Retail Alcohol Monopolies: Privatisation, Deregulation and Alcohol Consumption

Privatisation, Deregulation and Alcohol Consumption

Experiences in other jurisdictions demonstrate that a privatised system with little government regulation and open competition among private retailers typically leads to an increased number of outlets, longer opening hours, and increased consumption (e.g. Smart, 1986; Macdonald, 1986; Wagenaar & Holder, 1991; Her et al., 1999a). These outcomes are of concern in light of their links with higher rates of acute and chronic problems related to drinking (e.g. Holder & Edwards, 1995; Edwards et al., 1994; Babor et al., in press).  As indicated below, there are risks to public health associated with privatisation and benefits associated with alcohol monopolies that have strong public health and safety agendas.

Two examples from Canada provide preliminary information on the impact of partial or full privatisation on alcohol consumption and other variables.  In Quebec, wine was introduced into grocery stores in 1978 but restricted to wines bottled by the SAQ or manufactured in Quebec. This arrangement was expanded in 1983 to include imported wines, and in 1984 larger grocery store chains were allowed to sell wine as well.  These policy changes were analyzed by Adrian et al. (1996) who found a non-significant and temporary increase in wine sales in 1978 but no effect from the 1983 change.  The estimated effect of the 1978 policy change is rather modest in comparison with studies of privatisation of wine sales in other non-Canadian jurisdictions. This is likely because the 1978 change impacted only a limited number of wines, and their volume accounted for a fraction of the total alcohol sales market in the province.

The other Canadian example comes from Alberta, where retail alcohol outlets were privatised between the fall of 1993 and spring of 1994, generating a number of changes, including increased density of outlets, longer hours of sale and higher prices, particularly among the more popular brands (Consumers' Association of Canada, 2003).  The change in retail prices is one effect of privatisation also found in other jurisdictions (Her et al., 1999a).  In the short run, prices generally go up, although this typically does not generate more revenue for the government.

The experiences in Alberta illustrate these divergent patterns: higher average prices, which tend to deflate consumption, and greater access through higher outlet density and other changes that tends to stimulate consumption.  For example, privatisation led to an average 8.5% increase in the price of all alcohol from October 1993 to January 1996  due primarily to a government-imposed flat tax and higher wholesale costs associated with the purchase of smaller quantities by some retailers.

This pattern of relatively higher prices for beverage alcohol -- noted by West (2000, 2003) Laxer et al. (1994) and the Consumers' Association of Canada (2003) -- is also evident in comparing real price basket indices, by beverage, for four provinces: British Columbia, Alberta, Ontario and Quebec, for 1994 to 2000.  For beer, Alberta had the highest index per year for five out of seven years, for wine all seven years, and for spirits six of the seven years.  While higher prices on alcoholic beverages would be expected to deflate their consumption, there were several factors, noted below, that likely stimulated alcohol sales.

It is noteworthy that in fiscal 1993-94 when privatisation was introduced in Alberta, it was the only province of the jurisdictions examined -- B.C., Alberta, Ontario, Quebec, and total for Canada -- that experienced an increase in the per adult consumption rate compared to 1992-93 just prior to privatisation.   In Alberta the rate went from 8.5 to 8.7 litres of absolute alcohol per adult (aged 15 and older), whereas the other jurisdictions experienced a decline: B.C. - 8.9 to 8.8, Ontario-7.5 to 7.3, Quebec - 6.9 to 6.8, and Canada stayed at 7.5 (Statistics Canada , 1996).     In recent years, Alberta has had the highest per adult consumption rate among the Canadian provinces, between 8.5 and 8.7 litres of ethanol alcohol per adult for fiscal years 1997-98 to 2001-2002 (Statistics Canada, 2002; Flanagan, 2003, Figure 2.1).

A number of factors might have contributed to the rise in the alcohol consumption rates.  For example, in the early 1990s, several provinces, such as Alberta and B.C., had strong economies and growing populations, but their alcohol consumption experiences differed, as noted above.    Thus while general economy and workforce changes cannot be fully ruled out as partial explanations for changes in per adult consumption rates at that time, they do not offer the full story.  Based on experiences in other jurisdictions with privatisation it would appear that particularly pertinent factors were the three-fold increase in density of retail outlets and longer hours of sale that accompanied privatisation of alcohol retailing in Alberta.  
 
Nevertheless, several factors that might have dampened the impact of privatisation on alcohol sales in Alberta, including that alcohol was not available in supermarkets and grocery stores, that wholesale trade was controlled by the Alberta government, that uniform transportation charges were maintained, and that the store mark-up increased after privatisation.  Such factors may explain why Alberta's experience was not fully consistent with international literature, which associates privatisation with increased consumption (e.g. Macdonald, 1986; Wagenaar & Holder, 1991; Her et al., 1999a; Babor et al., 2003). .

A reasonable hypothesis is that full privatisation with associated greater access to alcohol in a jurisdiction with a strong economy and growing work force -- as was the case in Alberta in the early 1990s - is more likely to result in higher consumption than partial privatisation in a weak economic context -- as was the case in Quebec.  Despite the somewhat higher retail prices, overall consumption rose in Alberta, and the best explanation is that increased density of retail outlets plus longer hours of sale were primary factors. On balance, it appears that increased accessibility had a greater impact on stimulating sales than the increased average prices had on deflating sales. Thus, taxation or price policies and general socio-economic conditions can limit or enhance, in the short run, some of the effects of privatisation (Macdonald, 1986; Her et al. 1999a).

In Alberta, there is also evidence that privatisation has been associated with an increase in criminal offences, such as liquor store break-ins and more relaxed enforcement of laws pertaining to underage purchases  (Laxer et al., 1994).  Furthermore, within Canada, Alberta continues to have some of the highest rates of alcohol-related problems, such as drunk driving fatalities (Traffic Injury Research Foundation, 2002). In other countries, either full or partial privatisation has been shown to result in an increase in alcohol consumption in studies using data from the U.S., Sweden, Finland and Iceland (Her et al., 1999a; Macdonald, 1986).

A simulation study - conducted several years ago -- of the likely consequences of privatisation in Ontario indicates that privatisation could result in an increase in per capita alcohol consumption of 11% to 27% (Her et al., 1999b).  International research demonstrates that an increase in consumption of this magnitude would result in an increase in alcohol-related problems (Bruun et al., 1975; Edwards et al., 1994; Babor et al., 2003).

  Under a privatised system there are strong incentives to deregulate alcohol controls and focus on the business side at the expense of public health and safety considerations.  In such a system, the owners of business emerge with common interests in selling more alcoholic beverages, and they often act as a lobby group in their contacts with public authorities. This lobbying focuses on removing barriers that restrict trade rather than raising barriers that control the problems associated with sales.  Furthermore, a strong orientation towards seeking competitive advantage and avoiding business failure is likely to encourage some owners to employ marginally skilled and low-paid staff.  Owners may be less likely to arrange for time to train staff properly and refuse service to minors and intoxicated patrons. In the case of small family-run alcohol retail businesses that are open late at night, it may be easy for patrons to circumvent service regulations.  It is feasible, in principle, to have a regulated and well managed private alcohol retail system that places high priority on public health and safety, but the dominance of the profit motive with the potential for business failure means a number mechanisms work against this possibility in a privately run system. (e.g., Flanagan, 2003; Consumers' Association of Canada, 2003).

On balance, then, a privatised system of alcohol retailing is expected to increase risks of drinking-related harm. It will likely lead to increased consumption, it will erode or dismantle controls and make it more difficult to implement public health-oriented policies, and it will create new vested interest groups, such as private retailers, that are oriented to the commercial aspects of alcohol management and not to public health agendas.

In contrast, publicly controlled alcohol management systems with strong public health and safety agenda can moderate access to alcohol through legislation, regulation, and enforcement and thus are in a better position than other kinds of systems to have a positive impact on alcohol-related problems.  As noted in the attached table, in principle, under a public system there is a counterbalance to profit and business-oriented agendas, and this counterbalance is supported by dedicated staff that are available to promote public health and safety.

 

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