Thanks to deregulation back in the late 1970s craft beer has become an economic force in many world economies.  There are so many fads in the world economy, but craft beer doesn’t seem to be one of those. Just how much growth can we expect?

Bart Watson, the Chief Economist for the Brewers Association, gave a very informative interview with MiBiz and laid out specific examples of why there is potential for growth was “endless” when you look at other alcoholic product success. Watson has taken center stage for many of craft beer’s recent – and manymilestones. He’s even laid out predictions for 2015 and beyond.

Here’s his interview.

The craft beer industry reached double-digit market share for the first time in 2014. How much more can the industry realistically grow in the next five years?

Craft breweries are looking more like restaurants and bars these days and when you look at the overall number of those in the country, I think there is almost endless run room — as long as craft breweries differentiate. Also, when we look at other high-end artisanal food or alcohol markets, you often see the high-end taking a 30-percent to 50-percent share in dollar sales or volume. Craft beer right now is at 20 percent by dollars and 11 percent by volume. That suggests there’s a lot of growth room.

How much will brewers’ growth be limited by retail shelf space?

Shelf space is certainly one of the limitations, but we’re seeing growth opportunities there. Convenience, which is the largest beer channel overall, has a very low index on craft beer but is growing much faster than other retail channels. One thing I think we’re going to see in the coming years is craft really expanding the number of places where it’s sold. We’re seeing the explosion of brewpubs and microbrewery taprooms because it’s harder to get tap handles at bars. That kind of innovation shows that if there’s demand for the product, brewers are going to find ways to create new channels to get that beer out in the market.

On the distribution side, what changes to state or federal law could help brewers get their products to consumers more effectively?

It’s going to vary by the state, but we’ve been heavily supporting access-to-market-type rules that come in three flavors. One is limited self-distribution to a certain point. Second is some ability to have direct sales to (consumers) via brewpubs, taproom sales and to-go sales from brewpubs. The final one we’ve been working on in a number of states is franchise law carve-outs to find ways that small producers with large wholesalers can have the ability to move and gain market access if they’re in a bad situation.

Right now there is a lot of excitement in the brewing industry around two competing bills, the Small BREW Act and the Fair BEER Act. These two bills aim to lower the taxes for brewing beer. It would impact every Tap Trail brewery by saving them 10s of thousands in taxes. This would allow them greater ability to innovate and create jobs.

When we look at other high-end artisanal food or alcohol markets, you often see the high-end taking a 30-percent to 50-percent share in dollar sales or volume. Craft beer right now is at 20 percent by dollars and 11 percent by volume. That suggests there’s a lot of growth room.

Do you think that the pressure to innovate and grow will create more creative financing deals similar to what we’ve seen with the private equity-backed acquisition of Perrin Brewing or Founders selling a 30-percent stake to a Spanish brewer?

Perhaps, (but) those are still a pretty small percentage of the industry. At some point, there’s going to be more stasis in the market, so I think a lot of breweries are trying to strike when the iron is hot. Perhaps getting outside capital is one way to do that on the timeline they find more desirable.

Do you expect the M&A market to heat up among craft breweries?

A lot of smaller breweries are recognizing the advantages of partnering with larger regional breweries, and those regional craft breweries are recognizing the dynamism that small local breweries can have in small, local markets. Local is still a huge part of what’s driving craft brewers. Regional craft brewers certainly have other advantages that they can bring to play, but they may not be able to play as nimbly in local markets.

Given the growth and competition in the craft brewing industry, will smaller local breweries be able to access raw materials?

One of the biggest changes over the last few years in hops is that basically every brewery, no matter what its size, is contracting (to buy hops). So there’s very good communication of market needs between growers and dealers. (But) if you’re a small local brewpub, you’re probably not going to be able to get access to the hottest proprietary hop that there’s only 200 acres of in the country. Malt is starting to get that message as well. It’s traditionally been a market that’s organized around a little more scale, so it’s harder for small brewers to communicate their needs. But I think we’re seeing this changing.

A recent study found that the craft brewing industry was having a large impact on US agriculture. Craft brewing uses 3 – 7 times as much malt as macro brews like Budweiser.

What do you read into the growing popularity of low-alcohol session beers that craft brewers are producing?

I would say that it’s broadening the number of occasions that these type of fuller-flavor beers play a role in. One thing I think is a natural evolution in craft is that people are looking to drink craft beer on more occasions. (Consumers) want to put craft beer in some of the occasions that American lagers and light lagers have played in the past while retaining the local brands and fuller flavors.

Interview conducted and condensed by John Wiegand.