Alcohol minimum pricing policies

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The effectiveness of alcohol pricing policies report investigated the potential impact and effectiveness of a minimum price regime in reducing harmful alcohol consumption. The study was conducted in 2014 as part of the Government’s consideration of measures to reform New Zealand’s alcohol laws.

Report summary

Previous studies have suggested that imposing a minimum price per standard drink of alcohol could reduce harmful alcohol consumption, particularly among young people, who consume the highest quantities of low cost, high alcohol volume products.

Regulating the minimum price of alcohol is a way to directly raise the price of alcoholic products regarded as being unduly cheap. This may prevent retailers from employing strategies such as discounting and loss leading, which are used to undercut competition and to promote purchasing of low priced products.

Approaches to minimum price vary among countries, but overall, the approach is relatively untested internationally.

As part of this particular report, we focused on two minimum pricing options: a minimum price of $1.00 per standard drink and a minimum price of $1.20 per standard drink. A minimum price above $1.20 was not considered since it would affect over a quarter of all alcohol sales, therefore significantly affecting low risk drinkers and the alcohol industry.

Note: To establish a comparison point for assessing minimum price, alongside the status quo, the report also estimates the excise increase needed to bring products currently priced below the proposed minimum price levels up to $1.00 or $1.20 per standard drink on average. An excise increase of 82% would be required to indirectly achieve an average price of $1.00 on the lowest priced beverages and of 133% to achieve an average price of $1.20 on the lowest priced beverages.

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Both pricing options result in net benefits for society. Net savings to society over a ten year period are estimated at $318m for a minimum price of $1.00 and $624m for a minimum price of $1.20. Excise increases to bring the minimum alcohol price up to the same levels result in savings of $2,452m and $3,416m respectively. An excise increase affects the price of all alcohol (not just low price alcohol) and therefore more significantly impacts consumer behaviour.

There are also a number of other things to consider:

  • Harmful drinkers purchase across the price spectrum so targeting only low price beverages would only have a modest effect on harmful consumption.
  • If a minimum price is imposed, more money would be going into the pockets of the alcohol industry, suppliers and retailers.
  • A minimum price will result in significant excise losses for the Government, which could have been used to offset the costs of alcohol-related harm.
  • There are implementation issues associated with the imposition of a minimum price regime, particularly the need for ongoing monitoring and enforcement.
  • A minimum price regime would entail more risk because it is relatively untested around the world as compared with an excise change.

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On the basis of the report, the Ministry of Justice recommends that a minimum price not be considered for introduction for five years. This would allow the alcohol reforms to bed in and their impact assessed, including the development and implementation of Local Alcohol Policies, which are likely to take up to two years to come into full effect.

A five year delay would also enable consideration of minimum pricing at that time to take into account the impact of the reforms on harmful drinking. Additionally, New Zealand could learn from the experiences of other countries, such as Scotland and the UK, that may implement minimum pricing during that time.

Excise is clearly more effective in addressing alcohol related harm. However, raising excise so significantly is not a simple solution given the significant impact it would have on responsible drinkers. Further work would need to be undertaken should there be any consideration given to excise changes.

The effectiveness of alcohol pricing policies [PDF, 4 MB]

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