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Op-eds

5 October 2005October 5, 2005

Kill the monopoly: Provincial control of the liquor business is a vestige of the 1920s Prohibition era. In 2005, its outdated pretexts have run dry

National Post, p. FP-19

Kill the monopoly: Provincial control of the liquor business is a vestige of the 1920s Prohibition era. In 2005, its outdated pretexts have run dry

State liquor and wine monopolies such as the Liquor Control Board of Ontario (LCBO) and the Societe des alcools du Quebec (SAQ) are a vestige of the past, with origins going back to the Prohibition era of the 1920s. Although public morality has changed, nearly all Canadian provinces maintain strict controls over the import, storage, distribution and sale of alcoholic beverages.

Provincial governments justify their grip on this commercial sector by means of pretexts such as health hazards, alcohol addiction, social costs and even economic efficiency. This control also generates sizeable revenue that they fear losing if privatization were to occur.

None of these arguments justifies the current commercial monopoly of the LCBO and SAQ. With regard to harmful health effects of excessive alcohol consumption, for example, Ontarians and Quebecers can obtain alcohol in the amounts they desire exactly as if there were no monopoly. Purchasing bottles in stores belonging to the government rather than to private businesses does not somehow make the health hazards disappear.

But if monopoly does not restrain consumption, are we better served by our state monopolies than Albertans are by their system, privatized in 1993? A comparison of the LCBO and SAQ's performance (both agencies operate similar monopolies in Ontario and Quebec) with alcohol sales in Alberta shows not only that privatization puts consumers at an advantage, but also that it enables governments to increase revenue from the alcohol trade.

First, monopolies underperform in terms of store density. A higher density presents obvious advantages to consumers, requiring less time and effort to obtain the products they want. When the total number of stores is tallied up, Alberta, with its 1,087 private stores in 2004, comes out well ahead of Ontario and Quebec, with respectively 779 and 801 branches and agency stores. This difference in sales-network density is even greater if we consider that the number of stores per 100,000 inhabitants (see table above) is more than five times higher in Alberta than in Ontario and more than three times higher than in Quebec.

But the differences between the private market and a government monopoly amount to more than these numbers. Contrary to Ontario and Quebec, in Alberta the opening or closing of a store is left up to private entrepreneurs who check demand continuously. It is not liquor board bureaucrats but consumers who end up deciding on store locations by choosing where to shop.

Second, the number of products available on the market is also an important factor. Monopolies in Ontario and Quebec restrict the listing of new products, even if consumers might want to buy them. After privatization in Alberta, obstacles to listing a new product were eliminated. As a result, there are about three times fewer commercialized products in Ontario than in Alberta and the gap is also significant between Alberta and the SAQ.

Of course, all these products are not available in every Alberta store because, unlike monopoly branches, private stores are truly specialized. One retailer may sell more Australian wines, while another may offer a broader range of Italian wines, and so on. This type of specialization creates added value in the eyes of local consumers.

Obviously, there can also be stores that specialize in offering an extremely broad product range. In Calgary, for example, there are stores offering nearly 4,200 different products, more than the full range of 3,449 products offered by LCBO stores!

Price comparisons are difficult because of product, regulatory, mark-up and fiscal differences among provinces. But Albertans pay prices similar to those in the other provinces, according to available research. It is also worth emphasizing that Alberta prices could have been made more attractive for consumers if specific regulations had not accompanied privatization and weakened the role played by competition between private stores.

Fourth, contrary to what is often thought, public authorities in Alberta collect relatively more from liquor sales in the form of dividends ($2,427 per hectolitre) than the Ontario and Quebec governments obtain with their monopolies ($2,342 and $2,343 respectively). The Alberta government would have pocketed many tens of millions of dollars more with the LCBO's sales level than the Ontario government collected from its liquor monopoly. Moreover, unlike the SAQ or LCBO, the Alberta board does not have to assume all the operating risks as a wholesaler and retailer managing warehouses and several hundred branches.

But there may be concern that a private system would stimulate sales and lead to unbridled alcohol consumption. This is definitely not the case: According to Statistics Canada, alcohol sales per adult increased significantly in Quebec (+13%) and Ontario (+4%) between 1993 and 2003, while in Alberta private retailers experienced relative stability in their sales (+1.2%).

The committee created by the Ontario government to examine how liquor is sold reached the following conclusion in a report released this past July: "Following a six-month review, our panel has come to the unanimous conclusion that the Ontario government should withdraw from ownership and operation of wholesale and retail beverage-alcohol business and instead create a regulated but competitive marketplace."

Unfortunately, the only reaction from Finance Minister Greg Sorbara was to repeat that the LCBO is not for sale. In Quebec, even a 12-week strike at the SAQ last winter did not make any politician question the pertinence of this type of government monopoly here in the 21st century.

Valentin Petkantchin is research director at the Montreal Economic Institute and author of the Research Paper entitled Is government control of the liquor trade still justified?


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