Queen’s Park is once again mooting reform of the Liquor Control Board of Ontario, including privatizing it. However, the province must do much more than “maximize the value of the LCBO’s assets.” It needs to open up beer and wine retailing to improve choices and lower prices for consumers and increase government revenues.

Government regulations limit off-winery or brewery sales to the LCBO, a single private beer retailer and a fixed number of off-winery wine stores. Provincial laws have resulted in private quasi-monopolies for both beer and wine retailers. Three large brewers — not the province — own The Beer Store. Most of Ontario’s private off-winery stores are owned by two large wine makers, and this gives them an extra outlet to sell their wines, including those that contain as little as 25 per cent Canadian grape juice.

So not only do consumers have a limited set of choices, but the larger breweries and wineries have a leg up over the smaller ones. Reform of the system should involve freeing up competition in wine and beer retailing, not only privatizing the LCBO.

Effective competition requires free entry. The government should open up beer and wine retailing to all stores willing to pay a licensing fee to do so. This would help to level the playing field between large and small producers. If private retailers were free to offer foreign as well as domestic products, that would get around the limit on off-winery stores that is a legacy of carve-outs in NAFTA. And it would provide effective competition for the LCBO, regardless of whether the province privatizes it.

Quebec offers a good model for expanded competition for the government alcohol retailer. In Quebec, convenience and grocery stores can sell beer and wine. Although hobbled by requirements that the wine they sell is bottled in Quebec, grocery stores compete with the provincially owned Société des Alcools du Québec. In our new study, we show that beer prices are on average 6 to 9 per cent lower in Quebec grocery stores than in Ontario, after taking account of taxes and other fees.

Of course there are objections to reform — most vocally from those benefiting from the status quo. The LCBO pays generous salaries and has less incentive than a private company to keep costs under control. Despite this, it also pays a generous dividend to the government, thanks to its ability to charge a hefty markup over its costs. Why would the government want to butcher the goose that lays the golden eggs?

But privatization need not lead to lower government revenues. British Columbia and Alberta now have partial or full privatization of alcoholic beverage retailing. Despite this, they have higher per capita government profits from alcohol than other Western provinces that still have monopolies, after controlling for other factors such as per capita income.

The old arguments from the First World War-era Temperance Movement that the government must retail alcoholic beverages no longer hold much water. The government can address minimum drinking age rules and health concerns through enforcement, not ownership. And in fact the LCBO now advertises its products, much as a private retailer would.

Reform of alcoholic beverage retailing in Ontario is long overdue. It no longer makes sense to have a government retailer and private quasi-monopolies selling beer and wine. Freeing up retailing to allow entry of private stores would mean consumers would enjoy lower prices and greater choice. Open competition would improve the relative position of smaller breweries and wineries. The government would be able to maintain and even increase its revenue from the sector.

Alcoholic beverage retailing reform can be a win-win situation. Queen’s Park should not flinch from making the necessary changes.

Paul R. Masson and Anindya Sen are authors of the C.D. Howe Institute publication Uncorking a Strange Brew: The Need for More Competition in Ontario’s Alcoholic Beverage Retailing System, to be released on Aug. 20.