Cross-border alcohol trade, aka ‘viinaralli’ (lit. ‘booze rally’), is a typical phenomenon in the Nordic countries. The effects of this trade to a country’s economy, as well as to individual citizens, have been long studied and debated in both the academic sphere and the media. However, traditionally this phenomenon has been approached from the perspective of healthcare.
In my Master’s thesis I bring a new perspective to this discussion by taking into account some of the less noted costs such as vehicle, time and emission costs. These costs occur from the material and people flows related to the cross-border trade.
According to the results of the thesis, time costs have a particularly significant role in the overall expenditures. Time costs in the calculation are defined by the framework set by Tervonen & Metsäranta (2015) for the Finnish Transport Infrastructure Agency, which gives time a monetary value based on which type of predefined travel is in question. In broader terms, time is measured by the concept of “saved time on travel”, which is defined as the potential time which could have been spent working, as free time or on other activities, instead of travelling.
Calculations in the thesis are based on a social cost-benefit analysis modified to suit the needs of the thesis from the model made by the Finnish Transport Infrastructure Agency.
Is cross-border alcohol trade beneficial?
Whether something is beneficial or not will naturally depend greatly on which perspective it is seen from. The two main perspectives in the thesis are the individual’s and that of society. In the context of this social cost-benefit analysis, how beneficial something is from the perspective of an individual will be dependent on how one evaluates their own time. Time is often not included in the calculations, which makes it in reality more of a hidden cost than a proper cost. How the price of time is evaluated is critical in determining whether the cross-border alcohol trade is viable as an economic activity; it correlates directly on how much alcohol is needed to be brought back to break even.
Calculation example
Let’s assume that the average traveller comes to the harbour by car and the distance to harbour from the point of origin is less than 200 km. In this scenario, the average driving time is roughly 1,5 hours one way, which totals 3 hours for two-way travel. The fastest reasonable two-way ferry to Tallinn, Estonia takes 8,5 hours. In total this trip to Estonia takes 11,5 hours.
If the time spent on the trip is fully valued as a free-time travel (6,78 €/h), the total time cost would be approximately 78 €. If it is measured as work travel (23,68€/h), the total is around 272 euros and by the mean time cost (8,8 €/h), 101 euros. If other necessary costs in addition to travel costs such as petrol, ferry ticket, food etc. are included, a rough sum of 175 € can be added to calculations.
Table 1 Cost estimates.
In Table 1, it is estimated how many purchase units from different alcohol categories a traveller would need to bring back from the trip to make it economically viable. In the context of the thesis, economically viable activity is defined as the amount of alcohol that needs to be bought and the saving gained from this activity required to compensate the travel cost fully.
The average price in this calculation is based on the same amount of the same product from both countries. The average prices are taken from multiple e-stores selling alcohol. The price of brewery products also includes different package sizes recalculated into 24 pack size
(e.g. 8 pack x 3) as in Finland the availability of said 24 packs is scarce in any other product category than strength III beer (2,8 – 4,7 abv). In Estonia the export beer sold for travellers is measured as strength IV (≤5,5 abv) and sold in 24-packs. This is an important clarification as the taxation of alcohol products play a crucial role in the overall concept of why cross-border trade between Finland and Estonia is conducted in the first place.
Table 2 Number of packages required to bring back from Estonia to compensate time and other costs.
As seen in Table 2, the average traveler needs to bring for example 11 (or 18 with inclusion of other costs) crates of beer to make cross-border trade economically viable, if time is valued by the work travel time cost. If the trip in question is evaluated as free-time travel, trade would technically be viable after just 3 crates, or 10 if the other costs are considered. “Other costs” amounts to the 175 € mentioned previously, and is equivalent to 7 crates of beer.
For comparison, an average lightweight foldable cart, also nicknamed “booze cart”, sold in various stores in Tallinn and on the ferries has the average capacity of 7 to 8 crates. In other words, average traveler would need to bring at least a “booze cart’s worth” of alcohol for the savings made from buying it to compensate the cost of travel. Only after this break-even point would the crossborder trade activity be profitable.
Remarks and conclusions
If the goal of cross-border trade activity is to make significant profit it would require bringing back large quantities systematically. However, without paying taxes and tolls, it is only possible to bring back the amount of alcohol defined by the Finnish Customs guidelines. For example, the guidelines for 2019 state that an individual is only allowed to bring back (without taxes and tolls) 110 L of beer (~14 crates) or 10 L of strong spirits in the vehicle they are driving. It is possible to bring more alcohol back from a travel than stated in the guidelines if the traveller has a proper cause for it, such as a wedding or a large birthday party. However, this hinders with the systematic requirement of bringing alcohol back to make it profitable.
In general, it can be said that for a single traveller the economic viability will be dependent on how they value their own time. Cross-border trade can be viable on a large scale, but for the average traveller it is beneficial mainly as a side activity of travelling to Estonia.
However, this analysis only includes the individual’s own and time costs. If the external costs of cross-border alcohol trade to society are included, its viability would plummet remarkably. From the perspective of the State and society, cross-border alcohol trade is inviable. Even if only the direct costs related to the cross-border trade are included, they are greater than the taxes acquired from vehicle and transport costs related to the trade. If the time costs are also included, its viability would decrease further.
The socioeconomic cost-benefit calculation as a whole is available behind this link.
