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To review the consequences of the changes in Finnish alcohol policy in 2004, when quotas for travellers’ tax free imports of alcoholic beverages from other European Union (EU) countries were abolished, Estonia joined the EU, and excise duties on alcoholic beverages were reduced by one-third, on the average.
A review of published research and routinely available data.
Prices of alcoholic beverages, recorded and unrecorded alcohol consumption, data on criminality and other police statistics, alcohol-related deaths and hospitalizations, service use.
Alcohol consumption increased 10% in 2004, clearly more than in the early 2000’s. With few exceptions, alcohol-related harms increased. Alcohol-induced liver disease deaths increased the most, by 46% in 2004–2006 compared to 2001–2003, which indicates a strong effect on pre-2004 heavy drinkers. Consumption and harms increased most among middle-aged and older segments of the population, and in the worst-off parts of the population in particular.
Alcohol taxation and alcohol prices affect consumption and related harms, and heavy drinkers are responsive to price. In Finland in 2004, the worst-off parts of the population paid the highest price in terms of health for cuts in alcohol prices. The removal of travellers’ import quotas, which was an inherent part of creating the single European market, had serious public health consequences in Finland.
Year 2004 saw significant changes in Finnish alcohol control. Quotas on tax-free imports of alcoholic beverages by travellers arriving in Finland from other European Union (EU) countries were abolished on January 1st. This had great significance after Finland’s southern neighbour, Estonia, a country with low alcohol prices, joined the European Union on May 1st. Related to these changes, alcohol taxes were cut on average by one-third on March 1st.
This article puts the 2004 developments in context and examines their effects on alcohol consumption, its distribution and related harm. We do this by reviewing the published research and routinely available data accumulated on the issue, which have been published only in Finnish or are otherwise not easily available to the international readership. The measures we use when assessing the effects of the changes are: prices of alcoholic beverages, recorded and unrecorded alcohol consumption, data on criminality and other police statistics, alcohol-related deaths and hospitalizations, and data on service use.
Nordic alcohol control has rested on three pillars: strict control of the physical availability of alcohol, a comprehensive state monopoly on alcohol production and trade that prevented private profit-seeking, and high prices of alcoholic beverages.
In Finland, the physical availability of alcoholic beverages was very strictly controlled until 1969 when new alcohol legislation was introduced. The most important changes were that medium beer (up to 4.7% alcohol by volume) could be sold in grocery stores and cafés, alcohol sales were enabled in rural municipalities and legal age limits for alcohol purchases were lowered . During the following decades, alcohol availability has further increased as the number of liquor stores and licensed restaurants has expanded, controls on off- and on-premise sales of alcoholic beverages have decreased and opening hours of alcohol outlets have been extended .
In 1995, when Finland joined the EU, the state monopoly on the production, import, export and wholesale of alcoholic beverages was dissolved. However, the off-premise retail alcohol monopoly, Alko, was maintained for alcoholic beverages with an alcohol content exceeding 4.7% by volume .
During the second half of the twentieth century, real prices of alcoholic beverages were held practically at the high level they had reached in 1951. In March 2004, however, the prices of alcoholic beverages decreased greatly when excise duty rates for alcoholic beverages were lowered. The relative decrease was higher for strong alcoholic beverages than for beer and wine (Table 1).
A number of factors magnified the potential impact on Finland of the abolishment of travellers’ import quotas and Estonia’s accession into the EU. The population in Finland is concentrated in the south, and Estonia can be reached from Southern Finland in less than two hours by boat. The five million inhabitants of Finland made approximately 2.5 million trips to Estonia annually at the turn of the millennium. At the beginning of 2004, prices in Estonia for cheap brands of vodka were merely a fifth of the Finnish prices, prices for beer were one-third and for wine two-thirds of the Finnish prices . Since May 2004, Finns have been able to take with them practically any amount of alcoholic beverages for their own use, whereas before that, a Finnish traveller having stayed in Estonia at least 20 hours was allowed to import tax-free merely one litre of strong alcoholic beverages, or two litres of intermediate products, and two litres of wine and 16 litres of beer.
The aim of the tax cuts from the government’s perspective was to curb the expected growth of travellers’ alcohol imports, to maintain the tax base of alcoholic beverages and jobs created by the alcohol industry in Finland and to prevent the emergence of grey markets based on travellers’ alcohol imports [5: p.28–29]. The Government anticipated that the tax cuts would increase alcohol consumption and related harms, but it emphasized that, due to much greater travellers’ imports, they would increase even if no cuts were made in alcohol taxes [5: p.26–27]. The removal of the import quotas together with Estonia’s EU membership thus implied that Finland had only bad alternatives to choose from in the spring of 2004.
The differences in tax cuts by beverage category were mainly motivated by differences in the prices of alcoholic beverages between Finland and Estonia. Furthermore, in Estonia, the price of ethyl alcohol is lowest in vodka, and it is much easier to transport alcohol in the form of a beverage containing 40–80% alcohol than in the form of wine or beer. For beer, the size of the tax cut was affected also by Finland’s industrial policy targets [5: p.29].
The share of alcohol tax in the price of alcohol is larger for off-premise than on-premise retail sales. Accordingly, on-premise sales prices declined only 4% in March 2004, representing approximately two-thirds of the calculated reduction margin resulting from the tax reform.
In off-premise retail sales, the tax reduction was reflected to the fullest extent possible in the retail prices of the state alcohol company Alko’s stores, as Alko did not change its margin and the suppliers were not able in March to change the prices at which they sold their beverages to Alko (Table 1). No major price changes took place between April 2004 and the end of year 2007. In groceries, where increased international competition made special offers on medium beer increasingly common, the decrease in medium beer prices was even greater than that attributable to the tax reduction. In late 2007, the prices of the most inexpensive vodkas in Estonia were still only one-third of the Finnish level.
One factor that has explained changes in the market shares of different beverages in Finland is which brand is the cheapest source of ethyl alcohol. Before the tax cuts, one centilitre of ethyl alcohol cost at its cheapest 51 cents in table wines, 55 cents in fortified wines and 69 cents in vodka, compared with 48, 41 and 42 cents, respectively, after the cuts [Alko’s price list, January and April, 2004]. In other words, it became significantly cheaper to buy ethyl alcohol in fortified wines and in vodka than in table wine. For medium beer the price of one centilitre of ethyl alcohol was 67 cents in March 2004 in Alko stores whereas the lowest discount prices offered by groceries translated to as little as 25 cents, with prices below 40 cents being quite common.
In the mid-1960s, total per capita alcohol consumption (both recorded and estimated unrecorded) was some 3 litres, while it was slightly more than 9 litres in 2003 (Figure 1). In 2004, consumption increased 10% and has since kept at that level.
Recorded alcohol consumption, which accurately measures the volume of alcohol sales in Finland , increased 7% in 2004 over the previous year (Table 2). The percentage growth for 2004, however, fails to reflect the total impact of the tax reform as the post-reform period only covered ten months of the year.
The immediate effects of the tax change can be evaluated on the basis of weekly Alko sales, contrasting them to same weeks of the previous year (Figure 2). Sales increased immediately at the beginning of March (week 10). The growth rate was higher during the months immediately following the tax cuts than during the summer months when Estonia was already an EU member state.
In 2004, the sales of both strong alcoholic beverages and fortified wines increased 17% over the previous year (Table 2). Beer sales increased by some 5% whereas no increase took place for table wines, and sales of cider and “long drinks” (a popular type of premixed drink) declined somewhat. The decades-long increasing trend in wine consumption paused in 2004.
On-premise consumption of alcohol has decreased constantly since 1997, 4% a year on average. In 2004, on-premise sales decreased 4%, after which the decrease ended.
In Finland, the volume of unrecorded alcohol consumption has been regularly assessed by interview studies . Even if such estimates have inherent uncertainties, they provide a fairly reliable description of the order of magnitude and the direction of change.
Unrecorded alcohol remained roughly unchanged during the first few years of the 2000s , but in 2004 it increased by about one-quarter. It continued to grow in 2005, but then decreased in 2006 (Table 3). These changes were mainly driven by travellers’ imports which, despite the tax cuts, were estimated to have increased by nearly 80% in 2004. Legal and illegal home production and smuggling of alcoholic beverages had already decreased in the early 2000s, but in 2004 there was a larger, approximately 50% drop (Table 3).
Some qualitative data on substitution across beverage types is available, based on discussions with sales staff in Alko stores. According to them, semi-dry white wines and inexpensive fortified wines were favoured by low-income problem drinkers before the tax cuts because of the low price of ethyl alcohol contained in them. The differential tax cuts by beverage type made them shift from inexpensive white wines to inexpensive vodkas. This type of substitution explains the discontinuation of the increasing trend in wine consumption in 2004.
Young people mostly drink beer and cider sold in grocery stores [9: Table 7.2]. Among them a similar shift to stronger beverages (as with low-income problem drinkers) was not to be expected considering that the price of ethyl alcohol in discount beer after 2004 was able to compete with the price of vodkas and that the age limit for buying distilled spirits is 20 and for beer and cider, which are available in groceries, it is 18. Youth health surveys show that the increase in the prevalence of abstention that started in the late 1990s has continued into 2004, whereas the downward trend in drinking frequency and binge drinking in some age groups levelled off in 2004 but has since then continued [10,11].
According to a survey conducted by the National Public Health Institute, the proportion of people with moderate to heavy alcohol consumption increased the most in the group with the lowest level of education from years 2000–2003 to years 2004–2005 . An analysis by age group revealed a distinct division of the male population into two groups: drinking among persons over 45 increased clearly whereas no increase was observed in the age group under 45. For women, the differences between age groups were similar in direction but less pronounced . In another survey, the increase in alcohol consumption was not observed [13,14], but the changes by age group suggested by the study were similar to the Public Health Institute’s survey .
Table 4 gives the percentage change in alcohol-related harms from 2003 to 2004 and, due to larger random variation than with the alcohol consumption series, from 2001–2003 to 2004–2006. The table shows changes as observed and as expected if the trend observed in 2001–2003 had continued. Figures 3 and and44 show some central harm series from 1990 onwards.
In Finland, some 70% of assaults are committed while under the influence of alcohol , which is towards the higher end of the range observed across countries . The 2004 changes had no permanent effect on manslaughters and murders or attempted manslaughters and murders (Table 4). This result has been confirmed by a time series analysis by Sirén and Lehti , which showed that the increase in manslaughters and murders in March 2004 was statistically significant, but that the effect did not last. The temporary increase in 2004 was largely accounted for by manslaughters within small groups consisting of marginalized drunkards .
The observed number of assaults increased somewhat after 2004, but the growth rate was no greater than before 2004 (Table 4, Figure 4). Also this result is confirmed by a time series analysis , which showed that there was no statistically significant intervention effect on assaults in 2004.
Arrests for drunkenness and the total number of drink driving cases recorded by the police increased in 2004, more than could have been expected merely on the basis of the previous trend (Table 4; Figure 3). In the case of arrests for drunkenness this was mostly due to an increase in the number of arrests per arrested person over the year .
Despite the 10% increase in aggravated cases of drink driving in 2004, these cases seemed not to have increased more than expected on the basis of the trend in the early 2000’s, while for non-aggravated drink driving, year 2004 may have marked an end to the decreasing trend in early 2000s. The number of breath tests conducted by the police increased between 2003 and 2004, but this explains only a part of the increase in drink driving cases [18,19]. The number of persons injured in accidents involving drink driving also increased 9% in 2004 over the previous year. In 2005, however, the figure declined, being close to the 2003 level .
The 2004 increase in consumption resulted in a dramatic increase in deaths from alcohol-attributable diseases and poisonings in both men and women. The increase was 19% in one year, and 31% from 2001–2003 to 2004–2006, which was much more than expected on the basis of the trend before 2004 (Table 4). The relative increase was similar among men and women, but the absolute number of deaths increased much more among men. Although accidental and violent deaths with alcohol intoxication as a contributory cause increased less, they too increased more than expected, particularly among women. According to a time series analysis, the impact of the alcohol tax cuts in March 2004 on another category of alcohol-related deaths, namely “alcohol-positive sudden deaths”, was a statistically significant 17% increase . No statistically significant effects were observed for 1st January or 1st May.
The greatest increase occurred in deaths from alcohol-induced liver diseases. The increase in 2004 was 29% on the previous year, and the number of such deaths in 2004–2006 was 46% higher than in early2000’s (Table 4, Figure 4). Also deaths from alcohol poisoning and alcohol dependence increased clearly more than expected. By contrast, the increase in the smaller categories of alcohol-induced pancreatic diseases and alcoholic cardiomyopathy was no greater than before 2004.
Another study showed that the growth in alcohol-related mortality was clearly largest in ages 50–70 years, while it was nonexistent among men (but not women) aged 35 and younger [22,23]. Additionally, the increase in alcohol-related deaths did not in 2004–2005 concern people in active employment or people with underage children, but it was concentrated in the worst-off parts of the population: compared with years 2001–2003, the increase in 2004–2005 among men aged 30–59 was 2 per 100 000 person-years for the employed, 166 for long-term unemployed, 101 for other unemployed, 168 for pensioners and 57 for men living alone. The corresponding figures for women were 1, 109, 46, 59 and 23 per 100 000 person-years, respectively.
Alcohol-related hospitalisations increased less than alcohol-related deaths. Yet, the increase was clearly greater than expected on the basis of the development before 2004 (Table 4). The growth in alcohol-related hospitalizations could be largely attributed to three diagnostic categories, namely alcohol intoxication, liver diseases caused by alcohol and the category including psychotic disorders caused by alcohol (ICD10 codes F10.3–F10.9).
Separate tabulations from the hospital discharge register show that the increase in hospital discharges was strongly associated with age . No increases were observed in 2004 in the 15–44 age group, but rather a slight decrease. The increase mainly concerned over 45 year olds: it was 9% in age group 45–54, 25% in age group 55–64 and 11% in age group 65 and older. Additionally, alcohol-related hospitalisations increased 32% among the under 15 year olds.
The number of clients and care days in specialised services for substance abusers, the great majority of whom abuse alcohol, increased somewhat from 2001–2003 to 2004–2006, and more so than they had increased in early 2000s (Table 4). These figures do not, however, directly describe the demand for treatment as the number of treatment episodes is affected by local authorities’ commitment to pay for treatment in substance abuse units. A national report from 2005 stated that the supply of services for substance abusers has not been able to respond to the increasing need for such services . Additionally, problem users in the poorest condition may have been left without treatment as a consequence of obstacles such as waiting lists and great distances to service units  and of a shift among service providers favouring the more socially integrated problem users able to commit themselves to an intensive treatment relationship .
In 2004, Finland’s quotas for travellers’ tax free imports of alcoholic beverages from other EU countries were abolished. At the same time Estonia joined the EU and excise duties on alcoholic beverages were reduced, which together meant a significant reduction in the effective price of alcohol. In that year alcohol consumption increased clearly more than it had increased in early 2000’s. The reaction of Finnish consumers to the price decreases of March 2004 was immediate, and Estonian EU membership lead to increases in travellers’ alcohol imports and decreases in alcohol sales in Finland in 2004. Consumption stabilized to the new, higher level by fall 2004. These results strongly suggest that the reduction in the effective price of alcohol had a considerable permanent impact on alcohol consumption in Finland.
This finding, based on a natural experiment, confirms what has earlier been known on the basis of time series and pooled cross-sectional time series analyses about the effects of taxes and prices on alcohol consumption: changes in prices of alcoholic beverages tend to be followed by opposite changes in consumption [28,29]. In fact, even the size of the Finnish 2004 changes corresponds quite well with pre-2004 predictions, according to which the price elasticity for off-premise sales was −0.93 for spirits, −1.46 for wine and −0.49 for beer .
The increase in consumption, in its turn, was followed by an increase in a wide spectrum of alcohol-related harm: arrests for drunkenness, non-aggravated drink driving, and alcohol-related deaths and hospitalizations. For assaults, and for some causes of death or hospitalization, the increase was no larger than could be expected on the basis of the pre-existing trend. In principle, something else than the alcohol policy change under scrutiny could have caused the changes in consumption and harms. Indeed, third factors, like police control or the supply of treatment, are known to have affected trends in alcohol-related harms in Finland in the past 15 years . However, there are no obvious factors other than alcohol that could explain the increased rate of alcohol-related harms observed after 2003.
The decrease in alcohol prices was expected to manifest itself as an increase in drinking among the population at large, but even more so among people on low incomes, including young people [5: p. 40]. The results reviewed in this article, based on surveys and on alcohol-related hospitalizations and mortality, showed that it was the middle-aged and older segments of the population whose consumption and related harms increased the most. This observation contrasts with results in the econometric literature which suggest a higher elasticity among younger than among older drinkers [29, 31]
The largest increase in harm was observed for deaths from alcoholic liver cirrhosis and other liver diseases, which are now at a nearly 50% higher level than they were in the first years of the millennium. Because liver cirrhosis takes a long time to develop, this sudden increase can only mean that alcohol consumption rose considerably among heavy drinkers who had damaged their livers already before 2004. Hence, the Finnish experience confirms the results from studies showing that heavy drinkers are especially responsive to price [32, 33], although opposite results have also been reported in the literature .
The reduction of socioeconomic differences in mortality has been recognized as an important goal [35, 36:10.3], and alcohol-related causes have been found to be a major determinant of socioeconomic differences in premature mortality in Finland . Published results [22, 23] show that the changes in alcohol policy in 2004 resulted in dramatic increases in severe alcohol-related harm among those parts of the population that are worst off: the unemployed, early pensioners, and people living alone. Hence it can be said that high alcohol prices are a good tool to protect the health of the worst-off parts of the population. It should be mentioned, however, that the aforementioned effects on mortality until the end of 2005 do not exclude the possibility that better-off parts of the population also increased their consumption, as the time lag between increased drinking and death from an alcohol-related cause for a healthy working adult may be several years.
With no information on what would have happened in Finland if taxes would not have been cut, a proper evaluation of the sensibility of the Finnish policy decision is difficult. However, a comparison can be made to Sweden, which experienced a removal of import quotas similar to Finland . In Sweden the only tax cut after 2000 was a moderate decrease in the taxes for wines. As a result of the increasing import quotas, private imports and smuggling grew so much that total consumption has increased  and by 2003, in the region next to Denmark, imports exceeded registered consumption [39: table 15]. This resulted in considerable problems with a black market for alcoholic beverages. Yet, in Sweden as a whole, alcohol-related deaths have not increased with the increasing consumption, even if there was an increase in the south of Sweden . It is possible, albeit not proven, that the Swedish approach saved lives compared to a tax reduction approach, although it happened at the expense of obedience to the law, employment and state revenues.
In the EU, economic issues tend to be guided by “hard law”, or binding legislation, and public health issues by “soft law”, like recommendations and strategies , which is problematic from a public health point of view. The EU has recognized this, and it adopted a Health in All Policies approach in 2006 . The fact that the EU, aiming to remove barriers to trade, has forced member states to abolish travellers’ import quotas of alcohol and tobacco is a prime example of this conflict of interests. As this article has shown, in Finland the removal of import quotas, mediated largely by the reduced taxes, resulted in severe public health consequences, a finding that should be taken into account in future trade policy decisions.
This analysis is part of the study, ‘Effects of major changes in alcohol availability’, conducted collaboratively by researchers at the Centre for Social Research on Alcohol and Drugs of Stockholm University, the Unit of Health Promotion Research of the University of Southern Denmark, Esbjerg, and the Department of Alcohol, Drugs and Addiction of the National Institute for Health and Welfare (THL), Helsinki. The study has received support from the Joint Committee for Nordic Research Councils for the Humanities and the Social Sciences (NOS-HS, project 20071), the US National Institute on Alcohol Abuse and Alcoholism (R01 AA014879), and national funds.