The Benefits of Ending Provincial Liquor Monopolies: A 2005 Study from Ontario

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I was recently putting about the internet and found this reference to a 2005 study commissioned by the Ontario Liberal Government on privatizing the LCBO. Written by a group of impartial experts, the report came out in favour of privatization.

Here are a few highlights:

“Monopolies lock up economic value, and uncompetitive markets hold back innovation and value creation, leaving untapped revenue ‘on the table.’”
“…in order to ensure the socially responsible sale and use of beverage alcohol, it is not necessary for government to own and operate retail and wholesale facilities itself.”

“The government should be using 21st century strategies to fulfill its indispensable role of safeguarding social responsibility in the sale, distribution and use of beverage alcohol. We are proposing that the Ontario government withdraw from ownership and operation of wholesale and retail beverage alcohol business, and instead create a regulated but competitive marketplace.”

“The forces driving change include
• rising and shifting customer expectations about service quality, localized products and pricing;
• the reality that the current “big box” retail store model will mature, and new formats will be required;
• the need to improve productivity and lower costs instead of raising retail prices;
• the imperative to provide maximum value to owners, whether private-sector or government.”

“We share the view that alcohol pricing is a key aspect of social responsibility. Therefore our strategy for transforming the beverage alcohol system maintains a minimum-price policy. Deep discount pricing at the retail level should be prohibited. While we envisage price competition in a more open marketplace, we are adamant that retailers not be allowed to sell beverage alcohol at prices below the minimum price set by the government. This approach is based on the recognition that pricing is one of the most effective tools for reinforcing socially responsible use of alcohol.”

“After consultation, research and analysis, we have unanimously concluded that the best approach for improving the beverage alcohol system is to introduce a licensing system. The government would grant, through an auction process, fixed-term licences to perform specified wholesale and retail functions, including those the government now performs itself. Of the options we considered, this one best met the goals of improving government revenue, increasing market access and flexibility for suppliers, widening consumer choice and convenience and enhancing market competition, while focusing the government’s role on regulation.

By pursuing this option, the government would preserve the equivalent of its present revenue stream from charges on the commodity and also realize significant additional revenue by auctioning the rights to wholesale and retail beverage alcohol. It is anticipated that costs would be linked with the transition to the new structure. We estimate that, following a transition period, the licensing approach could yield incremental value to the province of $200 million or more annually.”

“Some may prefer to keep the system as it is and muddle through. This, however, would solidify the existing vested interests and make it much harder to effect change in the future. After 78 years, action is long overdue. It is time to transform Ontario’s beverage alcohol system. I close with what I believe are the real outcomes of our recommendations:
1. the consumer would get greater convenience and choice and would benefit from a competitive retail environment;
2. the government would remove itself from investment risk while increasing its annual revenues;
3. Ontario would continue to benefit from sound social responsibility practices; and
4. the existing commercial inequities would have been materially addressed.”

Clearly some have already thought about the privatization issue in great depth and come out in favour of privatization if implemented in the correct manner. If you have the time it is worth reading the full report, which you can find here.

Comments

  1. Jake
    December 7, 2010

    Wow, this is great Shea.

  2. Shea
    December 7, 2010

    Yes, a nice find.

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