Friday, March 23, 2012

Minimum Pricing on Beer: The UK Government's Plan is Good For Craft Brewers

This stuff...
The UK government announced yesterday that it will "introduce legislation setting a minimum alcohol price of 40p a unit in England."  It will also "ban the sale of multi-buy discount deals in supermarkets." [NB: A unit is 10ml of pure alchohol or about 1/3 of a typical British pint]

From the Guardian:
It remains unclear how the ban on discount deals would work in practice. But Guardian analysis suggests the government's proposed minimum price alone would substantially curtail many of the high-profile drinks deals promoted by major supermarkets. Data provided by the research company Assosia, covering promotions between December and February this year, shows Tesco and Sainsbury's offered two-for-£20 deals on 20-pack crates of Strongbow cider – a sale of more than 93 units of alcohol, working out at just 21p per unit.

At 40p a unit, the two packs would have to cost a minimum of £37.30.

A deal offering 20 cans of Stella Artois – 44 units of alcohol – for £10 at Asda would become substantially more expensive, with a minimum price of £17.60.
The justification for this is the social cost of excessive alcohol consumption - the costs to society not born by the consumer him/herself.  The Cameron government estimates that this cost is quite considerable, and take one trip around London at closing time on a Friday or Saturday night and it is not hard to think that they are right.
Academics at the University of Sheffield, who have led research on the issue, estimate a minimum price of 45p a unit coupled with an off-trade discount ban already in place would reduce annual hospital admissions by 1,660 in the first year, rising to 6,630 a year after a decade, and cut the number of deaths by 60 in the first year, rising to 300 by year 10 of the policy.
Interestingly it is the conservative Cameron government proposing this fairly heavy intrusion of the state into the workings of the free market.  But if they are right about the sizable social cost they have economics on their side.

The economists preferred choice, a Pigovian tax might be complicated if the real social costs come from the excessive consumption of cheap alcohol, but that is questionable.  What a price floor does do, however, is potentially help out two of the guardians of Britain's pub cluture: pubs and heritage and craft brewers: "The government says a 40p unit price will not add to the price of beer in a pub and might even help the pub trade by eradicating the cheap supermarket alternative."

...not this stuff (this is Jim Harrison, founder of Thornbridge Brewery)

Consumers are price sensitive and when they can buy a 20 pack of Stella at £10, it is hard to convince many to try a few bottle of Thornbridge for the same price. Deep supermarket discounts were a common theme among British craft and heritage brewers when describing the difficulty becoming established in the off-trade. Supermarkets were demanding such deep discounts (for them beer is a loss-leader generally) that the smaller brewers could not make any money. Only the big industrial brewers with their sizable economies of scale could still make money at these prices.

So whether the policy is good or bad in general, I think it is a great boon to British beer. Already the resurgence of craft and heritage beer is gaining momentum and this will be a big help, one thinks, in getting these beers in markets across England.

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