Origin and timelessness of tourism policy
High Value Low Volume is Past, Present and Future of Tourism in Bhutan.
For the last fifty years, tourism in Bhutan was guided by the policy and practice of HVLV, which is a precious gift from His Majesty The Fourth Druk Gyalpo. His Majesty The King reiterated the profoundness of this policy during the 11th Convocation of the Royal University of Bhutan in 2016, as follows:
“…And yet, with Drukgyal Zhipa at the helm, we had the confidence to make our own decisions- to decide that our approach to tourism policy would be that of high value low volume. It seemed counter-intuitive at a time when tourists to Bhutan were so few. There were many skeptics. But because of that policy, Brand Bhutan emerged. And you see the results of that policy for yourselves today.”
What is High Value?
Mindful and responsible visitors; offering good value for money experiences; Ensuring high revenue and yield per capita tourist; ensuring quality tourism infrastructure and products and services; upholding and reinforcing the hard earned Brand Bhutan.
High Value encompasses both the tangible revenue and receipts by the host country and intangible exclusive experience by the tourist.
What is Low Volume?
Ensuring that the number of tourists Bhutan receives is consistent with the carrying capacity of our natural endowment, socio-cultural values and infrastructure. Low Volume is invariably associated with “less is more”, and does not necessarily limit the numbers.
What is “Less is more “?
“Less is more” is the business model of HVLV. It is sustainable and exclusive. For example HVLV would choose 1 tourist spending Nu. 100,000 each day over 5 tourists spending Nu. 10,000 by each in a day. It is a choice between – 100,000 x 1 = Nu. 100,000 or 10,000 x 5 = Nu. 50,000. With this choice, the revenue gain (high value) is double while the pressure on carrying capacity is five times less.
Both by design and by choice, Bhutan cannot be and do not want to be a volume player. It is like comparing a walnut to a watermelon to compare Bhutan with Singapore or the Maldives on carrying capacity. Bhutan’s value is in smaller numbers of people having exclusive and intangible experiences. Any attempt to change Bhutan into a mass tourism destination would destroy this, and Bhutan would lose its appeal, with a far greater negative impact. This was evident with the rapid surge in tourist arrivals in the decade preceding Covid-19.
Have we achieved High Value?
Not yet! Unfortunately, the minimum daily package rate (MDPR) is not always enforced, many tour operators and others routinely undercut it. However, the direct revenue to the government in the form of the Sustainable Development Fee (SDF) and Visa fee, are received from all tourists. The present rate of USD 250 for a package, including a minimum of three star accommodation, meals, a chauffeured suv, and dedicated certified tour guides is quite reasonable for an ‘exotic’ country like Bhutan.
From a tourist’s perspective, the MDPR is considered a premium package, which means a high international service standard. However, Bhutan currently is not able to deliver in full the ‘High Value’ aspect of tourism services. While this was not a serious issue so far, post-Covid-19, we should be working hard to improve toward the promised high value, as travellers will be more demanding and discerning in their choices of a travel destination than ever before. For now, most of our tours are copy pasted and therefore the meaningful high value experiences sought have not been explored. There is a need to professionalise tour operations and to develop novel and interesting new itineraries and service offerings for tourists.
Have we achieved low volume?
Not yet! As Low Volume is associated with high value, with the advent of the rapid surge in regional tourists, the volume of low value has increased. Therefore, even low volume was not achieved.
With the exception of an upward revision, any other tweaking in the MDPR that reduces costs will further delay the realization of the low volume. Specifically, it is not helpful to suggest that we copy other countries and discard our progress to date. Bhutan is very fortunate to have painstakingly built a brand and reputation that attracts high value tourism.
What is the volume that we can accept when we say ‘low volume’?
This refers to the carrying capacity related to the cultural, environmental, infrastructural and social resources. For example, some of our tourist sites were getting overwhelmed by 2019, which was a big threat to Brand Bhutan. However the same number of tourists, if guided and regulated, it should be okay. At this point in time, MDPR is the only practical tool that can ensure balance between carrying capacity and tourist arrivals.
Therefore, the low volume does not have a fixed number of tourists in a year, but rather it is dynamic and changes with the carrying capacity. In our context, this Low Volume is invairably associated with High Value and go hand in hand.
Can High-Value be achieved with low volume?
Yes, through the following:
Target tourists with high disposable incomes
Increasing spending avenues – Improving and increasing spending infrastructure like the POS outlets;
Increase the diversity and quality of souvenirs and other niche products
Increase more avenues to engage tourist (tourist focused food and beverages, adventure sport activities, wellness tourism activities, agro-tourism, medical, MICE and so on)
Increase the average length of stay (products, open up other areas)
What are MDPR and MDP?
MDPR is a pricing system, sometimes referred to as premium pricing. Under MDPR, a set amount per day per tourist has to be paid in advance to process visas. At present, the MDP rates are: USD 250 for high season and USD 200 for the low season (I tend to believe a revision of this rate in over due).
Like for everything else, MDPR is also subject to revision as deemed necessary by the government.
And MDP is the minimum services that will be offered for the price paid. MDP includes the following 3-star standard services:
Accommodation on a twin sharing basis;
Food and non-alcoholic beverages;
Service of Guides;
Ground transport within Bhutan; and
SDF – Sustainable Development Fee of USD 65
Is without MDPR mass tourism?
YES without both MDPR and SDF.
NO without MDPR but with higher SDF. But there are other issues and risks associated with this scenario.
Currently, MDPR is the only tool to regulate and manage tourist arrivals. The number can be increased gradually with the improvement in carrying capacity. However, doing away with MDPR will undermine the efforts for sustainable management of tourism and lead to mass tourism, which is happening in most other countries.
We already have the experience of this case with the regional tourists, when the regional tourist did not have to pay SDF and MDPR. It is a fact that the bulk of the regional tourists were low spenders.
For example, the Bhutan Tourism Monitor 2020, recorded a total of 315,599 visitor arrivals in 2019, of which 72,199 (22 percent) visitors were MDPR paying while 243,400 (77 percent) were visitors non-MDPR paying. However, in terms of revenue generation, MDPR (22 percent) contributed about 62 percent, while the non-MDPR (77 percent) contributed only 38 percent.
In other words, a MDPR paying visitor contributed about five times more than a non-MDPR paying visitor.
What happens if MDPR is reduced or lifted?
Currently, MDPR is the only tool to regulate and manage tourist arrivals. The number can be increased gradually with the improvement in carrying capacity. This is sustainable growth. However, doing away with MDPR will undermine the efforts for sustainable management of tourism and lead to mass tourism, which is happening in most other countries, and has many related problems which we do not want to bring to Bhutan.
However, when our country attains a high-income level status, the MDPR will disappear on its own, as the minimum standards of all services and facilities will be already above the MDPR standards.
What would happen if only SDF component of MDPR is retained?
We cannot control our Brand and service levels. Undercutting will be more rampant. Services standard and quality would be highly compromised. Huge risk for very low spending by tourist. In Nepal, where they do not practice MDPR nor SDF, it is reported a daily average spend of USD 44 implying that a tourist can tour in Nepal by spending as low as USD 10 per day.
We already have the experience of this case with the regional tourists, when the regional tourists did not have to pay SDF and MDPR. The bulk of the regional tourists were low spenders, and yet they had equal or higher impacts on environmental, cultural and other carrying capacities.
Is there a way for high value without MDPR?
Yes, but there is a prerequisite:
The pre-requisites could include:
Self-regulated minimum industry-led standards and classification systems for the tourism services e.g. there should be no hotels below a certain standard.
Proper accounting systems and digitalization.
High level of business ethics and integrity etc.
Minimum pricing standards as per the service standard/living standard etc.
In other words, these pre-requisites describe a country that is developed and high income and the minimum requirement is ensured mostly through a self-regulated system.
MDPR will be no more relevant or necessary to ensure high value once our country has all above pre-requisite in place.
Given our present situation in most aspects, the minimum services and exclusivity cannot be guaranteed without MDPR.
Do all foreign visitors pay MPDR?
No, only the leisure tourists pay the MDPR. Leisure tourists come through a licensed Bhutanese tour operator. Foreign visitors can come as official guests, personal guests, students, on business trips, etc.
Can High-Value be achieved with high volume?
Yes, as long as all tourist are high-value. This can be attained when one tourism policy is achieved.
How can we facilitate foreign scholars who cannot afford MDPR?
If scholars are visiting as tourists – they need to follow the current system and route their tours through TO/TCB and pay MDPR. However, they could also visit as guests of Bhutanese or offices/businesses without paying MDPR for which they can process directly with Department of Immigration. They could also visit on a student visa subject to fulfillment of conditions as spelled out in the immigration rules and regulations
It is just like the case of Bhutanese scholars or for that matter any Bhutanese wishing to visit a developed country. One needs to have a minimum cash to fund the trip besides the visa. So, it is kind of a universal norm.
Is our tourism policy of HVLV an elitist?
Not. Any nation can make a choice that best serves its interests and goals. High-Value Low Volume is Bhutan’s choice with the larger objective of support the universal goal of the global sustainability.
Is MDPR restricting out of pocket spending?
While MDPR guarantees the minimum spending, it does not in any way discourage or restrict out of pocket spending. The case of everything paid in advance doesn’t allow tourists to come with cash to spend in Bhutan is baseless because: 1) Tourists coming to Bhutan will need to have a good income source which means they will be carrying their credit cards; 2) Very rarely tourist come to Bhutan as standalone destination. They combine their tours with other neighboring countries so they will carry some form of money. Presently the out of pocket spending by a tourist is low mainly due to other reasons.
Presently the spending avenue is limited, e.g. not enough choice of souvenirs, poor imported quality and not authentic Bhutanese, limited activities to engage tourists such as café, food street, entertainment, and theme parks, museum, library, adventure sports, etc. This situation is made worse by the poor functioning POS outlets where only limited credit cards are acceptable and most of the times not functioning mostly due to network issues.
Besides, we already have a good percentage of tourists already spending much more than MDPR, e.g. tourists staying in some properties are already paying more than USD 1000 per day just for accommodation.
Is MDPR of HVLV outdated?
On the contrary, many destinations and travel thought leaders are acknowledging and recommending our unique tourism pricing system of MDPR and SDF as the tourism model post Covid-19.
Apparently, the search for a sustainable tourism approach has begun long before Covid-19. Destinations across the world are looking for a different tourism model that could address or avoid the negative impacts associated with over-tourism and or mass tourism and our tourism model is one of the favorites.
How does our tourism compare with others?
Any form of comparison and short term gains driven ambition like other destinations across the world is futile and needless. The uniqueness and exclusivity are Bhutan tourism’s identity and strength.