Baseline study of the liquor industry Including the impact of the National Liquor Act 59 May 2011 of 2003 AUTHORS Sarah Truen Yash Ramkolowan Joanne Corrigall (UCT) Richard Matzopoulos (UCT) 4th Floor, South Office Tower, Hatfield Plaza, 1122 Burnett Street, Hatfield, Pretoria, 0083, South Africa PO Box 95838, Waterkloof, 0145, South Africa Tel +27 (0)12 362 0025 | Fax +27 (0)12 362 0210 | Email [email protected] | www.dnaeconomics.com DNA Economics is the registered business and trading name of Development Network Africa (Pty) Ltd Company Registration: 2001/023453/07│Directors: Elias Masilela, Matthew Stern Department of Trade and Industry Baseline study of the National Liquor Act 59 of 2003 TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................................................................................ I 1 INTRODUCTION .......................................................................................................................... 1 2 VALUE CHAIN ANALYSIS ......................................................................................................... 3 2.1 Relevant economic concepts ............................................................................................................................ 4 2.2 Inputs into alcoholic beverages ........................................................................................................................ 5 2.2.1 Agricultural products .......................................................................................................................................... 5 2.2.2 Packaging ......................................................................................................................................................... 10 2.2.3 Ethanol .............................................................................................................................................................. 14 2.3 Liquor production and distribution .................................................................................................................. 16 2.3.1 Beer ................................................................................................................................................................... 16 2.3.2 Sorghum beer ................................................................................................................................................... 24 2.3.3 Wine and brandy .............................................................................................................................................. 27 2.3.4 Spirits ................................................................................................................................................................. 46 2.3.5 Ciders and Ready-to-Drinks (RTDs) .............................................................................................................. 54 2.3.6 Concoctions, illicit goods and excise issues .................................................................................................. 58 2.4 Retail .................................................................................................................................................................. 65 2.4.1 Off-consumption ............................................................................................................................................... 67 2.4.2 On-consumption ............................................................................................................................................... 72 2.5 Key themes ....................................................................................................................................................... 77 2.5.1 Competitive conditions ..................................................................................................................................... 77 2.5.2 Implications of formalising the retail market .................................................................................................. 80 2.5.3 Ethanol .............................................................................................................................................................. 81 2.5.4 Inter-governmental cooperation ...................................................................................................................... 82 2.5.5 Regulatory record-keeping .............................................................................................................................. 83 3 REGULATORY BENCHMARKING ......................................................................................... 85 3.1 South Africa....................................................................................................................................................... 86 3.1.1 Policy framework .............................................................................................................................................. 86 3.1.2 Retail regulation ................................................................................................................................................ 87 3.1.3 Production and wholesale ............................................................................................................................... 94 3.1.4 Taxation ............................................................................................................................................................. 95 3.1.5 Advertising and sponsorship ........................................................................................................................... 97 3.1.6 Public domain drinking, and drinking and driving ......................................................................................... 98 3.1.7 Relevant legislation .......................................................................................................................................... 98 3.2 International regulatory comparators ........................................................................................................... 101 Department of Trade and Industry Baseline study of the National Liquor Act 59 of 2003 3.2.1 Argentina ......................................................................................................................................................... 102 3.2.2 California ......................................................................................................................................................... 104 3.2.3 Chile ................................................................................................................................................................. 108 3.2.4 Norway ............................................................................................................................................................ 111 3.3 SADC liquor regulation .................................................................................................................................. 115 3.3.1 Retail distribution ............................................................................................................................................ 116 3.3.2 Production and wholesale ............................................................................................................................. 120 3.3.3 Taxation and levies ........................................................................................................................................ 120 3.3.4 Advertising and sponsorship ......................................................................................................................... 123 3.3.5 Public domain drinking ................................................................................................................................... 124 3.4 Discussion of regulatory findings .................................................................................................................. 126 4 ALCOHOL DEMAND PATTERNS ......................................................................................... 130 4.1 Demographic patterns of liquor demand, 2005/06 Stats SA ..................................................................... 131 4.2 Age based drinking patterns ......................................................................................................................... 139 4.3 Alcohol demand and alcohol cost ................................................................................................................ 142 5 COSTS AND BENEFITS OF LIQUOR .................................................................................. 145 5.1 Liquor’s economic contribution ..................................................................................................................... 146 5.1.1 Manufacturing ................................................................................................................................................. 150 5.1.2 Retail (on- and off-consumption) .................................................................................................................. 153 5.1.3 The economic contribution of manufacturing and retail of liquor .............................................................. 156 5.2 The cost of harmful alcohol use ...................................................................................................................