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Use & Abuse
Alcopops, Drinking and Taxes
Tuesday, 17th March, 2009  - David Farmer

This curious and interesting advertisement appeared in the Australian. March 5th, 2009. It was signed by 20 health professionals who no doubt are alarmed at the damage that excessive drinking does to a minority of drinkers. These people work at the end of the liquor business that those of us who make money from selling the product try our best to ignore. Their concern this time was the younger drinkers who are attracted to alcopops or RTD's.

The advertisement was addressed to the Senate and urges them to pass last year's tax increase. The Senate is conducting an inquiry into the alcopops tax increase and will shortly decide to pass or oppose the legislation. In particular the advertisement makes the claim that increasing the tax on alcopops has shifted younger drinkers away from these products and that this is a good thing. They also make the more general claim that taxing alcohol reduces consumption and thus is one of several measures that can be used to regulate overall alcohol consumption.

A bit of background. At midnight on the 26th April, 2008 the tax on alcopops or RTD's increased by about 70%. Naturally the dramatic price rise altered sales. They quote AC Nielsen, for the three months after this tax was imposed to show that alcopop sales declined by 26% while spirits increased by 11%. Nielsen stated that consumption declined by 3 million standard drinks. A more recent Nielsen report (March, 2009) shows that alcopop sales have not recovered and are down 32% in volume while spirit sales are up 24% for the year.

The AC Nielsen summary is as follows but remember this is based on value not volume and since the RTD's reflect a large tax hike the value is not down by much: "Latest quarter value growth (+6.5%), outpacing MAT growth, showing that growth is beginning to accelerate. It is mainly driven by the Spirits category. RTD, the only category in decline, has itself decreased to (-6%) this QTR vs MAT at (-3.2%). This quarter Spirits is currently the fastest growing liquor category (+21.6%)…a sure sign that consumers are moving out of RTD's and into the "hard stuff". Significantly, Spirits has now become the 3rd largest sub-category in the latest QTR, overtaking RTD's."

Now we are no supporters of alcopops and frankly the more they tax them the better although we are conscious that this is the view of a dedicated wine snob though our dislike of the products comes from the high alcohol content that is masked with high sugar levels and lots of fruit flavor - a concoction in our view that wins approval from underage drinkers. Many alcopops, particularly those that pretend to give an energy boost are simply wrong and should be banned. We have written before about our problems with this category of liquor.

What troubles me with the advertisement though is the claim that this tax has reduced consumption and indeed protects younger drinkers, despite what Nielsen may or may not have said earlier. My rule of common sense tells me that our youth will not be put off by higher prices and cannot help thinking that the increase in sales of bottles of spirits is linked. Indeed what is sensible is to mix your own as that way you can drink more, not less, as it is cheaper per drink. A big bottle of coke and a bottle of Jim Beam goes a long way and depending on price is 30%-50% cheaper. The debate gets more complicated as younger drinkers tell me that mixing it yourself generally leads to a much stronger drink so you get plastered quicker. They say it is a lot harder to reach a euphoric state with alcopops as after a three or four cans you are pretty full of sweet, fizzy cordial and tend to slow down further consumption. These debates are never simple but it's not hard then to argue that the alcopop tax should be lower than the bottle tax to reduce alcohol consumption.

Of more concern is the assumption throughout this advertisement that increasing the taxation of alcohol will lower consumption. While some of the remarks are qualified there are 10 references to increasing taxes being an important way to control consumption. Sure if you make a product expensive enough sales must slow. But how high do you have to go. Should Johnnie Walker be pushed up to $100 a bottle? The last time I reviewed the evidence, 20 years ago, of alcohol prices and consumption I found the link is not as simple as it may appear and as this advertisement makes out.

I googled the following words, alcohol, consumption, taxation and prices and the second paper, after the National Drug Strategy, said;

"One consideration that must be kept in mind when interpreting price effects such as those discussed through-out this article is that these effects are not based on natural experiments. For example, no data are available comparing the amounts of alcohol consumed by individuals or groups at different prices, with all other variables held constant. Instead, researchers use cross-sectional data, which measure consumption for individuals or groups at a given moment in time, or time series of such cross-sectional analyses from more than 1 year. And although investigators in these studies attempt to control for as many confounding variables (i.e., variables that may be correlated with price and consumption) as possible, these efforts can never be complete. These caveats place limits on the ability to infer cause-and-effect relationships from the study findings.

"Another consideration when analyzing price effects on alcohol consumption is the potentially addictive nature of alcohol." (From The Effects of Price on Alcohol Consumption and Alcohol Relayed Problems by Chaloupka, Grossman and Saffer.) Much caution is required in interpreting though we will leave this for experts to debate.

Taxing alcohol at a much higher rate has other problems. Firstly it is yet another tax on the poor, and is a tax on all drinkers who enjoy their wine or other drinks. It may assist in a modest lowering in numbers of those with a chronic addictive and abuse problem but at what a cost to the rest of us.

I'm sure the signatories of this advertisement spend a lot of time pondering what to do about alcohol abuse. Worldwide the desire by health professionals to be seen to be doing something inevitably means taxing alcohol so that it cannot be afforded. Playing with taxation may be useful though I suspect unless it's absolutely draconian, and that will create a host of other problems, it is a very blunt tool.

Taxation is a simple one to target but health professionals should probably think of more effective ways to influence likely abusers which will include education starting way back in schools. And any campaign will have to be a lot smarter than telling a well educated population that more than two drinks a day is bad. I doubt if you drink all of your life you will get off scot free but simplistic advice which really is trying to say, do not drink at all, will be rightly ignored.

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