percentage of the power that the brewery consumes. As long as the statements are factually true, brewers will avoid criticisms that their claims lack substantiation. Nonetheless, brewers must be careful to not suggest that their product is superior on account of their environmental practices or disparage their competitor’s products.[xiv]

Labeling craft beer with specific factual statements should also generate consumer faith in the assertions of advertisements and labels. Consumers are becoming increasingly skeptical of environmental labeling and sensitive to criticisms against the USDA’s organic label.[xv] Consumers are more likely to accept the veracity of specific factual statements because those statements can more easily be proven true or false than ambiguous statements and certifications that fail to provide a clear explanation to consumers. As a result, consumers are less likely to feel misled by specific environmental claims.

Craft brewers hoping to distinguish themselves from their competitors may be able to attract a larger consumer base by advertising their environmental practices. Nonetheless, brewers should exercise care to not make statements that will mislead consumers. By making specific, factual statements about the environmental practices of their brewing, craft brewers will be better able to avoid criticisms and charges of false advertising.

[i] See Travis A. Smith, Biing-Hwan Lin & Chung L. Huang, Organic Premiums of U.S. Fresh Produce 1–2 (NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management, 2008), http://ageconsearch.umn.edu/bitstream/37626/2/confp23-08.pdf; Organic Trade Association, U.S. Organic Industry Overview, http://www.ota.com/pics/documents/2010OrganicIndustrySurveySummary.pdf; Eric L. Lane, Consumer Protection in the Eco-Mark Era: A Preliminary Survey and Assessment of Anti-Greenwashing Activity and Eco-Mark Enforcement, 9 J. Marshall Rev. Intell. Prop. L. 742, 742 (2010).

[ii] Brewers Association, Craft Brewing Statistics: Craft Brewer Defined (Aug. 9, 2010), http://www.brewersassociation.org/pages/business-tools/craft-brewing-statistics/craft-brewer-defined.

[iii] Id.

[iv] 7 C.F.R. § 205.301(b) (2010); Rebecca Tushner, It Depends on What the Meaning of “False” Is: Falsity and Misleadingness in Commercial Speech Doctrine, 41 Loy. L.A. L. Rev. 227, 241 (2007).

[v] 7 C.F.R. § 205.606 (2010).

[vi] See Matt Hendry, USDA Deals Blow to U.S. Organic Hop Industry, Beer Advocate, http://beeradvocate.com/forum/read/3050596; Chris O’Brien, The Organic Hops Controversy, Am. Brewer, Fall 2007, available at http://beeractivist.com/2007/11/11/the-organic-hops-controversy/.

[vii] See Tushner, supra note iv, at 242–43.

[viii] See id.; Kimberly Kindy & Lyndsey Layton, Purity of Federal “Organic” Label Is Questioned, Wash. Post, July 3, 2009, http://www.washingtonpost.com/wp-dyn/content/article/2009/07/02/AR2009070203365.html.

[ix] See Lane, supra note i; Michelle Diffenderfer & Keri-Ann Baker, Greenwashing: What Your Client Should Know to Avoid Costly Litigation and Consumer Backlash, Nat. Resources & Env’t, Winter 2011, at 21; E. Thomas Watson, Green Marketing: It’s Not All Bunnies and Flowers, Landslide, Mar./Apr. 2010, at 9, 9–10.

[x] See Lane, supra note i, at 742, 748.

[xi] See Coppolecchia, supra note xii.

[xii] Federal Trade Commission, Green Guides: Summary of Proposal 1 (2008), http://www.ftc.gov/os/2010/10/101006greenguidesproposal.pdf.

[xiii] See Watson, supra note ix, at 9 (citing Terrachoice Group, Inc., The Greenwashing Report–The Seven Sins of Greenwashing (2009)).

[xiv] See 27 C.F.R. § 7.29 (2010); David Alan Nauheim, Food Labeling and the Consumers Right to Know, 4 Liberty U. L. Rev.  97 (2009); Donna M. Byrne, Cloned Meat, Voluntary Food Labeling, and Organic Oreos, 8 Pierce L. Rev. 31 (2009).

[xv] See Lane, supra note i , at 747–48; Diffenderfer & Baker, supra note ix; Coppolecchia, supra note xii, at 1360–61.

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