Thai wine-makers less enamoured with Afta than drinkers

While Thai consumers have benefited from the Asean Free Trade Agreement coming into full effect this month by enjoying imported wines at cheaper prices, local wine producers see the FTA presenting them with a major problem.

Lohitnavy, president of the Thai Wine Association, yesterday said AFTA would enable more foreign wines to enter the Thai market and enjoy a competitive advantage vis-เ-vis local producers.

He said many foreign wine producers had started to conduct bottling and packaging activities in Malaysia, with 40 per cent of the content made in that country in order to satisfy AFTA criteria and enable sales within Asean.

The Thai Wine Association's membership comprises major wineries, including Alcidini, GranMonte Family Vineyards, PB Valley Khao Yai Winery, Siam Winery, Silverlake Vineyards, and Village Farm.

Prior to January 1, imported wines were subject to a combined import duty and excise tax of 360 per cent. However, under AFTA, the import duty on wine products made in other Asean states has been removed, leaving imports subject to 200-per-cent excise duty - similar to the charge on locally produced wines.

"Our [Thai wine] industry is quite young. It also relies heavily on imported content, which represents almost 80 per cent of the product," Visooth said.

He said only the wine and the label could be made locally, while many major materials, such as bottles and corks, had to be imported.

"AFTA will impact us severely, as our production costs are considerably higher than those for imported wines," Visooth said.

He said most Thai wines were now available locally for between Bt400 and Bt700 a bottle.

"With AFTA, we will see some imported wines with prices of only Bt200 and Bt300 per bottle," Visooth said.

He does not, however, think many Thai consumers will change their drinking habits or shift their consumption from liquor and beer to wine just to enjoy cheaper imported wine under AFTA.

"Drinking wine is a culture. It is also part of the lifestyle of educated, middle-class people," he said.

Visooth, who is also CEO and president of GranMonte, said the company expected sales this year to grow by between 5 and 10 per cent, down sharply from 28-per-cent growth last year.

"We don't think our sales will be good this year, as we will face tougher competition from imported wines, which will flow into Thailand following AFTA's implementation. Our conservative projection also takes account of the continuing political problems in the country," he said.

Visooth said Thai wine producers needed to react to AFTA by expanding their export markets in order to offset any effect on domestic sales.

They should also diversify into related businesses and products, such as wine tourism and grape-juice production.

Kim Wachtveitl, director for business development at Siam Winery Trading Plus, said local wine producers were facing many limitations, especially the government's strict regulations on alcohol promotion and advertising.

He said the government's order to raise the minimum drinking age to 20 years would also negatively affect the sector.

Kim said the possibility of graphic health warnings on bottles would also impact Thai wine products, whose makers would find it harder to promote them, especially to foreign tourists, who were quite concerned about the look of the product itself.

Kim said the overall wine market in Thailand was about 10 million litres last year, of which 5-7 per cent was accounted for by Thai wines.

He said under the FTA between Thailand, Australia and New Zealand, the import duty on wine had been already reduced from 60 per cent to about 20 per cent. The tariff will be eliminated completely by 2015.

Kim said that some Australian wines were now available in the Thai market for just Bt300 to Bt400 a bottle, while Thai wines retailed at Bt400 to Bt700.

"The Thai government should grant integrated support to help Thai wine producers become more competitive in the tougher environment following the liberalisation of the Asean market," he said.

He said the government should, for instance, provide tax incentives for importing wine-production machinery and equipment. It should also provide financial support to farmers for the transfer of know-how and winery systems.