1. Current Trends in the Korean Fermented Beverage Dr. Jong-Tae Jeong Bohae Brewery Co.,Ltd., Korea 2007. 10. 27.

2. Contents 1. Introduction of Alcoholic Beverages 2. Current Trend of Domestic Fermented Beverage Markets 3. Current Trend of Overseas Fermented Beverage Markets 4. Domestic Fermented Beverage Industry Issues and Overseas Governmental Support Policies 5. Proposal for Revitalization of Domestic Fermented Beverage Industry

3. 1. Introduction of Alcoholic Beverages

4. Alcoholic Beverages (1) Definition of alcoholic beverages Alcoholic beverages contain alcohol of above 1% and are drinkable (2) Raw materials of alcoholic beverages Raw materials of alcoholic beverages are agricultural products including: fruits, berries, barley, rice, corn, rye, wheat, etc. (3) Production of ethyl alcohol through fermentation 1. Starch material enzyme yeast (C 6 H 10 O 5 )n + n(H 2 O) n(C 6 H 12 O 6 ) 2n(C 2 H 5 OH) + 2n(CO 2 ) starch water glucose alcohol 2. Sugar material enzyme yeast C 12 H 22 O 11 + H 2 O 2(C 6 H 12 O 6 ) 4(C 2 H 5 OH) + 4CO 2 sugar water glucose alcohol

5. Process for Making Alcoholic Beverages (1) Starch Material Steaming Saccharifying / Fermentation Saccharifying Fermentation Batch Distillation Makgeolli Yakju Cheongju Soju (1) Kaoliang Beer Bourbon whisky Canadian whisky Vodka(1) Nuruk or Koji Malt Yeast α-amylase Glucoamylase Yeast Once or twice Scotch whisky Irish whisky Neutral Spirits Soju(2) Vodka(2) Steaming Batch Distillation Continuous Distillation Continuous Distillation Twice Yeast

6. Process for Making Alcoholic Beverages (2) Sugar Material Spirits-Based Fermentation Batch Distillation Continuous Distillation Yeast Liqueur Brandy Wine Wine spirits Rum Extraction / Blending / …. Fermentation Yeast Steaming Batch Distillation Tequila Twice Fruits, Botanicals, etc.

7. Process for Making Wine Fruits Stemming Crushing/ Pressing FermentationPress Settling Maturing Yeast Filtration Fruits Wine Sulfurous Acid

8. Process for Making Rice Wine Previous Treatment / Steaming Nuruk or Koji Yeast Seed Culture First Fermentation Press Filtration Blending Pasteurization Bottling Second Fermentation Sludge Ingredients Treated Water Rice Rice wine Nuruk

9. Nuruk and Koji Mold Used for Fermented Alcoholic Beverages Nuruk and Koji Mold Used for Fermented Alcoholic Beverages (1) Mold propagation - Korea: Naturally propagates genus Rhizopus or Aspergillus in wheat - China: Naturally propagates genus Rhizopus in raw cereals - Japan: Artificially propagates pure cultured genus Aspergillus in steamed rice (2) Major molds  Genus Aspergillus :Secrets amylase and protease and used for alcoholic brewing and soy sauce i.e.) Aspergillus oryzae – Yellow fungus, widely used for rice wine and soy sauce Asp. niger – Black fungus, strong saccharification ability, organic acid formation Asp. kawachii - Variation of fungus, used for rice wine Asp. awamori – Black fungus, strong saccharification ability, citric acid formation

10. Nuruk and Koji Mold Used for Fermented Alcoholic Beverages Nuruk and Koji Mold Used for Fermented Alcoholic Beverages (2) Major molds  Genus Rhizopus Amylase and protease secretion i.e.) Rhizopus delemar, Rhiziopus javanicus – Strong saccharification ability  Genus Mucor Widely distributed in the soil i.e.) Mucor rouxii - Saccharificating ability and a little alcohol fermentability  Genus Monascus Formation of red colored matter in hypha i.e.) Monascus purpureus, Monascus anka - Chinese Hwang-jiu

11. Process for Making Nuruk Wheat Crushing Steeping Keeping Molding First Propagation Second Propagation Drying Nuruk Available up to 1-2 months Storage temp: 25 ℃ Water absorption rate at 25-30% For a few minutes Less than 10 days Max. temp: 45 ℃ Less than 7 days Temp: 35-40 ℃ Less than 14 days Temp: 30-35 ℃

12. General Conditions for Making Koji Work processTime Elapsed time Work conditions Previous treatment of rice Washing16:00Water absorption rate at 10-15% Steeping17:00Over night, water absorption rate at 20-25% Draining09:00 following dayContaining no higher than 28% water Steaming13:00For 30 minutes Cooling14:00 Cooling until 40 ℃ and building Making Koji Adjusting16:00-18:002 Temp.40 ℃, 90%, 2 hours in constant temp & humidity Seed Mixing 18:00- 12:00 following day 20 0.1% seed mixing, temp. at 40-41 ℃ Keeping ＆ Mixing (Temp. control) 12:00-20:0028 No higher than 41 ℃ Temp. down 20:00- 08:00 following day 40 Temp. at 33-35 ℃ Finishing08:00-09:0041Completion

13. Acidity & Enzyme Activity of Koji by Temperature (Unit: g-wet koji) Enzyme Temp. ( o C) T i m e (min) 20.530.034.044.548.0 Acidity 30 35 40 0.2 0.7 0.5 2.2 4.5 2.6 3.7 6.5 2.7 7.3 7.6 2.3 8.7 7.6 2.8 α-amylase 30 35 40 10 17 32 16 49 80 28 79 153 74 132 199 88 141 252 Glucoamylase 30 35 40 9 23 21 40 116 120 77 188 245 179 291 363 197 294 441 Acidity peptidase (x10 3 ) 30 35 40 0.7 1.8 1.9 9.0 13.6 12.9 15.1 16.2 16.0 15.4 16.4 16.6 18.3 16.7 Acidity carboxypeptidase (x10 3 ) 30 35 40 0.0 0.2 0.8 2.5 1.6 4.1 4.6 4.1 6.2 4.6 4.8 6.9 6.2 Fresh-starch breakdown enzyme 30 35 40 0.4 1.0 1.5 2.4 3.8 6.8 3.5 5.8 8.7 5.4 7.4 9.5 6.1 7.3 10.5

14. Yeast Types (1) Genus Saccaromyces – Strong ethyl alcohol fermentability Saccaromyces cerevisiae – Major yeast Saccharomyses coreanus – Makgeolli yeast Saccharomyces carlsbergensis – Bottom fermenting beer yeast Saccharomyces diastaticus - Dextrin, starch fermentability Saccharomyces pastorianus – Beer noxious yeast (2) Genus Schizosaccharomyces – Strong ethyl alcohol fermentability (3) Genus Endomycopsis – Weak ethyl alcohol fermentability (4) Genus of Hansenula – film yeast, great ester formation ability, pleasant flavor creation in rice wine, useful yeast (5) Genus of Hanseniaspora – Decrease alcohol, increase volatile acid, noxious yeast (6) Genus of Pichia – Film yeast

15. 2. Current Trend of Domestic Fermented Beverage Markets

16. Fruits wineCheongjuYakju 2001126334 2002130343 2003151361 2004163683 2005164684 Number of licensed fermented beverage plants in 2001 - 2005 Product type Year Licensed Fermented Beverage Plants in Korea

17. 19851990199520002005 Fruit wine1,5728,9437,9306,62220,408 Cheongju7,76734,85943,30228,47721,512 Yakju-4,0783,19522,92745,033 Product volume of domestic fermented beverages in 1985 - 2005 Unit: KL Year Product type Product Volume of Domestic Fermented Alcoholic Beverages

19. 19851990199520002005 Fruit wine1,2008,7497,7588,58577,377 Cheongju6,70036,00544,72733,601108,133 Yakju-12,3429,67069,391136,298 Unit: million won Sales of domestic fermented beverages in 1985 - 2005 Year Product type Sales of Domestic Fermented Alcoholic Beverages

21. Product Volume of Imported Wine

22. Value of Imported Wine and Other Fermented Beverages

23. Consumption of Grape Wine Imported Domestic

24. Others 0.9% Fruit wine 1.1% Yakju 0.6% Cheongju 0.8% Beer 56.4% Soju 40.3% 1. Domestic liquor market volume in 2006 Current Domestic Liquor Market

25. 2. Domestic liquor sales in 2006

26. 3. Current Trend of Overseas Fermented Beverage Markets

27. Japan Market share by alcoholic beverage type in 2006

29. CHINA

31. 20002001200220032004 Volume (L mn) 2,0602,0802,2102,3302,430 Value (US$ mn) 21,221.021,446.922,596.923,336.324,069.9 Sources: Beer Institute, Wine Institute, Euromonitor Wine sales in US in 2000 - 2004 US

33. EU wine market volume 1995200020052006 France3651.33449.73300.33279.6 Italy3185.13079.82760.32729.7 Germany1857.619621962.91985.4 Spain1533.61431.91373.41365.3 (Unit: Million liter) EU Source: Impact Databank

36. Top 10 Wine Production Country RankMarket20012005% change2010E% change 1France5,5345,050-8.74%5,1501.98% 2Italy5,2295,050-3.43%4,925-2.48% 3Spain3,1613,53011.67%3,93011.33% 4US2,7283,30921.32%3,060-7.52% 5Australia1,0771,55944.86%1,7159.98% 6Argentina1,5841,522-3.88%1,5501.84% 7Germany8891,05018.10%950-9.52% 8 Chile 648788 21.53%951 20.63% 9South Africa63975818.59%92522.13% 10Portugal779725-6.92%665-8.28% Total22,26723,3414.82%23,8212.06% Unit: Million liter Note: Include wines for brandy

37. 4. Domestic Fermented Beverage Industry Issues and Overseas Governmental Support Policies

38. Types of Fermented Alcoholic Beverages in Korea  Takju  Yakju Fermented alcoholic beverages  Cheongju  Wine  Beer(Exception)

39. Domestic Regulations Standards & manufacturing process  [Liquor Tax Law] The provisions of Articles 4 apply to 12 kinds of liquors including: Neutral sprits (including grain spirits), takju, yakju, cheongju, fruits wine, beer, soju, whisky, brandy, distillated liquor, liqueur, and other liquors

40. Manufacturing  [Liquor Tax Law] The Provisions of Articles 6 and 7 : Provision of liquor manufacturing license Distribution  [Liquor Tax Law] The provisions of Articles 8 and 17 :Provision of liquor distribution license and channels

41. Liquor tax  [Liquor Tax Law] The provisions of Articles 21 and 22 Korean Liquor Tax System (%) classification Liquor Tax Education Tax Levy Tax Total Rates Fermented liquor Takju5.00-10.5015.50 Yakju30.00-13.0043.00 Cheongju, Fruits wine 30.003.0013.3046.30 beer72.0021.6019.36112.96 Distilled liquor (whisky, brandy, soju)72.0021.6019.36112.96 Neutral Spirits(95%v/v) :57,000 won/KL

42. Issues in Fermented Beverage Industry 1.Research Lack of understanding consumer needs 2. Development of raw materials Insufficient development of quality agricultural products for making wine 3. Quality Low quality compare to price 4. Manufacturing techniques and facilities Inactive development of advanced manufacturing techniques and poor facilities

43. DomesticOverseas Raw material Use of common and leftover raw materials Use of improved raw materials Microorganism Insufficient research of microorganism Improvements in useful microorganism and development of utilizing techniques Manufacturing techniques and facilities Lack of advanced techniques Poor manufacturing facilities Specialized techniques Advanced manufacturing facilities Domestic and Overseas Industry Comparison

44. Strength Korea’s unique products Weakness Low quality compare to price Insufficient scientific quality control Slow development of manufacturing techniques Opportunity Preference for well-being liquors Preference for domestic products Popularity of Korean culture in overseas markets Threat FTA Appearance of new liquors High prices of raw materials SWOT Analysis of Korean Fermented Alcoholic Beverages

45. Foreign Governments’ Support Systems Japan  Difficulty in obtaining liquor license due to intensive restriction  Efforts for the rejuvenation of domestic fermented beverages

46. US : Support from the federal government and the government of state  Support for cultivation, production, exports and investment  Provision of foreign market data for exports and training services for market expansion  Advisory committee for crop trade and control in charge of consultation on policy decision-making

47. France Tax credit for domestic wine Germany Tax exemption and price compensation EU Tax exemption

48. 5. Proposal for Revitalization of Domestic Fermented Beverage Industry

49. Proposal for revitalization of domestic fermented beverage industry Proposal for revitalization of domestic fermented beverage industry To establish consumer confidence in product quality  Study new raw materials for making wine  Research microorganism for making wine  Standardize quality control  Develop new characteristic manufacturing techniques  Research special ingredients  Benefit from the government’s particular support for R&D  Benefit from the government’s practical policy on the domestic fermented beverage industry

50. Thank you! Thank you!