The other side of fair trade

With finality, the World Trade Organization has ruled last month that the Philippine government has discriminated against imported whiskey and brandy to protect its local manufacturers.

This only means that we should be seeing prices of liquor products derived from cereals and grapes to drop significantly. Presently, these distilled spirits made from “non-designated materials” are slapped as much as 50 times what “designated” or sugar-based liquors are assessed.

Understandably, the US and European liquor companies who filed the complaint before the WTO more than a year ago are looking forward to increasing their market share in lucrative $3-billion Philippine liquor market.

What is left now is for the Philippine government to revise its “sin” tax structure, which has already been scheduled this year. This will also include the rationalization of tobacco taxes, a revenue-enhancing move that will also level the playing field and eliminate the “favored status” of brands marketed by the merged company of Lucio Tan’s Fortune Tobacco and Philip Morris.

The cigarette brands of Philip Morris and Fortune Tobacco have been enjoying very low tax rates since 1996 courtesy of a highly discriminatory provision in the existing excise tax structure. P-Noy’s government should not wait for another embarrassing loss before the WTO. 

Textbook case of discrimination

The Distilled Spirits Council based in Washington issued a statement on its victory, noting that the Philippine excise tax system is a “textbook case of discrimination” that should be corrected at the soonest time possible in compliance to the WTO rules.

The official response from the Philippines was already conciliatory, while local distillers through the Distilled Spirits Association of the Philippines as expected were disappointed in the WTO’s decision, although they did not mention any move to re-appeal.

I guess what’s left at this point is to sharpen the local distillers’ marketing knives in preparation for the flooding of cheaper non-sugar based liquors. Not only will we expect lower-priced imported spirits such as whiskey and brandy made by Brown-Forman Corp. and Pernod Ricard SA, but also by other favorite brands like Johnny Walker, Remy Martin, Gilbey’s and many others.

Brown-Forman and Pernod Richard SA carry such brands as Jim Beam whiskey, Brandy de Jerez and Southern Comfort.

Competing head-on

If there is one local company that is going to be affected by the WTO ruling, it is Tanduay Holdings Inc., which controls about 34 percent of the local spirits market.

This year, its profits are seen to reach P1 billion from revenues that have been steadily growing. This is about 40 percent higher than declared income in 2010. Tanduay’s products are largely rum-based although it markets vodka, gin, whiskey, and brandy brands.

The company has announced plans to export its Tanduay rums particularly in the US this year, and to compete head on with Bacardi rum, which continues to be the number one rum brand in the world.

Philippine rum, according to many, can compete against foreign brands, and it is just a matter of promoting these in other countries. The 27-nation EU, the world’s biggest liquor exporter controls a $9.15-billion market, while US distilled-spirits exports worldwide averaged more than $1 billion a year.

Making local brands competitive

On the other hand, there are other local brands that may be improved to make them competitive with imported ones. Mijiah Tropical Fruit Wines, for example, is gaining worldwide acclaim for wines that are derived from local fruits like bignay (wild berry), duhat (plum), guyabano (sour sop), and mango.

Mijiah won first place as the Trendiest Product in the International Food Exhibition (IFEX) Philippines in 2003, and was awarded the following year a 76.7-percent rating in the 11th Concors Mondial de Bruxelles in Brussels, Belgium. In the same year, Mijiah Mango Wine was served in the Gucci fashion show in Florence, Italy.

Mijiah also bagged second place in the Special Wine Category in the 2005 APEC Traditional Wine and Liquor Contest Second Senior Officials’ Meeting in Jeju, Korea. Best, professional juries of the National Food Week (World Foods) held in Utrecht, Netherlands chose Mijiah Tropical Fruit Wines as one of the 15 Best Products of the World.

Bringing local liquor to world standards

Many other Philippine wines, like other local produced spirits, unfortunately are not always as decorated as Mijiah. Bringing liquor quality to world standards is something that local distillers should focus on if they would want to grab a share of the lucrative global market.

Packaging, product stability over long periods, and even ingredients that go into the final product can be improved. It’s nice to know that the Design Center of the Philippines is helping out our local distillers.

Lambanog, derived from fermented sap of unopened coconut flowers, for example is experiencing increased patronage not only abroad but even locally. The flavored varieties, I am told, are popular in Guam’s Filipino community.

We may have “lost” the battle against foreign brands, but this provides us an opportunity to look beyond our protected barriers. All we need is faith in our capability to effectively compete on equal footing with those multinational companies.

PCCL awardees for 2011

With the 2011 collegiate basketball season officially ending last December with the crowning of San Sebastian College-Recoletos Golden Stags as the National Collegiate Champion for 2011, the Philippine Collegiate Champions League (PCCL) Board is deliberating on the special awards to be handed during the “Toast” to be held on January 27, 2012, at ABS-CBN.

Watch this space for further announcements. Visit the official PCCL website, www.CollegiatechampionsLeague.net for more details.

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Should you wish to share any insights, write me at Link Edge, 25^th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.