Are the days numbered for alcohol monopolies? Thoughts and facts on the Canadian experience

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Wine enthusiasts in the UK have it much better than they think. As a competitive retail market populated by an array of vibrant independent merchants, convenient mail-order outfits and supermarkets with a wave of wine sloshing on their shelves, we are provided with more than enough wine to quench our thirst.

Sure, higher taxes have made it increasingly difficult to find anything drinkable for £5 or less these days, but I challenge anyone to bring a bottle of €2 wine back from France and prove that it is useful for any purpose other than clearing the brake lines on a Citroen 2CV.

I started thinking about this recently when I came across the story of Arthur Goldman, a lawyer living in Pennsylvania, who fell into trouble with the law after he set up an underground wine-retailing network that was in contravention of his state’s alcohol monopoly laws. It was the newspaper headline that caught my eye, because it made Mr Goldman sound like a small-time Rudy Kurniawan: PLCB seizes $150,000 in rare wines from Chesco attorney.

It turns out Mr Goldman, 49, was allegedly selling rare wines out of his home – the sort that weren’t available for sale by the state-controlled board. Not happy with the state’s strict control of alcohol sales, he operated an underground sales network for fine wines that weren’t available under the state monopoly. This led to the PLCB, or the Pennsylvania Liquor Control Board, raiding his home and seizing his goods.

For this Canadian, I am all too familiar with life under the watchful eye of a government-controlled alcohol retailing system. In my home province everything is overseen by the BC Liquor Distribution Branch. For the first 24 years of my life, it seemed like the best system in the world. Only after I moved to the UK did I begin to realise that this was not the case.

For those who don’t want to go underground in their quest for better access to more of the world’s wine, things could soon be changing in the world of alcohol monopolies, albeit slowly. Last year, the government of British Columbia undertook a review of its liquor laws and it is expected to implement these reforms with legislation this year. A few changes have already been announced, but it appears that it will fall short of creating a completely liberalised market. Of the proposals released so far, there is an eagerness for alcohol sales in grocery stores, which could be good for consumers, but already we have seen opposition from the small number of existing private retailers (perhaps the government should encourage more specialist retailers as opposed to volume sales through large supermarkets).

Life under the monopoly

Anyone who has ever lived in a jurisdiction under a tightly controlled  alcohol monopoly will understand Mr Goldman’s plight. Each day you walk into the liquor store hoping to find something interesting, something new, but instead you’re confronted by a wall of Barefoot Chardonnay and Hardy’s Shiraz. This is no bad thing if this is all you aspire to drink, but clearly Mr Goldman was after something a little bit more profound. Illegal alcohol sales and production are a serious problem, but this case is different.

If anything, Mr Goldman’s case reveals more about the problems with government-controlled monopolies over alcohol sales than anything else. In the US, Pennsylvania is one of 18 control states where there is a state monopoly over the wholesaling and retailing of alcohol to one degree or another. In Canada, it is even more extreme; Alberta is the only province to have gone through the process of privatising liquor sales, which it did in late 1993.

Government monopolies over alcohol sales are, for the most part, a holdover from the prohibition era. For some, they are the next best thing to prohibition, keeping strict control of alcohol sales and, theoretically, reducing consumption and abuse. But there are two immediate problems with this model. The first is that they result in less choice and fewer freedoms for consumers. The second is that, given all of the international trade agreements in place today, their absolute power has been diminished somewhat and they are under constant pressure to liberalise.

Prior to the Albertan government opening its market to private liquor retailers, it had 803 alcohol retailers, 595 of which included hotel off-sales and private retailers and 208 of which were government stores, offering 2,200 products in total. As of November 2013, there are 1,987 retailers selling 19,341 products. Looking at this figures, it is almost impossible to deny that it increased in increased options for consumers.

Alcohol abuse: public vs private

There is plenty of evidence that suggests alcohol monopolies keep alcohol sales low, which in turn is believed to keep consumption down and minimise abuse. Back in 1996, in a letter to the Journal of Studies on Alcohol and Drugs, Alexander Wagenaar of the University of Minnesota and Harold Holder of the Prevention Research Center in Berkeley, California, wrote:

Our research on this issue began in 1989 with a study of Iowa. We found very large (93%) increases in wine sales following the 1985 policy which permitted wine to be sold by private alcohol outlets, rather than only by state-owned stores. The effect was much larger than we expected. As a result, before publishing the Iowa results, we replicated the study using West Virginia, which had implemented a similar policy change back in 1981. We found a 48% increase in wine sales.

They concluded:

It is clear that privatization policies have typically resulted in substantial long-term increases in alcohol sales. Because previous research has shown that aggregate levels of alcohol sales and consumption are related to the burden of alcohol-related problems that a society bears, policymakers should carefully consider these results before enacting a privatization policy that, once implemented, cannot be reversed.

Similarly, research by Dave Snow at the University of Calgary in 2009 found that government control didn’t necessarily result in better outcomes. He wrote:

In 2004, in spite of some of the lowest overall sales and consumption rates in the country, respondents in Saskatchewan reported the highest, second-highest or third-highest rates of alcohol-related harm with respect to friendships, marriage, work, studies, employment, finances, legal problems and physical violence.

Value for money

The above is just a snippet of the research into the level of alcohol sales and how they are believed to relate to problems stemming from abuse or over-consumption. The issue I am most interested in discussing, however, is whether alcohol monopolies offer choice in the market and value for money.

Reading an article by Mark Milke of the right-wing think tank Fraser Institute, it appears that monopolies are a bad thing. In fact, the topic of alcohol monopolies appear to be one of Mr Milke’s favourite bugbears, which is more than likely related to his disdain for taxes, unions and government-operated industries than a genuine interest in wine and beer.

Mr Milke, being in favour of free enterprise, concluded that the private system offers the most options and the best value for money when it comes to alcohol. His methodology for comparing prices between Alberta’s privatised system and British Columbia’s government monopoly differed from that undertaken by the Consumers’ Association, taking the lowest possible price rather than the median price. The argument could go either way, but the fact remains: under a monopoly, the price is strictly controlled, whereas under a private system there is the chance for an element of competition among retailers, at least to a point.

And there’s more. Mr Snow at the University of Calgary suggested that privatisation resulted in more options and generally lower prices. On the abuse front, he concluded that privatisation was not correlated with consumption and alcohol-related problems, at least not in the Canadian markets that he examined.

He wrote:

Several studies comparing Alberta and other provinces show that prices were generally lower in Alberta following privatization. However, the price of beverage alcohol is heavily dependent upon government markups and taxes at the wholesale level. These markups and taxes, which are in place regardless of whether retail is monopolized or open to competition, are much better indicators of pricing than whether the outlet is private or public. Regardless of distribution, public or private, a tax increase will make alcohol more expensive, and a tax cut will make it cheaper.

I used to be firmly in the ‘government alcohol monopolies are good’ camp simply because they offered a good shopping experience, seemed to have low prices and tended to maintain a clean image.

But the evidence, coupled with my experience living in the UK, has made me change my mind. These days it seems to be that the best thing for British Columbia, and Pennsylvania as well, would be a free and open market for alcohol retailers. 

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6 thoughts on “Are the days numbered for alcohol monopolies? Thoughts and facts on the Canadian experience

  1. Wow, where to start? First, I am rather surprised that news of Mr. Goldman’s problems reached your screen–I certainly thought it was but a local issue.

    Second, living here in PA, trying to buy wine from the state run PLCB is usually nothing short of an atrocious experience. Ignoring for a moment price, there are few people in the state system that have even a rudimentary knowledge of wine and they seem to have even less desire to provide quality customer service.

    At best, selection is horrible (although it has seemed to improve ever so slightly–after several years of decline), and the Commonwealth, which has great buying power (it is the second largest purchaser of wine in the world–behind Ontario), only uses that power to buy up poor wine from off vintages.

    Normal stock is never cheaper than in surrounding states, and selection is far inferior.

    I occasionally have hope that our conservative governor and conservative controlled state congress will dismantle the system, but as of yet they have only shown that they are even more inept than those who run the PLCB.

    Here’s to hoping that you are right….

    • Your experience is exactly the same as when I lived in British Columbia. The staff in the shops don’t know much about wine and the selection is disappointing. Of the really good wines that they do get, there is limited selection.

      When it comes to local wine, the government stores are not allowed to compete with the VQA stores, so they don’t even carry the full range of that. This is good for the VQA stores, obviously, up they are few in number, scattered sparsely across the province and poor at marketing themselves. The wine is good, though, so at least they have that.

      Indeed, I have seen no real good reason for the monopolies to persist. The few specialist private stores that do exist in BC are the model for a fully private system and I think its time has come.

  2. Hi Geordie

    Great post! I’m still HAVING my BC alcohol experience, and it sucks. It would appear to be the worst of all booze worlds.

    On the private side, we don’t have Alberta’s variety or lower prices. On the public side, we don’t even have the Ontario government’s marked-down ‘Vintages’ prices (or its other regular little markdowns). Government prices here are inflated 125%, and then the semi-private stores (inconsistent in every way and often badly run) raise them further.

    Only as a Quebec resident did I find that wine was treated on balance as a natural part of life, and not quasi-criminalized. Prices weren’t as friendly as in privatized Alberta, but it was cheap and easy to bring a bottle to a restaurant, and you could grab a bottle at a corner store.

    In BC, it’s only by working in the business do you even have a hope of lower prices, and even then it’s not assured and is inconsistent. Regular resident consumers habitually complain about high prices (reminded by each visit down to Seattle), and visitors — Americans, Europeans, Brits — are downright, open-mouthed shocked.

    Finally, local consumers — unhappy with prices of products from elsewhere but resigned — are still irritated that the 125% markup is even slapped onto wines produced WITHIN the region (Okanagan or Vancouver Island), just hours from our doors. It doesn’t make reasonable sense to EVEN left-wing voters (supporters of a Prohibition-type public corporation) why wine produced in the province is the SAME price as something from Italy or Australia. As a seller, I heard that complaint repeatedly.

    So, we require about $30CDN (16GBP?) in BC to buy a decent bottle NO MATTER where it was produced.

    My perspective from my alcohol experience! Another BC resident might disagree.

    Cheers!
    Zelda

    • Indeed. But hopefully things will change, even if this happens over many years rather than within six months like it did in Alberta.

      Interesting you mention price. In theory, the wine from France and Italy should be cheaper than those produced in BC simply because of the sheer cost of starting a modern winery from scratch. It takes a lot of cash to start a vineyard, and that capital expenditure is reflected in the price. The problem cannot be economies of scale, because the alcohol monopolies buy so much of the stuff. The problem is they tack on a huge mark-up!

      Then again, I just looked up the cost of Guigal Cotes du Rhone in BC with its full price here in the UK. In BC, it is $21.99. In the UK, it goes for £11.49 or £11.99. At today’s exchange rate, there is less than $1 difference between the British and Canadian price. I had expected a much bigger disparity.

      I recently read in Decanter magazine that the cost of shipping wine around the world, from say Argentina, Chile or Italy, is so tiny as to have little effect on the final price of the bottle on the retailer’s shelf. The real cost comes elsewhere.

      All that aside, there is no reason why local wines can’t be cheaper. In California there is plenty of reasonably prices, decent quality of wine. In Canada, it’s all the nasty stuff that sells for a reasonable price. This needs to change.

      • On my recent trip to France, I spoke to a number of smaller winemakers that have great wine, but no presence in the U.S. I assumed that the cost of freight was a major concern. As you stated it isn’t–they said that the cost to ship is almost negligible. The problem is the three tier system and the myriad laws that make it virtually impossible for a small producer.

  3. Pingback: Alcohol monopolies: Friend or foe? | Dispatches from a grape nut

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