COMMENTARY 1

Title of the article: Beer and wine sales in Canada fall to an all-time low.

Source of the article:

BBC News https://www.bbc.com/news/world-us-canada-64792928

Date the article was published: 1st March 2023.

Date accesses the article: 23rd March 2023.

Date the commentary was written: 27th March 2023.

Word count of the commentary: 800 words.

Unit of the syllabus to which the article relates: Microeconomics.

The key concept being used: Intervention.

 Beer and wine sales in Canada fall to an all-time low.

Figure 1. Alcohol sales by volume hit record lows in Canada.

By Brandon Drenon (Drenon, 2023)

Canadians appear to be losing their taste for alcohol, according to findings in a new report that
showed beer and wine sales at historic lows.

From 2021-22, the volume of beer sold per person in Canada slumped drastically. The
volume in wine sales slid by its largest margin since 1949.

Stricter drinking guidelines and a new alcohol tax on the horizon send signals that further
change is brewing.

Despite the trend, beer remains the country's go-to inebriant.

The report, released by Statistics Canada, a government data cruncher, found that sales
of alcohol slid for the first time in a decade, by 1.2%. Wine sales decreased by 4%, the
largest decrease ever recorded by Statistics Canada.

Beer's time as the top alcoholic beverage by sales has shown signs of going flat,
according to the report. Over the last 10 years, beer has continued to lose market share,
totaling an 8.8% drop.

Meanwhile, ciders and wine coolers, also known as alcopops, have claimed the majority
of that lost market share, increasing by 5%, the highest rise in market share among all
alcoholic beverage categories. Their total value in sales were up by 13.5% from 2021-22
compared to the previous year.

Although overall alcohol sales based on volume decreased, total sales were up 2.4%
because of rising costs driven by inflation. For the fiscal year ending in March 2022, liquor
stores and other outlets still managed to sell $26.1bn (£21.69bn) in booze.

However, more change could be fermenting in the alcohol industry. Starting on 1 April,
federal taxes on all beer, wine and spirits will rise by 6.3%, the Toronto Star reports.

Even more sobering, new guidelines released last month by the Canadian Centre on
Substance Use and Addiction recommended zero alcohol intake. And for those who must
drink, according to the guidelines, anything beyond two glasses a week is too many for
good health - a far cry from the 9.5 alcoholic beverages Canadians of the legal drinking
age consume per week, according to Statistics Canada.

With recreational sales at $4.1bn, cannabis still has a way to go to gain an equal footing
among Canada's legal intoxicants.

1st, March 2023

 COMMENTARY. BANG PHAM

Canadians drink more alcohol than the global average, and the Prevalence of Alcohol

Dependence, Canada ranks about 16 th in the world (Wisevoter, 2022). Although beer and wine

sales in Canada fall to an all-time low from 2021 – 2022, the amount of Alcoholism in this country

is still high and needs to be reduced because its negative consumption externality leads to a

reduction of marginal social benefits (MSB). In this case, the government planned to apply an

indirect tax on these demerit goods.

Diagram 1. Deadweight loss by negative consumption externality

Price

S = MPC = MSC

Welfare loss

E1
P1
Negative
externality
E2
P2

MSB MPB

Q2 Q1 Quanity of alcohol units (Lts)

Alcohol is called a demerit good because consuming too much alcohol can lead to an

increase in cỉculatory diseases that is bad for you and a burden on social health finance that is
bad for society (as they must pay more for community financial aid and fee to cure same diseases).

In other meaning, the consumption of alcohol creates a negative consumption externality (This

occurs when consuming good causes, a harmful effect to a third party) that affects society, which

makes the MSB lower than MPB (Marginal private benefits) which shifts the curve leftwards.

Also, the price (P1) and quantity in Q1 is an equilibrium that supports the quantity of demand &

supply staying the same and consumers are more likely to ignore this bad habit if it is always easy

to buy alcohol at a suitable price. And the gap between MSC – Marginal social cost (The total

cost to society for producing one further unit or taking one further action, in an economy. In this

case, is the money society costs to produce every alcohol’ good before tax) with new MSB is a

Welfare loss that exists as a yellow triangle in Diagram 1. This graph shows 2 insights: (1) Society

supposes consumers consume less alcohol than in Q 1 (that should be as closed as Q 2 as possible)

to minimize the negative externality that increases the burden on third parties in this economy, (2)

there is no under allocation of demand on this market, that the loss of welfare would be less or

even equals zero if consumers care more about the social benefit or government can control the

demand.
 Diagram 2. Effects of indirect tax MPC and Government tax revenue

Price S2= MPC + Tax

Government S1 = MSC
tax revenue Potential
E3 welfare
P3 gain
E1
P1
Welfare loss
C

P2
E2

MSB MPB

D Q2 Q3 Q1 Quanity of alcohol units (Lts)

To decrease the volume of alcohol transactions, the Canadian government is going to add

a tax that equals 6,3% of every product’s price. Because this is a Percentage tax (or Vlorem tax)

so the more quantity of supply is, the higher the tax revenue is. So, the graph of S2 widens when

it gets higher. The indirect tax is included in the MPC (it will be shared by producers and

consumers then), so, MPC > MSC, shift the curve leftward makes a gap between them that forms

with MPB (The actual consumption) to create Potential welfare gain (The green triangle). It

creates a new price equilibrium (E3) that is higher than (E1). So, the consumers are less likely to

buy alcohol because the price is higher, and the more alcohol they want to buy, the much more

money they must pay than before, which directly reduces Alcohol consumption willing, reduces

MPB and reduces loss of welfare. The tax revenue that producers and consumers must pay is also
transferred to the government (Government tax revenue shown as a blue rectangle), which can be

used to correct some of the negative externalities caused by alcohol, or directly invest in social

benefits (such as financial aid for medication or support firms that produce other merit goods).

However, the policy might have some unintended effects. Between December 2021 and

December 2022, the exports of Canada’s Hard Liquor have decreased by C$-9.61M

(-15.7%) (OEC, 2022), the export volume might be affected by other factors also (like COVID-

19), but we can not disapprove that the higher cost of production after tax makes most of the

Canadian companies lose their’ profits and reduces the quantity of supply. The rate of Alcohol

consumption per capita in Canada is not too high, but the Alcoholism rate is much higher. So,

maybe there is a more effective way to improve citizens’ well-being is to take special care of

Alcoholism than people who drink alcohol in common (which might be a bad idea because alcohol

can be a culture and a legal entertainment for many people).

The article shows us a point of view on the Canadian Alcohol market, where Canadians

appear to be losing their taste for alcohol, combined with the ongoing plan of adding indirect tax

(6,3%) on all beer, wine, and spirits, shows a bad future of this industry but better in citizens’ well-

being. If the plan is successful, Canada’s legal intoxicants will get more equal among them, reduces

the number of transactions of demerit goods, and be a good example for countries that depend on

demerit goods (alcohol, cigarettes, adult videos, unhealthy foods, etc) too much might change the

plan of their economy.

CITATION
Works Cited

Drenon, B. (2023, 03 01). US & Canada. Retrieved from BBC News:

https://www.bbc.com/news/world-us-canada-64792928

OEC. (2022). Hard Liquor in Canada. Retrieved from The Observatory of Economic Complexity:

https://oec.world/en/profile/bilateral-product/hard-

liquor/reporter/can#:~:text=Between%20December%202021%20and%20December,M%

20to%20C%24123M.

Wisevoter. (2022, 11 07). Alcoholism by Country. Retrieved from Wisevoter:

https://wisevoter.com/country-rankings/alcoholism-by-country/