Lungiswa Matshikiza

METCASH Trading Ltd

22 April 2003

Dear Ms Matshikiza,

NEW NATIONAL LIQUOR BILL

We are a firm of attorneys who specialised in liquor licensing since 1977 and we dare say that we have gained some knowledge of the liquor trade and liquor licensing in the years past.

In our experience it is very important to have the "rules of the game) clearly stipulated in legislation and to limit discretion to cases which cannot cause inequality.

The main object of the new National Liquor Bill is to create a three tier system which aims at making a complete separation between manufacturing of liquor, the distribution of liquor and the selling of liquor.

Section 12 (2) of the Liquor Bill makes a definite end to the possibility of vertical integration.

The distribution of liquor in South Africa is currently controlled by a few, powerful manufacturers who do not only manufacture, but they also distribute.

Previously these power groups were also directly represented in the retail trade but since the SAB did away with its Solly Kramers stores and the selling off of WPC stores, vertical integration between manufacturer-distributor and retailer has declined.

At this point in time distributing by somebody other than a manufacturer is the exception as competition amongst distributors does not exist because the non manufacturing distributor has to buy from the manufacturer to distribute whilst the manufacturer is distributing to the retailer at the price the distributer can buy from the manufacturer.

The retail trade, which also trades horizontally with each other, in general, is fairly healthy as competition is strong and the rules of the game is the same for everybody.

The three tier system, as envisaged in the Liquor Bill, is able to break down the disparity between manufacturers-distributors and distributors as well as doing away with vertical integration..

Illegal trading is another problem area in the liquor trade in South Africa, and so is the social impact of liquor abuse!

Illegal trade in liquor is the result of selective or no law enforcement on the one hand, and the inability of the system to cater for a proven need.

Illegal liquor trading is especially rampant in Black communities where the shebeen has become a ubiquitous phenomenon.

The illegal shebeen will only be eradicated by a change in social behaviour, coupled with an expeditious licensing program in the deserving cases, coupled with assertive, fair and incorrupt policing.

In our experience the greatest handicap to the drive to license shebeens, is town planning.

Another problem at this point in time is that a shebeen turned tavern may only sell on-consumption but many taverners still sell off-consumption.

An off- and on-consumption registration or licence for the like of a shebeen will meat this reality.

Managing shebeening into legality entails an acceptance of the reality thereof and a change to the requirements of town planning, or a concerted clamp down on shebeening as well as a re-think of the distinction between off- and on-consumption on the provincial level.

The social cost of the availability of liquor can never be managed by legislation! It is a challenge to education and the ability of a community to regulate and control itself and its constituting elements.

The new Liquor Bill does not really address the issue of the reality of shebeening. It does not matter in what form it is ultimately to be adapted, the Liquor Bill will not stop shebeening, neither facilitate expeditious licensing of illegal outlets in deserving cases.

Prohibition has never stopped liquor consumption, not in America neither amongst our Black communities before 1962!

The Bill can make a difference to the imbalance in the liquor trade in South Africa, as such.

This imbalance is manifested in the powerful position of manufacturers who, due to their stake in manufacturing and distribution, "call the shots" in the liquor trade. Competition is limited, if not superficial.

Unfortunately the Bill contains in itself the mechanism for defeating its very object, i.e to create a three tier system.

Section 24 (5) and (6) is the weakness:

Subsection 24 (5) gives the Minister, a member of the Executive, the power to override the three tier system Parliament is enacting. The Minister is given the discretion to allow a manufacturer to sell (and thus distribute) directly to the retailer.

The rules of the game must be plain and not subject to the discretionary powers of the Executive. If this is not so, the Legislature is passing on its responsibility, in terms of the Constitution, to the Executive.

Even more, not treating everybody equally is grossly unconstitutional as the Constitution does allow a limitation of rights, but then on an equal bases for all.

And the right to trade in liquor is a "right even the simplest citizen is entitled to" as per the Appellate Division!

Section 24 (5) and (6) should never be enacted because it has the potential to destroy the principal of a three tier system and the likelihood of putting an end to vertical integration.

Subsection (6) of Section 24 is in any case in conflict with subsection (2) of Section 12.

Section 12 (2) clearly provides that a manufacturer cannot be registered or licensed as a retailer "for consumption" as the Bill states. Subsection (6) of Section 24 gives the Minister the discretionary power to allow a manufacturer to be a retailer but only if it is registered as such, which, in terms of Section 12 (2) is impossible.

Vertical integration should be avoided because it unevens the playing field. Competition is good, healthy, economically stimulating, but only if the playing field is even.

How can a retailer, who has to buy from a distributor (who must make a profit to survive) who buys from a manufacturer (who must make a profit to survive) compete with a producer who also trades

retail?

No, section 24 (5) is the self destruction chip of the three tier system envisaged by Parliament. And Section 24 (6) is the death sentence of the struggle against vertical integration!

They must both go if Government is serious with the three tier system and the provisions of Section 12 (2).

Looking at the Bill, and especially Sections 24 to 27, one gets the feeling that the manufacturers are being benefitted whilst the retailers are being handcuffs and the distributors remain a non-entity.

No distributor will be able to survive if it has to compete with a manufacturer in supplying to the retail trade.

If Government wants to bring new participants into the liquor trade, especially the distribution level, 24 (5) and (6) must, have to, should go!

The retail trade has been trading successfully and without hitches in selling horizontally, upward and to the public in general. The "Bill" allows horizontal trading in all tiers except the retail tier where a provincial liquor board holds the sway over the privilege, not right, to trade horizontally in the third tier. (See Section 27.)

The Bill prohibits trade upwards through the tiers and Section 27 will enact an uneven playing field amongst retailers as it creates a discretionary power for the provinces to decide which of the retailers (registered persons selling for consumption) will be allowed to trade horizontally, i.e with similarly

registered persons.

The purpose of the three tier system is to break the current power position of long established groups in the trade, and also to bring new participants into the trade.

So, make downward trading in the three tier system clearly prohibited whilst retaining horizontal trading within a tier, and maybe, upward trading through the tiers possible.

This cannot do anybody any harm as competition will be the referee amongst traders in a tier.

This is actually quite simple: Sections 24 to 27 should read as follows if upward trading through the tiers as well as horizontal trading in a tier is to be allowed:

24. Registered manufacturers

(1) A registered manufacturer may sell liquor only to -

(a) another registered manufacturer;

(b) a registered distributor;

(d) a producer of liquor related products; or

(e) persons outside the Republic of South Africa.

(2) A registered manufacturer may supply liquor only to a person referred to in subsection (1), and only -

(a) pursuant to a sale; and

(b) in accordance with the regulations.

(3) A registered manufacturer may buy liquor only from a-

(a) registered manufacturer;

(b) registered or licensed micro-manufacturer; or

(d) registered or licensed seller for consumption; or

(e) holder of an import certificate issued in terms of section 16 of the Liquor Products Act.

(4) A registered manufacturer may not accept delivery of any liquor that has not been ordered by that manufacturer.

25. Registered micro-manufacturers

(1) A registered micro-manufacturer may sell liquor only to -

(a) any registered person;

(b) a producer of liquor related products;

(d) any person outside the Republic of South Africa.

(2) A registered micro-manufacturer may supply any liquor only to a person referred to in subsection (1), and only pursuant to a sale to that person.

(3) A registered micro-manufacturer may buy liquor only from-

(a) a registered manufacturer;

(b) a registered distributor;

(d) a registered person for consumption under this Act or licensed in terms of Provincial legislation for the sale of liquor for consumption; or

(e) a holder of an import certificate issued in terms of section 16 of the Liquor Products Act.

(4) A registered micro-manufacturer may not accept delivery of any liquor that has not been ordered by that micro-manufacturer.

26. Registered distributors

(1) A registered distributor may sell liquor only to a registered person or to a person outside the Republic of South Africa.

(2) A registered distributor may supply any liquor only to a person referred to in subsection (1), and only pursuant to a sale to that person.

(3) A registered distributor may buy liquor only from a -

(a) registered manufacturer;

(b) registered or licensed micro-manufacturer;

(d) person registered in terms of this Act or licensed under Provincial legislation for the sale of liquor for consumption; or

(e) holder of an import certificate issued in terms of section 16 of the Liquor Products Act.

(4) A registered distributor may not accept delivery of any liquor that has not been ordered by that distributor.

27. Registered or licensed sellers of liquor for consumption

(1) A registered or licensed seller of liquor for consumption -

(a) may buy liquor only from-

(i) a registered distributor;

(ii) a micro manufacturer;

(iii) a registered or licensed seller of liquor for consumption ;or

(iv) a holder of an import certificate issued in terms of section 16 of the Liquor Products Act.

(b) May sell its liquor to anybody who is entitled to purchase liquor.

(2) A registered or licensed seller of liquor for consumption may not accept delivery of any liquor that has not been ordered by that seller.

Or if only horizontal trading in a tier is to be allowed and not upward trading:

24. Registered manufacturers

(1) A registered manufacturer may sell liquor only to -

(a) another registered manufacturer;

(b) a registered distributor;

(d) a producer of liquor related products; or

(e) persons outside the Republic of South Africa.

(2) A registered manufacturer may supply liquor only to a person referred to in subsection (1), and only -

(a) pursuant to a sale; and

(b) in accordance with the regulations.

(3) A registered manufacturer may buy liquor only from a-

(a) registered manufacturer; or

(b) registered or licensed micro-manufacturer;

(4) A registered manufacturer may not accept delivery of any liquor that has not been ordered by that manufacturer.

25. Registered micro-manufacturers

(1) A registered micro-manufacturer may sell liquor only to -

(a) any registered person;

(b) a producer of liquor related products;

(d) any person outside the Republic of South Africa.

(2) A registered micro-manufacturer may supply any liquor only to a person referred to in subsection (1), and only pursuant to a sale to that person.

(3) A registered micro-manufacturer may buy liquor only from-

(a) a registered manufacturer;

(b) a registered distributor;

(d) a holder of an import certificate issued in terms of section 16 of the Liquor Products Act.

(4) A registered micro-manufacturer may not accept delivery of any liquor that has not been ordered by that micro-manufacturer.

26. Registered distributors

(1) A registered distributor may sell liquor only to a registered person, excluding a registered manufacturer, or to a person outside the Republic of South Africa.

(2) A registered distributor may supply any liquor only to a person referred to in subsection (1), and only pursuant to a sale to that person.

(3) A registered distributor may buy liquor only from a -

(a) registered manufacturer;

(b) registered or licensed micro-manufacturer;

(d) holder of an import certificate issued in terms of section 16 of the Liquor Products Act.

(4) A registered distributor may not accept delivery of any liquor that has not been ordered by that distributor.

27. Registered or licensed sellers of liquor for consumption

(1) A registered or licensed seller of liquor for consumption -

(a) may buy liquor only from-

(i) a registered distributor;

(ii) a micro manufacturer;

(iii) a registered or licensed seller of liquor for consumption; or

(iv) a holder of an import certificate issued in terms of section 16 of the Liquor Products Act.

(b) May sell its liquor to a registered or licensed seller of liquor or any member of the public who is entitled to buy liquor.

(2) A registered or licensed seller of liquor for consumption may not accept delivery of any liquor that has not been ordered by that seller.

NATIONAL LIQUOR POLICY

Schedule 1 is of great importance as it creates the mechanism to manage a measure of uniformity throughout the Republic without depriving the Provinces of their legislative independence.

This is laudable but we believe that the tendency on the part of some provinces to be pedantic in stead of administratively open minded, should be guarded against in this schedule:

1 The ability to enact arbitrary no-go-distances, should be "out-acted". So, for instance, the Gauteng Legislature has enacted, before there was an empowering national Act, a provincial liquor act which prohibits the grant of liquor licences of a specific type within 500 metres from the same, a church or a school, and that notwithstanding Section 11 (b) of the Bill.

Whether a licence is justified or not, can never be dependant on a distance, only on fact, unless the distance is coupled to a public policy principle, such as liquor should not be sold within a specific distance of a school in order to divert the impact of "liquor is available", on children.

2 Another aspect to be considered is the expansion of decision making powers. The more role players, the more input, but also the more exposure to corruption.

Liquor always has been power or money. The Constitution does not make any difference between liquor or any other business in its provision that every citizen is entitled to make a living through business activities and therefore the ability of provinces to lay down provisions which requires an applicant to go through a mass of processes before coming before a decision maker, should be limited for the sake of the constitutional right and to curb possible corruption.

3 Role players should not be a pre-requisite, they should be an entitled input!

4 Legislating about a limitation on the citizen's freedom to trade, also in liquor, should not be selective, it must be uniform for everybody.

Schedule II is certainly to be preferred above for instance the Gauteng Liquor Bill because it does not fragment the process of decision-making.

SUMMARY:

1 The three tier system is fair and will break the power position of the big manufacturers but only if it is applied without exception.

2 There is no thinkable reason why horizontal trading in tiers should not be allowed as a right and not be subject to administrative discretion. It will enhance certainty because all retailers will have the same rights.

3 The National Liquor Policy must guard against the fragmentation of the decision making process in order to prevent red tape, power positions and even corruption. (The shebeener who wants to get licensed stands to suffer the most from such fragmentation of the decision-making process.

APPRECIATION:

We thank you for allowing us to make this presentation to you and through you to Parliament.

We trust that it is clear and should you have any further question to raise, please phone the writer, Marius Blom, on 0827768336 or 012-3622700.

We, are indebted to you!

Yours faithfully,

MARIUS BLOM & GC GERMISHUIZEN INC

Per: M Blom

PO Box 2667

Pretoria 0001

Tel : (012) 362-2700 or 082-776-8336

Fax : (012) 362-0565