Alcoholic beverage exports surpass $2 billion: NZIER

Beer exports continue to grow at record pace, but wine still trumps within the industry. Photo / Getty Images

Alcoholic beverage exports surpassed $2 billion for the first time in 2020 - despite the industry facing perhaps its most troubled period ever, a new report reveals.

The alcoholic beverage industry relies heavily on the hospitality industry, which has been pummeled by the Covid-19 pandemic and changing restrictions. It is facing its third year of disrupted trade, and on average revenue is currently down 34 per cent.

In 2020, alcoholic beverage exports hit $2.09b, and the industry - made up of wine, beer and spirits producers, contributed $1.92b to New Zealand's gross domestic product. The wine sector accounted for $2b of exports, according to the NZ Institute of Economic Research.

The NZIER report was conducted at the end of last year using figures from 2020. At the time of research, the 2021 figures were not yet published or complete as each sector has different reporting timeframes.

The alcoholic beverage industry is made up of 1865 businesses and employs 10,200 directly (plus an additional 21,000 people indirectly), and supplies goods to approximately 23,000 hospitality businesses.

Wine is by far the biggest sector and earner within the industry, made up of over 1500 businesses and employing three times as many staff as the beer sector.

More than 485 million litres of alcohol was consumed in New Zealand last year, worth $3.6b in sales. But, like all industries, inflation and cost pressures have hit operators hard.

Bridget MacDonald, executive director of the NZ Alcohol Beverages Council, warns that the cost of producing alcoholic beverages is rising - and it was only a matter of time before costs were passed on to the consumer.

The cost of doing business, including the cost of transportation (shipping costs have trebled since the start of the pandemic), fuel, wages, cost of goods and services, regulatory and compliance costs and excise tax, were still rising, and on top of that, MacDonald said, seasonal and skilled labour shortages had made operating difficult for many.

Bridget MacDonald, executive director of the NZ Alcohol Beverages Council.

The cost of aluminium - used for production - had also doubled in the past 12 months.

"In a post-Covid environment and with a challenging economy, ongoing cost increases and uncertainty in the future, businesses are finding there's no more give in the elastic. It is becoming increasingly challenging to continue absorbing these costs," MacDonald told the Herald.

Nowadays, more than half of the price of a 1 litre bottle of spirits produced in New Zealand was actually excise tax, MacDonald said.

Each year excise tax increases in line with the Consumer Price Index. This year it is expected to increase between 6 and 7 per cent – a record amount because of high inflation. This would equate to an extra $72 to $84 million on top of the $1.2b paid last year, she said.

"While it may not appear significant [in the grand scheme of things], it certainly is in the context of all other rising costs. Where do you find an extra $84 million? It has to come from somewhere.

"This would be equivalent to an additional cost of $7,500 for every licensed hospitality venue and liquor retailer in New Zealand, if the entire additional cost of excise is passed on from producers – and at a time when those businesses are already struggling.

"So it is highly likely costs like these will be passed on to customers."

MacDonald said all the costs added up and it would likely not be long until consumers would notice increases when purchasing a beer and a burger or a bottle of wine.

"There is also no greater irony than that the increase in excise tax will essentially pay back the recent support package offered to the hospitality sector. It is tough for this industry to get a break and get ahead."

MacDonald said it was difficult to quantify precisely what any increases would look like to the consumer over the next year, but said it could be as much as 20 per cent.

For example, taking into consideration the anticipated increase in excise tax and the government's proposed introduction of a Container Return Scheme, the price of a 24-pack of beer could increase by $8.

Alcohol use and harm is linked to both the price and affordability of alcohol.

Research by Alcohol Healthwatch has found that when incomes increase and the real price of alcohol decreases, consumption levels tend to go up, and new research from the Christchurch Health and Development Study has linked harmful drinking to a heightened risk of suicide.

Health expert Dr Rose Crossin of the University of Otago said any increase to the price of alcohol in New Zealand would have a positive impact on society, but she warned any increases needed to be made permanent through policy to have any real impact.

Crossin would like to see a minimum unit pricing introduced to aid in the reduction of alcohol-related harm.

"Alcohol in New Zealand is very cheap and very accessible, and the idea of alcohol prices increasing is one we would be quite pleased about from a public health perspective," Crossin said.

"There certainly has been a progressive relaxation over time of our alcohol regulations. That combination of accessibility increasing and price decreasing has worsened over time."

Crossin said any increase to prices would not make a difference in the short term.

"Whether a short term increase in price changes people's drinking habits, I don't know that there is any evidence to support that, but the reality is that any decrease in consumption for people's health and wellbeing is a good thing."

She said trials of minimum unit pricing introduced in Scotland and the Northern Territory in Australia had been proven to reduce harm.