2 reasons why ThaiBev's spirits business shouldn't worry about rice subsidy cut

No huge impact on rural demand.

According to CIMB, it thinks it is unlikely that the cut in the minimum guaranteed rice price, if implemented later this year as speculated, will reduce ThaiBev's spirits business' overall rural demand.

CIMB noted two reasons why.

Here's more:

We say this because 1) rice farmers form only an estimated 20% of the white spirits customer base, and 2) white spirits consumers should have increased spending power because of the hike in minimum wage.

White spirits are consumed mostly by unskilled labourers and, besides farming, a substantial portion of them earn their wages in manufacturing, motorcycle repair and construction.

The contributions of these three industries to GDP outweigh that of agriculture by three to one! And unskilled labourers should have increase spending power this year from the hike in minimum wage by 40% in April 2012 and 25% in 1Q13.

The market size of white spirits could even grow as the THB300 per day minimum wage attracts labourers from other neighbouring countries.

It is true that a drop in demand for brown spirits, rather than white, can be more damaging to the spirits business. Brown spirits are the growth driver and consumers trade up to this ‘aspirational’ product when they get richer. In the past decade, we saw brown spirits volume post a 9% CAGR compared to just 1%for white.