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Provincial Liquor Monopolies: Internal Trade Barriers and Sector Competitiveness

Dec 09, 2016
Melissa Lalonde Melissa Lalonde
Research Associate
The Centre for Food in Canada

The Canadian provincial governments are grappling with the idea of allowing interprovincial trade of alcohol. Currently, the provinces have liquor monopolies and strict limits on the amount of alcohol that can be brought across provincial borders. The provinces give significant market advantages to domestic businesses, making the market less competitive and attractive for distillers outside the province and country. Canadian consumers are interested in supporting local businesses; however, most consumers want maximum choice and are unaware that alcohol producers are not treated equally.

The Conference Board of Canada’s 5th Annual Canadian Food & Drink Summit 2016 featured a keynote by Jan H. Westcott, President and Chief Executive Officer of Spirits Canada, titled “Internal Trade Barriers Harming Alcohol Consumers and Producers.” Westcott discussed the state of interprovincial trade of alcohol, saying that policies are put in place with the express interest to support in-province alcohol producers at the expense of out-of-province producers—policies that have a negative effect on Canadian businesses. Large provincial tax credits can harm businesses because they condition them to be non-competitive and require government assistance. In fact, many distilleries do not consider sending their products out of province because they make higher margins selling in-province due to their preferred status as interprovincial producers. These policies force businesses to fight back against the government, lobbying for change. According to Westcott, these “trade fights are unstable, unpredictable, and unbelievably damaging.”

Echoing Westcott’s stance on the interprovincial alcohol trade issue, British Columbia Premier Christy Clark told CBC that “we should have a free-trade zone in Canada. It makes no sense that you can get B.C. wine more easily in China than you can in Ontario.” More open trade between provinces can increase competitiveness and promote growth. The argument for the current trade regulations and provincial subsidies is based on protectionism—providing in-province brewers/vintners/distillers the opportunity to sell their products without the same taxes outside alcohol producers face. Provinces with monopolies over alcohol sales benefit substantially, since they profit from sales due to price increases that account for alcohol taxes, producer fees, and liquor licences. Simply, provinces with the highest prices collect the most additional revenue. Moreover, liquor boards operate differently province to province, and are able to markup alcohol in their stores as they see fit. In some cases, revenue from the sale of alcoholic beverages is reinvested in the sector through grants for small brewers.

Provincial trade regulations have been in high contention since 2012, when New Brunswick resident Gérard Comeau was charged by RCMP for transporting 14 cases of beer and three bottles of liquor across the border from Quebec in 2012. Comeau won his case in April 2016, and the New Brunswick government appealed the case and later dropped it. However, on December 5, 2016, the Globe and Mail announced that the Public Prosecution Services of New Brunswick has filed a leave-to-appeal application to the Supreme Court, since the “implications of the Comeau case are ‘far greater’ than beer and liquor.”

Perhaps as a consequence of the Comeau case, the Council of the Federation met in Whitehorse in July 2016 to discuss a comprehensive deal on interprovincial trade. Cross-border alcohol shopping was a large part of this discussion. Following the meeting, the premiers of British Columbia, Ontario, and Quebec announced an agreement to make it easier to purchase out-of-province wine—the first step in free trade between the provinces for all liquor products.

Westcott made it clear that trade is still not free for spirits in Canada, and is calling for Canadian provinces to create a modernized trade agreement that phases out policies based on province of creation. He believes that full and complete access to every province is necessary. Westcott told our audience: “It must be up to the consumer to decide which products succeed and fail, not government policy conferring benefits to a few. Consumers don’t want government to control them and their choices. We need to increase global trade, underpinned with interprovincial trade.” Westcott highlighted that Canada’s provincial barriers to alcohol products imported from other countries may increase the risk of future protectionist trade measures. The Conference Board of Canada’s Senior Vice-President and Chief Economist, Craig Alexander, said that “the Conference Board is deeply worried about the rise of protectionism globally. Trade is critical to economic success and growth of Canada.”

It is not only out-of-province businesses that suffer because of protectionist regulations—the consumer is also forced to pay higher prices for the same product that is priced lower in other provinces. Furthermore, in some provinces, some types of alcoholic beverages are afforded different market opportunities than others. Ontario’s new law to allow wine and beer to be sold in select grocery stores has a negative effect on spirit sales, which continue to only be sold in Liquor Control Board of Ontario stores. As the move toward more relaxed regulations continues, and trade barriers are lessened, liquor producers hope to gain access to the national domestic market so that they can work toward the financial stability of the industry.

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