Drinking with Mr Progress

23 July 2001

Travelling into Thailand’s remoter regions has one special reward. You drive a long way down a dirt road. Better still, you walk for hours away from towns, roads, and telephone wires. At nightfall, your village hosts produce a flagon of lao khao, sattho, or khachae—rice liquor. They ask you to sample. They want to know if you like it. It’s their handiwork. It comes from a traditional local recipe.

Your hosts take you to see the production. The technique is simple. But they are proud of the expertise. The same equipment was described by seventeenth century visitors to Ayutthaya. You can see it in use outside Luang Prabang in Laos, in Sipsongpanna in China, and elsewhere.

You have no problem in giving your hosts the praise they want. Chang Noi has sampled brews in Chiang Rai, Mae Hong Son, and Sakhon Nakhon which are outstanding. Smooth. Herbally fragrant. More of a wine strength than a spirit. Full of good feeling.

But with one tiny drawback: totally illegal.

If you want a legal, affordable tipple, you have a limited choice among products made from the waste products of sugar mills. They are little different from industrial alcohol. Recently Thailand has also been importing cheap whisky considered virtually undrinkable in its country of origin. A lot of rural Thai men die prematurely in their 40s because their stomachs fall apart. Some believe there might be a connection.

Remote places have always defied the liquor laws. But over recent decades, places have become much less remote. Subterfuge has become more difficult. Villagers in Phrae fought gun battles with excise officials to protect their local liquor industry. This defiance has now become more widespread.. Villagers besiege police stations to rescue arrested distillers. In May, ten thousand attended a 2-day festival of local liquor in Chiang Rai. The producers formed an association and handed out membership cards. Last month, they held a “seminar” in prestigious Chulalongkorn University at the heart of Bangkok.

While the liquor laws make a lot of people frustrated, they make one man staggeringly rich: Mr Progress.

For two hundred years, the government has raised revenue from liquor through tax farms and licensed monopolies. Making profits under such arrangements has nothing to do with the normal laws of business competition. You make more profit by fooling the customer and fooling the tax-gatherer.

Mr Progress first got into the business by marrying the daughter of the firm which made the bottle caps. In his first venture, he and a partner secured a monopoly for a small and unattractive area, hired the Mekong blender to make a copycat product, and quietly leaked their product across the borders of their concession area into more attractive markets outside. Then in 1983 they bid an outrageously high amount to secure the Mekong concession. Two years later, in their most brilliant manoeuvre, they went bankrupt.

The banks could not afford to see a billion baht loan go bad. The government could not sacrifice 8 per cent of its revenue. So the banks and government put together a monopoly cartel in order to save themselves. Mr Progress never looked back. He streamlined production to eliminate costs. He separated the production and distribution companies to minimise the tax. He organised the cartel with a hundred-plus cross-owning companies tangled enough to bamboozle any auditor. He folded into the cartel anyone who threatened to compete. By the mid-1990s, gross revenues were estimated at fifty billion baht a year, and Mr Progress’ share in the cartel was an estimated 55 per cent.

The profits are huge. Mr Progress reinvests them heavily, not in improving the product, but improving his protection. General Prem, who was prime minister when he secured the first concessions, became a chairman of one of his companies. General Chatichai and members of his 1988-91 Cabinet, which renewed the cartel’s concession without competitive bidding, were found to have received 900 million baht in gift cheques from Progress companies. General Suchinda came to the premiership vowing to dislodge Mr Progress, but reputedly fell under his charms. General Chavalit is a long-time associate. According to rumour, Mr Progress’ annual “public relations” budget is 2 billion baht. That would go a long way, even among generals. It would go even farther among government officials who make and administer the liquor rules.

In the late 1990s, government announced it would liberalise the liquor market. Mr Progress did not let such a profitable monopoly go without a fight. He tried to buy all the glass factories so competitors could not get bottles. He bought the land round some distilleries so competitors could not get into them. He stockpiled so much tax-paid liquor that he could flood any competitor out of the market. In 1998, the Cabinet liberalised the market, but the Excise department made rules insisting any producer needed 10 million baht capital, 200 rai of land, and a capacity of 30,000 litres/day.

Mr Progress gives lots to charity. He has been granted an elegant surname. His wife is a Khun Ying. Both like to be addressed as “Dr”, courtesy of Chiang Mai University. He is blessed by the elite. He lost a bank and a few other trinkets in the crisis, but has still been described as “richer than god”. Chang Noi once heard him give a very pretty speech as prologue to a business negotiation. He said his guiding principle was never to enter any business venture unless it was for the good of the nation.

An excise official in Chiang Rai recently said villagers could not be allowed to produce their excellent local liquor because “it wouldn’t be fair to large distillers.” Let’s turn that round. Overthrow the excise rules which allow Mr Progress to make unfair profits at the expense of village distillers. Chang Noi would drink to that. Preferably in lao khao.