Brewery Industry Alert to Stiff Competition in Post-WTO

Small brewery workshops will be hard hit after Vietnam officially joins the WTO, the Vietnam Beer, Liquor and Drinks Association (BLDA) has warned.

 

According to the Ministry of Industry (MoI), there are some 300 operational brewery workshops nationwide which have combined capacity of 1.7 billion liters per year.

 

But only 19 workshops are running at full capacity of more than 20 million liters a year each, and 15 have the capacity of more than 15 million liters, while the majority of the workshops can produce less than one million liters a year.

 

The currently applied luxury tax rate imposed on locally bottled beer products and imports is 75 per cent, while the tax rate on fresh and draught beer is 30 per cent for 2006-2007, and will be 40 per cent for 2008 and afterwards. If the new tax rates are applied, local brewery workshops will certainly incur losses and face big difficulties in their production and business.

 

The MoI said that only the workshops with the capacity of more than 100 million liters in Vietnam use modern technologies and are installed with modern equipment imported from Germany, Italy and the US. The workshops with the capacity of more than 20 million liters are now also trying to upgrade their capabilities.

 

Moreover, small workshops usually provide low-quality products that cannot meet the requirements of food hygiene.

 

It is believed that these breweries will not be able to survive for long.

 

In fact, the number of brewery workshops has already declined from 469 in 1998 to 329 in 2004.

 

Nguyen Van Viet, Chairman of BLDA, keeps optimistic about the competitiveness of the brewery industry. He said that many world famous names have already been introduced in Vietnam, including Heineken and Carlsberg. Therefore, local brewery enterprises, which have got used to competition, don’t hesitate to face challenges.

 

Hanoi Beer and Saigon Beer have been trying to expand their production scope over the last few years. The two enterprises now have modern equipment which is in no way inferior to the production lines at foreign invested workshops.

 

Vietnam is a market with a lot of potential in the eyes of foreign brewery investors thanks to its high growth rate of 15 per cent per annum. The country is expected to consume 1.7 billion liters of beer in 2006 and 2.7 billion liters of beer per year by 2010.

 

The Saigon Beer, Wine and Drinks Corporation (Sabeco) is building a brewery workshop in Cu Chi district in HCM City which will have the capacity of 100 million liters in the first stage and 200 million liters in the second stage. The total investment capital is estimated at VND2 trillion ($125mil).

 

Foreign invested enterprises are now seeking to expand their production and raise their capacities. The Vietnam Beer Company, which makes Heineken and Tiger, has been applying to raise its capacity from 150 million liters to 230 million liters a year.

 

The Vietnam Dairy Products Company (Vinamilk) and Dutch SABMiller Vietnam have decided to invest in a 100 million liter per year brewery plant in the southern province of Binh Duong. The first products are expected to be launched onto the market next year.

 

Local brewery workshops are also rushing to make more investment and upgrade production lines. The Hue-based Huda has set up a new plant in Phu Bai Industrial Zone, which can produce 50 million liters of beer a year. The Dong Ha – Huda Joint Venture in Quang Tri province is seeking permission to raise its capacity to 30 million liters.

 

Nevertheless, the situation proves to be worsening for liquor workshops. Enterprises in this field do not seem to have any specific plans for economic integration. There is not yet any famous Vietnamese name in liquor production.

 

By 2004, Vietnam had 72 liquor workshops with the capacity of 103 million liters per annum, but could only produce 76.3 million liters. Vietnam cannot take control of the private-owned establishments (it is estimated that there are some 300 establishments of this kind). Meanwhile, foreign invested enterprises are running at just 17 per cent capacity.