n the UK, soft alcohol or beer consumption accounts for 97 per cent of the market, whilst hard alcohol consumption is a mere three per cent. The statistics in the US are no different – as soft alcohol consumption accounts for 95 per cent and hard alcohol just five per cent. However, true to the convoluted Sri Lankan make-up, the total consumption of soft alcohol is a nominal six per cent, hard alcohol consumption is 30 per cent and illicit alcohol – kasippu – consumption is a staggering 64 per cent!

The consumption of alcohol, although an inevitable facet of society, has been a topic of much contention, especially amongst moralists. However, the reality is that individuals have the freedom to choose what they consume. Suresh Shah – Director/CEO, The Ceylon Brewery – declares that Sri Lanka’s patterns of alcohol consumption are notably different, as they follow policies different from or even opposite to those favoured elsewhere in the world. “Amending government policy on excise duty and taxation is key to driving those who choose to consume alcohol away from the drink that has the highest alcohol content,” avers Shah.

THE CUP THAT CHEERS

“The quantum of pure alcohol in different beverages varies. Illicit liquor and legally produced local spirits have a pure alcohol content of about 35 per cent. But the content of pure alcohol in beer is only five per cent,” he points out. As a result, the pure alcohol ingestion is lower when soft alcohol is consumed. But if beer has a lesser content of pure alcohol, why has the brew not gained popularity amongst consumers, especially in a nation known as one of the highest spirit-consuming countries in the world? “The breweries industry is stagnant. Pressures from the illicit alcohol industry and government policy have led to its low market share. Current government policy on soft alcohol is to tax it to extinction. In Sri Lanka, the taxation on soft alcohol is arbitrary. You have to consider the rationale for taxation of alcohol in other parts of the world to really understand this,” asserts Shah.

“If you take taxation policies in the more developed or advanced countries, you will find that taxation per litre roughly reflects the alcohol content in a product – and that translates into the retail selling price of the product. For instance, in London, you will find that if Scotch whisky is sold at UK£ 10, beer is sold at about a pound. This reflects the five per cent of pure alcohol content in beer and 42 per cent of pure alcohol content in Scotch whisky,” he opines.

In Sri Lanka, however, the lowest-priced bottle of arrack is around Rs. 250 and the cheapest beer is Rs. 55. “There isn’t such a large gap in pricing to reflect the alcohol content of the two. This is purely based on the manner of taxation in Sri Lanka. Whichever way taxation is imposed, it should be done in a way that reflects the alcohol content. Ideally, if arrack is Rs. 250, beer should not be more than Rs. 30. This is the type of price comparison that needs to be driven at,” Shah urges.

Dr. Ranil Abeyasinghe, in his publication Illicit Alcohol, states: “It is a matter of concern that government policies have been ambivalent and schizophrenic … Sri Lanka has never had proactive policies on alcohol … The only policy relating to alcohol consumption has been to raise the excise taxes whenever the government needed additional capital to bridge the budget deficit...”

Shah infers: “What our policy does is to drive the poorer drinker into consuming kasippu – an absolutely putrid product.” Comparing the price and quantity variance between beer and kasippu, he opines: “The cheapest beer is Rs. 55. Assume a person drinks one bottle a day – it would cost him around Rs. 1,650 per month. For an average Sri Lankan who earns around Rs. 5,000-6,000 a month, this is not a feasible expenditure – particularly as he can buy a bottle of kasippu for Rs. 60, which would last about four days. This amounts to only Rs. 15 per day or around Rs. 450 a month, compared to Rs. 1,650. There is an almost criminally huge price gap between the two. As a result, kasippu consumption is almost three times that of arrack. This is because the popular route has been to tax the legitimate alcohol business, while allowing the illicit alcohol industry to spread like wildfire.”

With regard to beer, Shah says that although it contains alcohol, the product is subject to much quality control and contains quality ingredients – unlike the “poisonous ingredients” in kasippu. “Knowingly, poor people are being pushed into this disastrous situation, and the government is not willing to take action. Policy should be structured in a way that would not lead people to consume what is harmful. In this industry, you must be encouraged to consume what is least harmful. Policy must reflect this – because policy is a combination of taxation, distribution and communication,” opines Shah.

Distribution, he avers, is another vital factor in ensuring access to a product that contains a lower percentage of alcohol. He says that in more advanced countries, there is a very clear distinction between the distribution of soft and hard alcohol. Usually, beer is available everywhere, whilst hard alcohol distribution is more restricted. In Sri Lanka, however, he says that there are over 2,200 licensed outlets for soft and hard alcohol.

Abeyasinghe further asserts, in Illicit Alcohol: “Opinion leaders in social groups are responsible for opposing the opening of legal alcohol outlets in the community, while hypocritically turning a blind eye to open kasippu sales behind a school or a temple.” Shah elaborates: “The illegal alcohol business is huge and it is thriving, simply because the government is not addressing the issue. The government takes an easy stand and says the law-enforcement officials – the police – should tackle it. But they cannot do so because there is a nexus in this kasippu business. There is a nexus between politicians and the police, so there is no way the police can bring offenders to book.”

Attempting to throw light on just how pervasive and profitable this illegal alcohol business is, he points out that if one examines the performance of the Distilleries Company of Sri Lanka (DCSL), for example, one will see that its arrack business makes a profit close to a billion rupees a year. This, however, is after paying taxes, “reasonable salaries” to its employees, and EPF and ETF. “If DCSL can make one billion rupees after all of these expenses, the illicit alcohol business probably makes around three to four billion rupees a year, since they sell more and pay less. They don’t pay taxes, their salary scales are different and they pay no EPF or ETF. And they use this money to bribe anyone and everyone,” he surmises.

Speaking about Corporate Social Responsibility (CSR) for the breweries industry, Shah says that its fundamental responsibility is the message communicated through its marketing campaigns. For instance, he says, the marketing campaigns should not target the young, depict beer drinking, make claims concerning social success or include an icon such as a cricketer or movie star to promote products. “More than any other industry, we are aware that our product – if abused – can cause harm. Therefore, in our marketing, we have to be self-governing in a way that is not irresponsible. It is also important that the industry has a code of ethics within which it operates,” says Shah. He also emphasises that children as well as adults should be educated about the harm these products can cause.

Down the hatch?

Commenting on the performance of breweries, Shah says that the industry, which has three major players, has seen a four per cent slump in sales this year. This, he says, is related to a combination of reasons: taxation and bootlegging – both of which are fundamentally economics-related.

However, Shah affirms: “If the policy relating to the soft alcohol industry is on par with international policies, it will not only benefit the beer industry, but will also see people moving away from kasippu. Alcohol abuse will also reduce dramatically. This will not happen overnight – but there has to be a starting point.”

So what are the future prospects of the breweries industry? Shah says that certain products are already exported to numerous developed countries and they are “very well accepted”. Some are even better than international beers, he claims.

Yet, to further develop exports, Shah opines: “With products like beer or any fast-moving consumer item, a company needs a fairly large amount of resources to market products overseas, as the competition will be against giants in the field. Therefore, to be able to move out and make our presence felt in the international arena, the breweries industry needs a reasonable home base – the funds from which could be poured into further investment.”