Thailand: Thailand braces for liquor industry disruptions

It took only a word from Thailand's prime minister hopeful to trigger a run on local liquor brands Sangvein Spirits and Issan Rum, Nikkei Asia reported on June 28.

Appearing on a morning TV show in early June, Pita Limjaroenrat named his favorite spirits and reminded audiences of his Move Forward Party's policy to promote Thai liquors abroad.

But as supporters - who carried the party to a surprise win in the May 14 general election - rushed to order bottles, they were confronted by the supply issue at the heart of Move Forward's policy. Small distilleries are limited to five-horsepower stills, which means they can make only 100 bottles per day.

"We're actually almost sold out this year. It's going to be rough for us to try to keep up with demand," said Niks Anumanrajadhon, a partner in Issan Rum.

Niks is a fixture on the local bar scene as the founder of famed Bangkok watering holes Teens of Thailand and Asia Today. But when the COVID-19 pandemic shut down bars and restaurants, he fell afoul of Thailand's Alcoholic Beverage Control Act (ABCA).

The law sets strict rules on liquor advertising, and Niks was fined 50,000 baht ($1,418) for trying to sell his bars' unused bottle stock on social media. Running up against Thailand's liquor laws was a radicalizing experience, he said.

"We never thought of our team to be really politically active, but at one point when you are squeezed into a corner, that's the moment you just have to say, 'okay, I'm done,'" Niks told Nikkei Asia.

Since then, he has become a critic of Thailand's strict liquor law, which is seen as preserving a duopoly by suppressing microbreweries and distilleries. Boon Rawd Brewery and ThaiBev, makers of Singha and Chang respectively, hold a combined 93% of the local beer market.

The result of the May election has opened the door to liberalizing Thailand's long-caged craft liquor industry, whether or not Move Forward manages to successfully form a government.

Thailand's newly elected lawmakers will meet for the first time in a parliamentary session on July 3. The vote to elect a new prime minister is likely to be held in two weeks. If Move Forward is able to take power, the party intends to pursue liquor liberalization in its first 100 days.

Alcoholic beverages comprised 64% of the domestic beverage market, which was worth $20 billion in 2020. Beer made up the majority of consumed drinks at 71.3%, providing the party with an easy symbol for its crusade to break up monopolies in the Thai economy.

"Beer can be a political force. You can't talk about monopoly without an example, and everyone drinks beer," said Taopiphop Limjittrakorn, a Move Forward legislator.

Since 2001, brewers had to produce at least 100,000 liters of beer per year and hold at least 10 million baht in capital to receive a liquor license from the Ministry of Finance.

Then in 2008, the ABCA placed limits on advertising -- a critical avenue for craft producers to promote their little-known brands. The law bans celebrity endorsements of liquor, and allows the brand logo to appear minimally in print ads or at the end of video ads.

But that hasn't stopped the two big beverage groups from featuring their beer bottles in advertisements.

Boonrawd Sreshthaputra received a royal warrant in 1933 to open Thailand's first brewery, which his grandson Santi Bhirombhakdi runs today. Boon Rawd's beer monopoly was disrupted in 1991 by Charoen Sirivadhanabhakdi, who already held a license to produce spirits. Charoen consolidated his beer and liquor brands in 2003 to form ThaiBev.

The same fines and tax rates apply to big and small producers, even though economies of scale favor the former, who are allowed to use more horsepower for production, export their products, as well as sell retail. ThaiBev raked in sales worth 272 billion baht in 2022.

"Tax has never been a big issue for big brewers because they can pass it on to consumers. The burden is on small brewers," said Nithi Nuangjamnon, assistant professor of political science at Naresuan University.

The steep cost of craft beer inspired Taopiphop, the brewer-turned-politician, to make his own while he was in college. He was arrested for illicit homebrewing in 2017, then ran for parliament with the Future Forward Party, Move Forward's predecessor, the following year. Now the second-term MP owns a craft beer bar in Bangkok and is pushing his progressive liquor bill.

Under the bill, a small brewer or distiller would have the same license and production capacity allowance as Boon Rawd and ThaiBev. The bill did not reach the parliament floor before the House of Representatives was dissolved in March, but the Ministry of Finance in November removed capital and production minimums and allowed more horsepower.

Issan Rum plans to apply for a license to increase its rum still horsepower to 50, which would enable them to produce 10 times as many bottles. Sugarcane is juiced and fermented at Issan Rum's factory in Nong Khai, sourcing one ton of sugarcane per day from farmers in the northeastern province.

Move Forward's government-in-waiting sees liquor liberalization trickling down to farmers. "Whether it's rice or sugarcane or fruits, that's where our competitive advantage is, and that's the kind of opportunity that jumpstarts the economy throughout the entire country," party leader Pita told Nikkei Asia.

Current limits on product availability and sales as well as high excise taxes also incentivize cross-border smuggling, according to a May report by the Transnational Alliance to Combat Illicit Trade. The World Health Organization estimates that 32% of total alcohol consumption in Southeast Asia in 2019 was from unrecorded liquors with unknown alcohol content and toxicity.

Legitimate brews also cross the border. Beers with Thai names like Mahanakhon and Chiang Mai are developed by Thais but produced by contract breweries in Australia, Cambodia, Laos, and Vietnam for export back to Thailand. Tight competition for contract brewers - plus the cost of production and customs duties -- keeps small outfits from taking a risk on more creative beers, advocates say. Big brewers, on the other hand, have no incentive to innovate.

Boon Rawd executive Piti Bhirombhakdi met with Taopiphop shortly after the election to discuss the progressive liquor bill. ThaiBev, meanwhile, declined to comment.

"The bars, we're only the tip of the pyramid. In the middle there are farmers, equipment suppliers, engineers who design breweries," said Taopiphop. "All the fruits that go into liqueur like Campari, we have in Thailand. It could change the game."

28 June, 2023