1. CONFERENCE ON TOBACCO CONTROL. SCHOOL OF ECONOMICS 16-18 JULY 2014 Alcohol tax, price and consumption Alcohol tax, price and consumption Corné van Walbeek

2. ALCOHOL EXCISE TAXES

3. Alcohol taxation in South Africa Beer and spirits:  Taxed since at least 1910 Wine:  Taxed since 1942, but tax policy has been erratic Sorghum beer:  Taxed since 1992 but at very low rate

4. The excise tax structure on alcohol Excise taxes on alcohol are levied as specific taxes This is in line with international best practice Specific taxes tend to “compress” retail prices in a narrower band Government “subsidises” low-price product if taxes are levied as ad valorem taxes BUT specific taxes can be eroded by inflation

5. Current (2014/15) excise tax rates ProductExcise duty rateBase Malt beerR68.92Litre of absolute alcohol Traditional African beer (i.e. sorghum beer) 7.82 centsLitre Traditional African beer powder R34.70 Kilogram Unfortified (i.e. natural) wine R2.87Litre Fortified wineR5.21Litre Sparkling wineR9.11Litre Ciders and flavoured alcoholic beverages R3.45Litre SpiritsR137.54Litre of absolute alcohol

6. A long-term perspective on cigarette, beer and spirits excise taxes

7. Different alcohol categories are taxed at substantially different rates

8. The relative importance of alcohol taxation Alcohol excise taxes as a percentage of total government revenue Financial yearBeer Sorghum beerWineSpirits Total alcohol Cigarettes & cig. tobacco Total tobacco 19951.580.030.150.532.291.191.22 20001.170.020.200.391.781.651.78 20051.060.010.200.391.661.441.53 20101.040.010.220.421.691.391.46 20131.020.000.240.481.751.401.49

9. The relative contributions of the four alcohol categories, 2013

10. Trends in government revenues from the various alcohol categories and tobacco

11. TRENDS IN REAL RETAIL PRICES

12. Some comments Price trends based on more than 200 000 individual price data points collected by Stats SA for CPI purposes (December 2001 to May 2013) The average price is sensitive to the composition of the “basket” The inclusion or exclusion of a very expensive or cheap brand can have a significant impact on the average, which can distort the picture Obviously wrong data (e.g. R400 for a can of beer) are excluded from the database We don’t show average prices here, but focus on price trends in the most monitored and well-known brands

13. Six brands of beer

14. Three brands of red wine

15. Three brands of white wine

16. Four brands of brandy

17. Five brands of whisky

18. EXCISE TAX AND RETAIL PRICE

19. What we did To avoid issues of averaging prices across various brands, we considered the price of the most monitored brand in a particular sub-category Plot the nominal average retail price (of that particular brand) against the nominal excise tax Calculated the total tax burden (excise tax plus VAT as a percentage of the retail price) on the secondary Y-axis

20. The total tax targets Total tax (excise tax plus VAT) as a percentage of the average retail price for the category as a whole: Beer: 35% Wine: 23% Spirits : 48% If the actual tax burden is substantially below the target, then investigate  If the brand is a particularly expensive brand, relative to the average  If that particular packaging is more expensive than the average packaging  Whether the specific tax is not set too low

21. Beer (Lager)

22. Red wine

23. White wine

24. Brandy

25. Whisky

26. Some observations The retail price increases nearly instantaneously in response to an increase in the excise tax Tax increases seem to be fully passed onto consumers In some instances there is overshifting of the tax For beer the tax burden target is missed substantially We cannot pass much comment on the tax target for wine and spirits given the heterogeneity in product, brands and prices

27. The price of beer in different packaging

28. “ Volume discount” of beer relative to individual 340 ml cans

29. TRENDS IN ALCOHOL CONSUMPTION

30. Aggregate consumption of alcohol

31. Per capita (15+) consumption of beer, spirits and sorghum beer

32. Wine consumption Consumption cannot be derived from Treasury data, due to the way the data are reported SAWIS indicates that since 1996 per capita consumption decreased:  Natural wine: -24% (from 8.1 litres to 6.2 litres pa)  Fortified wine: -32% (from 0.94 litres to 0.64 litres pa)  Sparkling wine: -20% (from 0.20 litres to 0.16 litres pa)  Total wine: -25% (from 9.2 litres to 7.0 litres pa) Per capita consumption of ready-to-drink beverages increased 198% from 2.8 litres to 8.3 litres pa

33. Prevalence of use (consumed in last seven days) AVERAGE PREVALENCE 2010-2012 AVERAGE ANNUAL CHANGE IN PREVALENCE PERCENTAGE 2001-2012 FemaleMaleTotalFemaleMaleTotal Beer 9%34%21%0.01-0.05-0.06 Brandy 6%17%11%0.13-0.33-0.05 Flavoured Alcoholic Beverages 21%23%22%1.341.221.33 Fortified wine 5% 0.080.020.07 Liqueur 9%12%11%0.500.400.50 Natural table wine (boxes) 7%9%8%0.150.030.09 Natural table wine (corked bottles) 9%10%9%0.340.260.29 Rum 3%6%5%0.140.120.15 Sorghum beer 3%7%5%-0.08-0.46-0.24 Sparkling wine/champagne 8%7%8%0.360.150.28 Whisky 7%17%12%0.400.840.58 White spirits 4%8%6%0.07-0.49-0.25

34. Translating large figures into meaningful figures. Beer 2012/13 total excise tax revenueR8 252 million 2012/13 excise tax per unitR59.36/ litre of AA Total taxed litres of AA in beer139 million litres of AA Total litres of beer (at 5% alcohol content)2780 million litres of beer Adult (15+) population in 201235.5 million Per capita consumption78.4 litres per year Percentage of adult population that regularly drink beer (AMPS) 21% Number of regular beer drinkers7.5 million Average consumption per regular beer drinker370 litres per year

35. Conclusion Alcohol market as a whole is stable and not growing  Beer consumption is stable  Sorghum beer, wine and white spirits consumption is decreasing  Ready-to-drink/Flavoured alcoholic beverages and whisky are increasing  A general shift from older, conservative drinks to more popular drinks Participation rates are relatively low, but consumption per drinker is high  This explains South Africa’s poor “drinking pattern” rating Excise taxes have increased modestly in the past 20 years, yet are still much lower than they were a generation ago