why overthink? when you can overdrink!

 

Market Structure of Liquor is Oligopoly because there are only a few firms in the market. In the case of an oligopoly, the buyers are far greater than the sellers. The firms in this case either compete with another to collaborate together. They use their market influence to set the prices and in turn maximize their profits. So the consumers become the price takers. In an oligopoly, there are various barriers to entry in the market, and new firms find it difficult to establish themselves. South India dominates the alcohol market in India, with that region accounting for about 60 per cent of total IMFL sales and 45 per cent of total beer sales. Globally, most spirits are derived from grains and other raw materials may include potatoes, sugarcane and fruit spirit.

The maximum permissible limit for alcohol content in spirits is 42.8 per cent v/v (volume to volume). The overall IMFL market is increasing at the rate of 9 to 10 per cent annually and growth rate of 11.9 per cent in the last financial year . There is a tremendous growth in the vodka market. It is the fastest growing among all types of liquors. Vodka consumption has been growing at the rate of about 44 per cent over the past few years.

The average alcohol content in country liquor is 33 per cent volume to volume. It is produced in local licensed distilleries and is made of cheap raw material, primarily rectified spirits of grains or molasses. In the southern states coconut and other palms are used as raw materials in the production of local liquor. It is called as arrack, desi sharaab, daru, tharra, toddy, fenny and tari. The production cost for country liquor is low; the excise duties are also lower than they are for other liquor. The idea behind country liquor was to provide cheap alcohol and thus check the illicit trade of alcohol.

Studies have shown that the demand for liquor is inelastic.

The price elasticity of alcohol demand in India found “a modest negative association between price and demand, implying that drinkers are not very responsive to price change."

Supply Pre Covid- 19 :The supply of Alcohol beverages has been always greater than the demand the extra alcohol produced is used in various other industries this extra is called extra neutral alcohol (ENA). There has been a shortage in domestic supply of ENA.

Demand Post Covid-19 :The official demand of the alcohol has declined adversely due to the pandemic. Also due to drying up of social occasions, increased Tax and closure of bars the demand has been effected. But the unofficial demand has increased in the urban areas where the employees are at home and enjoying this time of pandemic by consuming more alcohol from the black market.

Supply Post Covid-19 :The supply of alcohol has been greater than the demand in the post covid as there is lockdown nation wide. But the production has also fallen significantly as the brewer of beer and whisky are not working to their full capacity. The production firms of alcohol have started to manufacture hand sanitizers to keep their production line working and generate revenue.

Government Policy Pre-covid – Government policy was quite liberal pre covid and the retailers could sell alcohol from 10 Am to 10 Pm and without any Queue.

Government Policy Post Covid-19– After covid-19 initially all the retails alcohol shops were fully closed but as the state and central government needed money they have allowed the sale of alcohol through Online mode and also through shops but with proper social distancing. The government has also increased the TAX on Alcohol to generate more Tax revenue.

Export and Import – There has been a overall sharp decline in the export and import of the alcohol. The shortage in ENA is meet by the domestic alcohol producers as the shops were closed so they started to make more of ENA for hand sanitizers. Exports have been curbed to meet the domestic demand and imports have been reduced as it has risk for covid-19 transfer through the goods coming from other countries.

Opportunity Cost -  Opportunity cost for not producing alcoholic beverage is production of hand sanitizers as it is the next best alternative.

 

 be kind, spread love & stay hydrated