Liquor Bill:hearings

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Trade and Industry

12 May 2003
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE; ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE: JOINT MEETING
13 May 2003
LIQUOR BILL: PUBLIC HEARINGS

Chairperson:

Dr R H Davies (ANC)

Documents handed out:
 

Liquor Bill [B23-2003]
Industry Association for Responsible Alcohol Use submission
Wholesale Merchant Forum submission
United National Sorghum Breweries submission
Law Review Project submission
Shoprite & Checkers submission
Pick 'n Pay submission
Makro Wholesalers submission
Wine Industry Trust submission
Cluver Markotter submission

SUMMARY
The Committee commenced public hearings on the Liquor Bill. Most organisations felt that unlicensed dealers should be licensed so that there could better control. The other issue which was a concern was the three-tier system being proposed in the Bill. The Committee heard arguments that this would lead to a loss of jobs and would also cause difficulties for micro-manufacturers.

The Committee also heard arguments that many clauses in the Bill offend the principles of the rule of law in that they confer unfettered discretionary power to the Minister. The Bill was also faulted for offending the principle of separation of powers. The Committee was informed that while the national government may spell out a genuine standard for compliance nationally it is illegitimate to specify the structures and how registration and applications should be handled in provinces.

The Committee heard that the proposed three-tier system would displace the existing infrastructure, which would lead to increased costs. The increased cost would be passed over to the already burdened consumer. The Committee responded that the Bill is important in that it would ensure that small operators find space to grow and that entrenched monopolies are a thing of the past. The Committee had earlier expressed reservation regarding the request by supermarkets to be allowed to include beer to their brand of liquor sales. The Committee expressed concern that this would open a pandoras box where even shops would want to be allowed to sell alcohol. This development, Members noted, would militate against the objective of the Bill, which is to bring into regulation a sector that is largely not unregulated in order to stump the proliferation of illegal alcohol outlets.

MINUTES
The Chair noted that most submissions were not addressing the public interest section of the Bill (Chapter 2). This was very important as the public was of concern to the Committee.

Industry Association for Responsible Alcohol Use (ARA) submission
Dr C Makan: Executive Director, ARA, conducted a powerpoint presentation (Please see document attached). In addition he noted that they supported the government's efforts to introduce a fair and just liquor policy and to penalise those who violated the relevant legislation. Prevention must be aimed at those at risk and not the whole population. The overwhelming majority of alcohol users did so in a responsible way. For those not at risk, it had been proven that alcohol was beneficial to one's health. The ARA was extending its hand to the government in support of the legislation.

Discussion
The Chair asked whether the ARA felt that normal alcohol use was not problematic and that violence and so forth was coincidental and not causal. He also asked whether the ARA felt it was desirable to expand the alcohol trade.

Dr Makan said that he was not advocating an expansion of outlets. There were many unlicensed outlets and shutting these down would not be the answer. These outlets should rather be legalised.

Mr D Lockey (ANC) said that a large segment of the population was at risk and that manufacturers should be held accountable for the results of alcohol abuse. Paying taxes was not enough, but other costs should also be covered by manufacturers.

Dr Makan said that all the industries contribute to the government coffers and also created employment. These benefits cannot be ignored. There was a small minority who abused alcohol and one could not shut down the industry because of this.

Ms S Ntuli (ANC) asked what educational efforts were being effected by ARA. She also questioned the ARA's position that alcohol did not cause poverty.

Dr Makan pointed out that they had funded lifeskills education in schools. In the twelve years that they had been doing this, 100 000 children had been reached. The ARA also aimed at reaching adults with these programs in future.

Ms F Hajaij (ANC) challenged Dr Makan's statement that the situation around foetal alcohol syndrome had improved. This problem was endemic in some provinces and was still a problem because of the "dop system". There was also a link between domestic violence and alcohol abuse which was an added cost to the health system of the country.

Dr Makan said that up until 1996, nothing was being done about foetal alcohol syndrome. They had bee approached by Professor Viljoen to help. No one wanted to fund a study on the topic and the ARA had decided to fund it. A foundation had also been established which conducted research into alcohol use. The organisation 'Dop Stop' had itself stated that the "dop system" was no longer operating on any farms. The concern though was the fact that there were mobile shebeens which were selling alcohol to farm workers on credit. He agreed that there was a correlation between domestic violence and alcohol abuse but that this was not necessarily causal. There was also a public awareness campaign to educate the public. In 2002 the focus had been on alcohol use in pregnancy and there was an ongoing campaign to combat drinking and driving.

The Chair pointed out that it depending on how one defined the "dop system", it was possible to argue that it did not exist anymore. There were instances where alcohol was given on certain farms. He asked whether the ARA wanted the unlicensed retailers to be "brought into the net".

Dr Makan confirmed this and said that ARA does not advocate the proliferation of the industry, but rather the licensing of unlicensed dealers. Any form of the "dop system" was unacceptable. Action would be taken against any farmer, who was a member of ARA, and still practiced this system.

Mr S Rasmeni (ANC) referred to the campaigns beign run by the ARA and asked whether it was targeted at the right groups. He also asked whether they were working with local governments.

Dr Makan said that their campaigns are evaluated. The campaign concerning alcohol use during pregnancy had raised awareness from 16% to 80%.

Mr R Rhoda (NNP) wanted to know whether ARA had any figures for the per capita intake of alcohol in South Africa. He also expressed concern at the trend to add alcohol to certain fruit juices. He was concerned that this could lead to children drinking at a younger age.

Dr Makan said that he did not have any figures for per capita consumption. An international publication was issued each year though and South Africa was number 31 on the recent list. He said that there was no evidence that alcoholic fruit juices lead to children drinking at an earlier age.

A Member challenged ARA's statement that alcohol intake was part of a healthy lifestyle.

Dr Makan said that there is proof that moderate use of alcohol was beneficial for those who were not at risk. Studies had shown that the type of beverage was not the issue, but that the ethanol had a beneficial effect.

Ms Ntuli asked whether ARA was implying that since the industry created jobs and promoted responsible alcohol use, alcohol abuse could therefore be ignored.

Dr Makan said that he was not implying this. The ARA were advocating responsible alcohol use.

Wholesale Merchant Forum of the Wine and Brandy Industry submission
Advocate R Kruger: Executive Director, Wholesale Merchant Forum, conducted the powerpoint presentation. In addition he said that the Forum supported the Bill and wanted to see the estimated 200 000 illegal traders licensed though an easier and cheaper registration process. They also felt that it was the right of manufacturers to distribute. Small manufacturers struggled to get their products into wholesalers and therefore they should be allowed to distribute. Prices of products increased by between eighteen and twenty percent when wholesalers were included. They supported the restriction in the Bill which prohibited manufactures from having shares in retail agencies. They also felt that manufacturers should be allowed to sell their products on their premises.

Mr B Tolo, Co-Chairperson, referred to the three-tier system as advocated in the Bill and suggested that this system was advantageous. In this system, new entrants could come in at all three levels. He asked if the Forum wanted two tiers instead.

Mr Kruger said that they did not want a two-tier system, but favoured a three-tier one.

Mr Rasmeni suggested that selling directly would contradict the Bill's objective of bringing in new entrants and promoting black economic empowerment.

Mr Kruger said that empowerment was a separate process and that another strategy had to be drawn up for this.

Ms C September (ANC) wanted clarity around job losses which would occur should the Bill come into effect, as claimed by the forum.

Mr Kruger replied that approximately 5000 jobs would be lost.

The Chair noted the Forum's reference to the 1998 version of the Liquor Bill, saying that this was a different Bill and was dealt with by a different committee. The 1998 Bill had criteria as well and was not unfettered. He said that it seemed as if the Forum wanted regulation but not expansion of the industry.

Mr Kruger replied that the retailers were there already but they needed to be licensed and the illegal ones closed.

The Chair said that the old Bill also gave the Minister discretion to act.

Mr Kruger said that there was a difference. The old Bill said that by the discretion of the Minister, manufacturers "may" sell products whereas the new Bill stipulated "cannot sell". The discretion of the Minister was therefore subjective. He said that the Forum supported new entrants into the market and that the industry was committed to empowerment and training.

Ms Moloi (ANC) asked whether the market would shrink if the Bill came into effect and what this shrinkage would be.

Mr Kruger said that he did not know what the shrinkage would be.

A Member asked whether the Forum supported the three-tier system so that wine farmers to sell their products direct to tourists.

Mr Kruger said that they supported the three-tier system and that the manufacturers should have the choice who they wanted to sell their products to. The market would also determine how sales are done.

Mr Lockey commented that the Competition Act was there to regulate conduct in industries. The problem was with the structure of the wine industry as it was highly concentrated. The Competition Act was therefore not enough.

Mr Kruger said that in the area of competition, there would be problems, but the Liquor Bill was not the way to solve it.

Mr Rasmeni said that the Forum might have a different definition for empowerment. He referred Mr Kruger to the DTI's document on Black Economic Empowerment (BEE).

Mr Kruger said that they were not afraid of legislation. They were rather afraid of the unintended consequences of the Bill. There should not be a duplication of Bills.

Ms September said that the legislation was there to complement the industry's commitment to empowerment. There were other Bills which were connected and these other laws could not be ignored.

Mr T Seane: Director, External Affairs of the Forum, said that empowerment took place at all three tiers. The Bill does not say who can come into the wholesale tier.

United National Breweries (SA) submission
Mr S Choudary: Executive Vice President, UNB, conducted a powerpoint presentation (Please see attached presentation). In addition he said that they supported the Bill and that it could be readily implemented in a first world country. There were, however, two problems concerning their product, sorghum beer:
-It has a short shelf life of four to six days.
-The distribution and licensing of the outlets.
The Bill would result in a decrease in industrial production, which accounted for 25% of the market, while the illegal production would increase. The Bill also treats sorghum beer as all other liquor, which was a problem. The Bill proposed a three-tier system which was a problem as one could not separate the manufacturer and distribution because of the product's short shelf life. They recommended a simple ten year licensing procedure be introduced and that manufacturing not be separated from distribution.

Ms C Nkuna (ANC) referred to the safety of the product and said that certain substances, such as battery acid, could be added after it was bought. She also questioned whether the industrial product was safer as these drinks were doctored in the apartheid days. She asked what measures were taken to ensure that businesses were efficient.

Mr Rasmeni said that the history of sorghum beer was a very painful one since it was a drink of the masses. They were therefore harassed and prevented in many cases from producing the drink. asked what could be done to restore the right and respect of the beer. He also wanted to know what amount was returned once its shelf life had expired.

Ms Ramodibe said that comments about the drink being unhygienic were insulting since all were not the same. The unlicensed dealers had to be empowered so that they could obtain licenses.

The Chair said that the Constitutional Court had decided that micro-manufacturing was a provincial competence. These micro-manufacturers had to conform to DTI standards as far as hygiene was concerned.

Ms Ntuli said that it seemed the industrial product was not the real drink as the original beer had a shelf life of two weeks. She also said that remarks about the drink being unhygienic opened old wounds of the past as this was used by the previous regime as a reason to close shebeens.

Mr P Gill, Senior Vice President, UNB, said that the licensing procedure should not be expensive. The added regulations regarding floor space and toilets caused the problem. Some of the dealers associated with them have been in the process of registering but have encountered problems. The UNB was helping with education regarding licensing. The UNB has established a sorghum beer route in Kwa-Zulu Natal and museum in order to restore the pride in the product. He said that the home brews were usually very hygienic and that they had no problem with that. It was the ones which was brewed commercially which was the problem as some had other substances added to it. They were trying as much as possible to stick to the traditional product. He added that one to two percent of the product was returned after its shelf life had expired.

Afternoon session
Law Review Project submission
Mr Leon Louw: Executive Director, Law Review Project, argued that many clauses in the Bill offend the principles of the rule of law in that they confer unfettered discretionary power on the Minister. He submitted that as a general rule such powers need to be circumscribed in the legislation itself in order to comply with the current constitutional jurisprudence.

He pointed out that some clauses in the Bill contemplate Parliament encroaching on the exclusive competence of provincial legislatures. He cautioned that if such an encroachment were to be permitted it would be invalidated under Section 44(2) of the Constitution. He further noted that Clause 25 of the Bill which deals with micro-manufacturers is unlawful in its present form since it runs counter to the decision in Ex parte President of the RSA: Constitutionality of the Liquor Bill, which dealt with the constitutionality of the Liquor Bill 2000. Judge Cameron stated in a unanimous decision that the national government had not shown that the retail structures it sought erect through the Bill were reasonably necessary for or incidental to the national system created for producers and distributors. Barring the various flows and constitutional concerns he had raised in his submission, Mr Louw said that the technical drafting of the Bill was excellent and hence the drafters would have absolutely no problem in incorporating the suggested changes.

Discussion
Ms September (ANC) wanted to know why Mr Louw queried provisions on age limit yet this complies with the basic conditions of employment.

Mr Louw concurred with Ms September that indeed the Bill is line with the basic conditions of employment and explained that he is not in any way sanctioning child labour, which is outlawed. However, he contended that it would be better to remove this item from the Bill and leave it to the labour legislation where it is adequately legislated.

Ms September wondered whether it is feasible for the government to take exclusive responsibility on enforcement measures in view of the historical concerns around the workings of the liquor industry.

Mr Louw pointed out that the law does not envisage partnerships in the enforcement mechanism and pointed out that the law must be consistent to allow for its enforceability. He noted that where the law makes the public its enemy then its enforceability would be tenuous. On the contrary, he said, where the law is reasonable and objective then the government does not have to entertain partnerships to help in its enforcement since the populace would respect and obey such well meaning legislation.

The Chair pointed out that there were other socio-economic issues that one has to remember when pronouncing on Section 44(2) of the Constitution. In his view the Constitutional Court did not preclude the central government from using Section 44(2) to regulate the liquor industry as such. He explained that what the central government is precluded from doing is the regulation of structures and the administrative processes of licensing and registering retail outlets. These functions, he noted, belong to the exclusive preserve of the provincial governments. He faulted Mr Louw's reading of the Section, which he said was too broad, and one that overlooked Chapter 2 of the Constitution where public interest issues cover the retail market as well.

Mr Louw concurred with the Chair that, indeed, it is the duty of the central government to deal with public interest concerns. He noted that the main problem resides with the informal liquor outlets, which for the most part do not conform to the law. The law must be consistent and in touch with the reality on the ground. He pointed out that there was a need to empower the communities to decide whether or not they need these liquor outlets.

Mr Louw explained that the principle of separation of powers bestows on the central government the sole responsibility of promulgating laws, which must be clear on rights and duties for the provinces. He concurred with the Chair that the national government should promulgate general norms and standards but noted that there was no new development to warrant such an exercise since the Constitutional Court's ruling in this respect. He added that it was strange for the national government to give directives to the provinces on what to do or not to do. While clarifying that the national government may spell out a genuine standard for compliance nationally it is illegitimate to specify the structures and how registration and applications should be handled in provinces.

Ms Ntuli pointed out that the question regarding unsatisfactory definitions highlighted by Mr Louw needed to be looked into thoroughly to avoid incidences of ambiguity. It is of critical important that matters that should be covered in regulations do not find their way into the general law.

Mr Louw informed the Committee that he fully appreciated the difficulty legal drafters are faced with in their quest to comply with the constitutional requirements, more so in view of the historical dynamics that failed to build a constitutional culture in the learning institutions. He pointed out that it is often the tendency of the Department to draft laws that give them awesome powers. In order to check such excesses many jurisdictions hire independent experts to help in the drafting of legislation.

Shoprite & Checkers submission
Mr Whitey Basson: Managing Director, Shoprite Checkers, informed the Committee that the proposed three-tier system would displace the existing infrastructure, which would lead to increased costs. He pointed out that new entrances to the second tier would be very costly while efficient distribution systems that are in current existence would be disabled. Inevitably the resultant incidence of increased cost would be passed over to the already burdened consumer.

Mr Basson contended that the three-tier system would not achieve its stated objective of diluting the current monopolies of manufacture and that the second tier would in fact continue to dominate the sector as is already witnessed in small retailers due to its size and range of brands. He also warned of the onset of high establishment costs of new brands to the manufacturer without the corresponding direct access to the consumer, a situation he lamented would reduce competition in the industry.

Mr Basson welcomed the objectives of Clause 5, which provides for the conversion of the current wine grocer licences to full off-consumption licenses. He called for the licensing of supermarkets to retail and sell liquor products across the total range as is the current trend worldwide. He noted that the industry is well controlled and disciplined enough to manage this activity within the established legal parameters. He concluded that his company welcomes the intention of the legislature to weaken monopolies and to promote new entrants but that the proposed three-tier system would not achieve its stated objectives as was the case in the USA. He advised that the system be subjected to a thorough investigation before it can be implemented.

DiscussionMr Lockey pointed out that the government cannot design its policies on the lines adapted by foreign governments since the country has its own unique socio-economic dynamics. He noted that in many developed countries alcohol was too cheap and that distribution networks were freely available 24 hours a day. However, he differed with Mr Basson's assertion that the sale of all brands of beer and wine in supermarkets was a trend worldwide. He noted that the Bill would ensure that small operators find space to grow and that entrenched monopolies are a thing of the past.

Mr Basson agreed that every country has its own policy priorities that it intended to pursue for the good of its populace. Small businesses should engage the right people so that there is complimentarity between them and big business operators. He acknowledged the fact that small businesses have an important contribution to make to the community and should be supported to grow. He admitted that he did not have data on the sale of liquor sales world-wide but noted that quite a few countries allow supermarkets to sell all brands of liquor and that very few exclude the industry from this venture.

The Chair asked what the basis was of the assertion that liquor prices are far higher in other outlets compared to those sold at supermarkets.

Mr Basson reiterated the fact that supermarkets offer the cheapest and most efficient sale of liquor at the lowest margin possible and that no Bill should restrict this practice. He explained that his industry was able to achieve this result because it maintained cheaper distribution channels to reach its customers.

The Chair asked for supporting evidence for the allegation that supermarkets are better controlled than convenient stores.

Mr Basson replied that the industry he represents has the ability to sell to such an extent that they are a destination of choice for most consumers.

The Chair expressed reservations about the request from supermarkets that they be allowed to include beer in their brand of liquor sales. He explained that this would open a pandoras box where even shops would want to be allowed to sell alcohol. This development, he noted, would militate against the objective of the Bill, which is to bring regulation into a sector that is largely not unregulated in order to stump the proliferation of illegal alcohol outlets.

Mr Rasmeni disagreed with Mr Basson's assertion that the three-tier system would be a big flop noting that the system would ensure that manufacturers, wholesalers and retailers deal with businesses in their respective jurisdiction without crossing over to other people's terrain.

Mr Lockey insisted that the main problem is how to overcome the unacceptable scenario where one dealer dominates and monopolises the entire market.

Mr Basson concurred with Members that there is a fundamental flow that comes from monopolies and noted that his industry would not support one manufacturer but instead would promote equity. However, he reiterated the fact that the three-tier system is a non-starter since its effect in America was to increase alcohol prices. He explained that the system cannot succeed without getting goods to the consumer and that means increased costs.

Mr Rasmeni asked whether Mr Basson was suggesting that the problem was with the wholesalers.

Mr Basson replied that the problem must lie with the entire distribution system, which needs to be closely examined before a proper remedy can be formulated.

Makro Wholesalers submission
Mr G Owen: Chief Executive Officer, Makro Wholesalers, informed the Committee that Makro fully supports and subscribes to the prudent objective of an economy that is shared, and more fully representative of the nation's racial composition. However, he expressed doubt that the introduction of the three-tier system is the best way to go about achieving the noble objective of black economic empowerment. The intention of the national and provincial governments to use Clause 27 to deal with monopolies was unlawful and unnecessary since the best forum is the Competition Commission. He explained that the latter have the necessary competence and expertise to deal with any restrictive practices or imperfections in the of industry structure and conduct. He expressed concern that certain interest groups are likely to challenge Clause 27 of the Bill on the ground that it infringes upon their Section 22 protection under Chapter 2 of the Constitution.

Dr Owen expressed the view that it was unnecessary to legislate BEE issues under the Liquor Bill since this item is adequately provided for elsewhere. He noted that there were many industries with an individually high degree of concentration of economic power which have co-operated with the government in this regard. He singled out, for instance, the mining, petroleum and banking sectors as fine examples where such charters have been very successfully negotiated.

He emphasised that Clause 27 imposes an inappropriate and contentious three-tier structure, arbitrary and selectively, upon the liquor industry. This clause has the unwholesome effect of severely curtailing historic trading patterns of all the existing bottle storeowners. He strongly urged the Committee to encourage the DTI to adapt a more sensible and elegant route in its quest to actualise important government objectives.

DiscussionMs September asked Dr. Owen to state his views on the way forward for black empowerment in the industry.

Dr Owen pointed out that there is enough room for a middleman but was quick to caution that it is unwise to impose an unwanted structure on the industry. He noted that the industry would itself identify and appoint those it saw fit to work with as this is a natural and gradual development. He pointed out that Makro's annual report clearly shows the work being done around achieving the goals of the BEE. He explained that the BEE policy is a serious issue for most firms.

Ms September asked how Makro ensures that people buying from them do not sell to illegal shabeens.

Dr Owen replied that Makro's operations are, by and large, impersonal where it only supplies to legal traders. The industry tries, where it can, to identify illegal dealers but it is difficult to decide who to sell to and who not.

The Chair took issue with Dr Owen's allegation that the legislature should divest from regulating the liquor industry when this very substance is linked to many ills in society such as poverty and alcohol abuse. The Chair pointed out that whenever the government raises liquor prices to check the proliferation of consumption outlets the industry cries foul that it would be pushed out of business but this never happens. Rather, the industry continues to flourish at the expense of societal norms.

Dr Owen concurred with the Chair that alcohol abuse is linked to many social ills in society but noted that more legislation is not the answer to the problem. The remedy lies in the internalisation of virtues and educational programmes, which should start at school level since there is no quick fix to the problem. He noted that liquor consumption can be associated either with grace or abuse depending on the norms a particular society subscribes to.

Mr Rasmeni asked how the BEE objectives could be promoted within the rubric of the Bill.

Dr Owen pointed out that the government is already in a focused drive to achieve the goals of the BEE through specific legislation. He offered that the best way to go about the issue would be by way of an industrial charter as is the case with the mining industry where firms have endeavoured to bring black people aboard the shareholding fold.

Pick 'n Pay submission
Mr Summers: Chief Executive Officer, Pick 'n Pay, was pleased to note that Schedule 5 of the Liquor Bill provides for the grocer's wine license to be converted into a registration for the sale of liquor for consumption off the premises on which liquor is being sold. This would enable the industry he represents to offer its customers the convenience and product range they desire. He welcomed the replacement of the existing Liquor Bill, which was a discredited piece of legislation that was estimated to govern less than 10% of the industry. He averred that it was a matter of urgency that the entire liquor industry is brought into the formal economy, regulated and taxed with credible and enforceable legislation.

Mr Summers informed the Committee that his industry's market research indicates that its customers would like the range of liquor sold in its stores expanded from wine to include beer and spirits. He explained that this is an internationally accepted norm. He noted that the alcohol content of beer is lower than in wine, which is recognised as an accompaniment to food.

Mr Summers pointed out that the current Liquor Bill recognises that cross-holdings and monopolies in the manufacturing and distribution of liquor are anti-competitive and result in prejudice to the consumer, and that his company supported this position fully. He expressed objection to the proposed three-tier system which would result in the inability of the retailer to buy directly from manufacturers, wine estates or to import product. He also cautioned against the imposition of a distributor, which, with the concomitant costs, would inevitably result in higher prices being passed on to the consumer.

DiscussionMr Rasmeni said that if supermarkets were allowed the expanded liquor brands what would stop the shebeens and other shoppers from stocking general merchandise besides liquor.

Mr Summers replied trade in specific products as a practice has ceased to exist. He clarified that his organisation subscribes to the principles of an open market and therefore it would not advocate for measures that would put anybody out of business. Anybody is welcome to buy and sell whatever pleases them so long as this was done within the confines of law.

The Chair noted that Mr Summers welcomes the general principles of the Bill and wanted to know whether he was also comfortable with the wide discretion the Minister has been given under the Bill.

Mr Summers admitted that he had some concerns with the Minister's wide discretion since he has always advocated for self-regulation. It was not right that one operator be discriminated against in favour of others. This practice flies in the face of economic sense and is one that would lead to high costs.

The Chair then asked whether Mr Summers would agree that the Bill provides for the general framework within which industry should operate.

Mr Summers said that such a strategy makes a great deal of economic sense and he would have no reason to dispute it.

Ms September asked whether Mr Summers has definite proposals regarding the way forward for the Bill.

Mr Summers reiterated the fact that he welcomes the Bill in its broad form but he expressed doubt that the three-tier system would achieve its desired goal and noted that unless the retail market is open there can be no introduction of new brands into the market.

Mr Lockey asked what other solution Mr Summers had in mind to get around the problem of monopolies.

Mr Summers referred Members to the fate of the three-tier system in America where the system created segments of distributors yet it failed to achieve the stated objectives. He explained that what regularises the market is at the consumer level where true competition resides. He urged for the freeing up of the retail industry but under the existing law this is not happening and therein lies the problem.

The Chair said that if supermarkets were allowed to add beer to their liquor sales other shoppers would agitate for the same preference. He asked whether such an eventuality is welcome at all in view of the desire to check the proliferation of liquor retail outlets in the country.

Mr Summers admitted that such an allowance would have the effect of throwing the field open for new entrants. This development is already happening in the USA where one can buy beer from any convenience store. The new Bill offers no classification between the various drinks.

The Chair concurred with Mr Summers that the definition of various terms was very critical to the clarity of the legislation and called on the Department to take another look at this area.

Mr Michael Fridjhon (Wine Industry Trust) submission
Mr Michael Fridjhon: past Chairperson - Wine Industry Trust, argued that the three-tier system would not expedite empowerment opportunities in the industry since retailers will only buy products which they believe would sell. Distributors would, in turn, only purchase goods which already enjoy brand equity. The consequences of this market adjustment would be destructive for new entrants. He cautioned that a retail environment dominated by the big brands would offer few, if any, economies of scale, which the Bill seeks to actualise. To maintain the cumbersome three-tier system model will require a massive policing effort if it is to be successful. This development would have cost implications that must be inflationary in nature. He called for dramatic amendments to the Bill before it can be expected to fulfil its mandate and facilitate trade in the industry.

DiscussionThe Chair pointed out that the provision on empowerment is not too rigid. The Minister has wide discretionary powers to intervene where it becomes necessary.

Mr Fridjhon concurred with the Chair that the Bill has the potential to create more business opportunities for other players but suggested that it would only be possible to achieve this goal when such compulsion is enforced at the third tier level.

Ms Ntuli asked whether Mr Fridjhon implies that there was no problem at the first and second tiers and that the problem only resides with the third tier.

Mr Fridjhon explained that the three-tier system would disempower the second tier, which already has established brands.

Ms September wondered whether it would be feasible for the system to work in the same manner e-commerce conducts business.

Mr Fridjhon explained that in that event one has to check on bureaucratic procedures and the attendant inflationary effects, which will all be done at the expense of the brand holder.

Ms Ntuli asked whether Mr Fridjhon agrees with the request to allow supermarkets to sell beer.

Mr Fridjhon pointed out that the sale of beer would definitely please the supermarket outlets but that this would diminish the power of new entrants to make in-roads into the industry due mainly to the advantage the supermarkets enjoy. Such a development would empower the already empowered.

Mr Ntuli sought Mr Fridjhon's views on the prohibition of the sale of liquor on wine farms.

Mr Fridjhon replied that such a prohibition would severely constrain wine tourism, which is an important aspect of winery.

The meeting was adjourned.




 

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