By Choi Sung-jin
Korea’s beer market has long been divided between two brands _ Cass by Oriental Brewery and Hite by Hite-Jinro _ amid almost no challengers or competitors. So much so that a few years ago a foreign correspondent in Seoul complained that even North Korean beers were better than the South’s.
The government’s antitrust agency has set about to change this situation in the beer industry.
According to officials at the Fair Trade Commission and industry sources, the FTC plans to ease regulations on the beer industry and give rise to smaller but more diverse breweries to break up the current monopoly.
“If the policy change leads to the entry of more local brewers into the market, we hope the domestic beer market, increasingly eroded by foreign craft beers, will likely regain some vigor,” an FTC official said wanting to remain anonymous.
More specifically, the commission is pushing to sharply expand the annual production capacity of small breweries from the present 300 kiloliters to 500-1,000 kl while relaxing the regulations concerning facility approval given by the tax officials and also reducing their tax burdens, the sources said.
The FTC is pushing to diversify the domestic beer market because it thinks the protracted monopoly of the industry has hampered the consumers’ welfare, they added.
As the result of the long monopoly, the operating profit ratio of the industry stood at 64.9 percent as of 2013, about three times higher than the average of all industries, according to the commission. On the other hand, its investment into research and development remained at a mere 0.41 percent of sales, one-sixth of the all-industry average.
The FTC’s plans for improving the beer industry also call for changing taxation on brewers _ from the present ad valorem duty (taxation based on factory price) to ad specific duty (taxation based on alcohol content). The commission will announce its plans at a public hearing scheduled for late this month and will move to revise related laws through consultation with the National Tax Service and other relevant agencies.
“Unlike large breweries, small brewers are currently restricted in their production volume, which serves as a barrier to new market entries by making it difficult for them to lower production costs,” a commission official said.
When taxes on liquors and wines are imposed on the basis of alcohol content instead of on factory prices, duty on beer with low alcohol content will fall sharply compared with whiskey and wine.
According to the Korea Institute for Public Finance, most member nations of the Organization for Economic Cooperation and Development are adopting ad specific duty on alcoholic products to induce consumption of low-degree beverages.
In Korea, similar efforts have failed to create changes, however. Most recently, the Ministry of Strategy and Finance considered making such a shift but came to a negative conclusion last year.