Wine prices to rise?

The price of wine could soon be rising, if the government accepts the advice being offered to it.

The Foundation for Alcohol Research & Education (FARE) has called on the government to change the wine tax, which would save Australia $230 million a year. But Federal treasurer, Wayne Swan has refused to look at the change, saying Australia is experiencing a wine glut.

FARE has estimated that the social cost of drinking costs Australia about $15 billion a year in increased health care and lost wages, as well as policing and child protection costs. FARE chief executive, Michael Thorn has said that Australians pay a heavy price as the result of alcohol consumption – far above what we pay at our local bottle shop.

The group has argued that changing the wine tax would increase the price of alcohol, reduce binge drinking and reduce the social costs of drinking. The change in wine tax was recommended by the Henry review and seven separate reviews before it. Beer is taxed on the basis of alcohol content, but wine was not subject to an alcohol tax, but usually taxed on the basis of price. FARE have argued that the current wine tax encourages the production of cheap wine, which is the cheapest alcohol available in Australia.  Bottles of wine can be purchased for as little as $2 a bottle.

Australia’s largest listed pure wine company, Treasury Wine Estates (ASX: TWE) last week reported a disappointing forecast for 2013, 10% below broker expectations. First half earnings are expected to be 20% below the same period last year, although the company expects to have a much better 2014 financial year. Treasury Wine was created as a result of the spin-off of the wine assets from Foster’s Group in 2011.

Related: Treasury wine adds swag for investors

Speaking of beer, Coca-Cola Amatil (ASX: CCL) has prepared itself to re-enter the premium beer market in December 2013, with a view to gaining a 10% market share. Once it does, Coca-Cola Amatil will become our largest listed beer company, by a long way – Gage Roads Brewing Co Limited (ASX: GRB) and OZ Brewing Ltd (ASX: OZB) have market caps of $23.5m and $2m respectively.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.  The Motley Fool ’s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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