Many countries and jurisdictions throughout the world have adopted legislation to set a floor price (minimum price) that alcohol can be sold. It makes common sense that our most harmful drug (i.e. alcohol) should not be sold at pocket money prices. Unfortunately, this is not the case as alcohol can be purchased at very low prices from bottle stores, supermarkets, and the internet.
All of the three large multinational alcohol companies in New Zealand produce budget-range products - very cheap beers, wines, spirits and RTDs. These budget products have moved little in price over the past few decades.
A 3-litre cask wine cost $15 in 1988. Adding inflation, it should cost $30.21 (price at Quarter 1, 2021), but rather it can be purchased at $23. This represents a 24% difference to the inflation-adjusted price.
The Ministry of Justice found that, in 2011, almost one-quarter (24%) of all products in New Zealand off-licences were sold for less than $1.20 per standard drink. By far, spirits were more likely to be sold cheaply (72% sold <$1.20 per standard drink), despite being taxed at the highest rate in the excise tax structure.
To date, cask wine is the cheapest alcohol product in New Zealand, sold for as little as ~77c per standard drink. The second cheapest overall is bottled wine (~85c per standard drink), followed by beer and lights spirits (91c-98c per standard drink). The cheapest full-strength spirits and Ready-to-Drinks (RTDs) generally retail at around $1.1 per standard drink.
New Zealand heavy drinkers and more frequent drinkers, including young heavy drinkers, have been found to buy a greater proportion of alcohol from the cheapest end of the price range. By ethnicity, Pacific drinkers have been found to be more likely than other ethnic groups to purchase the cheapest alcohol; as are Māori drinkers, but to a lesser extent.
The good news is that we can address the harm from cheap alcohol sales by setting a minimum unit price. Minimum Unit Pricing is a very targeted policy aimed at drinkers who purchase the cheapest alcohol products in the market.
How Minimum Unit Pricing works
Minimum Unit Pricing specifies the lowest price at which a unit of alcohol (aka a standard drink) can be sold. In New Zealand, one standard drink contains 12.5ml (or 10 grams) of pure alcohol. It is usually the amount of alcohol in a standard 330ml can of beer or a small (100ml) glass of wine.
Click below to find out the effect on retail prices of a minimum unit price of $1.40 per standard drink.
EFFECT OF A MINIMUM UNIT PRICE OF $1.40
A MUP policy only affects the price of the cheapest alcohol products being sold. These products are commonly sold at off-licence bottle stores and supermarkets. More expensive products at off-licences (i.e. above the minimum price) would not be affected by MUP, nor would the majority of prices at pubs and bars, because they tend to sell alcohol at higher prices.
However, on-licences may have special promotions whereby the prices of drinks are substantially reduced (e.g. happy hours). A modelling study in the UK has looked into whether a minimum unit price should be introduced at bars, pubs, etc. The study found that introducing minimum unit prices in on-licences as well as off-licences is estimated to be substantially more effective. Implementing minimum prices across all types of premises would also reduce the likelihood of switching from off-licence drinking to on-licence drinking.
MUP in other countries/jurisdictions
Many countries/jurisdictions have enacted MUP legislation.
- Some Canadian provinces
- Ireland (MUP will take effect on 1 January 2022)
- Northern Territory of Australia
- Belarus, Kyrgyzstan, the Republic of Moldova, the Russian Federation, and Ukraine.
Effects of MUP on drinking and harm
MUP policies are very targeted, towards heavy drinkers that purchase cheap alcohol.
MUP policies are very targeted, towards heavy drinkers that purchase cheap alcohol. Results from MUP in other countries or jurisdictions show reduced alcohol consumption, decreased alcohol-related violent offending, reduced alcohol-related hospitalisations and reduced alcohol-specific deaths.
Impact of MUP on additional alcohol spend
A common criticism of pricing policies is that they have a ‘regressive impact’ – that, because those with lower incomes drink more alcohol, making it more expensive would tend to put them into financial hardship.
This is an important point to consider in alcohol pricing policies.
Evaluation of the first eight months of MUP in Scotland showed that, overall, households reduced their alcohol purchases, with no significant increase in spending.
Australian modelling of a MUP of AUS$2.00 found that the additional alcohol expenditure was negligible over the entire distribution of consumption levels (except for heaviest consumers above the 85th quantile). For light/moderate drinkers in the 50th-80th quantile, the per capita extra spend was less than AUS$5.00 per week (range 96c to $3.24). For drinkers at the 85th quantile, the extra spend was AUS$7.56 per week, increasing to $10.62 for the 90th quantile, and $30.03 per week for the 95th quantile.
Whilst this additional spending among very high consumers is substantial, it must be noted that the study assessed the impacts of a $2 minimum unit price (NZD$2.14). In reality, we would expect any set minimum price in New Zealand to be substantially lower. And at lower minimum prices, the impact on reduced consumption is weaker and therefore the additional spend is much less. However, there will be drinkers who do not reduce their consumption following MUP (just like there are when excise taxes on tobacco increase), and so we need specific targeted measures to enable these persons to reduce their consumption. We can also utilise the wider tax and welfare safety net to mitigate financial harm. For example, when GST was raised from 12.5% to 15% in 2010, income taxes were reduced to offset financial impacts.
Modelling of MUP in England has shown it to be mildly regressive in financial terms.
In New Zealand, the Ministry of Justice estimated that a minimum price of $1.20 would result in a weekly additional spend of $0.40 for low-risk drinkers, $1.04 for increased risk drinkers, and $2.35 for harmful drinkers
All else remaining the same, the majority of heavier drinkers would be able to buy less alcohol for the money they currently spend.
For those who do not reduce their consumption following MUP, and spend more, we need to ensure that we have other targeted harm reduction approaches in place, and/or use the wider tax and welfare system to mitigate any financial harm.
Low income heavy drinkers accrue most of the health and wellbeing benefits of MUP, positively impacting those around them
We need to consider the impact of MUP on both the finances and health of drinkers as well as those around them. It is also important to remember that many heavy drinkers report financial harms from their drinking, including the direct financial costs of drinking and absence from paid work. The New Zealand Health Survey 2012/13 found that males were 1.4 times more likely than females to have their financial position affected by their alcohol use, after adjusting for age differences. Fourteen percent of Māori and 9.1% of Pacific drinkers compared with 5.2% of European/Others and 3.9% of Asian drinkers reported a harmful effect to their financial position as a result of their drinking. The Survey also found that New Zealanders reported experiencing financial harms as a result of other people’s drinking.
Low income heavy drinkers experience disproportionately higher levels of harm from their drinking and are more likely to purchase cheap alcohol. For this reason, MUP policies are estimated to be one of the most effective alcohol pricing policies to narrow alcohol-related health inequities (between socio-economic groups).
For example, in British Columbia, Canada, MUP was associated with fewer alcohol-attributable hospitalisations, especially for lower-income populations. One year after MUP took effect in Scotland, there were fewer alcohol-specific deaths and fewer alcohol-specific hospitalisations. Whilst the alcohol-specific death rates in Scotland remain higher than in England and Wales, the difference between the countries has been reducing over time.
Although the long-term impact of Scotland’s MUP policy is yet to be evaluated, early results (eight months after implementation) showed that the weekly amount of alcohol purchased reduced by 7.6% per adult per household, particularly among low-income households. In the United Kingdom, a modelling study of MUP estimated that 90% of the lives saved from MUP would be from lower-socioeconomic groups.
The evidence shows that an MUP policy is a pro-equity health policy: low income heavy drinkers benefit the most in terms of reduced alcohol harm.
These beneficial health effects of MUP must be considered alongside any (mildly) regressive impacts on spending.
MUP in New Zealand
The Ministry of Justice, in 2014, estimated that a minimum unit price of $1.20 would reduce annual overall alcohol consumption by 4.7%. A smaller reduction (4.4%) in consumption was found among the heaviest drinking group. Ideally, a higher MUP would be implemented to achieve greater reductions. It is also important to remember that a smaller reduction in the proportion of alcohol consumed by heavy drinkers (when compared to low risk drinkers) translates to larger reduction in the amount of alcohol consumed by heavy drinkers, i.e. a 2% reduction of consumption for heavy drinkers is quantitatively less alcohol being consumed than a 2% reduction among low-risk drinkers.
The same study found a greater reduction in the percentage change in the alcohol purchased per drinking occasion among harmful drinkers - 3% vs 1.5% for low risk drinkers and 2.3% for increased risk drinkers.
The Ministry of Justice found that a lower MUP (for instance, $1 per standard drink) would not be as beneficial to society.
With regards to inequities in New Zealand, MUP effects among different population groups (e.g. among Māori) remains unknown.
The Ministry of Justice also estimated that a $1.20 minimum price would result in net cost savings to society of $86 million in the first year and $624 million over ten years. The greatest savings would be made through reductions in alcohol-related crime.
Other potential benefits of MUP
- reduce the gap in price between pubs and off-licences
- reduce the large gap in price between supermarkets and bottle stores
- help shift drinkers to smaller format alcohol products (i.e. from 18-can packages to 12 or 15 cans)
The majority of New Zealand drinkers would be unaffected by MUP. They would, however, benefit from living in safer communities and from extra public resources being available due to cost savings from reduced harm.
What next? The appropriate minimum unit price in New Zealand would need to be determined by Government. Similar to alcohol excise tax, it needs to be adjusted annually in line with inflation.
MUP on its own will not be enough to reduce alcohol-related harm. Firstly, while alcohol-related harms are unfairly and disproportionately borne by lower-income communities, alcohol harm is a problem throughout our country. Secondly, heavy drinkers also include higher-priced alcohol products in their weekly purchases. For these reasons, MUP should be used in combination with alcohol excise tax increases to raise alcohol prices across the board.