Ireland wants to impose minimum price for alcohol

AFP Relax News• December 10, 2015

Ireland is set to introduce minimum alcohol pricing in a bid to reduce drinking levels that are
among the highest in the Western world, the government announced Wednesday.
The bill comes as part of a wider push to change what Health Minister Leo Varadkar called
"Ireland's damaging attitude to alcohol" and discourage young people from binge drinking.
Ireland has one of the highest alcohol consumption rates of countries in the Organisation for
Economic Cooperation and Development (OECD), averaging 11 litres per capita for 2014
according to estimates.
Experts say one in four deaths of Irish people under the age of 50 are due to alcohol.
The minimum pricing proposals are expected to hit alcohol bought in off-licences more than
drinks sold in Ireland's famous pubs.
One unit of alcohol would cost roughly one euro ($1.10), meaning that the minimum price for
a 500ml can of beer would be two euros and the cheapest 750ml bottle of wine would cost
around eight euros.
"The evidence about Ireland's drinking habits is shocking. Four out of ten drinkers typically
engage in binge drinking," Varadkar said.
"This bill addresses alcohol as a public health issue for the first time by tackling price,
availability, marketing, advertising and labelling."
The bill is unlikely to become law before next year's general election although Varadkar's
party is expected to be returned to power in the vote.
It aims to reduce average annual alcohol consumption in Ireland from 11 to 9.1 litres per
person by 2020.
Other changes include a physical separation of alcohol from other products in grocery stores
and a ban on price-based promotions, such as "student night" offers.
Frank Murray, president of the Royal College of Physicians of Ireland, said: "It is frightening
that three people die every day in Ireland as a result of our harmful relationship with
alcohol."
The medical director of the Rutland Centre, Ireland's largest private rehabilitation clinic,
described the publication of the bill as "a progressive move" but said more work was
required.
"I think we need to go further to tackle this problem and try to reverse the cultural acceptance
of excessive drinking," he said.
Business lobby group Ibec meanwhile said the bill would penalise "responsible consumers
and a sector that provides valuable employment across the country."

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 Commentary 1: Microeconomics
The article talks about the importance of a minimum price of 1 Euro, set on per unit alcohol to
reduce binge-drinking and alcohol consumption and deals with the concept of negative
externalities and price controls.

Externalities occur when the production or consumption of a good/service affects a third party
that is not part of the production or consumption process. The existence of externalities leads
to market failure, due to an allocative inefficiency of resources, and the fact that the marginal
social cost is not equal to the marginal social benefit. A negative externality of consumption
refers to a situation where the consumption of a good or service creates a negative externality
to a third party; MPB is greater than MSB .

Since the consumption of alcohol is causing a negative externality, the government has to
intervene to reduce the externality by introducing a price control. Price Controls refer to
methods of government intervention, such as minimum or maximum prices that can be charged
for specified goods. These are implemented to correct market failure due to negative
externalities. They can also be called "price floors" or "price ceilings”. In this case, the
government is thinking of imposing a
minimum price. Negative Externalities of Consumption of Alcohol

Consider the diagram towards the

right. In the market for alcohol, the
marginal social benefit is less than the
marginal private benefit, which
means that alcohol is being
overproduced and overconsumed.
Since alcohol is a demerit good, there
is a market failure and a significant
welfare loss, as the market for alcohol
is experiencing allocative
inefficiency. This is because there are
spill over effects associated with the
externality caused due to alcohol
consumptions, which are imposed on
society. A few examples of the
negative externalities of alcohol
consumption are early deaths, absenteeism, National Healthcare Service costs and litter.
Alcohol consumption also leads to higher rates of aggression and violence. Clearly, if
overconsumption takes place, these spill over effects are highly dangerous for the society to
bear.

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As mentioned in the article, the Minimum Price of 1 Euro per unit Alcohol
Irish government wants to
implement a 'minimum unit price
at 1 Euro' in the market for alcohol.
Let us consider the diagram on the
right, where ‘1’ represents the
minimum price imposed by the
Irish government, which means
that alcohol cannot be purchased at
any price below it. When sold at a
higher price, the consumers’
demand will decrease, meaning
that some producers will exit the
market, reducing supply of these
demerit goods (alcohol). As a
result, a reduction in the effect of
the negative externalities will be
observed. As shown in the graph,
the quantity demanded for alcohol decreases from Qe to Q1, since alcohol becomes less
affordable. So, at 1 Euro (per unit alcohol), there is now a surplus, i.e., excess supply of alcohol.

The government, however, must take away this excess supply, as to prevent the producers to
sell these in an illegal market (where alcohol would be sold at a price lower than 1 Euro, and
the negative externality would once again return). To remove that possibility, the government
will have buy all of it (known as intervention buying), and then destroy the supply, which is
inefficient, and has significant costs associated with it; store it, where there a huge costs for
storage and maintenance; or “dump” or sell it abroad, leading to strained foreign relations.
There is an enormous opportunity cost for these costs, which the government must consider
before implementing a minimum price. It will only be a worthwhile intervention if the benefits
outweigh the costs associated with it.

Also, it is essential for the government to realise that this method has a possibility of not being
as effective as expected due to the fact that Price Elasticity of Demand (a measure of the
relationship between a change in the quantity demanded of a particular good and a change in
its price) for alcohol is inelastic because of its addictive nature, which means that a price
change will cause a less than proportionate change in quantity demanded. Also, this method
doesn’t internalise the externalities.

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If the government implements it, they might face resistance from voters, since consumers will
have to pay more, and will hence have less disposable incomes. Only some producers will
choose to stay in the business, leading to extensive unemployment.

The government, hence, should consider other methods of intervention, such as taxing or
advertising in order to help correct the externality caused due to alcohol consumption by
internalising it, and see which method would be the best. - Evaluation has been attempted
throughout the commentary n the form of impact on consumers, producers,
government and society. Commenting on elasticity of alcohol is also evaluative,
but alternative measure have not been handled properly

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