Illegal alcohol and damage to public coffers

illegal alcoholIllegal alcohol concerns unregistered types of alcoholic beverages, that is, it is a product of smuggling, adulteration, or even artisanal production.

According to a survey by the Euromonitor Institute entitled “The Illegal Alcoholic Beverages Market in Six Latin American Countries”, the Colombian government loses about US $ 450 million in free translation per year with illegal alcohol. Just to serve as a parameter, the newspaper The Republic, from Colombia, presented an interesting comparison, according to which this value is almost equivalent to Colombian coffee exports in the first quarter of the year.

Still according to the research, the main reason that makes the consumption of illegal alcohol so expressive in the local market would be the high tax burden on the industry regularly established. As a result of the tax on alcoholic beverages being one of the highest in the region, the illicit market grows at a rate six times higher than that of the legal market (19,2% against 2,9% annual growth). Low prices are pointed out as one of the attractions for the final consumer, who is often unaware of the health risks to which they are exposed.

The survey also draws a comparison between the countries of Latin America, in which Brazil points ahead of Colombia, with 28,4% of alcohol consumed being illegal against 24,3% in the neighboring country. In this ranking, Brazil is only behind Peru, with 30,8% of illegal drinks.

In order to combat this clandestine market that accounts for more than consumo of the total consumption of alcohol in Brazil, and that spreads on fronts such as smuggling and adulteration, ETCO has been promoting discussions and looking for skillful alternatives to discourage consumption and illicit beverage production. In December 2014, a multidisciplinary round table was held in São Paulo analyzing economic, health and market surveillance aspects of illegal alcohol, where opportunities for a common agenda were identified among those involved and actions needed to increase the population's awareness of the subject. In March of this year, the subject under the aspect of smuggling was addressed at the ETCO events held in Brasília and São Paulo.

An example to be followed in the fight against illegal alcohol

ETCO has been discussing measures to combat illegal alcohol for some time. The complexity of the subject, which includes adulterated, smuggled and even homemade products, requires joint action by several government agencies to try to eliminate the problem.

Simple initiatives, however, can serve as a model for Brazil to combat adulterated alcoholic beverages. This is the case of the street carnival in the capital of Rio de Janeiro.

The city of Rio de Janeiro periodically promotes competition for the sale of alcoholic beverages during festive days. The winning company is responsible not only for providing official drinks to street vendors, but also for training them to work in compliance with current regulations. As a result, there are direct benefits, such as the control of the sale of beverages to minors and more hygiene in the handling of products, and also indirect, mainly, due to the standardization of the sale price of alcohol, which is fixed. Thus, there is a general disincentive to the commercialization of illegal alcohol.

The simple prohibition on the sale of beverages, as occurs in similar events in other cities in the country, does not prevent its consumption. What happens is that, without any regular source of supply, many people end up migrating to the consumption of illegal drinks, which stimulates an extensive criminal chain. The commercialization model adopted, in this case, is an effective measure that avoids countless consequences to the public health of consumers, tax evasion and prejudice to free competition.

Three questions for Sérgio Almeida


 WHO recommended, in its latest report, the implementation of numerous restrictive measures on the beverage industry, based on the data presented. Are these actions effective in combating harmful consumption?

WHO has been lobbying governments to implement a very broad agenda of regulatory measures on the alcoholic beverage industry. However, specifically in Brazil, data on consumption patterns are fragile and insufficient, and little is known about the impact (cost-benefit) of these restrictions. We therefore need more information before pursuing the stricter implementation of these commitments. Attitudes based on wrong premises do not always generate the desired results. The increase in taxes on alcoholic beverages or the imposition of restrictions in relation to the hours of sale of beverages, for example, have social costs that must be evaluated and compared with their advantages. The Government can use the negative externality argument (that harmful alcohol consumption creates a burden for third parties) as a justification for heavy taxation in the sector. But the evidence suggests that this is not working. Worse: it may even aggravate the problem, as the taxation of the sector may be increasing the consumption of the so-called illegal alcohol, which generates a series of losses for society.

 In order to combat illegal alcohol, it is necessary to know the numbers of this trade better. What would be possible sources of data?

There is always enormous difficulty in collecting information from any illegal market. There is no formal record of establishments, and interviewing participants involves, at some level, interaction with 'outlaws'. One way to find out what is happening with this underground economy is to look at both observable variables on industry inputs and correlated to the consumption of these illegal drinks. We can also investigate seizure data. In this case, however, the analysis must be done with great care, since a decrease in the quantity of seized products does not necessarily mean a reduction in the consumption of illegal products, and may simply be the result of a lesser apprehension effort by the inspection authorities . Knowing the size of this market and who is financing it, it is possible to make estimates on the costs of combat proposals. In the specific case of the alcoholic beverages market, we must point out that there are several types of illegal alcohol. Smuggled beverages, for example, generate loss of tax revenue, but are not necessarily harmful to health. The adulteration of alcoholic beverages with substances that are unfit for consumption, in addition to harming the regularly established and tax-paying industry, can bring burdens on public health and, ultimately, on the taxpayer's pocket.

What factors can lead a person to migrate from the legal drinks market to the consumption of illegal alcohol?

 All kinds of restrictions imposed on the supply side can stimulate the illegal market. The price increase, sometimes induced by tax increases, is one of these factors. Consider the analogous case of the pirated CDs and DVDs trade: the high price of original products, added to the ease in obtaining counterfeit products, generates an immense demand. In other words: an increase in the price of the legal product combined with an environment that does little to inspect and punish those involved in the illegal beverage trade can create favorable conditions for these activities to flourish. Time restrictions and even a total ban (a long-term dry law) tend to make people seek alternative sources of consumption, making them more susceptible to illegal drinks. An emblematic example of the effects of draconian restrictions, such as the ban, occurred during dry law in the United States. It reduced alcohol consumption for a while, but stimulated parallel production, where there was no certification or quality control. Result: apart from the losses for local governments that lost much of their revenue, the increase in the consumption of illegal alcohol caused an increase in the number of deaths - it is worth remembering that the intoxication by illegal drinks is much higher than those produced by the industry and that follow established by government authorities. Finally, we can say that in major events, if there is a ban on the consumption of alcoholic beverages, there is scope for unauthorized salespeople who can sell illegal alcohol. If you take any restrictive measures (taxation or whatever), people will respond (they always respond!), And those responses may have other social costs / benefits. Therefore, before implementing restrictions, it is recommended that you try to anticipate the responses, their effects, and incorporate all of them in a cost-benefit analysis as comprehensive as possible.