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From Pubs to Policies - Addressing Cambodia’s Alcohol Consumption Crisis


"In no other country in the world is there greater inequality between the rich and poor in their ability to afford food," report by Voice of America.

As Cambodia is urbanizing fast with China’s help, the divide between rich and poor is widening. Poverty affects around 35% of Cambodians, according to a report from the United Nations Development Program (UNDP) and the Oxford Poverty and Human Development Initiative. This blog will examine the economic inequalities of Cambodia's alcohol consumption patterns, government regulation challenges, and proposed solutions. 


The Alcohol Market in Cambodia

A study has revealed that Cambodians spend about $2.3 billion on beer annually, sparking concerns that stricter measures need to be taken to curb the nation’s alcohol consumption.

The beer market in Cambodia was worth $1.03 billion in 2015 and is forecast to reach $2.20 billion by 2025, according to the data company Market Research. The report showed the average consumption per capita in value terms reached $67.42 in 2015. The entry of new breweries such as Vattanac Brewery Ltd and Hanuman Beverages into the already crowded and competitive beer market indicates high levels of market competition and supply-side dynamics which might not be dropping anytime soon. 




The Government Encouragement 

Despite the submission of a draft law on alcohol regulation in 2015, seemingly little progress has been made on it since then. Compared to Thailand, where they had passed its Alcohol Beverage Control Act in 2008, which contains precise restrictions on how alcohol can be advertised by individuals on social media, Cambodia seems to be struggling with passing this draft law. Some experts are concerned the government is encouraging drinking because it benefits the economy, and ignoring the negative social impacts of heavy alcohol consumption. This lack of regulation shows a market failure where negative externalities such as public health issues and traffic accidents are not addressed due to internal values such as money to fill these cooperation pockets. 


The Asia Foundation report released in 2015 found that the total revenue from alcohol advertising accounts for more than 50 percent of all advertising revenues in the country. Beer advertisements alone bring in around $100 million each year. With the increasing number of foreign tourists that make their way into Cambodia, this figure is expected to continue to rise. Beer banners are seen everywhere along Phnom Penh and far-reaching to the suburbs. "Alcohol consumption is everywhere, even people at the young age below 18 years old are also able to consume it. Restaurants always have alcohol banners and can sell it everywhere It is the culture now that everyone can drink beer as long as they have money to buy it,” reported Nith Kosal, co-founder of Sethakech.  A World Health Organisation report released in 2015 found that more than one-tenth of Cambodians aged between 8-17 admitted to having consumed alcohol, while 82 percent of Cambodians aged between 18-32 said that they consume alcoholic beverages regularly.


Problem 

Hong Vannak, an economic researcher at the Royal Academy of Cambodia, said “Social culture and economics are the main factors that influence alcohol consumption. The culture of drinking beer and the lack of awareness regarding the health risks related to drinking excessive alcohol are concerning. Furthermore, it has negative economic impacts due to the cost that consumers spend on drinking, their health, and accidents." One of the major problems caused by over-consumption of alcohol is drunk driving. Last year a UNDP report said an average of 5.4 people die on Cambodia’s roads daily, with 13,700 injuries and more than 2,000 deaths due to traffic accidents in 2019. The cost to the economy was significant, an estimated $466.8 million. "We urge the government to speed up the law because the increased distribution of alcohol is a high risk for public health, especially for the young generation.” The marginal social cost of alcohol consumption far exceeds its marginal private cost, leading to a misallocation of resources and a deadweight loss to society. Vannak believes that if Cambodia cuts down on drinking beer it will benefit the national economy as a whole, especially saving the cost of beer consumption, public health, and public security. “However, it has an impact on the production supply chain and associated businesses that involve alcohol as well.” as stated by Vannak. 







Measures and Recommendations for Improvement

Vannak believes the law should focus on four key measures: 1. Taxation on alcohol, 2. restricting the availability of alcohol, 3. age restrictions, and 4. restricting advertising.


  1. Taxation on Alcohol: A regressive tax is a tax system that takes a larger percentage of income from low-income earners than from high-income earners. Goods such as alcohol and beer are regressive as the same amount of tax is paid regardless of the individual's income. This will disproportionally affect low-income households as when faced with the alcohol tax the additional cost will consist of a larger portion of their income compared to the wealthy. Therefore it is suggested to implement progressive taxation on alcohol instead. What is progressive tax? A progressive tax is a taxation system where a tax will increase as income increases. This tax aims to reduce income inequality by imposing a higher tax burden on those with a greater ability to pay, thereby redistributing income. This means there will be a lower tax rate on modest earners and a higher tax rate on those with a higher income leading to improved social welfare. This can be achieved by implementing a higher tax rate on luxury alcoholic beverages while taxing lower-end beers. (There are still taxes on alcohol to discourage drinking but not as much as the high-end alcoholic drinks).

  2. Additionally providing tax credits to low-income can offset the additional burden of alcohol tax ensuring the tax burden doesn’t disproportionately impact the disadvantaged.  This can protect the low-income consumer while generating tax revenue from higher-income consumers. The additional revenue generated can be allocated to targeted social programs, further supporting low-income households such as subsidies for essential goods, healthcare services, or educational opportunities.

  3. Restricting the Availability of Alcohol: This can be achieved using supply-side interventions that limit where and when alcohol can be sold. This can be implemented with Zoning laws to control the amount and density of alcohol, especially in residential areas and the area surrounding schools. Additionally, limiting the hours where alcohol can be sold will lead to reduced late-night drinking and related problems of drunk driving. By limiting the availability of alcohol, the marginal social cost of alcohol consumption (healthcare costs and traffic accidents), can be reduced. However this measure might negatively affect the alcohol supply chain, these corporations and the Cambodian government need to understand that the overall economic benefit of reduced health and safety costs outweighs these concerns

  4. Age Restriction: Setting a strict legal drinking age of 21 can reduce youth access to alcohol. The age aligns with international standards and can help protect younger populations from the harmful effects of early alcohol consumption. Additionally, it should be required for vendors to check the identification of consumers who appear to be under age and the penalties for non-compliance should be significant enough to discourage violations. Reducing underage drinking can improve educational outcomes and long-term productivity which contributes positively to the human capital of Cambodia as a whole.

  5. Restricting Advertising: Banning alcohol advertisements at vulnerable populations such as low-income groups, minors, and schools, to reduce exposure and subsequent consumption. Additionally restricting the content of alcohol advertisements to not glamorize alcohol or associate it with fun, success, and social acceptance for example. 



In summary, Cambodia's alcohol consumption and its economic implications illustrate failure, externalities, and regressive taxation. While alcohol production and advertisement can serve as a source of government and cooperation revenue, addressing its regressive nature and the associated negative externalities is crucial for reducing economic inequality leading to improved welfare. Implementing a tax on alcohol, restricting the availability of alcohol, age restriction, and restricting advertisements are essential steps toward a more productive society and social well-being. 


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