Go to a restaurant or bar in Japan expecting to sit among a throng of locals enjoying sake, and you might be slightly disappointed. Originally a nation of sake and its distilled derivative shochu, the Japanese have fallen hook, line, and sinker for the behemoth that is beer. The Japanese government predicted this cultural catastrophe, levying higher taxes against malted beverages, thus capturing beer without affecting sake and shochu. Unfortunately, as with most attempts to ban or tax something out of existence, the policy ended up having unintended consequences. Let's take a look at what happened.

The idea

First of all, to understand how the tax policy worked, we need to take a quick lesson on how sake and beer are produced.

Yeast cannot, by itself, convert unmalted grains into alcohol, but there are two fairly easy solutions. The solution used by brewers of beer is to malt their grains such that their sugars can then be fermented by yeast. Brewers of sake, however, use a fermentation starter in place of the malting process, skipping that process entirely. By levying a tax on alcohol produced using a certain percentage of malt, it was quite easy for the Japanese government to increase taxes on beer without affecting taxes on sake.

The 1989 revision to Japan's liquor tax laws resulted in beer, defined as a light alcoholic beverage made with more than 67% malted grains, being slapped with a tax of 77 yen per 350ml. This came after an alarming decline in sales of sake, so much so as to be reported by foreign newspaper The Washington Post all the way back in 1978. The Japanese government was right to be concerned. According to market research organization Tokyoeqsue, production of sake fell by 75% from 1973-2020. Painting both a shocking picture of the true extent of the collapse in local demand, and also a faint glimmer of hope for the beleaguered industry, is the fact that this happened alongside a massive rise in exports.

In practice...

What actually happened in response to the increased tax on beer was, quite predictably, not the revival of domestic sake consumption, but a booming market for low quality beer alternatives known as Happōshu that evaded the higher taxes by using less malt. Starting with the introduction of Suntory's Hop's Draft in the early 90s, it was happōshu rather than a sake rebound that quickly eroded beer's rapidly increasing market share. The Japanese government responded by increasing taxes levied on these lower-malt 'beers', but the major breweries simply introduced products with even less malt, in what was more or less a race to the bottom. By 2011, a zero-malt beverage known as dai-san had become more popular than happōshu, and these two faux beer categories now comprised around 50% of the 'beer' market. Rather than saving sake, Japanese legislators had simply condemned their fellow countrymen to bad beer.

Backtracking

Realizing their mistakes, the Japanese government has tried to backtrack by raising taxes for faux beers and lowering taxes for real beers and sake. To avoid repeats of regulatory evasion, 'beer' can now be made from a hilariously inclusive list of ingredients, including oysters, seaweed, and bonito flakes. This move does, however, represent a clear case of defeatism on the part of the Japanese government. Unable to keep the beer monster away via taxation, they have accepted that it is here to stay, at the expense of Japan's traditional beverages.

Discussion

It's tempting to be critical of the Japanese government's protectionism. Rather than take actual steps to help sake producers, they simply tried to tax the 'foreign devil' out of existence. Protecting the culture of one of the few developed countries that has largely resisted westernization has obvious merits, but the net effect of the policy seemingly did little to protect the sake industry while simultaneously promoting the growth of poor taste in beer. We see unintended consequences like this in a variety of laws; most controversially, I've talked about it in reference to the hysteria regarding non-violent MAPs.

What are your thoughts on this issue? Feel free to add a comment.