E-Malt.com News article: Myanmar: Chang beer still smuggled into Myanmar despite local production

Months after Emerald Brewery began producing Chang in Yangon, large quantities of the Thai beer are still being smuggled openly across the border at Myawaddy in a racket dominated by the Kayin Border Guard Force, the Frontier Myanmar reported on January 18.

A young woman in the tight black and dark green dress approaches a table of men drinking beer. “Did you know Chang Beer is now made in Myanmar?” she asks. Behind her, a small sign in the restaurant advertises that Chang is “officially served” and that it’s “Time for a Change”.

These are fairly standard promotional techniques for a consumer goods company that has just entered a new market. But the examples also reflect the slightly unusual nature of the market entry challenge for Emerald Brewery, which began producing Chang Beer at a factory north of Yangon in late September. It assumes most customers already know Chang: what it wants them to know is that it’s now made legally in Myanmar.

Emerald Brewery is a US$70 million joint venture between Singapore’s Fraser & Neave Limited and two local partners, and it brews Chang under licence from its strategic partner, Thai Beverage Public Company Limited.

The brewery venture marks Fraser & Neave’s return to Myanmar after a four-year absence. The company was previously the military’s joint venture partner in Myanmar Brewery Limited, but was forced by an arbitration court to sell its stake back to the military in 2015.

Chang enters a crowded but rapidly growing beer market that remains dominated by military-owned Myanmar Brewery, with around a 55 percent market share. But unlike the other players, it may have to fend off competition from, well… itself.

Although Myanmar does not allow the import of beer, Chang – along with other popular Thai beers, such as Singha and Leo – has long been smuggled across the Thai-Myanmar border and sold openly throughout the country.

The smuggling is hardly an underground operation. In and around the border town of Myawaddy in Kayin State, a steady stream of motor boats laden with cases of beer make the short crossing across the Thaung Yin River to the Myanmar side. The beer is stored in warehouses and then loaded onto trucks and sent around the country. The warehouses in Myawaddy are never raided, and the trucks are only rarely intercepted despite travelling along the main highway.

Myanmar companies are used to distribute smuggled Chang to retail outlets and restaurants, and the beer is promoted widely through point of sale and social media advertising as well as competitions.

The Chang from Thailand is produced by ThaiBev, which is one of Southeast Asia’s largest beverage companies and holds a majority stake in Singapore-listed Fraser & Neave. Most of it comes from a factory in Kamphaeng Phet, about 200 kilometres from Myawaddy.

The semi-formal nature of beer smuggling is reflected in trade figures. Although Myanmar records no beer imports, Thai customs data shows that the country exports beer worth tens of millions of dollars to Myanmar each year, although this has been steadily falling from a 2014 peak of 3.978 billion baht (US$131.9 million at current exchange rates).

In November 2017, research firm Euromonitor International estimated that around 30 percent of all beer sold in Myanmar by volume was smuggled – about 1 million hectolitres in all. About 80pc came from Thailand, it said – the equivalent of about 10 million 24-can boxes.

“Large distributors (both legal and illegal) transport beers from Thailand and China across border,” it said. “Sub-distributors are responsible for distributing the goods nationwide.”

Because they are smuggled into Myanmar, Thai-made beers evade local taxes, which makes them about 35pc cheaper than locally-produced products, such as Myanmar Beer, Heineken and Carlsberg. The pricing disparity is greatest in border areas, where smuggled products are cheapest and licit products are more expensive due to transportation costs.

“Lower income consumers have greater price sensitivity, and look for cheaper products,” Euromonitor said. “Given that smuggled beer does not pay any taxes … [it is] more attractive to consumers.”

Together with promotional activities, this has enabled Chang and other smuggled brands to carve out a large market share in Myanmar. Reporting on the Fraser & Neave annual general meeting in January 2019, investment website Fifth Person said company officials had claimed that Chang was the second-highest-selling beer in Myanmar.

This has frustrated breweries operating in the country legally, which have for several years campaigned – largely in vain – for the government to take action to crack down on smuggled beer.

Industry body the Brewery Association of Myanmar declined to comment specifically on the establishment of Emerald Brewery.

However, a spokesperson told Frontier in an email that “illicit trade is a significant problem that negatively impacts the local beer industry and the economic development of Myanmar”.

“Tackling illicit trade requires the commitment and collaboration of multiple government departments, local producers and the general public. As the Brewers Association we work together to raise awareness on the topic and encourage the Government in their enforcement efforts.”

A spokesperson for Fraser & Neave declined to comment on beer smuggling and would not confirm whether it had told shareholders at its AGM that Chang had the second largest market share in Myanmar. Instead, it suggested that Myanmar consumers were already aware of Chang from its sponsorship of teams in the English Premier League.

“We acknowledge and are encouraged that there is some awareness of Chang Lager Beer in Myanmar,” said Mr Edmund Neo, the company’s chief executive officer for beer. “Based on our studies, we know that Chang Lager Beer enjoys a high level of brand saliency among consumers due to our long-standing partnerships with English Premier League football clubs like Everton and Leicester City.”

But as one official from a licensed brewery complained, the smuggling has given Emerald Brewery a significant head-start over Heineken and Carlsberg, which had to “start from scratch” when they entered the country several years ago.

“Everybody just wants healthy competition and a fair playing field,” the official said.

The opening of Emerald Brewery should be the first nail in the coffin for beer smuggling.

But in the border town of Myawaddy, the new brewery has caused barely a ripple. The only evidence of Chang’s new, legal presence is a billboard on the main street announcing it is now “officially served”. In restaurants and the store rooms of local distributors, Thai-made Chang is still the only game in town. Imports have not slowed down and traders said demand was still as strong as ever.

Locals said this was not only because of the cheaper price of the Thai product, but also due to the belief, widely held in border areas, that Thai-produced goods are superior in quality to anything made in Myanmar. Frontier spoke to about a dozen importers, wholesalers and retailers, and all of them said they were unaware that Chang was being produced in Yangon. Few were willing to answer questions about the business of illicit beer imports.

“Because of the market conditions in Myanmar’s border towns like Myawaddy, it will not be easy for it [locally made Chang] to compete with the illegal market,” said Daw Thin Thin Myat, the chair of the Myawaddy Border Trade Association.

A key factor in the “market conditions” are illegal border trade points. Thin Thin Myat said that in Myawaddy Township there are 34 “gates” controlled by ethnic armed groups, including the Kayin State Border Guard Force, Karen National Union and Democratic Karen Benevolent Army.

She said that 27 of these gates are controlled by the BGF, which is under Tatmadaw command. “These gates are working for border trade and are under the management of the Karen BGF.”

All of the gates are within 15 or 20 minutes of downtown Myawaddy, and some are in the middle of town – within eyesight of the two official crossings.

At least four of the gates – numbers 1, 10, 12 and 16 – are used exclusively for beer. All are controlled by the BGF.

During a visit to Myawaddy in late December, Frontier observed a container truck arriving on the Thai side of the border opposite gate No 1. Workers carried the beer to a small boat, before sending it across the river to a warehouse.

The large warehouse was completely full, packed tightly with thousands of cases of Singha and Leo, which are both produced by Thailand’s Boon Rawd Brewery. Workers assured Frontier that it would soon be Chang’s “turn” to come across the border, once the Singha and Leo had been distributed and the warehouse had space for more beer.

The BGF official in charge of the gate, Major Saw San Lin, refused to be interviewed. He directed questions to Major Saw Mote Thone, the head of BGF battalion 1022. Saw Mote Thone could not be reached for comment.

Major Naing Maung Zaw, a spokesperson for the BGF, said he could not comment on the BGF-run gates, because they are all managed by Saw Mote Thone.

U Naing Soe, a spokesperson for the Customs Department’s Border Export and Import Committee for Myawaddy, said customs officers were unable to control illegal trade through informal gates run by ethnic armed groups.

“We can’t check the BGF boat trading gates along the Thaung Yin River, we can’t control them,” he said. “It’s been more than 20 years that they’ve been trading goods illegally – not just Chang Beer, but also other products from Thailand, even cars.”

Naing Soe said that when he was first posted to Myawaddy four years ago from Yangon, he tried to check the BGF gates. “My car mirrors were broken at night and they left a warning note not to look into illegal trade issues. I don’t know who did it, but I stopped very quickly.”

Distributors told Frontier they rent space in the BGF warehouses, from where they send the beer across the country. Demand is highest in Kayin and Mon states and Tanintharyi Region, they said.

One Chang distributor, who asked to be referred to only as U Kyaw, said he had been importing Chang for about five years and buys around K50 million worth of the beverage a month – about 4,000 boxes.

He said there were at least a dozen Chang distributors like him in Myawaddy.

“I mostly store my products in the warehouse at BGF Gates No 1 and No 12,” he said. “But I don’t store it for a long time – maybe just a week, and then I send it out to markets in Mon and Kayin states in large trucks.”

The beer ends up in places like Myawaddy’s Bayintnaung wholesale market, where it is bought by retailers such as U Aung Soe, who runs a small shop from his house in downtown Myawaddy.

He said he was unaware that Chang was even being produced in Myanmar, and expressed doubt that locally-made Chang would replace the Thai version any time soon in Myawaddy. “We will keep trading beer Chang based on the demand of customers,” he said, adding: “Think about it. If you’re a customer, what do you want: okay quality at a high price, or the best quality at the cheapest price?”

Although Myanmar Customs apparently can’t stop beer smuggling, it appears that ThaiBev and the Thai authorities could turn off the tap if they wanted.

The distributors in Myawaddy told Frontier they buy Chang through agents in Myawaddy and Mae Sot who order it directly from the Chang factory in Thailand.

Buying direct from the factory for export is crucial, because it is the only way to avoid the excise and other taxes normally applied to beer made in Thailand.

Beer in Thailand is subject to several layers of excise, including a 60 percent levy on its retail price, a further excise levy based on volume, and a 7 percent sales tax. There would be no point in smuggling Thai beer if these taxes were applied, because it would already be more expensive than beer produced in Myanmar.

The export process is tightly controlled to ensure that excise-free beer does not end up being sold on the local market. The Thai Customs website describes beer as a “restricted good”, which means that exporters must present a permit from the Excise Department when completing customs procedures.

Although beer enters Myanmar through informal gates, it does appear to go through normal Thai customs procedures. Frontier observed Thai Customs offices and officials on the Thai bank of the Thaung Yin opposite the informal gates. Beer distributors in Myawaddy also said all four beer gates were manned by Thai Customs officers, who inspect trucks before they drop their cargo for transport across the river.

If ThaiBev refused to sell to agents importing its beer into Myanmar, or if the Thai customs or excise departments refused to process exports, the smuggling of Chang and other Thai beers would likely disappear overnight.

ThaiBev and the Thai customs and excise departments all declined to comment. Emerald Brewery would not comment on whether it had requested ThaiBev to halt exports of Thai-made Chang to Myanmar.

Halting exports, though, may be bad for ThaiBev’s overall business. If it plays by the rules but Singha and Leo continue to be smuggled into Myanmar, consumers may switch brands rather than buy the locally produced version.

For now, the illicit beer keeps flowing. Naing Soe from Myanmar’s Customs Department said the authorities had little information on the agents who import beer through the BGF gates.

“We don’t even know who the Chang Beer agent or who the Singha or Leo agent is. They work secretly,” Naing Soe said. “They make an agreement with the people running the BGF gates to import beer illegally. Unless you have an agreement with the BGF, you can’t bring the beer over the border.”

U Kyaw, the Myawaddy-based distributor, said he ordered Chang from an agent named Ma Si Si Thin, but in the five years of buying from her he had only dealt with a manager named Ko Hein.

A man based in Thailand named “Ko Sonny” is Si Si Thin’s representative for ordering the beer, he said. Frontier identified Sonny and Si Si Thin on Facebook, but neither responded to requests for comment.

U Kyaw said the agents are fiercely protective of their relationships with ThaiBev and the BGF.

“I tried to connect with him [Sonny] and import Chang directly like Ma Si Si Thin,” he said. “But they have already coordinated as business partners to protect their Chang market in Myanmar.”

Wholesalers in Myawaddy’s Bayintnaung Market buy a box of 24 cans of Chang from the importing agents for K13,800 to K14,000, and sell it for K15,500 to K15,800, or about K650 a can. Retail outlets and restaurants then sell it at a further mark-up.

“The [wholesale] price depends on the demand from customers and if demand is high – for example, near a festival like Thingyan – the price goes up,” said Aung Soe. “I guess that the retail agent might get the beer for around K12,500 from the Chang factory.”

In contrast, the same beer at a 7-Eleven convenience store over the border costs 38 baht (K1,860). Wholesale prices are only marginally cheaper; Mae Sot restaurant owner Nang Nwe Nwe Aye said she buys a 24-can box of Chang for 880 baht (K43,145, or K1,797 a can).

“Here the liquor tax is so high that the price is almost triple what you pay in Myanmar, where there is no Thai or local tax,” she said.


19 January, 2020