Identifying a framework for regulation in packaged liquor retailing
Report by Marsden Jacob Associates for the National Competition Council June 2005
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An appropriate citation for this paper is:
Marsden Jacob Associates 2005, Identifying a framework for regulation in packaged liquor retailing, Report prepared for the National Competition Council as part of the NCC Occasional Series, Melbourne.
The National Competition Council
The National Competition Council was established on 6 November 1995 by the Competition Policy Reform Act 1995 following agreement by the Australian Government and state and territory governments.
It is a federal statutory authority which functions as an independent advisory body for all governments on the implementation of the National Competition Policy reforms. The Council’s aim is to ‘improve the well being of all Australians through growth, innovation and rising productivity, and by promoting competition that is in the public interest’.
Information on the National Competition Council, its publications and its current work
program can be found on the internet at www.ncc.gov.au or by contacting NCC
Communications on (03) 9285 7474.
COMPETITION COUNCIL
Foreword
Alcohol is not just another product. Consumption of alcohol can be harmful to consumers, and can have significant effects on people other than the consumer, such that regulatory intervention is necessary 1 .
The case for regulation of the sale of alcohol is clear even if some of that regulation will reduce competition in various markets. There is no conflict between appropriate regulation of alcohol sales and the National Competition Policy (NCP) commitments all Australian governments have entered into. From an NCP viewpoint, the question that arises in relation to regulation of sale of alcohol is not whether regulation is needed, but whether particular regulatory responses are properly directed at harm reduction and whether they work.
NCP obliges all Australian governments to review regulation that restricts competition and ensure any continued or new restriction is justified by an objective assessment that it serves the interests of the public.
Clearly, regulation that restricts competition but has little, if any, impact on the public interest is inconsistent with NCP. However regulation that successfully addresses the public interest but also restricts competition can be justified, so long as the impact on competition is minimised.
Well intentioned regulation can also be called into service by vested interests in pursuit of their own objectives. The nature and scope of regulation should not be allowed to expand and change, or be perverted, so it serves the interests of particular businesses, rather than that of the community as a whole. It is vital to ensure that regulation serves the public interest and is not harnessed to serve private interests to the detriment of the community. Where this is allowed to occur the costs of regulation to the community will be increased and the benefits to the public diluted.
In successive assessments of compliance with NCP commitments the Council has found various jurisdictions to have failed to meet their obligations in relation to the regulation of the sale of alcohol. A number of jurisdictions cling to regulation that has not been subjected to, or supported by, the public interest testing that NCP requires. Other jurisdictions have retained anticompetitive regulation, including “needs tests” and restrictions that discriminate between various outlet types. Needs tests provide for licensing authorities to consider the effect of an additional licence on the competitive interests of incumbent licence holders and allow incumbents to use objection procedures to frustrate new competitors.
To assist governments in developing polices and regulation in this area and in meeting their NCP obligations the Council commissioned Marsden Jacob Associates to consider the evidence on the effects of alcohol, and set out and examine options for regulation of alcohol sales that are likely to be in the public interest.
This report continues a series of occasional papers published by the Council. This paper is not a substitute for the public interest reviews of regulation required by NCP. Rather, the paper sets out a range of issues that should be considered when reviewing alcohol regulation.
The report does not propose a remedy for the ills that misuse of alcohol causes, but it will aid in determining regulatory prescriptions that suit the particular needs of a jurisdiction.
Some of the research findings cited in the paper are challenging. It may be that what are clear public health based conclusions – less than one-third of Australian alcohol consumption, by volume, occurs ‘in moderation’ – are at odds with general public opinion, at least as evidenced by consumer behaviour.
The findings also challenge the general premise that promotion of competition in the sale of alcohol is in the public interest. Increased competition is likely to exacerbate problems but at the same time limits on competition will raise prices for alcohol irrespective of whether it is then consumed in a beneficial or harmful manner.
Simplistic “deregulation” of alcohol sales is unlikely to be in the public interest, and has never been promoted under NCP. Furthermore even when reforms properly focus on anticompetitive and discriminatory restrictions there is likely to be a need for complementary measures to address any adverse consequences of greater availability of alcohol, and enhanced enforcement of licensing conditions.
Consumers are entitled to the many benefits of competition. They are also entitled to the protection offered by appropriate regulation of alcohol. The task of those designing regulation in this area is to balance these two demands.
The Council commends this study as a resource for jurisdictions and for parties with an interest in this issue. It hopes that this contribution will assist jurisdictions in meeting NCP commitments by adopting regulatory responses that meet the public interest in regulating the sale of alcohol.
David Crawford John Feil
Acting President Executive Director
This report has been prepared in accordance with the scope of services described in the contract or agreement between Marsden Jacob Associates P/L ACN 072 233 204 and the National Competition Council. Any findings, conclusions or recommendations only apply to the aforementioned circumstances and no greater reliance should be assumed or drawn. Furthermore, the report has been prepared solely for use by the NCC and Marsden Jacob Associates accepts no responsibility for its use by other parties.
The report has been written by Dr John Marsden, Director of MJA, Chris Tikotin and Philip Jones. We wish to acknowledge the valuable expert assistance of Dr Alex Wodak and Dr Robert Ali who provided quality assurance regarding the public health aspects of the report.
Contact: Dr John Marsden (john.marsden@marsdenjacob.com.au)
Financial & Economic Consultants
Level 3, 683 Burke Road, Camberwell, Victoria 3124
Tel: (03) 9882 1600 Fax: (03) 9882 1300
Table of Contents
Page
A. Introduction...1
Terms of reference and conduct of review ...2
Background...4
Structure of report ...7
B. Public health and economic characteristics of alcohol consumption and harm ...8
Introduction ...8
Patterns of use and risk ...10
Youth consumption ...13
Australian Alcohol Guidelines & current alcohol consumption patterns ...15
Implications...20
The nature of harms arising from alcohol consumption...21
Economic impacts of alcohol consumption...25
Economic characteristics of alcohol...28
The relationship between availability and consumption ...31
C. Evidence on regulatory options...35
Research overview ...35
‘Best practice’ regulatory options...36
Specific interventions ...37
State monopoly supply and sale...37
Prohibitions on availability to young people...38
Price and taxation ...39
Licensing...42
Outlet density...43
Outlet location...44
Outlet type ...45
Outlet trading hours ...46
Server responsibility and liability ...47
Random breath testing ...47
Community-based programs ...48
Summary and conclusion...48
D. Guidelines for best practice regulation ...52
Appendix – Current NCP reform progress summary ...54
References...56
A. Introduction
1. Alcohol is a licit drug and its medical effects are well-defined and understood:
‘Alcohol’ is a generic name given to a series of organic compounds, most of which are highly toxic to humans. Only one type of alcohol – ethanol … - is fermented or distilled for use in beverages that are meant for human consumption.
While alcohol works at the cellular and systemic level in the human body, its most immediate and readily apparent effects are on the brain. Alcohol is a psychoactive (mind-altering) drug, and is one of the most widely used drugs in the world.
(Alcohol Advisory Council 2001, p.159)
Consumers of alcohol value its consumption in its own right and as a social lubricant.
From many aspects, alcohol is an ordinary commodity: produced by businesses, distributed by manufacturers and wholesalers, sold in both specialised and general retail outlets and consumed by a majority of the Australian population. The basis of competition policy is that – for ordinary commodities – promoting competition will sharpen commercial incentives to reduce costs and prices and to increase availability and consumption, and so increase society’s welfare. However, alcohol consumption has long been identified with social problems and issues. As a result, societies have sought to influence, regulate and, on occasion, prohibit alcohol production, sale and consumption.
2. Regulation of alcohol use and supply occurs at the interface of two important areas of public policy for Australian governments – competition policy and alcohol policy.
3. The National Competition Council (NCC) has requested advice on an appropriate framework that might be applied when reviewing liquor regulation to arrive at best regulatory practice that balances minimising harm from alcohol consumption and achieving other relevant public interest objectives, including competition objectives.
The Council has commissioned Marsden Jacob Associates (MJA) to advise and
report on the above, with particular reference to the regulation of retailing of
packaged liquor.
Terms of reference and conduct of review
4. The Terms of Reference request advice on:
(a) the nature of harm arising from liquor consumption 2 and how this is affected by key regulatory questions, including restrictions on outlet numbers, hours of operation, outlet types, package sizes and product types;
(b) other public interest objectives that may be relevant to a liquor retailing regulatory framework (such as the social cohesion provided by country hotels or sporting and similar clubs);
(c) the regulatory approaches across jurisdictions, including alternatives recommended by reviews of current approaches; and
(d) the regulatory approaches that best assist in meeting the public interest objectives of regulating liquor retailing, and any consequences for competition.
5. In undertaking this desktop review, MJA has examined a wide variety of documents, including:
The published health and economic literature on alcohol consumption, harm, interventions and regulation.
Relevant reports commissioned by state and national governments and the WHO.
6. MJA’s review has been facilitated by the fact that the governments of most English- speaking democracies have also commissioned major literature reviews of the scientific evidence on alcohol consumption and impacts and (to a lesser extent) of regulation and regulatory interventions.
The following few key documents stand out as the most relevant and authoritative with regards to this review:
(a) The prevention of substance use, risk and harm in Australia: a review of the evidence, prepared for the Ministerial Council on Drug Strategy by the National Drug Research Institute for Centre for Adolescent Health, January 2004.
(Commonwealth of Australia 2004)
(b) Alcohol: No Ordinary Commodity - Research and Public Policy. New York, Oxford University Press (sponsored by the World Health Organization). (Babor, Caetano et al. 2003)
(c) NSW Government (2004). Outcomes of the NSW Summit on Alcohol Abuse 2003: Changing the Culture of Alcohol Use in New South Wales, New South Wales Government. (NSW Government 2004)
(d) National Expert Advisory Committee on Alcohol, National Alcohol Strategy: A Plan for Action 2001 to 2003-04, Commonwealth Department of Health and Aged Care, Editor. 2001, Commonwealth of Australia. (National Expert Advisory Committee on Alcohol 2001)
(e) Alcohol Harm Reduction Strategy for England (March 2004), Cabinet Office.
(Prime Minister's Strategy Unit 2004)
2 Specifically, the consumption of (unopened) packaged liquor purchased in a retail context.
(f) International Alcohol Policies: A selected literature review produced by the Scottish Executive Central Research Unit (Sewel 2002), and followed-up by Liquor Licensing and Public Disorder: Review of Literature on the Impact of Licensing and Other Controls / Audit of Local Initiatives (Reid Howie Associates 2003).
(g) the CoAG Principles and Guidelines for National Standard Setting and Regulatory Action by Ministerial Councils and Standard Setting Bodies. (NCC 2004) This is based on the Competition Principles Agreement (Council of Australian Governments).
(h) State National Competition Policy legislation reviews.
(i) NCC assessments of compliance by states and territories with their obligations under the Competition Principles Agreement.
7. In undertaking this review, MJA’s interpretation of the published health evidence has
been assisted and reviewed by Dr Robert Ali (Director of Clinical Policy and Research,
Drug and Alcohol Services Council, Adelaide) and Dr Alex Wodak (Director of the
Alcohol and Drug Service, St Vincent’s Hospital Sydney). Both are acknowledged
leaders in the field of drug and alcohol research and policy in Australia.
Background
8. As noted in the Terms of Reference, all Australian governments regulate the retailing of liquor, with the stated intention of minimising harm from its consumption. They regulate in various ways, including by:
prohibiting certain members of the community (such as minors) from consuming liquor;
establishing requirements for the sale and serving of liquor;
restricting the number, type and trading hours of the premises permitted to sell liquor; and
tax and excise on alcohol
Some measures affect competition in liquor retailing (such as the ‘needs test’
requirements that prevent new entry or provisions that discriminate between different types of responsible sellers). Others do not discriminate between sellers of liquor, and therefore have a negligible effect on competition (such as the prohibition on consumption by minors).
9. Prompted by the process of compliance with competition principles, all states and territories have undertaken reviews and most have amended their legislation and regulations relating to alcohol policy.
10. One area of particular concern repeatedly raised in NCC Assessments has been the licensing approach used by governments to assess applicants which involved so- called ‘public needs’ or ‘proof-of-needs’ tests.
Such a test restricts competition because it requires applicants for new licenses to demonstrate that a particular area is not already adequately served by existing outlets. In effect, the test operates to protect existing outlets from new entrants.
(NCC 2001)
11. Consistent with NCP, the NCC has promoted moving to a Public Interest Test approach for additional licensed outlets in defined localities.
A ‘public interest’ test for licenses that focuses on the social, community and health implications of a liquor license application is consistent with NCP. A test that focuses merely on the competitive interests of existing licensees is not.
Under NCP, the public interest comes first. What is important is that the public interest is considered in terms of the whole community, rather than particular commercial interests.
(National Competition Council 2003)
A number of states have now implemented a variation of this, including Victoria.
Box 1 outlines Victoria’s approach to regulation of sale of alcohol.
Box 1 – A public interest test
The State of Victoria applies a public interest test to liquor licensing which addresses the public interest in alcohol regulation and seeks to minimise effects on competition.
Act: Liquor Control Reform Act 1998
Tests applied: Licensees must be over 18 years of age and not disqualified from holding a licence or BYO permit under the Act (s27).
Public interest considerations
Harm minimisation. Any person may object to the application of a packaged liquor licence on the grounds that the licence would be conducive to or encourage the misuse or abuse of alcohol (s38).
Amenity impact. Any person may object to a licence application on the grounds that the licence would be detrimental to the amenity of the area in which the licensed premises or proposed licensed premises are situated (s38).
• The amenity of an area is the quality that the area has of being pleasant and agreeable, such as: the presence or absence of parking facilities; traffic movement and density; noise levels; the possibility of nuisance or vandalism; the harmony and coherence of the
environment; and any other prescribed matters (s3A).
No Needs Test. A licence application will not be rejected on the basis that there is insufficient need or demand to justify the granting of the licence (s38).
Supermarkets. Packed liquor may be sold in a supermarket if the person receiving the payment at the checkout is over 18 years of age (s11).
Restrictions: Ban on sales in certain premises. The Commission must not grant a license or BYO permit in respect of premises used primarily as: a drive-in cinema; a petrol station; or a milk bar, convenience store or mixed business (s22(1)).
Exemptions: Exceptions to s22 (ban on sales in certain premises). The Commission may, with the approval of the Minister, grant a license in respect of premises referred to above if the Minister is satisfied that the premises are situated in a tourist area or an area with special needs and that there are not adequate existing facilities or arrangements for the supply of liquor in the area s22(2)).
12. The current state of National Competition Policy reform progress is summarised in the Appendix, which outlines the NCC’s recent assessments in this area. At the time of writing, four states are judged to remain non-compliant with the Competition Principles Agreement with regards to liquor retailing.
13. From a public health perspective, the existing regulatory regimes can be seen as not
Alcohol affordability has increased steadily and inexorably with growth in real per capita incomes over the post-war period. Furthermore, in Australia alcohol is relatively more affordable than other developed countries. Relative to cola, beer is cheaper in Australia than in any other country surveyed by the World Health Organisation (WHO) (Refer paragraph 84.).
The physical availability of alcohol has been progressively and substantially liberalised across Australia with extensions to hours and days for opening of hotels, bars and retail outlets in all states over the past 50 years and especially in the past two decades. In addition there have been substantial increases in the numbers of licensed outlets (Loxley, Toumbourou et al. 2004).
The physical availability of alcohol has increased markedly in Australia over the past two decades, as it has in most economically developed countries. Licensing laws have been continuously revised to simplify and streamline procedures for acquiring liquor licences, trading hours in all jurisdictions have been extended…
(Commonwealth of Australia 2004, p.36)
Minimum ages for alcohol purchase have been lowered to 18 years in all Australian states and territories.
Under-age drinking is common and increasingly prevalent. Also, under-age purchasing is common, indicating lax enforcement of licensing conditions for packaged liquor.
… laws regarding service to intoxicated and underage drinkers are enforced intermittently at best.
(Commonwealth of Australia 2004, p.36)
A high alcohol price is one of the single most effective methods of reducing alcohol consumption and harms. Taxes and charges on alcohol are set by the Australian Commonwealth, rather than the states.
Alcoholic beverages other than wine are taxed on the basis of alcohol content.
In contrast, wine is taxed on an ad valorem basis. An unfortunate consequence of the differential method of taxation of alcohol is that cheap cask wine is relatively lightly taxed which encourages relatively higher consumption of such products by youth and other high-risk drinkers. (Refer paragraph 83).
Past forms of regulation have become progressively less effective.
Technological advancement has caused further changes, such as the increased
mobility of the population. For example, a higher rate of car ownership
decreases the effect of limiting the number of hotel or retail liquor outlets as a
means of restricting availability of alcohol.
Similarly new entry and competition in alcohol retailing and the shift to supply and sale by chains has seen an improvement in sales efficiency, economies of scale and purchasing and advertising power, much of which has flowed through to consumers in the form of lower prices, but these same factors have eroded the efficacy of previous limitations on supply that arose from inefficiencies in the sales and distribution systems. Paradoxically, more efficient supply arrangements have adverse implications for harm minimisation. Inefficient supply of course produces and economic loss for the whole community and is not just an industry specific issue.
14. From the perspective of competition policy, major problems arising with existing regimes for restrictions on alcohol availability have included:
the allocation and restriction of existing licences to sell packaged liquor to particular classes of businesses only; and
methods of implementing restrictions on the number and density of outlets and in particular ‘needs tests’ which allow existing incumbents to object to, and possibly, in effect, to veto new applicants.
However, the consequences of reforms related to competition policy also raise public health concerns since:
Greater competition has promoted strategies that increase the availability and consumption of alcohol. For example, the increasing market share of major corporate groups in liquor retailing appears to have extended opening hours, increased accessibility and buying power and lowered prices.
In practice implementation of some policies has also not had regard to the medical harm concerns. For example, the removal of discriminatory licensing regimes has been achieved by the granting of additional licences to new applicants rather than allowing the redistribution of existing licences to new entrants.
Moreover, as might be expected of new entrants, the new licence holders are likely to be more cost efficient than many of the pre-existing licensees. This is most evident in the case of the major corporate chains which have superior scale, buying power and advertising power than ‘traditional’ single outlet businesses.
15. The need for this review arises therefore from the differing perspectives of public health policy and competition policy on the regulation of alcohol and the need for guidance, particularly at a state government level, on a practical resolution of those differences.
Structure of report
16. Section B provides a brief overview of the substantial body of Australian and international evidence on the public health and economic characteristics of alcohol consumption and harms.
Section C provides a review of the evidence on regulatory and other interventions
applied to manage alcohol consumption and mitigate associated harms.
B. Public health and economic characteristics of alcohol consumption and harm
Introduction
17. The terms of reference request advice specifically on the nature of harm arising from alcohol consumption and how this is affected by the key regulatory interventions.
18. Alcohol has a long history of use as a social lubricant, conferring social benefits and, when consumed regularly in moderation, some health benefits. Above these levels of regular drinking, the health and social impacts are very well researched and documented and are unequivocally detrimental.
19. In comparison with tobacco and the illicit drugs, the distinguishing feature of alcohol is that there are threshold levels of consumption below which harms are avoided (and in fact which probably confer positive health benefits). This feature confounds individual and public perceptions of the relationship between alcohol availability, consumption and harm. Importantly, it also complicates the development of appropriate public policy and regulation via the design and implementation of regulation to reduce the harms.
20. The relationships between alcohol consumption, harm, policies and related services are numerous. In reviewing the nature of these harms it is useful to consider:
patterns of use and risk (volume, timing and speed of consumption, and beverage type); in particular what is termed the ‘prevention paradox’ and its resolution (refer paragraph 25);
evidence on the range and magnitude of the health and social impacts;
the economic/social costs of alcohol use and abuse; and
the economic characteristics and implications of the large negative
‘externalities’ associated with alcohol in comparison to other commodities.
21. The relationships between alcohol consumption, alcohol-related harm, policies and related services are multiple and difficult to summarise concisely. Nonetheless, we seek to show these relationships diagrammatically in Figure 1.
The key message is that alcohol consumption leads to harm via three well-researched and understood mediating factors – toxicity, intoxication and dependency – and some, but not all, of these are determined by drinking patterns, i.e. level and behavioural patterns (Babor, Caetano et al. 2003). Consequently, regulatory interventions that modify drinking patterns are able to decrease alcohol-related harm.
These multiple relationships are explored below and in subsequent chapters.
Figure 1 – Relationship between alcohol consumption, harm, policies and related services
Drinking patterns
(volume, timing & beverage type)
(manner in which drinkers consume a certain volume in a given time frame frequency of drinking, quantity per occasion,
variation between occasions)
Average volume
Toxic effects
(eg. from chronic or sustained drinking, even
small amounts, due to cumulative effects)
Acute intoxication*
(eg. low frequency drinking but high number of drinks
per occasion)
Dependence*(“alcoholism”)
Chronic disease
eg. stroke, ischaemic heart
disease, other cardiac diseases, hypertensive disease, diabetes, liver cancer, cancer of the mouth
and oropharynx, breast cancer, oesophagus cancer,
other neoplasms, liver cirrhosis, epilepsy, ...
Acute disease
eg. MVAs, falls, drownings, other
accidents, self- inflicted injuries,
poisonings...
Acute social problems
eg. violence,
homicide, vandalism, damage
to public/private property...
Chronic social problems
eg. violence, isolation, abuse,
neglect, mental illness...
Alcohol consumption
Mediating factors (toxicity, intoxication and
dependence all provide mechanisms by which
consumption leads to problems)
Harm arising from consumption (consequences on public health & social well-being) Environmental
determinants
of consumption
Social/cultural normsthat define appropriate uses
Physical availability Retail priceAcronyms
RSA – Responsible Serving of Alcohol MVAs – Motor Vehicle Accidents RBT – Random Breath Testing BAC – Blood Alcohol Concentration Policies/
interventions
Primary prevention
(prevention of new
cases) Health & police
services
Acute / Secondary prevention
(early intervention with
incipient cases)
Tertiary prevention
(treatment and rehabilitation of active
cases)
Regulating physical availability
eg. minimum legal purchase age, hours &
days sale restrcitions, outlet density &
geography, outlet type, in-store advertising/layout, server liability, different
availability by strength ...
Taxation & pricing
Taxes (standard &
hypothecated), discounting
Altering the drinkingcontext
eg. RSA courses,
enforcement of regulations/requirements,
community mobilisation
Education & persuasioneg. education in schools, public service messages,
warning labels
Drink-driving countermeasures
eg. RBT, BAC limits, graduated licensing ...
Regulating alcohol promotion
* Definitions
Alcohol dependence syndrome – Term used in psychiatric classifications to identify the
co-occurrence of at least 3 of 6 drinking-related behaviours associated with dependence to alcohol.
Alcohol intoxication – A more or less short-term state of functional impairment in
psychological and psychomotor performance induced by the presence of alcohol in the body.
In Australia, at least 70% of alcohol consumed is drunk in a high-risk way that leads to these acute/chronic problems
Policing of crime