Focus - German RTD research bolsters spirits industry view on taxation
Research has suggested that a rise in RTD duty has pushed young drinkers towards other drinks
Research from Germany published recently suggests that placing higher taxation on RTDs has been ineffective in reducing alcohol consumption among underage drinkers. Advocates for the spirits sector have long believed taxing spirits at a higher rate from beer and wine is unjustifiable and the new research adds grist to their mill. Ben Cooper reports.
It is rare that the public health community and the spirits industry find they have common ground, but researchers in Germany investigating the impact of higher taxation on RTDs have reached a conclusion which advocates of the spirits industry will certainly not disagree with.
Published recently in the journal Addiction, the study by the Munich-based Institut für Therapieforschung (IFT) researched the effect on consumption of a levy on RTDs introduced in 2004.
The duty rise had been introduced by the German government as an attempt to reduce consumption of RTDs by young people. While that may have been achieved, the IFT research suggests it was less successful at kerbing alcohol consumption per se.
The institute surveyed some 4,694 children aged between 14 and 16. “While alcopop consumption declined after the alcopops tax was implemented, consumption of spirits increased,” the IFT said. “Changes in beverage preference revealed a decrease in alcopop preference and an increase in the preference for beer and spirits." IFT also noted “a switch in preference to beverages associated with riskier drinking patterns.”
Tellingly, the IFT concluded: “Effective alcohol policies to prevent alcohol-related problems should focus upon the reduction of total alcohol consumption instead of regulating singular beverages.”
This conclusion will be welcomed by the spirits industry which has long complained that higher rates of tax on spirits are not only discriminatory but ineffective as a measure to control alcohol consumption.
“The research demonstrates that seeking to target one specific category of alcoholic beverage through a super-tax of this nature does not resolve the problem but simply leads to substitution with competing products,” says Jamie Fortescue, director general of the European spirits organisation, CEPS.
Every member state in the EU exacts proportionally higher taxes on spirits than on other types of alcohol, as does the EU’s own Minimum Rates Directive.
“We’ve always advocated that the most appropriate way to tax alcoholic beverages is by degree of alcohol,” Fortescue continues. “Now that’s proved not to be possible for political reasons primarily, but this German research demonstrates once again that trying to target any particular category is not the appropriate response.”
In the US, federal alcohol taxes for spirits are double the rate for beer and three times the rate for wine. As in Europe, there are political and historical reasons for this, which date from the repeal of Prohibition. For this reason, the Distilled Spirits Council of the United States (DISCUS) takes a pragmatic view on how it campaigns on the issue. “We are realistic enough to understand that it would be very difficult to reverse what is really a legacy of Prohibition," says Frank Coleman, senior vice president of public affairs and communications at DISCUS. "But, going forward, we have worked very hard that if any new taxes occur that there is a semblance of equitable treatment.”
However, Coleman reiterates the view that discriminatory taxation does not offer an effective means of tackling harmful consumption. With particular regard to underage drinking, he says: “The large majority of underage drinkers get their alcohol not through commercial means but either through parents or peers, so often the liquor is taken or given, so the higher price would have little bearing on their consumption pattern.”
In terms of addressing excessive consumption across the board, Coleman adds: “Higher taxes do not deter truly abusive consumers because they just switch to a less expensive product.”
Indeed, he argues that alcohol policies which present one form of alcohol as less harmful than another are in themselves dangerous. “There is a danger in misleading consumers that somehow there is hard alcohol versus soft alcohol especially when it comes to drink-driving.”
That Coleman and Fortescue see eye to eye on this issue is hardly surprising but consensus between industry and public health campaigners on alcohol taxation is somewhat rarer.
Dr Rachel Seabrook of the Institute for Alcohol Studies (IAS) in the UK commends the IFT study as “a high-quality piece of research” and says the results were “completely unsurprising”. Seabrook believes that moves to raise taxation on certain types of alcohol in the UK are similarly misguided, and that “the answer is to tax proportionate to alcohol content. That is absolutely the fairest way of doing it".
However, Seabrook points out that changes in advertising may have been partly responsible for the shift in consumption seen in Germany, noting that RTD advertising in the UK had declined in the same period. “The Muller et al. [IFT] paper didn’t include advertising exposure as a covariate, i.e. didn’t control for it, so it’s possible that something similar was happening in Germany.”
On the subject of the generally higher rates of taxation on spirits, the view from public health is, not surprisingly, a little more nuanced than that of the industry. Some campaigners contend that penalising spirits makes sense - spirits allow people to take in alcohol so much faster, and having to drink a large amount of liquid to obtain the same amount of alcohol, as would be the case if drinkers are encouraged to switch to beer, puts a natural brake on intake.
That might be the case but, as Coleman points out, research in the US shows that a higher proportion of drink-driving stems from beer drinking rather than spirits, underlining that, while someone might have to drink more beer to obtain the same amount of alcohol, they do not have to consume an impossibly large amount to be well over the drink-drive limit.
Seabrook says she would be “wary” about justifying higher taxes on spirits on the basis that they can be consumed faster. “I don’t know of good evidence on which to base that,” she says.
It appears, then, that there is indeed consensus between public health and industry on this issue, although there are two important caveats. First, as already mentioned, higher taxation of spirits is the prevailing situation across the world and for political and economic reasons is unlikely to be changed. Secondly, while industry and public health campaigners may both be happy with a universal rate per unit of alcohol, as Fortescue understatedly puts it, “we’d probably disagree on the level”.
- American whiskey does a vodka - Analysis
- Are we about to see a no-alcohol Heineken?
- Battle continues for Pernod Ricard in US and China
- Concha y Toro's H1 performance - Focus
- A-B InBev's Global Presence - just The Facts
- Heineken integrates cider and beer
- Diageo strengthens Charmer Sunbelt distribution
- “New normal” sees Pernod target premium in China
- Pernod Ricard keen to stem Absolut US declines
- Heineken adds to UK on-trade footprint
- Future growth opportunities for global spirits
- Global gin insights - market data, product innovation and consumer trends research
- Global rum insights - market forecasts, product innovation and consumer trends research
- Pernod Ricard SA - Mergers & Acquisitions (M&A), Partnerships & Alliances and Investment Report
- Global vodka insights - market forecasts, product innovation and consumer trends research