The demand for UK beer: estimates of the long-run on- and off-trade beer price elasticities

Abstract

Over  the last 30 years, UK beer sales have been falling while the market itself has experienced a dynamic shift from on-trade to off-trade sales. This article provides estimates of the long-run price, cross price and income elasticities, for both on- and off-trade beer consumption. The results shed light on the changing UK beer market, while also having different implications for imposing beer excise duties and the debate on a minimum price per unit for alcohol.

Keywords:

• on- and off-trade beer demand
• price and income elasticities

JEL Classification:

• D4
• L7
• M2

Acknowledgement

We are grateful for comments and suggestions from Keith Cowling, Bruce Morley, Stefan Hoejmose, Bruce Rayton, John Cullis, Michael Waterson and participants at the 40th Annual EARIE Conference held in Evora, Portugal, 30th August–1st September 2013.

Notes

¹ Beer consumption comprises of the combined sales of ale, stout and lager (BBPA, 2012). 

² UK excise levies on beer are 9 times higher than in France and 13 times more than in Germany, raising protests among pub landlords and the BBPA. In 2008, the UK government introduced the beer escalator, which was a commitment to introduce above inflation beer duties every year until 2014/15. By 2013, beer duties had risen by 42%. The escalator was abandoned in the 2013 Budget (BBPA, 2012; HCL, 2013).

³ In Table 3, the AIC statistic suggests that the lag structure for off-trade beer consumption is 2. However, this is highly marginal, and both the HQ and SBC suggest k = 1, which is chosen. 

⁴ Published data on licensed premises is sporadic and incomplete for the period 1982–2010. The total number of on-licence premises in the United Kingdom rose from approximately 77 840 in 1982 to 116 937, which was largely accounted for by a significant rise in hotel licenses and wine bars. Over the same period, the total number of public houses – where predominantly on-trade beer is sold – fell from approximately 67 800 (in 1982) to 50 395 in 2011. In contrast, off-licences have risen from approximately 39 600 to 49 129, although off-licences per capita (15 years of age and over) has marginally fallen from 1188 persons (per off-licence) to 1054 (BBPA, 2012).