The study, released Wednesday by the C.D. Howe Institute, said the government — which is facing a $12.5-billion deficit — is actually foregoing revenue by preserving its virtual monopoly on the sale of alcohol.
Western provinces with more competition had seven per cent more per capita in provincial alcohol profits than those with government-run monopolies, according to the report written by two economists, Paul Masson and Anindya Sen.
Ontario is the only jurisdiction in North America that limits off-site liquor sales to a chain of government stores, a single private beer retailer and a fixed number of off-winery wine stores, the report said.
It recommends that the government expand wine and beer sales to grocery and convenience stores, allow beer to be sold by other retail outlets and grant licences for off-winery stores to wineries and to new wine retailers.
"These changes would increase the choices available and reduce prices for Ontario consumers, as well as improve the competitiveness of Ontario's smaller wineries and breweries and generate more revenue for the government," it said.
The publicly owned Liquor Control Board of Ontario sells hard liquor as well as beer and wine. The Beer Store, run by three foreign-owned brewers, also has a quasi-monopoly of beer sales and retail distribution. It generates about $1 billion for the province in taxes, the report said.
The high costs are unlikely to shrink without more competition, it said. And there's also little incentive for The Beer Store to lower prices to consumers and commercial establishments or give more shelf space to competing brands since it commands about 77.5 per cent of beer sales in the province, the report said.
But the organization that represents the brewing giants that run The Beer Store said the report is based on flawed research on price differences between Ontario and Quebec, where wine and beer is sold in convenience and grocery stores as well as government shops.
"The reality is, we have a highly competitive beer market where brewers compete with each other for market share by setting their own prices," said Jeff Newton, president of Canada's National Brewers.
"The result of that is we have the lowest prices, on average, for beer in the entire country."
Finance Minister Charles Sousa was unavailable for comment, but his spokeswoman said Ontarians are well-served by the current system. The LCBO poured $1.74 billion into provincial coffers last year.
"This is important funding that supports vital services for all Ontarians, such as health care and education," Susie Heath said in an email.
She noted that Ontario wines can now be sold at local farmer's markets and that a small number of LCBO boutiques will be set up in grocery stores. But the governing Liberals have steadfastly refused to open up sales of wine and beer in the vast majority of grocery and convenience stores.
"The strength of the LCBO model is in a balance between customer convenience and selling alcohol in a socially responsible manner," Heath said.
The Ontario Convenience Stores Association said its members already operate many of the 219 LCBO agency stores in smaller communities. They could boost Ontario's emerging craft brewing industry by giving them a big share of beer shelf space.
"Make no mistake about it — modernizing Ontario's alcohol retailing system can be done within the framework of the LCBO and in a responsible manner to ensure that the sale of alcohol is conducted with the highest standards," association CEO Dave Bryans said in a statement.
The report said the Liberals had a committee look at alcohol retailing in 2005, but didn't act on their recommendations to open the sector to private competition.
"The quasi-monopoly enjoyed by the LCBO and TBS imposes excessive costs on consumers, restricts their menu of choices, and limits the accessibility of stores selling retailing alcohol," it said.
"In addition, it imposes distortions on small domestic breweries and wineries and puts them at a competitive disadvantage relative to a few large Canadian and foreign producers."
Two large vintners — including one owned by U.S.-based Constellation Brands — can sell Ontario-blended wine in retail stores the Wine Shop and the Wine Rack, but can't undercut LCBO prices. Other wineries, as well as distilleries and brewers, are only able to sell their wares through the LCBO or on site.
That gives the two big wineries a lot more retail shelf space than the other vintners, said Derek Saunders, who co-founded Calamus Estate Winery near Beamsville, Ont.
The government should allow wine to be sold in private stores, he said.
"This industry will collapse under the current system because we just can't sell our wine," he said in a recent interview. "We can't get it to the people."
Many provinces have moved away from monopolies, the report said. Alberta privatized the sale of alcohol 20 years ago and British Columbia will allow liquor sales in grocery stores next year.
Manitoba and Saskatchewan allow take-away beer sales in licensed hotels and Saskatchewan said it will allow a limited number of privately held stores to sell booze.
Convenience stores as well as those belonging to a government-owned corporation can sell beer in Newfoundland and Labrador. The provincial stores also sell wine and spirits.
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