Booze ban fuelled increase in illicit alcohol, with spirits in high demand: report
According to a report by Euromonitor International, government's ban on alcohol sales during the Covid-19 lockdown resulted in an increase in deaths due to consumption of illicit home-brew
A new report has revealed a “dangerous increase” in the illicit alcohol trade in 2020 in SA, as a direct consequence of the alcohol ban during lockdown.
According to a report by Euromonitor International on illicit alcohol sales in SA, the ban resulted in an increase in the demand for illicit alcohol — something which further motivated syndicates to take advantage of the depressed legal market to make profits.
The report was jointly commissioned by the South African Liquor Brand Owners Association (Salba), the Beer Association of South Africa (Basa) and Vinpro.
Market share explained & pricing
Spirits dominate the illicit alcohol market in value at two-thirds of the market, thanks to higher prices of R137-R192 a litre compared to fermented drinks. Illicit spirits were popular during the sales ban in 2020 thanks to their high alcohol content, which tended to last longer than fermented products such as beer and cider, the report states.
Illicit home-brew accounts for the second main category in value terms but is still less than a third of the spirits market, due to the low price of R10 a litre.
Sugar-fermented ales represented the third main category of the illicit alcohol market in value terms, with a price of R15 a litre.
Illicit activity in clear beer/lager accounts for a marginal share in both value and volume terms as it is less profitable and more difficult to produce.
Average illicit prices were estimated at 43% below legal prices in 2020 during months outside of the sales ban, compared to 51% in 2017 and 40% in 2012. Price differentials of sugar-fermented ales within the tax leakage category remain the widest, as these products largely avoid paying high excise taxes (equivalent to a spirit tax)
The report shows that illicit alcohol was widely available during the lockdown period in 2020 and has since become even more sophisticated through organised criminal syndicates.
According to the report, spirits accounted for the largest share of illicit alcohol in volume terms in 2020, reflecting relevance in both counterfeiting as well as smuggled products.
The report further indicates that illicit home-brew accounted for the second-largest category in volume terms, as demand for alcohol during the ban saw increased production. This included sorghum beer and other types of fruit-fermented home-brew, such as pineapple beer.
“Sugar-fermented ales produced by wine manufacturers accounted for the third-largest category by ... volume terms,” the report said.
The report indicates that the illicit alcohol trade has grown at a compound annual growth rate of 17% since 2017 and now stands at 12% of the R177.2bn total industry market value.
According to the report, in volume terms, illicit trade made up one in every 6.67 litres traded in 2017 — but has now escalated to one in every 4.54 litres traded.
“This expansion of the illicit trade has had a devastating social impact on our citizens' health and wellbeing, is stalling economic recovery and fuelling the engines of organised crime,” said Kurt Moore, CEO of South African Liquor Brand Owners Association.
Beer Association CEO Patricia Pillay said the report confirmed a clear correlation between the sales ban and the increase in the demand for illicit alcohol.
“The illicit trade market has almost doubled in the last three years and, in 2020, is now estimated to be worth R20.5bn and comprises 22% of total alcohol consumption. The tragic indirect consequence of this has been the rise in illicit home-brew consumption-related deaths and an increase in criminal activities, which are now firmly entrenched,” she said.
According to the report, the illicit alcohol trade sales by volume had now overtaken the entire combined wine and cider sectors (665,431 hectolitres of alcohol equivalent versus 627,758 hectolitres of alcohol equivalent).
MD of Vinpro, Rico Basson, said not only does this confirm what the alcohol industry has been communicating to the government about the futility of banning legal sales, but also confirms the World Health Organisation position that alcohol policy must take into account the national context.
“In our case, this is an existing rampant illicit market compounded by stringent regulations on the legal sale of alcohol, including alcohol excise taxes that are almost double what they were across all categories in 2012, combined with a weakening macroenvironment, where real disposable income contracted by 4.5% in 2020, and unemployment increasing to 29.2%, that has subsequently fuelled the market for cheap, illicit products,” Basson said.
According to the research, the SA Revenue Service lost R11.3bn in 2020 due to the illicit alcohol trade.
“The loss to the fiscus has several repercussions,” said Moore.
Moore said it placed an additional burden on the state's ability to combat Covid-19, made it difficult to enforce regulations, and seriously hampered attempts to stimulate the country's economic recovery.
Pillay said the South African alcohol industry and its stakeholders shared government's concern about the pandemic and would continue to support meaningful measures to flatten the curve and halt a possible third wave of infections.
“We stand by our commitment to being part of the president's economic growth plan. The alcohol industry can — and does — play an important role as an engine of economic growth and job creation across the value chain,” she said.
Pillay said this could be done by operating within a well-regulated space.
“We do not support outright bans on alcohol sales, which have tragic and disastrous consequences, while alternative, effective and targeted interventions are available.”
Quinton Walker, senior consultant and illicit trade expert at Euromonitor International, said supply chain analysis identified where the illicit activity first took place and the route to market.
“The multi-phased methodology comprised secondary research, primary trade interviews with supply chain managers and industry stakeholders, fieldwork across six provinces, and finalisation involving a qualitative and quantitative analysis of the findings and validation of the data,” said Walker.