Thursday, 12 August 2010

Anyone know how to make moonshine? Thoughts on the economics of minimum booze prices.


Today the Prime Minister came out in support of a proposal to introduce a 50p per unit minimum price for alcohol within Greater Manchester. Now, leaving aside the absence of any border control in this conurbation and the obvious fact that driving from Bolton to a supermarket in Bacup isn’t exactly a great trip, we should maybe consider the economic impact of minimum pricing.

The core argument – and we have to start somewhere – is that a relatively low minimum price will only impact off-sales since pub and restaurant sales are typically over £1 per unit. Here’s one study’s conclusions:

Only alcohol sold for home consumption would see an increase in prices, and reduction in sales would generally spare pubs and restaurants. While consuming more units of alcohol than other groups, higher income and high managerial groups would be less affected by this pricing policy.

However, this isn’t the view held everywhere. The Centre for Economics and Business Research (in a study funded by a brewer) criticised the theoretical basis for the argument and the evidence. Most importantly, while the evidence shows (not surprisingly) a relationship between price and consumption this is weakest for the heaviest drinkers.

However, when overall alcohol consumption levels and prices are taken into account, heavier drinkers are less responsive to price changes than moderate drinkers. The University of Sheffield study estimates that hazardous and harmful drinkers have a
price elasticity of -0.21 across all alcohol products – this implies that a 10 per cent increase in price would only lead to a 2.1 per cent reduction in consumption amongst heavier drinkers.

However, we still see a “positive” impact from minimum pricing albeit a small one. However, this is a pretty blunt implement that, in effect, targets the poor (note the findings from the first study cited). More importantly, minimum pricing has an impact on supply – there is an incentive for the producers of alcohol sold currently at below 50p per unit to increase their supply so as to take advantage of the excess profits implied by the minimum price. With higher profits the producers (and their retail agents) can afford to invest more in promotion.

The most likely outcome of this surplus reducing investment is promotion targeted at drinkers currently buying alcohol at higher prices – either in pubs or for home consumption. The impact of this would be negative for the pub trade and counter to the expectations of those promoting minimum pricing. And we have not yet considered moonshine!

All-in-all it seems unlikely that minimum pricing will address the core issue of the ‘problem drinker’. And we have to set this against falling consumption and fewer alcohol-related emergency admissions. Whatever we’re doing at present, its working and, rather than penalising people for only being able to afford cheap booze, maybe we should focus our efforts on the relatively small number of problem drinkers.

Anyone know how to make moonshine?



Mike Chitty said...

We must be tough on heavy drinking AND the causes of heavy drinking.

Poor economics, poor social policy but a story that plays well to middle England. Sadly that is all it takes.

When I was a student we would always have a few demi-johns of orange juice and sugar fermenting away. Perhaps it is time to dig them out again!

selsey.steve said...

I enjoy my drink, and I only drink at home. I'm a pensioner and the purchasing power of my fixed income keeps shrinking.
I'm also a dab-hand at converting a pocket of potatoes and couple of pounds of sugar into rather potent and untaxed vodka.
I've just purchased the requisite copper tubing, retorts and receiving vessels and I'm in the process of boiling water, running the steam through the Liebig's condenser and cleaning out the receiving vessel.
I will not pay stupid amounts of my money to this government (lower case intentional). I will continue to enjoy my drink as I survey my veggie patch and then view my chickens and rabbits, all of which will be my food.