Sugary drink tax pushes innovation
The beverage industry is experimenting with and rolling out healthier drinks ahead of new levy
Thailand's beverage industry plans to become more innovative with products as the second phase of the excise tax on sugary drinks comes into force on Oct 1, 2019.
A new alternative sweetener and products with less sugar may be introduced, reformulating existing ingredients for them to be healthier or less sweet.
Thailand applied the new excise tax on sugary drinks, cigarettes, alcoholic beverages and imported wine from Sept 16, 2017. The new rates rise on a gradual basis over four phases: Sept 16, 2017 to Sept 30, 2019; Oct 1, 2019 to Sept 30, 2021; Oct 1, 2021 to Sept 30, 2023; and from Oct 1, 2023.
The Excise Department has classified sugar content in beverages into six levels based on a volume of 100 millilitres: below six grammes, 6-8g, 8-10g, 10-14g, 14-18g and more than 18g.
Sugary drinks subject to the tax are carbonated soft drinks, energy and electrolyte drinks, fruit and vegetable juices and sweetening agents.
From Oct 1, 2019, to Sept 30, 2021, sugary beverages including carbonated soft drinks, ready-to-drink green tea, coffee, energy drinks and fruit juice will be taxed at a higher rate under the new excise tax structure.
A source from Thailand's beverage industry who requested anonymity said with the second round of the excise tax on the horizon, healthy beverage alternatives are expected to be introduced in the fourth quarter.
Apart from new formulas, several beverage manufacturers are reformulating existing beverages, while some companies are exploring business opportunities in other healthier product sectors to keep their sales growth.
"In addition to carbonated soft drinks, which recently announced higher prices, fruit juice companies are considering adjusting prices because of higher production costs," said the source.
Ekkapol Pongsathaporn, managing director of Tipco Foods, the maker of fruit juice, said the company has been preparing for the last two years by creating more healthy product options.
The company launched a protein drink two years ago and will reformulate the formula this year.
Tipco also plans to introduce new healthy products to the market this year.
"We've prepared several measures to cope with the government's measures, including new product choices and the reformulation of existing items or price hikes, which will be reconsidered next year," Mr Ekkapol said.
Somchai Pornrattanacharoen, president of the Wholesale and Retail Association, said he agrees with the government's action to nudge producers towards lower sugar content for health reasons.
"The government needs to work harder to educate people to consume less sugar for this campaign to be more effective," Mr Somchai said.
This may take some time because consumers are used to sugary drinks, he said.
Kanya Dilokruengchai, managing director of World Food International Co, the distributor of M-Joy mixed fruit juice, said the company has already adjusted all product formulas.
"Following formula adjustments, consumers' response remains positive," said Ms Kanya.
"We still expect to be able to maintain our sales at 520 million baht, on par with last year."
Nongnuch Buranasetkul, president of Oishi Group, said the company has gradually adjusted sugar levels of Oishi green tea since last year.
The company also launched Oishi gold sugar-free green tea to the market.
"Healthy drinks have been available in the market for a long time, but have not received a sufficient response from consumers," Mrs Nongnuch said.
"Healthy product lines draw a better response from consumers when they are better educated and have a better understanding."
Prayoth Benyasut, deputy director-general of the Internal Trade Department, said makers of carbonated soft drinks, fruit and vegetable juices do not need to ask for prior approval from the Internal Trade Department for a price hike because they are not on the state price control list.
They are required to inform the department once they have adjusted their prices.
"The department's stated role is to supervise the adequacy of products and prevent any hoarding by business operators to the extent that there is shortage," he said.
"For such drinks, there is unlikely to be any shortages in the market."
Anyone found to hoard products or cause a supply crunch in the market is subject to a seven-year jail term and/or a fine of up to 140,000 baht, according to Section 38 of the Act on Prices of Goods and Services 1999.
Mr Prayoth said sweetened condensed milk and dairy products are exempt from the new excise tax on sugary drinks, while carbonated drinks are not.
Carbonated drink firms have yet to adjust their product prices because the first round of the new levy had a marginal impact.
"Nonetheless, the department is monitoring whether the price adjustments for sweetened beverages comply with the new tax rates and are reasonable," he said.
"If the prices rise higher than the new tax rates, the department is ready to call the responsible firms in for clarification."
Mr Prayoth said the excise tax is aimed mainly at luxury goods such as liquor, cigarettes and cards, while the levy on sugary drinks is meant to discourage consumers from drinking such sweetened products for their health.