Focus on Thailand

‘Kitchen to the World’ is the largest exporter and importer of food products in Southeast Asia.

"Kitchen to the World" is a phrase sometimes used by official promoters of Thailand’s thriving export-oriented food industry. Hyperbole aside, there is much truth to this slogan. The country has been the world’s leading rice shipper for almost 25 years and is among the biggest suppliers of aquaculture and seafood products to the international market. Also, the CP Group, a global player in feed and poultry production, is a Thai company. The record is quite impressive for a medium-sized, middleincome country. Among the nations of Southeast Asia, Thailand is both the largest exporter and importer of food products, though it is only fourth largest in population and trails both Malaysia and Singapore in per capita wealth.

Food processing of all types is a vibrant sector that has attracted much international investment targeting both the domestic and foreign markets. It has also been a source of new business start-ups. There are at least 1,200 medium and large companies registered and several thousand more small firms or producers at the cottage-industry level.

Challenges to this key part of the Thai economy have been many. Recently, the Avian flu has been of great concern. Another ongoing and persistent threat is low-cost competition from Vietnam, India and other countries that are opening themselves more and more to the world economy. But Thai producers have shown a resilience that has come from the ability to adapt and move into new higher value-added niches.

GRAIN PRODUCTION AND TRADE

Rice gave Thailand its start as a major food exporter. Milled rice production in recent years has been stable at about 18 million tonnes. Steady per capita consumption of 110 kg leaves over half the crop for export and other uses.

Thai exports in 2005 fell to 7 million tonnes from 7.3 million tonnes the previous year, as Vietnamese white rice, the cheapest category, gained a substantial share in African countries on prices U.S.$20 to U.S.$30 per tonne lower than Thai rice. At the same time, competition from India reduced Thai exports of parboiled rice, a category that is about 25% of all Thailand’s rice trade. However, shipments of high-priced fragrant jasmine rice, for which the main markets are the U.S. and China, continued to go up. Thailand’s position in the last major category, premium white rice, which primarily goes to Iran, Iraq and other Middle East countries, is still strong due to inadequate supply from Vietnam.

Paralleling the drop-off in exports, there has been a sharp rise in rice stocks to record levels approaching 5 million tonnes, from just 1.7 million tonnes at the end of 2003.

Indeed, domestic market prices and the level of exports are usually a function of government intervention buying, a practice designed to stabilize production and farmgate prices. Exports will rise in 2006 as the government must dispose of its stocks, thereby lowering the average price for Thai rice.

Maize is the second-leading grain crop and a major contributor to Thailand’s feed industry. The sector, now recovering from the impact of the Avian flu on poultry demand, will consume all but about 150,000 tonnes of a total crop of 4.2 million tonnes from two annual growing seasons. In 2004, maize exports had reached nearly 400,000 tonnes, mostly to Indonesia and Malaysia.

The government still operates a mortgage program for maize farmers to stabilize domestic prices. Thanks to higher loan rates, government purchases under the program doubled to more than 115,000 tonnes in 2005. There are no quotas or tariffs on maize trade between Thailand, Myanmar, Laos and Cambodia under the terms of the Joint Economic Cooperation Agreement between the four countries.

FEED INDUSTRY

Charoen Pokphand, or the CP Group as it is usually known, is one of Thailand’s best known, wealthiest and globally focused companies. It got its start as a humble feed trader more than 80 years ago. The feed industry has played a vital role in the development of Thailand’s agro-industrial complex, and the rise of the CP Group has mirrored that development.

Thailand should produce close to 11 million tonnes of feed in the current year. CP Group is by far the largest producer, though it faces competition from regional and multinational players that have invested in its backyard.

Poultry production and seafood each account for half of the total feed value. The large share of demand from aquaculture is special in the case of Thailand. About 90% of fish and shrimp production gets exported. Thailand is the world’s number one exporter of king prawns. It was the world’s leading seafood exporter until overtaken by China a number of years ago.

In addition to operating several plants dedicated to production fish and shrimp feed, CP Group has integrated vertically and forward into farmed seafood production, just as it did with poultry earlier. Export demand for frozen shrimp remains strong, particularly from the U.S., and domestic consumption of farmed fish is going up at the expense of poultry.

The CP Group now owns feed plants in seven Association of Southeast Asian Nations and 30 countries around the world. In the 1980s and 1990s, it made a major push into China, where it built 100 plants. In Thailand, it has diversified into telecommunications, petrochemicals and other industrial products.

WHEAT FLOUR MILLING

Shrimp and fish farming are also a major source of demand for Thailand’s wheat flour milling industry. About 30% of all flour production is used either as a binder for pellet production or for breading of finished products.

Thailand has about 10 modern flour mills that will grind 1.2 million tonnes of wheat in 2006. Two new mills have contributed to a 30% expansion of national milling capacity. Wheat flour production has been increasing at an annual rate of 10% recently.

Another segment of wheat flour demand is instant noodles, which are gaining favor among urban consumers at the expense of rice. Flour demand for bread, cake and pastry has also been going up, thanks to higher incomes.

Thailand has been one of the major import markets for flour in the region due to the relatively high cost of domestic production. But millers have been given a boost by a new tariff rate structure on wheat of only U.S.$2.50 per tonne compared to five times as much for flour. This will help keep imported flour at around 5% of total consumption.

OILSEEDS

Thailand has long tried to stimulate domestic soybean production as a second pillar alongside maize to supply its feed industry. However, domestic production has stagnated at below 250,000 tonnes even though total demand for soybean meal has steadily climbed. Farmers prefer maize, which has had much better improvement in yields.

As a result, soybean crushers in Thailand depend on imported soybeans. Total soybean imports are expected to decline due to a decreased domestic crush of just 1,030 tonnes. In general, soybean crushers face a difficult environment due to price controls on soybean oil, competition from imported palm oil, which is approaching 1 million tonnes and is monopolized by the government, and increased use of whole soybeans for human food and for full fat feed.

Overall soybean meal demand continues to increase. Despite a 5% tariff versus none on beans, soybean meal imports should exceed 2 million tonnes in the 2006-07 marketing year, compared to 1.7 million tonnes in 2004-05. One factor is a fall in fishmeal production, though still important at over 400,000 tonnes per year.

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