Ban on sachet alcohol: Expected impacts on govt.’s revenue stream, consumer’s behaviour

Considering the global and local market size of spirit drinks, the decision by the National Agency for Food and Drug Administration (NAFDAC) to ban the production, distribution, sales, and consumption of alcoholic drinks produced in sachets and PET bottles has been described as an ill wind that will possibly deepen the economic misfortune of Nigeria.

Early in February, the agency commenced the implementation of the ban by shutting down some factories where these sachet drinks were manufactured. The move follows the expiration of the five-year ultimatum issued by NAFDAC for the sachets and small-volume PET and glass bottles below 200 ml to phase out of circulation.

Since the commencement of its implementation, the decision has been consistently met with a whirlwind of reactions from the Manufacturers Association of Nigeria, the Distillers and Blenders Association of Nigeria, civil society organisations, and other stakeholders, all citing the economic implications of the ban on the country.

Early in the year, analysts revealed that the market size of alcoholic drinks is expected to hit 204 billion dollars in the United States in 2024, while the market is projected to reach 49.9 billion dollars in Nigeria, with spirit drinks produced in sachets and pet bottles predicted to play a pivotal role in driving the industry.

While the global market size of spirit drinks is largely predicated on the variety of sizes produced in packaged bottles and being affordable for consumers in developed economies due to a better economic condition and strong purchasing power, it is a different scenario in an emerging market like Nigeria and other African countries where sachet and PET bottles drive the conversation.

Consumers’ purchasing power in Nigeria has been threatened and crippled by the skyrocketing inflation that has dealt a terrible blow to the country’s economy.

Hence, the production, distribution, and sales of spirit drinks in sachets and PET bottles are traditionally carried out to cater to consumers who fall within this category. For them, it is relatively affordable, accessible, handy, and more pocket-friendly.

Hence, the production, distribution, and sales of spirit drinks in sachets and PET bottles are traditionally carried out to cater to consumers who fall within this category

However, with NAFDAC clamping down on this production package, players in the industry believe that there will be a paradigm shift in consumer preferences towards other alcoholic beverages or non-alcoholic alternatives, depending on availability and pricing. This shift may result in big revenue losses for producers of sachet drinks while potentially benefiting other segments of the alcoholic beverage industry.

According to the Manufacturers Association of Nigeria, not less than 800 billion naira in investment will go down with the ban, while about 25 companies that invested will be sent out of business. Aside from that, the move is expected to throw over 50 million Nigerians who are employed in this sector into the labour market, hunting for another job opportunity to survive the current economic challenges.

In the same vein, the Nigerian government has been warned of the dire consequences the ban on sachet drinks will have on its revenue generation drive. This is due to the large percentage of consumers who patronise the package, which in turn drives the sector massively. With over 50 percent of gin consumers denied their satisfaction, 800 billion naira of investment gone down the drain, 50 million taxpayers rendered jobless, and 25 companies sent out of the market, government revenue is expected to experience a shortfall. Moreover, Sachet alcoholic drinks are typically subject to excise taxes and other levies, contributing to government coffers. Banning these products could result in a reduction in tax revenue unless it is offset by increased taxation or consumption of other alcoholic beverages.

From a regulatory perspective, banning sachet alcoholic drinks may lead to increased enforcement costs for the government. Monitoring compliance with the ban, tackling illicit production and smuggling, and addressing potential black market activities require dedicated resources and administrative capacity, which will also increase the cost of governance.

Unfortunately, the decision is coming at a time when the country is neck-deep in a broader socio-economic crisis, which includes poverty, high costs of living, and several others. While the policy may aim to curb alcohol-related harm, its impact on vulnerable populations, including those dependent on sachet drinks for livelihoods or coping mechanisms, must be carefully considered. Addressing the root causes of harmful drinking behaviours, such as poverty and a lack of access to healthcare and social services, requires a comprehensive approach beyond regulatory measures.

NAFDAC is therefore expected to look into the economic complexity that revolves around the banning of sachet alcoholic drinks, which entails consumer behaviour, industry dynamics, regulatory costs, government revenues, and social-economic considerations.

Putting effective alcohol control strategies in place would have struck a balance between public health objectives, economic realities, and social equity concerns that would achieve sustainable outcomes for all stakeholders.

Akinola Aderibigbe is a social commentator.