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New law to stir price wars in alcohol sector

FINANCIAL STANDARD
By | July 6th 2010

By Jackson Okoth

There are growing fears that if the recently passed Alcoholic Drinks Control Bill 2009 is signed into law, the price of traditional liquors will shoot up, driving this market and its low-end consumers underground.

"The reason traditional liquor is affordable is the crude preparation methods used. A new requirement that proper distillation of Changaa is done will definitely push up its price as low-income consumers resort to underworld supplies," said Gordon Mutugi, Corporate Affairs Manager, Kenya Wine Agencies Limited (KWAL).

Police officers during a crackdown of illegal brew. If the Alcoholic Drinks Bill (2009) is signed to law, low-end consumers ( inset) will turn to underworld supplies. Photo: File

Dominant players in the alcohol industry acknowledge that competition will increase significantly, especially in the low-price market, as new players make their entry to provide distillation, bottling and packaging of traditional liquor.

Self-regulation

"I believe that such ethical matters as advertising should have been left to the industry to regulate itself. We are aware of the dynamics involved that any external authority will not be able to understand," said Mutugi.

The Bill, among other things, intends to legalise the brewing of traditional liquors. It also sets the minimum size of containers that alcohol can be bottled, while excluding a sachet as a possible option for packaging.

The legislation also requires labeling of the product, including health warning and product contents. Under the rules, it is illegal to sell alcohol to uniformed police officers.

"Currently, the brewing industry estimates that traditional liquors account for 45 per cent of alcohol consumed in the country, despite being illegal," says research findings by Africa Alliance Investment Bank (AAIB)

The drinks are favoured for their low-cost and high potency compared to those produced by mainstream brewing companies such as East African Breweries (EABL).

"If assented into law, we could expect to see a mushrooming of mini-breweries across the country, servicing specific localities. If well regulated, the new law could achieve the desired objectives of healthy products and at lower pricing," says AAIB.

Market analysts expect significant challenges for mainstream brewers, especially EABL, which has the largest market share in the formal beer market.

EABL recently increased its capacity, and its margins will have to be reduced to achieve sufficient volumes, particularly for the low-end market.

Taxation on the informal brewers would probably also be limited, potentially creating an unequal playing field with mainstream players.

With licensing, however, some form of taxation could be possible to administer, with revenue obtained from smaller players compensating the Government for lost revenue from large players, who may also start producing traditional liquors to enhance their competitiveness.

Lessons from Uganda

Kenya’s attempt to regulate the illegal alcohol industry has vital lessons to learn from neighbouring Uganda, where authorities permit the sale of fermented liquor and turn a resolutely blind eye to widespread and theoretically illegal small-scale distillation.

Unregulated Waragi accounts for nearly 80 per cent of the liquor produced in the country, according to the Uganda National Bureau of Standards (UNBS), which oversees production of legal products.

It doesn’t help that the alcohol is inexpensive and that the penalties for producing or selling it are ineffective. A tall glass of homemade Waragi — usually made from bananas or cassava, millet or sugarcane — goes for about 25 cents, one-sixth the cost of the leading regulated brand.

Illegal production carries a fine of only about $1.50 and a jail term not exceeding six months. Most offenders’ often have their cases dropped before they reach a courtroom.

Uganda’s problem with alcohol does not end with illegal production.

In its 2004 ranking of countries based on per capita alcohol consumption, the World Health Organisation put Uganda top of its list, with adults consuming 19.5 litres a year.

Some observers estimate the economic and social costs of alcohol in the country may be worse than those of HIV and malaria.

Available data shows that most of the traditional fermented alcoholic beverages in Kenya have between three to seven per cent alcohol by volume, the equivalent of a weak beer or wine.

While fermented drinks — grain beer, palm wine — offer quite limited health risks, it is the illicit distillates that are alarmingly in strength and can contain impurities which pose cumulative, long-term risks to health.

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