Minimum prices and mortality risk

The latest Stockwell piece on alcohol minimum pricing and alcohol-related fatalities seemed a bit fishy.

I was mostly worried about how they ran a panel study that had zero cross-sectional variation in their main regressor of interest and where the main source of time series variation was CPI adjustments to measured prices, but it looked like there were plenty of other holes for truck-driving expeditions.

George Mason statistician Rebecca Goldin goes for a scenic tour, noting another rather serious problem. Standard t-statistics don't really do the job if you're pouring over multiple lags to look for effects. She writes [ht Forbes]:

What’s troubling here is that they break the data down into many quarters and categories, run multiple statistical tests, but don’t adjust for multiple testing. This results in a table spotted with statistically significant results even as basic statistics tells us this method will produce spurious results.

A close look at the table is suggestive that spurious results are indeed at hand. This table looks at 16 quarters following a minimal price increase, and whether there is a correlated increase or decrease in deaths among acute, chronic or wholly attributable alcohol deaths. The authors point to a statistically significant decrease in wholly attributable deaths in the quarter that a price increase was implemented, as well as in the second and third subsequent quarters. (but not in the first quarter, nor the 4th-15th quarters).

But it also shows a significant increase in acute deaths in the third and fifth quarters after a price increase, and then a statistically significant decrease in acute deaths in the 8th quarter after the price increase. Chronic deaths saw statistically significant decreases in the 8th, 9th and 13th quarter after a price increase, but not in the other 13 quarters. This all suggests that the results could be, at least in part, the result of simply running a lot of tests on a lot of data – and without adjusting for multiple tests, randomness can creep in. Though the results do lean toward decreased death, picking out the most extreme of the results (as the media and the authors of this study did) may be misleading. In fact, if the 1,388 wholly alcohol attributable deaths occurred evenly over the quarters, these numbers refer to trends in about 87 deaths each quarter – trends that would be highly sensitive to a small number of deaths.

So while there seems to be an overall trend of decreased death with increased prices, the failure to account for multiple testing means there could be true correlation or there could be just a statistical fluke.

Eventually, somebody's going to take a proper shotgun to the stuff Stockwell's been up to. When Chris Auld was doing their econometrics, I didn't worry about their empirical results. Things seem to have gone a bit adrift since then.

Cheap plonk

It's not crazy to argue for the combination of a lower alcohol excise tax and a minimum per-unit price for alcohol if harm-causing drinkers disproportionately choose the cheapest plonk while moderate drinkers choose more expensive drinks. The anti-alcohol lobby likes to point out that moderate drinkers on average choose more expensive beverages, but this really doesn't tell us anything without a correction for income - if heavy drinkers disproportionately come from poorer cohorts, and if poorer people of all drinking intensities choose cheaper products, then income cohort effects confound things.

Consider though the Lindauer Rose, a bubbly that often retails around the $9 mark. It's 12% alcohol, so it's around 7 standard drinks. Labour's preferred $1.50 or $2 per standard drink minimum price would bind on the Lindauer Rose. Cheap plonk consumed by harmful drinkers? Or an Air New Zealand Wine Awards Gold Medal winner?

If the cheaper alcohol categories include nicer drops very plausibly chosen by moderate drinkers on a budget (or even ones at which I'd turn up my nose, so long as preference heterogeneity is allowed), we really really need to worry about harms imposed on moderate drinkers when weighing the effects of minimum pricing on harmful drinking.

More letters....

This time to the DomPost consequent to Olivia Wannan's article on alcohol minimum prices. Olivia's piece is one of the better summaries I've seen out there. But I did want to make a couple of points. Here they are.

Thank you for Olivia Wannan's reasonably balanced piece on alcohol policy.
 I would make one note of correction. In 2009, Matt Burgess and I released a report critical of BERL's $4.8 billion estimate of the social cost of alcohol in New Zealand. That report was entirely uncommissioned; we simply did not like that what we viewed as a bad statistic was influencing policy. We concluded there that social costs were instead on the order of $760 million. Late in 2010, Matt and I were commissioned by an Australian alcohol consortium, NABIC, to produce a similar report examining the Australian study that formed the basis for BERL's report. In doing so, we discovered a substantial error in our prior work on BERL: one not noted by BERL in its response to our critique, by Brian Easton in his paid report for the New Zealand Law Commission evaluating our work, or by Australian consultants Marsden Jacob and Associates, who were paid $60,000 by the New Zealand Law Commission for their report critiquing our unfunded paper. We consequently updated our estimate of the social costs for New Zealand to roughly $967 million. NABIC did not request this addition to the paper we produced, but we did not want the error in our prior work to stand once we discovered it. The net effect of our doing funded work on alcohol was to increase our estimate of the social costs of alcohol in New Zealand.
 Aggregate social costs are a poor basis for policy. We can easily imagine worlds in which alcohol's harms are tiny, but where particular measures could reduce those harms without offsetting costs to others; we can similarly imagine worlds in which alcohol's harms are enormous but where no measure could reduce harms without doing even more harm to moderate consumers' enjoyment of alcoholic products. A more relevant assessment would consider the benefits of any particular policy along with the harms imposed on moderate drinkers and others by the policy and simply recommend those policies doing more good than harm. 

Check your sources

Doug Sellman in the opinion section of today's Christchurch Press claims to have had his numbers right [not yet online]. Let's check the history here.

Here's Sellman and Connor's original press release:

Who is advising the Prime Minister on alcohol reform?

Mr Key announced today that he doesn’t believe that minimum pricing for alcohol will change the amount people drink.

“This is contrary to the scientific evidence base about alcohol pricing in general and minimum pricing in particular” said Prof Jennie Connor, medical spokeperson for Alcohol Action NZ.

“Mr Key states that what typically happens is people move down ‘the quality curve’ and still get access to alcohol. Where does this information come from? On the contrary, minimum pricing specifically targets the very cheapest alcohol options and is predicted to reduce average consumption by removing high-alcohol low-cost products from the market.”

“A recent Canadian study has shown that a 10% increase in the minimum price of alcohol reduces its consumption by 16% relative to other drinks”. [emphasis added]

“And these latest data are consistent with the scientific literature which indicates that increasing the price of alcohol has a positive impact on reducing heavy drinking”.

This is very clearly saying that there are very large price effects of increasing the cost of the lowest-priced alcohol. I had initially found the Newstalk ZB report and wondered whether she'd been misquoted, before finding the press release.

I wrote:

Connor has to have been misquoted here or the journalists left out a couple of subsequent clarifying sentences. The error is in the press release. Oh dear.

The link there is now deprecated, but the Scoop link still works.

In today's press, Sellman says that they had it right all along:

On July 3, 2012 we issued a press release recommending the government enacts a minimum price per standard drink of alcohol – to eliminate ultra-cheap drinks favoured by binge drinkers, young drinkers and heavy drinkers – and pointed to a Canadian study that showed ‘‘a 10 per cent increase in the minimum price of alcohol reduces its consumption by 16 per cent relative to other drinks’’. Our wording was based closely on the paper’s wording: “Longitudinal estimates suggest that a 10 per cent increase in the minimum price of an alcoholic beverage reduced its consumption relative to other beverages by 16.1 per cent (p0.001).”

Two days later Crampton wrote a damning critique of the press release on his personal blog, using the same arguments he later used in this Press article. However, it appears Crampton based his critique on a short Newstalk ZB news report of the press release, which quoted Jennie Connor saying, ‘‘studies show a 10 per cent increase in the minimum price of alcohol reduces consumption 16 per cent’’. Note: the reporter had cut off the words ‘‘relative to other drinks’’, which would indeed be wrong if she had said it.

Crampton’s blog piece, and his later Perspectives article, ridiculed the presumed mistake: ‘‘Can a 10 per cent increase in the minimum price of alcohol really reduce total alcohol consumption by 16 per cent?’’ he wrote. ‘‘No’’. But if he had taken the basic precaution of checking the primary source, our press release, he would have seen the words ‘‘relative to other drinks’’ and realised that we had not misquoted the Canadian study at all.

Thus Crampton’s main argument in the Press article was based on his own simple and avoidable mistake, which seems careless for a senior lecturer.

The problem isn't that the Newstalk piece left off the words "relative to other drinks" but that Sellman and Connor used that estimate as though it were relevant to average consumption and where "other drinks" would be interpreted as something other than other categories of alcoholic beverages.

Further, they might have noted that my post of 10 July quoted the press release accurately; my post of 5 July had cited the NewsTalk reporting.

If we look a bit further down the Auld paper, we see pretty clearly what Sellman and Connor had missed:

"The estimates indicate that a 10% increase in the minimum price of a given type of beverage reduced consumption of that type by about 16.1% relative to all other beverages, and a simultaneous 10% increase in the minimum prices of all types reduced total consumption by 3.4% (p<0.01 in both cases)."

Sellman and Connor were building a case in their press release that the Prime Minister was way off base in claiming that raising the minimum price would not have large effects on drinking. Whether "relative to other drinks" is included or not is irrelevant where the context suggests that "other drinks" means drinks other than alcohol.

And so I sent the letter below to the Press this morning:

Doug Sellman in Monday's Press claims to have had his numbers right all along. In his press release of 3 July, he and Jennie Connor wrote:

“Mr Key states that what typically happens is people move down ‘the quality curve’ and still get access to alcohol. Where does this information come from? On the contrary, minimum pricing specifically targets the very cheapest alcohol options and is predicted to reduce average consumption by removing high-alcohol low-cost products from the market.”

“A recent Canadian study has shown that a 10% increase in the minimum price of alcohol reduces its consumption by 16% relative to other drinks”.

The rather obvious interpretation of their release, which was highly critical of the Prime Minister's claim that minimum prices would not greatly affect consumption, was that we should expect a sixteen percent reduction in consumption of alcohol relative to other drinks were the minimum price of alcohol to rise by ten percent.

The paper on which their analysis was based does indeed have a quote that reads a lot like Sellman and Connor's. But, it refers to the effects you get if the price of one category of alcohol - like beer, wine, or spirits - rises relative to other categories of alcoholic drinks. It isn't talking about the consumption of alcohol as compared to fruit juice. This is obvious if we read the second clause of the sentence, where Auld and his coauthors write:

"The estimates indicate that a 10% increase in the minimum price of a given type of beverage reduced consumption of that type by about 16.1% relative to all other beverages, and a simultaneous 10% increase in the minimum prices of all types reduced total consumption by 3.4% (p<0.01 in both cases)."

In Monday's Press, Sellman claims not to have misquoted the Canadian study and that they had, all along, meant "relative to other drinks" to refer to other categories of alcohol. If so, it seems odd to have chosen that figure as being relevant to the argument they were building. It could be relevant if we were estimating the likely reduction in consumption of premixed "alco-pops" relative to other alcoholic beverages, but surely the total amount of alcohol consumed matters more than whether it is consumed in one type of alcoholic beverage rather than another. And, for total consumption, the 3.4% figure is the rather more relevant one.

I strongly encourage readers to read the paper on which Sellman's claims are based and to judge for themselves, rather than trusting either of us. An ungated version of it is available here: http://www.vsnews.fr/etudes/Does-Minimum-Pricing-Reduce-Alcohol-Consumption.pdf . Or, go to scholar.google.com and type "Does minimum pricing reduce alcohol consumption?" You will find that the authors there, like Sellman, favour minimum prices. I worry more about harms imposed on lower income moderate consumers of lower cost alcohol. How we weigh the tradeoff between reducing harms from heavy drinkers and reducing consumption benefits from poorer moderate drinkers is a fairly important discussion. But the case for a minimum price for alcohol ought not be based on an estimate of its effects that is roughly five times larger than that which can be supported by the evidence.

Evidence and minimum alcohol pricing

Otago's Jennie Connor and Alcohol Action NZ's Doug Sellman are angry again. This time, because Justice Minister Judith Collins cited some Masters' research done at Massey AUT showing that students surveyed said they'd not change their binge drinking habits if prices increased; they instead want the government to rely on international peer-reviewed evidence based on actual consumption patterns rather than on surveys.

And fair enough.

Fortunately, we have some evidence ready at hand. Byrnes et al, 2012, Drug and Alcohol Review. They use Australian household surveys from 2001, 2004 and 2007 to see how changes in alcohol prices affect the number of reported days of no, low, moderate, and high alcohol consumption; they find that while price increases do reduce consumption, they tend to reduce the number of days of low consumption while not changing the number of days of moderate and high alcohol consumption. This would be consistent with binge drinkers dropping the occasional beer or wine with dinner to save up for the big nights out. If policy is more worried about binge drinking than about light drinking, this might matter.

It's also mildly amusing that an Otago healthists complains about policy being based on surveys. I wonder what Connor would make of her Otago colleagues' call for banning smoking outside of bars on the basis of a survey of thirteen youths recruited in part via Facebook; the youths reported in focus groups that they'd be less likely to smoke if they couldn't smoke outside of bars. Maybe that one's ok because it's published in a journal rather than being a Masters Thesis.

Connor also notes that heavy drinkers tend to purchase cheaper alcohol relative to moderate drinkers.

“It has been established that hazardous drinkers spend less per unit of alcohol than others, and drinkers compensate for price increases by shifting to cheaper drinks. In the United States, the heaviest 10% of drinkers spend approximately $0.78 per drink compared with $4.75 per drink for the lightest 50% of drinkers.”

This only is a relevant comparison if the heaviest drinkers and lightest drinkers are drawn from the same parts of the income distribution. Suppose for sake of argument that heavier drinkers are more likely to be drawn from poorer parts of the income distribution and lighter drinkers from higher income parts of the distribution. If that's the case, we would want to compare the price paid by heavy and light drinkers correcting for any differences in income. If people with demographic characteristics similar to the heaviest 10% of drinkers but who are light drinkers spend $1 per drink (just a guess here), then minimum prices pushing above that hit both heavy drinkers and light drinkers of modest income. I know that consumption benefits from alcohol count for zero in the healthist world, but they ought to matter for policy.

At least they're not today claiming that a 10% increase in minimum prices reduce consumption by 16%...

About that Canadian study...

Last week, anti-alcohol advocacy group Alcohol Action NZ put out a press release where the University of Otago's Jennie Connor was quoted:

"A recent Canadian study has shown that a 10% increase in the minimum price of alcohol reduces its consumption by 16% relative to other drinks".

I got in touch with one of the authors of what has to be the study to which she's referring.

Chris Auld reported that the -1.6 price elasticity figure indeed only refers to a measure of own-price elasticity. Except it isn't quite own-price elasticity. Because the estimation technique doesn't correct for substitution effects, it combines the own-price elasticity with cross-price elasticity from other products. Quoting from Chris, with his permission:

Suppose we have two types, 1 and 2. Demand for type 1 is x_1( m_1, m_2 ), presumably decreasing in own min price m_1 and increasing in the min price, m_2, of the other type. The panel models recover d(x1 - x2)/d(m_1), so they are not estimates of own-demand slopes. For example, we might estimate -1.6 if the own-elasticity is -0.9 and the cross-elasticity is +0.7. Since we are not controlling for the cross-price, nothing can be said from these models about the effect of increasing both minimum prices---it could be that total consumption is almost invariant to min prices, but we could still generate big estimates from these models if various types of alcohol are strong substitutes. Test statistics against the null that the total effect is zero are still valid, but it's easy to misinterpret what the estimates mean

Chris also confirms that the -0.34 estimate is the one that best reflects the expected effects of an across-the-board price increase like minimum pricing, but notes that the standard kinds of time series problems makes that estimate rather less robust than he'd like.

I think it's [the estimate] probably too high, although it may be in the ballpark - a variety of evidence does suggest that min price changes are quite effective in targetting heavy drinkers.

Wagneaar found -0.28 among heavy drinkers, so I'm less worried about potential lack of robustness around Chris's estimate; if every estimate of this sort has similar robustness issues, then we might worry about systematic overestimation of demand elasticity with publication bias.

Heavy drinkers who consume cheap alcohol will be targeted with minimum prices, but so too will moderate poor drinkers who choose cheap alcohol.

Chris says he's doing some theory work showing that:

the central planner would always like to impose minimum pricing but reduce conventional taxes when confronted by consumers who are heterogeneous in an underlying demand parameter and when externalities are nonlinear in consumption---because there is an externality on the quantity but quality choice, the planner would like people to drink less alcohol, but drink higher quality alcohol.

I agree with Chris on this one - I'd posted a pretty similar point last week. The New Zealand Drug Foundation should perhaps pay attention to this one: having a minimum price should be coupled with excise reductions, not increases; NZDF has been pushing for both a minimum price and an increase in excise. If the ex ante excise were seriously below the optimum, then I'd expect a model like the one Chris is likely working up to say instead that minimum pricing lets us increase excise less than we otherwise would. But aggregate excise here isn't far out from actual external harms from alcohol. And I still worry about effects on moderate drinkers of lower income. The policy seems likely to be severely regressive.

Jennie Connor really should retract her press release or issue a correction. It leads people to believe that a minimum price will have far more effect on harmful drinkers' consumption than can be supported by the evidence. Otherwise, how much weight should anybody place on any "fact" claimed by Jennie Connor in her press releases?

In other scorekeeping, Ross Bell is right and John Key is wrong: a minimum price will increase the average quality of drink consumed, not reduce it. Here's Key:

"Instead of buying a $10 bottle of wine that might go to $15, they'll buy a $5 bottle of wine that'll cost $10. Their outlay is the same, the quality of what they're buying is worse," John Key said.

Competition among retailers, distributors, and producers ensures that drinkers get at least the minimum price's worth of value for the drink they're consuming except where there are other restrictions in the system that allows agents to accumulate rents.


But in that same article, Bell underestimates the number of standard drinks in a bottle of wine; this has the effect of reducing the perceived effect of a minimum price. Bell writes:

If the Government were to set the minimum price for alcohol at $1.50 - a reasonable and workable price - it would mean a seven-standard-drink bottle of wine could not be sold for less than $10.50.

Most bottles of wine are closer to 8 standard drinks than to 7. I had a quick flip through our wine rack. A Pegasus Bay riesling came in at 6.6 standard drinks. Nothing else in the rack rounded to 7 - everything else rounded to 8, except a few Aussie reds that rounded to 9. 8 standard drinks at a $1.50 minimum price is $12, not $10.50. And, though I'm a moderate high-income drinker, I do often buy bottles of wine in the $10-$12 range. The Montana Classics range on special for $9 is typically great value; I never feel bad about using third of a bottle in cooking at the price, and a glass while cooking is generally decent too.

Bell cites a Scottish government study suggesting that moderate drinkers won't reduce their consumption by much in absolute terms while heavy drinkers will have massive reductions in absolute consumption. If that one's based on Sheffield, and if Sheffield there is assuming constant elasticity across moderate and heavy drinkers, I wouldn't put much weight on it. Sometimes Sheffield estimates differential elasticities, sometimes they just assume constant elasticities. I'm not sure what they're doing in this particular one. And I also worry too about differential patterns in how people reduce their consumption. The Australian study I'd cited last week showed that most of the action in price increases is in reducing the number of days of light drinking rather than reducing the amount of heavy drinking, though there are other studies suggesting reasonable price elasticity of binge drinking. 

Finally, Bell cites BERL's (adjusted) figure on alcohol-related harm: $4.4 billion. That's disappointing. Ross, please remember that that study is just terrible. Again,

• They count the VSL from lives lost while simultaneously counting the total value of forgone production from premature mortality. The Ministry of Transport, who puts out the VSL measure, never does this when they tabulate the social costs of car crashes. They count the value of lives lost in accidents, the cost of injuries, and the value of production forgone due to injuries, but they don't count forgone production from those who die. The measure of the value of a statistical life is inclusive of the measure of forgone production. BERL says that VSL costs are $1.52 billion and that labour costs, mostly from deaths, is $1.48 billion. 


• Where their model study, Collins and Lapsley, counted both the health benefits and the health costs of drinking and took a net measure of costs to the health care system, BERL took a one-line assumption that harmful drinking can never have any health benefits as justifying a move zeroing out any of the aetiological fractions where alcohol reduced costs. This was absurd and points strongly to that they just wanted to give the Ministry of Health the very very large number that the Ministry of Health wanted. Even drinking that is on net harmful can have a mix of underlying positives and negatives. 


• They everywhere conflate private and social costs. Ross, you probably want to include all the costs that drinkers impose on themselves. And that's fair enough where you accurately characterise those total costs as mostly consisting of costs drinkers impose on themselves. But neither of the points above have anything to do with that. It's just poor method designed to inflate reported costs. And repeating the "costs New Zealand" line without the qualification makes people think that you're referring to a cost to the taxpayer through the health system rather than a cost drinkers impose on themselves - it's misleading; I hope not purposefully so.

Peter Dunne seems pretty sensible on this one, even if I do curse his name each and every time I want to get cold medicine that works.

"To say that we'll have a minimum price of $12 for a bottle of wine because people who can't afford to pay $12 shouldn't pay a lesser price, but Chardonnay socialists who can pay $25, $30 for a bottle of wine will still be able to get their wine. I think that's a really elitist and ridiculous argument."

The policy would reduce some harmful consumption, but it would also reduce some reasonable consumption from lower income drinkers - and from a few higher income cheapskates like me. We either need more serious work showing that the harms prevented outweighs the harm imposed by the policy, or at least coupling the policy with transfers to those negatively affected.

Markets hate profits

Unless there's some barrier in the system preventing it, no firm can sit on excess profits forever. Competition erodes away the excess profit until everybody's again earning a normal rate of return. Today's case in point: alcohol minimum pricing. I've made the point before, but it's worth walking through again as the logic isn't immediately obvious to non-economists.

Neil Miller argues:

Because most craft beers are currently priced over the $2 a drink threshold, it could be argued that they will become closer in price to mainstream beers which might encourage drinkers to “trade up”.  However, the costs to the big breweries will not have increased and they will basically be making more money for the same beers.  This means they will be able to increase marketing and distribution efforts.  Mr Albertson’s point about minimum pricing putting pressure all the way up the chain is critical.  

He's right that the big brewers will have more money for marketing and distribution. But they're pretty unlikely to be making more money for the same beers. Let's walk through the logic.

Suppose I'm one of the big brewers and Labour takes power. Lianne Dalziel announces a $2 per standard drink minimum price. Doug Sellman shouts about how it should be $10. My product previously retailed at $1 and cost me $0.25 to produce. I got $0.05 in profit and the rest was distribution / retailing costs. Can I suddenly start pocketing $1.05 in profits for that drink?

Minimum pricing hasn't made my competitors go away. I expect that they'll be trying to increase market share. What should I do? The first thing I'd try is a new promotion: Every 4th case (24 pack) of beer has $20 inside. My production cost goes up by a bit over $0.20 per bottle, so I'm only pocketing $0.85 in profit per bottle. But if my market share goes up by enough, it's totally worth it.

My competitors try it too. They promise $20 in every 3rd case. Then somebody in Parliament figures out that the real cost of alcohol to consumers is nowhere near $2 per standard drink as we're effectively rebating a big pile of the minimum price to consumers as a cash lottery. So that gets banned.

What next? Free t-shirt! Free shot glasses! Free beer mugs (collect all 8!). Then Parliament bans bundling any kind of good with the beer.

What next? It depends a lot on how different cohorts of drinkers respond to increased product quality versus increased related amenities. Maybe I can turn my bottles into something that's beautiful, with a stopper cap on a wire that makes it useful for re-use as a water bottle. Maybe I can make my labelling nicer. Maybe I can open up my own bottle shops where I sell only my own product but there's just an awesome environment for my customers: free massage from a Tui Girl with every purchase.

Think I'm kidding? Look at what happened in the US when airline prices were regulated. The airlines were banned from competing on prices. So what did they compete on instead? Better meals, better drinks, and more attractive stewardesses.

Unless there's some barrier to competition somewhere in the system, nobody gets to sit on free profits. These kinds of rents get eroded pretty quickly. Customers either wind up buying alcohol that actually costs $2 per standard drink (less normal profit) to produce, or that's bundled with amenities they find more valuable than improvements in the quality of the drink but that still cost $2 per standard drink (less normal profit) to provide.

Who might get to enjoy excess profits - rents - out of minimum pricing? My first pick are those who have bottle shop licences in poor neighbourhoods. They'll have local monopoly rents, especially when their customers have a harder time going across town for bargains. That will be capitalised into the price of the firm, and the next guy who buys the bottle shop will only then be earning normal profits, but there's likely a windfall gain to some small bottle shops.

Markets hate free profits: somebody's always rushing in to try to grab them. That competitive process runs until everybody's just earning a normal rate of return. I'd expect that the only conditions under which the big breweries get to keep selling current product at a $2 per standard drink minimum profit and just bank the profits are the conditions under which they could do it without a minimum price. Basically they need a strong cartel that prevents entry. Fortunately, we're nowhere near that kind of a world, at least in New Zealand.

Odoriferous statements

Prime Minister John Key said he didn't think minimum pricing would do much to curb heavy harmful drinking. Jennie Connor is quoted in a press release excoriating Key:

Mr Key announced today that he doesn't believe that minimum pricing for alcohol will change the amount people drink.

"This is contrary to the scientific evidence base about alcohol pricing in general and minimum pricing in particular" said Prof Jennie Connor, medical spokeperson for Alcohol Action NZ.

"Mr Key states that what typically happens is people move down 'the quality curve' and still get access to alcohol. Where does this information come from? On the contrary, minimum pricing specifically targets the very cheapest alcohol options and is predicted to reduce average consumption by removing high-alcohol low-cost products from the market."

"A recent Canadian study has shown that a 10% increase in the minimum price of alcohol reduces its consumption by 16% relative to other drinks".

"And these latest data are consistent with the scientific literature which indicates that increasing the price of alcohol has a positive impact on reducing heavy drinking". [emphasis added]

When I saw the release [HT: ed.co.nz], something seemed awfully odd about the bolded quote. What's the reference category, fruit juice? What's meant by "relative to other drinks"? So I dug around a bit for the work she's citing.

Connor is almost certainly referring to this Canadian study, which does argue in favour of minimum pricing. But compare their numbers with the bolded quote above.

The estimates indicate that a 10% increase in the minimum price of a given type of [alcoholic] beverage reduced consumption of that type by about 16.1% relative to all other  [alcoholic] beverages, and a simultaneous 10% increase in the minimum prices of all types reduced total consumption by 3.4% (p<0.01 in both cases). The first estimate may overestimate minimum price effects because it incorporates compensatory increases in consumption of all other beverages. The estimate of the effect of across-the-board changes in minimum prices on total consumption will be biased to the extent that the extra structure we imposed on the model is unrealistic.

Connor is citing the results from the own-price study as being the estimate of the effect of the across the board increase.

Doug Sellman, in the same press release, says

"The PM's statements reek of alcohol industry influence."

As for the bouquet emanating from the Connor/Sellman press release...

Price elasticity of alcohol demand [Updated]

Otago's Jennie Connor cites some numbers on the elasticity of alcohol demand with respect to price that just seem off [HT: ed.co.nz].

But Professor of Preventive and Social Medicine at Otago University, Jennie Connor, says price does influence alcohol consumption.
She says studies show a 10 percent increase in the minimum price of alcohol reduces consumption 16 percent.
Professor Connor says it's a very efficient and effective way of reducing problems from alcohol, because it targets heavy drinkers the most.

I've been citing the Wagenaar meta-study results showing an aggregate alcohol demand elasticity of -0.44; she's saying it's -1.16 -1.6. There's a bit of a gap there.

When I look at Table 1 of Wagenaar's metastudy of 112 different studies of the price elasticity of demand, I can't find a single one that has an aggregate elasticity lower than -0.92 at the lower end of the confidence interval; the lowest point estimate is -0.84. Recall that you need to hit -1 to have a product that's price elastic. But those are aggregate estimates; maybe there's just something different about elasticity at the bottom end of the price distribution.

So let's have a look at a very recent Australian issues paper examining the case for minimum pricing. This one comes from the Australian National Preventative Health Agency. What do they say about demand elasticity at that end of the distribution?

First, we have to be awfully careful in distinguishing between own-price and aggregate category effects. If you look at the effects of a price increase in one category of product, you'll likely overestimate aggregate price responsiveness because price-sensitive shoppers will flip to another alcohol product category if one category's prices change.

Who does the Australian National Preventative Health Agency cite? Wagenaar, like I do: Wagenaar reports aggregate elasticity across all alcohol categories. They cite two other meta-studies, one of which, Gallet, also reports an aggregate category elasticity that's pretty much identical to Wagenaar's. Where Wagenaar gets -0.51, Gallet gets -0.52.* The last one only reports elasticity by category, which is next to useless for reckoning changes in response to minimum prices or cross-category excise increases, but within-category findings are about the same as Wagenaar and Gallet were getting in those kinds of estimates - more elastic than aggregate elasticity, but still nowhere near -1. Wagenaar gets -0.8 for spirits; people shift from spirits to other products more quickly when the price of spirits jumps.

Next, ANPHA cites some Sheffield figures on aggregate price elasticities for overall alcohol consumption: -0.47 for moderate drinkers and -0.21 for hazardous and harmful drinkers. They note too that, when we look at own-price elasticity within product categories, hazardous and harmful drinkers are more price elastic than moderate drinkers: they're more likely to shift product categories. But that tells us zilch about what harmful drinkers do in response to a price increase for the entire product category; it would be misleading to use this kind of data to claim that harmful drinkers are the most price responsive. They're most price responsive when their preferred brand or product changes in price but they're also least responsive to aggregate changes in alcohol prices.

Finally, ANPHA look at some evidence from Canadian experiments with social reference pricing. At page 16, they cite evidence from British Columbia where a 10% increase in alcohol's minimum price resulted in 3.4% reduction in aggregate consumption: again, a finding consistent with the numbers I'm citing, and not consistent with Connor's.

ANPHA cite a bunch of other Sheffield simulation results showing relative price inelasticity but greater simulated total consumption changes among harmful drinkers than among moderate drinkers. Simulation results here are going to be pretty sensitive to parameter estimates, but it's also the case that a smaller percentage consumption reduction among heavy drinkers than among moderate drinkers can easily generate larger total consumption decreases among heavy drinkers.

The ANPHA issues paper doesn't make policy recommendations; it just looks at issues around minimum pricing. But they do include in their appendix a paragraph noting their prior recommendation: that alcohol move to a tiered volumetric tax that looks an awful lot like New Zealand's current system where spirits are more heavily taxed per unit alcohol than beer and wine, which are more heavily taxed per unit alcohol than low-alcohol products. I'm not endorsing the ANPHA paper or its recommendations,** but its survey around the price elasticity of demand is pretty much what I've been finding in my own searches through the literature. And I can't find anything in it that would support suggestions that alcohol consumption is relatively price elastic to regulated minimum prices.

I'd love to know where Connor's getting her elasticity estimates. They are completely outside of any plausible range. Again there is not a single paper among the 112 papers cited by Wagenaar that comes within cooie of the numbers she's suggesting would here apply; not a single one finds that aggregate alcohol demand is relatively elastic. O'Connor's suggesting an absolute price elasticity of demand of 1.16 1.6. Zero of the 112 cited by Wagenaar finds an absolute elasticity greater than 1. ANPHA does not cite a single finding suggesting an absolute elasticity greater than 1. Maybe there's a study out there somewhere that supports it, but I'd be awfully uncomfortable being cited in the press using number that are that far out of whack from the rest of the literature.

Finally, Connor says that minimum pricing targets heavy drinkers the most. It's true that they'll take the biggest dollar hit from an increase in minimum prices. But they are still less responsive relative to their consumption than are moderate drinkers. Imagine, for instance, claiming that rich fat people are most affected by a 100% tax on food because they wind up having the biggest increase in what they spend on food. Yeah, it's true. But the smaller absolute reduction in the quantity consumed by poor thin people matters too, especially if they cut their consumption by a much larger proportion than do the rich folks.

UPDATE: I've found the study Connor is citing, or at least I think I have. And, I think it's the same one that ANPHA is citing. Remember how I noted at the start that you have to be careful to look at aggregate changes rather than just own-price? Well, ANPHA was careful about that. Connor is citing the figure from the same study that looks only at what happens to, say, beer consumption if you hike the price of beer while leaving the price of wine constant. Suppose Honda increased the price of its cars 10% and we saw a 16% drop in Honda sales as consumers shifted to Toyotas; it would be a bit nuts to sell that as saying that a 10% tax on all cars would reduce aggregate car purchases by 16%. Here's the original paper:

The estimates indicate that a 10% increase in the minimum price of a given type of beverage [EC: eg, spirits, beer, wine] reduced consumption of that type by about 16.1% relative to all other beverages, and a simultaneous 10% increase in the minimum prices of all types reduced total consumption by 3.4% (p<0.01 in both cases). The first estimate may overestimate minimum price effects because  it incorporates compensatory increases in consumption of all other beverages. The estimate of the effect of across-the-board changes in minimum prices on total consumption will be biased to the extent that the extra structure we imposed on the model is unrealistic. 

Connor has to have been misquoted here or the journalists left out a couple of subsequent clarifying sentences. The error is in the press release. Oh dear.

Previously:

• Minimum Pricing
• Correlation, causation and alcohol
• Drinkers' utility
• Alco-pops and minimum pricing
• The whole darned alcohol tag
• Moderate drinking and health

*Note that I've been citing -0.44: mean elasticity across all the estimates is -0.51, but Wagenaar gives -0.44 for total alcohol after adjustment for study characteristics.

** In particular, arguments around increasing the price of the lowest-cost products in Australia, where the WET means that cask wine can be very cheap, just don't translate to the New Zealand environment where we already have a tiered volumetric excise regime. I also am far more sceptical of results coming from Sheffield's simulation work than they seem to be.