Price Elasticity of Arrack and Beer Use in Sri Lanka

This Report was written by the Institute of Policy Studies of Sri Lanka. The report aims to estimate the prevalence, intensity, and total price elasticities of demand for beer and arrack, which comprise 90% of total annual sales in the country. The researchers find that the prevalence and intensity elasticities for arrack are -1.154 and -0.019, respectively. For beer, the prevalence and intensity elasticities are -0.347 and -1.213, respectively. These findings suggest that consumers of arrack are more likely to stop drinking arrack following a price increase, while consumers of beer are more likely to drink less beer following a price increase. Overall, a 10% increase in the price of arrack and beer would reduce consumption by 11.73% and 15.60%, respectively. The study also finds that elasticities vary by income group. Specifically, the lower-income group is more responsive to price increases of arrack, with a -1.411 elasticity of demand. In contrast, the higher-income group is more responsive to the price of beer, perhaps due to the fact that consumers of beer tend to be wealthier. The report concludes with recommendations for policy makers to raise the price of arrack and beer through excise tax increases to reduce consumption and alcohol-related harms.