The big deal about alcohol bottle size
A proposed law seeking to raise the minimum alcohol quantity sold in Kenya from 250ml to 750ml has sparked a battle for the bottle size with manufacturers struggling to remain stable in an already virus-ravaged sector.
Stakeholders say the proposed law will crack the glass industry, freeze beer market and lower spirit sales by close to 90 percent in a move that will also come with massive job cuts as well as heavy loss of investment.
Wundanyi MP Danson Mwakuwona, who is behind the Alcoholic Drinks and Control (Amendment) Bill, however, maintains that the proposed law is meant at curbing excessive consumption of alcohol especially by the youth through curtailing access.
“We are not fighting any business; it is just a conversation we must have to reduce this uncontrolled drinking, which in most cases involves manufactured but unlicensed and unsafe alcohol. The smaller packages are highly portable, and the youth carry them even to schools much as they are cheap. It’s becoming an environmental menace when small bottles are thrown everywhere in towns,” Mr Mwakuwona said.
The Bill also proposes that the small bottles should have a deposit on them to allow for their return to the shops to manage their disposals.
Analysts contend that while the intention may be well-meaning, unintended consequences will be too much to bear for an industry already reeling from heavy taxation, tight controls and ready competition from the illicit market.
The Institute of Economic Affairs (IEA-Kenya), believes the move will only see the government shoot itself on the foot as it will miss out on taxes, push consumers to the illicit market and still end up with a worse alcohol and health situation.
“It is a clear case of policy mistargeting. The proposal will cause huge adjustment costs on the supply side and not the demand side where the proposer asserts that the problem of excessive drinking may exist. The net effect of this regulation on bottle sizes will create distortions on the supply side and lead to shrinkage of the share of the formal alcohol market. The shift or substitution effects from the formal side to informal side has two consequences: Government will be unable to regulate sale, manufacturing, distribution and standards and forgo revenue,” IEA Chief Executive Kwame Owino said.
Social drinking trends
Mr Owino said the only option the government may have is to relook at its already stretched taxation on alcohol should there be need to shift the alcohol demand curve, a move that may not be viable, given the excise taxes applicable for production and consumption of alcohol Kenya which remain among the highest for countries at Kenya’s income level and within the East African Community.
Some players such as the Naivasha-based Keroche Breweries are yet to digest the full intent and impact of the looming law but estimate the effect will be heavier on the consumers.
The firm’s chief executive Tabitha Karanja told Smart Business that while manufacturers will have to make various adjustments, the ultimate burden will be on the consumers whose social drinking trends will have to shift majorly and who may never afford quality alcohol when the minimum is raised to 750ml.
“I don’t even imagine it will be applied to beer sizes as well, but the big question is where will the consumers of the 250ml go to? How will they access quality liquor? The alcoholic spirit market will lose 75 percent of its sales volumes and that is a huge loss,”Ms Karanja said.
A man waits to be served at a wine and spirits shop in Nairobi’s downtown.
The Kenya Association of Manufacturers already estimates that there will be billions of shillings in losses running down the alcohol manufacturing value chain including glass, crates and carton manufacturers employing hundreds of thousands.
KAM is also concerned that the law will create a technical barrier to trade across the EAC and Africa Continental Free Trade Area (AfCFTA) markets since manufacturing plants in Kenya are configured to produce standardised alcoholic beverages, under internationally accepted norms, which make it easy to trade across borders.
With only Kenya dealing in a different bottle size, its alcohol manufacturers will be uncompetitive within EAC and against other countries under AfCFTA.
The country is already disadvantaged by taxation which has made local beer more than twice as expensive than Uganda’s, creating a smuggling incentive along border towns and adding to the regulatory headache for authorities.
Glass manufacturers
Also, to be hit hard are glass manufacturers and according to Consol Glass regional executive for East Africa Joe Mureithi, it will not stand the crack.
The company said over 90 percent of the glass industry’s turnover is derived from sales to the alcohol industry which has been key in driving the industry annual turnover to Sh5 billion and over Sh3 billion tax yield to the government in the last five years.
“There is no scientific evidence that supports the assertion that setting the minimum pack capacity to amounts greater than 750ml results in reduced drinking. Indeed some countries such as South Africa that have beer packs on 750ml and 1 Litre are currently discussing new legislation to limit the pack size to no more that 660ml. Increasing pack sizes is, therefore, more likely to drive an increase in alcohol consumption,” Mr Mureithi said.
The glass maker estimates that there are about 1.2 billion bottles in circulation that the industry will have to discard should the law change and some 50 million crates to go with it. This will cost Sh82.5 billion while replacing them will be another Sh85.2 billion hit.
East African Breweries (EABL) already estimate it will take at least some Sh14 billion hit should parliament pass the law which will force it to write off machinery, buy new ones, manage glass wastes and lose business opportunities as result of being outfoxed in the other East African market.
The brewer whose half year net earnings to December dropped by 47 percent to Sh3.7 billion on the back of reduced sales and a higher tax provision, says the change in minimum packaging volume will cut bottled beer volume sales by 30 percent and reduce sale in spirits by 40 percent as consumers switch to illicit brews and cheaper contraband alcohol from Tanzania, Uganda and Ethiopia where difference in taxation already made alcohol way cheaper than in Kenya.
EABL also says the move is likely to encourage the risky sharing of alcohol in groups, excessive consumption of alcohol and contaminated sales of alcohol which may be divided in portions to the lower income groups unable to afford the higher minimum volumes set.
Post a Comment