The Number Cruncher
Pat Nolan speaks with Tony Foley, author of the DIGI’s recently-published The Economic Contribution of the Drinks Industry about the report’s conclusions.
22 November 2010
As author of the DIGI’s latest report The Economic Contribution of the Drinks Industry, DCU Business School Economist Tony Foley reckons that the biggest thing that’s changed between the publishing of this and the last such report in 2008 is that the role of the drinks industry has declined.
“Again – that’ not surprising,” he adds, “The economy in 2010 is much reduced from that applying back in 2008.
“Now, it’s all in decline – declining bar sales and declining employment in sympathy with the overall economy. The 2008 report was prepared primarily at the beginning of 2008 so it didn’t catch the beginning of the disastrous decline in 2008 which has continued since.”
Even our healthy drinks export figure of nearly €1 billion finds itself under constraint to further growth for the time being.
“Everything has collapsed in the last couple of years with the international recession,” he explains, “But one would expect exports to grow again as the international economy recovers.
“We tend to think of the Irish economy as being an agricultural and pharmaceuticals/electronics one but if you exclude these last two, drinks exports are fairly substantial and in some recent years would have equated to the level of dairy exports. Our drinks exports are also substantial in terms of their impact on our brand image abroad which has a disproportionately positive affect on our marketing image. For example we might have much the same exports as our dairy sector but these would not be branded to the extent as a bottle of branded Irish whiskey sitting on a bar or one that has ‘made in Ireland’ on it.”
As a result, he doesn’t feel that the drinks industry has made enough noise about the significance of its exports to the Irish economy.
“Most people don’t think of drinks exports, they tend to think of pubs,” he says, “They don’t think of the innovative nature of Baileys when it was first developed. Policy-makers and the public in general do not appreciate the significant contribution of drinks exports to the economy – especially as brands like Jameson develop in expanding markets such as China and India.”
“Official trade data just measures the price of a product. If you sell electronics, you’ve probably bought in a lot of imported components.”
He points out that 60 per cent or more of our drinks exports probably have a domestic input without huge amounts of imported inputs, “so that we have €1-worth of drinks exports being the equivalent of €2 to €3 of electronic exports, for example.”
When one looks at the huge employment levels in the industry and just how significant the 25 per cent reduction in that employment is in this context, the publicity in relation to the gaining or losing of 50 jobs in IT or manufacturing would make such announcements pale by comparison.
Naturally, Tony would agree.
“The problem with the drinks industry is that apart from manufacturing, it’s very diffuse so with 9,000 bars or pubs, a cutback only entails losing one or two people in a unit and that’s not going to make headlines. You’re never going to see a headline in the Irish Times ‘Small firm loses three jobs’ but when you multiply even one job loss a year by 9,000 pubs on average, that has a very large impact on employment.
“The drinks industry doesn’t scream the headline job losses but tends to move under the radar with lots of small job losses in lots of little enterprises so therefore it doesn’t tend to get the notice it deserves.
“One indication of this would be that if all the drinks in Ireland were drunk in pubs instead of off-licences, you’d have up to 60,000 more jobs.”
Another stat in the report refers to per capita consumption falling 16.4 per cent on 2007 levels. Could it not be argued that per capita consumption was heretofore simply too high and is only now re-adjusting to normal EU levels?
He agrees that this could equally be the case as argued by the health lobby.
“But whatever the cause, the fact is that numbers are dropping… Funnily enough, if you went back to the Strategic Task Force on Alcohol looking for a 20 per cent decline in alcohol consumption, it’s actually achieved that. But that doesn’t mean that the problems associated with alcohol abuse have gone away.
“Demographically, as the population ages, you tend to get a lower alcohol consumption average as well.”
As we approach Christmas, how realistic is it to envisage a return to the cross-border trading situation of 2009?
“There are a number of aspects to this,” he answers, “Last year it was phenomenal, characterised by that ‘Day of Action’ in the Public Service with them trotting across the border to buy product. It has been argued that drink was a much better bargain across the border so people went up and bought other things while there.
“The VAT reduction coupled with the increase in taxes and the exchange rates etc in the UK has eliminated most of this attraction so footfall has declined over the past year.
“We would expect an increase in this activity with Christmas being a peak period for cross-border shopping.”
Now, however, he wonders if this December’s figures won’t be higher than last year’s.
“I would have argued that it would have been less but now I think that depleted incomes and the prospect of a heavy Budget will have an effect. “The cross-border effect is starting to increase by more than might be expected because of these factors – when they go up there now they will include alcohol in their purchases.”
The DIGI Report recommends a new system of determining ratable valuations.
“The most equitable thing to replace rates is a widespread local tax such as a property tax. Other alternatives such as local income tax etc are possible too but the favourite would be a private property tax. With a universal local tax system councils would have to be cognisant of public opinion at the next local elections. So we would seek a general property tax on all properties where people could vote every few years on whether the rates as applied were appropriate or not. Local businesses feel that they pay a disproportionate amount of these taxes at present.”
With the Budget now imminent, one wonders why the Government might even consider not raising alcohol taxes.
“Because it would have two effects,” he responds, “One: as the tax goes up, the price goes up and consumption drops. For example if the Government increases tax by, say, 25 per cent, it will collect more money even if sales do drop — but on the downside, the negative effects of such a move on employment levels in pubs would be felt where more people would move from pubs to off-licences and jobs would be lost leading to more Government spend on social welfare etc.
“Over the past few years everything that the Government has done – except for lowering excise tax in response to cross-border trade – has been to make things worse for the industry with increased levels of bureaucracy, health inspections, labour law etc etc.”
With service inputs of €563 million by drinks manufacturers compared to total purchases of €1.7 billion, the industry is also responsible for a lot of outsourcing of jobs such as security and cleaning. Many also outsource payroll calculations to specialist companies.
“You might even outsource your IT servicing. All of that, while reducing employment directly in the industry does buy in services from other providers – there’s even advertising by the major drinks companies where they now buy in advertising services rather than maintain an advertising department.”