NCPA - National Center for Policy Analysis

Privatizing Liquor Sales

December 1, 2014

Eighteen states have control over liquor sales in their state, including Virginia. There, liquor is sold only by state-run "ABC" stores managed by the Alcoholic Beverage Control Board (ABC). The stores are a large source of revenue for the state. Last year, ABC earned $140 million, to which Virginia added $200 million in revenue from liquor taxes. Facing a budget shortfall, Virginia Governor Terry McAuliffe has ordered the agency to increase its profits to $145 million this year, meaning that consumers will be forced to pay higher prices for liquor.

But will charging more for liquor mean higher revenue? A. Barton Hinkle of Reason.com says that's no guarantee: when prices rise too much, consumers merely substitute cheaper products.

Four years ago, the state proposed ending the government's control over the liquor business, says Hinkle, but anti-privatization interests lobbied against the proposal. They argued that big-box retailers would dominate the liquor industry, that liquor consumption would rise and that teenage drinking would skyrocket.

However, critics of privatization made the same claims when the state of Washington decided to privatize its state-run liquor industry, but Hinkle says nothing of the sort resulted. Liquor sales did rise, but only by 6 percent -- much less than forecast. And while large retailers like Costco do sell liquor, there are now 1,400 locations in Washington where consumers can purchase liquor -- previously, there had only been 329 state-run stores.

What has happened in Washington, however, is that liquor prices have risen. Is that the fault of privatization? Hinkle says no: when Washington privatized liquor sales, it imposed a number of fees on market participants, requiring distributors to pay a 10 percent fee and retailers to pay a 17 percent fee. Those fees -- not privatization -- are what have caused prices to rise.

Source: A. Barton Hinkle, "End State Monopolies on Liquor Sales," Reason.com, November 26, 2014.  

 

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