The Scotch Whisky Association has taken Scotland’s Parliament to court because of a MUP. The goal of the MUP–a Minimum-Unit Pricing law–was to reduce alcohol consumption.
Where are we going? To the impact of an alcohol price floor.
Some Background
In 2012, 86 members of Scotland’s parliament said yes to making drinking a bit more expensive. (Only one member voted no and she said she did so by mistake.) With Scots buying 20% more alcohol than their English and Welsh brothers and sisters, the goal was to reduce binge drinking by adding 50 pence ($.72) for each 10 milliliters of alcohol content.
The difference would be considerable for Croft’s hard cider and a 20-pack of Foster’s Beer:
Since 2012, the case has bounced between Scottish and EU courts. At first a Scottish court dismissed the case but then the Scotch Whisky Association (SWA) focused on an EU complaint claiming that a higher price was an obstacle to free trade. Now the case is back in Scotland with everyone awaiting an August decision.
On the SWA side, the real concern is contagion. Not only would sales dip in Scotland but other countries considering similar legislation would feel free to proceed. Predictably, wine producing countries like France and Italy agreed with the SWA.
Meanwhile health was the parliament’s primary rationale. In the following graph from a 2014 study published by the Lancet, you can see that the health impact is projected primarily to hit low income harmful drinkers. At 40.6% of their consumption, almost half of the alcohol bought by low income individuals would be affected by Minimum-Unit Pricing:
Our Bottom Line: Price Floors and Elasticity
MUP takes us to two economic ideas. It establishes a price floor that prevents price from going down and quantity demanded from going up to a market established equilibrium level:
But also, we cannot ignore elasticity. Defined as the impact of a price change on the amount we are willing and able to buy, the elastic response for a lower income group group is highest. A price change makes a big difference.
So yes, a MUP will probably have the impact that the parliament and the SWA expect.
My Sources: Yesterday’s WSJ had a good article on the Scottish MUP vote and its worldwide implications. Pairing the WSJ discussion with the Lancet analysis of its disparate socioeconomic impact, we get a pretty good set of variables on which to base an opinion. But if you want to take the next step, do read this informal opinion from the European Court of Justice.
