ECON 30190 

Public Economics

Group Essay: Topic 5

Minimum Unit Pricing for Alcoholic Beverages in Ireland

(Public Health Alcohol Act 2018)

Yuqi Shan: 19206271

Valentina Mazzoni: 22204679

Jiahui Xiong: 22209647

Antao Shi: 19206344

Vincent Dietrich: 22204064

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Introduction

Public Health Alcohol Act 2018 has been implemented due to the necessity to combat

alcohol-related harm in Ireland, as four people died daily from alcohol-related causes in 2022. 

This policy is necessary because statistics show how after it implements, alcohol

consumption decreased significantly. Indeed, the per capita ratio of pure alcohol was around 11 liters

in 2017 and 2018. This number dropped to 9.48 liters per capita in 2021 after the first introduction of

some of the rules in the 2018 Act. This decrease may have been impacted by the Covid restrictions as

well. The ratio increases to 12.47 liters of pure alcohol per capita, considering people who drink,

which is

The data derived from The Organisation for Economic Cooperation and Development (OECD) 

This consumption in 2021 represented a sum of 5.55 billion euros in sales. All this

consumption has a direct effect on the public sector. Indeed, the current public expenditure on

health related to alcohol amounted to 1.9 billion euros, about 11% of the total public spending on

health.

With all these figures, the situation was quite dramatic and may affect Ireland's GDP in the

future. Ireland then decided to react with the Public Health Alcohol Act 2018. In addition, the OECD

gave another reason to intervene as a statistic showed a return on investment of $16 for every $1

invested in programmes on the harmful use of alcohol.

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This essay will look at the effect of the Minimum Unit Pricing (MUP) for Alcoholic Beverages

Act on the alcohol market in Ireland and discuss alternative policies. Particularly, the essay is broken

down into three sessions. The first session discusses the calculations of the parameters of the MUP

policy. The second session addresses the issues that may emerge from implementing the MUP policy,

particularly deadweight loss, externalities and tax incidences. Lastly, alternative policies are

illustrated.

Calculations of the parameters of the MUP policy

According to the Public Health (Alcohol) Act 2018, the main objectives of this law are to

reduce alcohol consumption to 9.1 liters per capita and to reduce the harm caused. To achieve these

latter, the government has introduced obligations related to the sale of alcohol, restrictions on

advertising and sponsorship, and a minimum price for alcoholic products. From 4 January 2022,

article 11 of this law imposes a minimum price for alcoholic products. The idea is first to calculate the

quantity in grams. 

Take the example of a 75-cl bottle of wine at 14%. The calculation is as follows:

750*14%*0.789 (density of ethanol) = 82.84 grams of alcohol in this bottle. The rule is that each

gram of alcohol must be sold for a minimum of 0.10 euros. This means that the minimum price for

this bottle is 82.84*0.1 = 8.28 euros. These restrictions apply to alcoholic products with an alcohol

content of more than 0.5%. These rules apply to retailers, even online, in the state, but not in duty-

free shops.

Market inefficiencies

The market equilibrium is the combination of price and quantity that satisfies demand and

supply, determined by the interaction of the supply and demand curves. The introduction of the MUP

policy will lead to market inefficiencies caused by interference in the natural dynamics of the market,

which deliver an outcome that does not maximise efficiency.

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Deadweight loss (DWL) refers to the social cost caused by the deviation from the equilibrium

of a perfectly competitive market, including the loss of consumer and producer surplus. In the

background of alcohol policy, the MUP policy is a price floor meant to set a price above the

equilibrium price.

In this case, the output of the alcohol market would be reduced by the policy. The report

published by Public Health Scotland said there had been a 4% to 5% reduction in Scotland's shops in

the year after minimum unit pricing was introduced. From the data, the consumption of alcoholic

beverages decreased due to the higher price of alcohol, especially for drinks with high alcohol

concentrations. 

Therefore, as shown in the figure below, the consumer surplus was generally impaired

because of the rise of alcoholic drinks. The minimum unit pricing policy aims to reduce severe illness

and death from alcohol consumption. The MUP connects the pricing and the alcohol concentration,

which means that the price change of low-strength alcohol is not much, but high-strength alcohol

drinks price increases dramatically. In that case, the policy puts more focus on heavy drinkers.

Therefore, the more consumption, the more the consumer surplus will decrease. The consumer

surplus before the MUP is parts A, B and E; after this policy’s implementation, it is represented by

part E on the graph. Moreover, each individual with different elasticity on the price of alcohol would

have different degrees of deadweight losses due to the policy. Taking the example of alcoholics,

these people have an inelastic demand, meaning that even with a higher price, they will keep the

same amount of alcohol. As a result, they have a small number of deadweight losses.

As for the producer, the increased surplus from higher alcohol prices generally can

compensate for or even cover the welfare loss from lower sales. There is an interplay between the

monopoly situation in the Irish alcoholic beverage market and the implementation of this policy. The

monopolistic corporations facilitate a relatively straightforward application of a proposed alcohol

harm levy on all alcohol sales. If the alcoholic beverage market is relatively fragmented, the

application of the policy is hardly complete because the government cannot regulate every small
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company. Thus, the high level of concentration in the market is beneficial for the application of the

policy. Meanwhile, the companies that focus on sinking markets with low pricing strategies were

affected negatively by the MUP policy because they lost sales from their pricing advantages without

well-known brands. In this case, the monopolistic level increases in the Irish alcoholic market. The

famous alcohol firms which have already occupied a large part of the market can profit more from

the higher price of alcohol. The small firms that rely on low prices to promote their sales lose their

market share. From this perspective, the consumer surplus is impaired more fiercely due to the

monopolistic situation. The producer surplus before the MUP is parts C and D; after this policy’s

implementation, it is represented by parts A and D on the graph.

To sum up, there is a deadweight loss for the whole society represented by parts B and C on

the graph. The welfare loss of consumers depends on their sensitivity to the price of alcohol and their

drinking habits. For alcoholic producers, the welfare loss/gain relies on the company profile and their

pricing strategies. The MUP policy is more detrimental to the welfare of alcoholic beverage

consumers than it is to producers.

In the case of the alcohol market, it can be argued that there is already a deadweight loss

due to market failure through externalities. Externalities can be explained by the fact that the actions

of one economic agent, a drinker in our case, can affect another economic agent, society.

Unfortunately, in the case of alcohol, there is a negative consumption externality. This means that by

consuming alcohol, the drinker reduces the welfare of others. In other words, social costs are

generated, especially health costs. Specifically, the hospital resources, Ministry of transport, police
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and production suffer a lot due to the negative externality. Production losses mostly come from

excess unemployment and extra inefficiency (Devlin et al., 1997).  Other papers also pointed out that

the externalities come from crimes, traffic accidents, unemployment and health care burdens(Babor

et al., 2003; Room et al., 2005). Because of this negative consumption externality, there is an over-

consumption of alcohol. By introducing this minimum price, the government tries to get closer to

social equilibrium and reduce the deadweight loss by integrating the cost of this overconsumption.

Why did the government impose the minimum price on all alcohol and not just on beer, for

example, the most consumed alcohol in Ireland? There could be several reasons. First of all, the

substitution effect applies. This means that if the price of a particular good increase, people will buy

less of the good and more substitutes. Son and Topyan(2011) pointed out that in the case of the

American alcohol tax, drinkers prefer to consume wine instead of spirits if the spirit tax increases;

since different kinds of alcohol are accused of different injury deaths, we cannot ignore the

substitution effect.

 Secondly, Ramsey's rule can be modified a little to adapt it to the case of MUP. The rule aims

to minimise the deadweight loss due to the tax and indicates that the best option is that the tax is

fixed on all products. According to the rule, the tax can be substituted with the minimum price,

leading to the same result. Furthermore, this can be explained by the fact that the marginal cost of

deadweight loss is increasing, which means that as the minimum price per unit of alcohol rises, the

increase in the deadweight loss to society from the policy becomes larger. Thus, instead of having

alcohol with a high minimum price that creates a substantial deadweight loss, it is better to set a low

minimum price for all alcohols to have a slight deadweight loss. The addition of these small

deadweight losses will be lower than a large one if the MUP policy is applied to only one type of

alcohol.

The MUP policy can cause a problem in vertical equity, which means that people with

different economic abilities should pay different tax amounts.  The MUP policy does not impact the

budgets of rich people because this income section is used to buy alcohol which the MUP policy will
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not influence. Nevertheless, for poor people buying cheap alcohol, which the MUP policy has an

impact on, their budgets will be more negatively affected.

Alternative policy

In addition to the minimum unit pricing policy, there could be two other alternative policies

to reduce the negative impacts of excessive alcohol consumption on public health and societal costs:

taxation and regulation of alcohol advertising.

The World Health Organization (WHO) suggests that Alcohol taxation is an “effective but

neglected” way to reduce the health problems associated with excessive alcohol consumption. It can

not only discourage people from consuming alcoholic beverages but also generate revenue for the

government, which is not possible with the MUP policy. In 2018, Ireland had planned to increase

alcohol taxes, but this decision was abandoned in the Budget 2022, which Minister Donhoe

announced on October 12, 2021. According to the speech, the decision not to increase alcohol taxes

was made to support struggling bars and restaurants during the pandemic. However, this also means

that there will be no increase in taxes on cheap alcohol sold in supermarkets, which is a significant

contributor to alcohol-related harm in Ireland. Therefore, implementing the MUP policy is a more

practical approach to addressing this issue. It can simultaneously protect the food and beverage

industry and mitigate the risks associated with selling cheap, high-strength alcohol products in

supermarkets.

Another alternative policy option is the regulation of alcohol advertising. This could include

restrictions on the content, timing, and placement of alcohol advertising, such as the areas near

schools. By reducing the appeal of alcohol and diminishing its prevalence, this policy has the

potential to be an effective tool for mitigating excessive alcohol consumption, especially for youth

and vulnerable populations, without affecting the availability or price of alcohol. According to the

Public Health (Alcohol) Act 2018, the restriction on alcohol advertising has been implemented since

12th November 2021. The act clearly defines advertising and stipulates that alcohol advertisements
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are prohibited in sports areas during sports events or at events aimed at children. The act falls short

in that it does not limit alcohol advertising on the internet, which is the most potent influence on the

behaviour of young adults. Besides that, compared to the MUP policy, advertising regulation may

have limited effectiveness in reducing overall alcohol consumption among adults, particularly among

heavy drinkers. So, it can be seen as complementary to the MUP policy.

Conclusion

The Ireland government implemented the Public Health (Alcohol) Act 2018, including the

MUP policy, to relieve the pressure of the health system’s cost induced by the excessive consumption

of alcohol. The main idea of the MUP policy is a minimum unit pricing of 0.10ct per gramme of pure

alcohol in the beverage, a price floor in economics. This brings some deadweight loss, especially for

the consumer. On the other hand, the MUP policy tries to internalise the negative externalities, so

this reduces the deadweight loss. Alternative policies have been proposed, and some have already

been implemented as supplementary policies by the Irish government. 

However, the implications of this policy may be more complex than we have discussed. For

Ireland, the alcohol industry is an essential pillar of the country, and it will take time to see if the

MUP policy will have a negative impact on Ireland's economic development. So, the evaluation

should be more cautious about this policy. Moreover, alcohol is a part of the tradition in Ireland, so

introducing the MUP policy could face some opposition. The recent research (Mongan et al., 2023)

concluded that only approximately 60% of the sample population supported the MUP policy part of

the Public Health (Alcohol) Act 2018. This paper recommended further research and a survey on the

public's opinions and attitudes to gain greater compliance with the policy, which is regarded as a

future challenge.
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Reference

- AlcoholAction Ireland,(2022).  « Alcohol Market Review 2022: Raising the bar, An examination of
the alcohol market in Ireland.»

- Babor, T., Caetano, R. and Casswell, S. (2003), Alcohol: No Ordinary Commodity: Research and
Public Health. Oxford University Press, Oxford.

- Department of Health, Healthy Ireland, Health Service Executive, (2021). « Public Health (Alcohol)
Act 2018 (Number 24 of 2018) Guidance for Industry Section 11 »

- Devlin N, Schuffham P and Bunt L. (1997). ‘The Social Costs of Alcohol Abuse in New Zealand’,
Addiction 92(11), 1491-1505.

- Gruber, J. (2016). « Public Finance and Public Policy », Fifth Edition, Worth Publishers, New York 

- Room, R., Babor, T. and Rehm, J. (2005), ‘Alcohol and Public Health’, The Lancet, 365 (9458), 519–
30.

- Son, C. H., & Topyan, K. (2011). The effect of alcoholic beverage excise tax on alcohol-attributable
injury mortalities. The European Journal of Health Economics, 12, 103-113.

- Susan Calnan, Seán R Millar, Deirdre Mongan, Support for evidence-based alcohol policy in Ireland:
results from a representative household survey, European Journal of Public Health, 2023.

- World Health Organization (WHO). A New WHO signature initiative shows raising alcohol taxes
could save 130 000 lives per year. Geneva: WHO; 2022.