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1 Ministry of Agriculture & Rural Development CARD Project 030/06 VIE Developingastrategyforenhancingthecompetitivenessofruralsmallandmediumenterprisesintheagro-foodchain:thecaseofanimalfeed Thailand Study Tour Report June 9-13, 2008 Date: December 1 2008 2 1. Introduction The study tour was organized in June 9-13, 2008. (See Appendix I forthe working schedule in Thailand). The delegation included a policy maker representative (from the Department of Livestock production), a representative from a technical research institute (Agriculture Research Institute for Southern Vietnam), a representative from a SME intheanimalfeed sector andthe research team members from CAP/IPSARD and UWA (see Appendix II forthe list of participants). The study tour aimed at understanding: • Livestock feed production in Thailand • Participation of SMEs inthe livestock feed sector in Thailand • Role of public policy inthe livestock feed sector in Thailand The study tour was organized by CAP research team members, with the support of technical advisors from UWA. Mr.Teerasant Sirichayaporn, Executive chairman ofthe Thai Feed Mills Public Company Limited and Mr. Pornsil Patchrintanakul, President of Thai Feed Mill Association played host forthe trip. The delegation met with the Thai Department of Livestock Development, the FAO Regional Livestock Office, the Thai Feed Mill Association, both smalland larger field mills and visited a dairy farm. Further details ofthe visits and contacts are in Appendix 1. The main learning outcomes ofthe trip inthe three areas of interest (above) are outlined inthe following Sections 2, 3 and 4. Some Vietnamese policy issues raised by the FAO Regional Livestock Office in Bangkok are discussed in Section 5, and key lessons learnt are outlined in Section 6. 2 Livestock feed production in Thailand 2.1 Feed production and input use In Thailand, thefeed sector is dominated by large companies – particularly the CP Group. The Thai Feed Mill Association said that their 56 members (some members have more than one mill) produced 70% ofthe livestock feed products. Almost all feed is produced for domestic consumption. The DLD listed a total of 655 mills – but this must include many small “farmer mills”. Additionally, the Thai Feed Mill Company said that there are also a number ofsmall unregistered mills that really just mix feed products (grinder plus bagging equipment) and are not under the control ofthe DLD. The number of feedmills has remained relatively stable over a number of years, indicating a mature livestock feed sector. Interestingly, the domestic price of livestock feed has been controlled by the Thai government since 2003 through the Ministry of Commerce (Department of Interior and Internal Trade). Additionally, the annual plan on amount of imported materials is approved by Thailand Feed Association. Thailand is usually self-sufficient in corn and cassava for livestock feed, only importing protein products such as soybean meal, soybean, some fishmeal and bone meal. SMEs can have an advantage in proximity to raw materials – buying rice meal, molasses from the local area (and even rejects from pet feed). For example, the Mualek Dairy Cooperative sources all raw materials locally (except for some soybean meal from Argentina) – and 3 look forthe cheapest good quality ingredients – to keep the cost ofthefeed as low as possible. They listed their raw materials as: • wheat bran – from Thailand • palm kernel – from south Thailand • cotton seed – from north Thailand • soybean meal – locally and from Argentina • cassava – locally • corn – locally – they contract farms for corn production • coconut meal – south Thailand Brokers go from mill to mill to collect waste products – but feedmills using these raw materials cannot produce feedfor GMP (accredited “good management practices”) pork. SMEs use whatever they can find – they can’t compete for usual raw materials. The SME has to work out “what are we going to do with this SME?” They can be “niche producers” using “niche raw materials”. They need to look at the market and provide a service to farmers. 2.2 Supply chain There is a high degree of vertical integration inthe large companies – from contract farming of raw material products such as corn, through to livestock production and food processing. The number of feedmills in Thailand is relatively stable – there are not many new companies entering the market, and many un-competitive firms have already left the sector. Two SMEs that were visited on the tour were the Thai Feed Mill Company andthe Mualek Dairy Cooperative. For Thai Feed Mill Company, the marketing share forthe company is low – estimated at 2-3%, but they plan to be the biggest producer of cattle feed. Cattle feed was indicated by FAO staff as one area that CP does not dominate, and hence is often targeted by smaller mills. Thai Feed Mill Company market to dealers and direct to large-medium sized farms – with the smallest buyer requiring about 20 MT/month. They supply a bulk product to some farms. Mualek Dairy Cooperative sells to their own members, other dairy cooperatives inthe area, a number of large farms owned by the military, a government farm and one private farm. They are looking to expand their market to agents in Chang Mai. Of their production, about 900 T/mth is for coop members andthe remainder of 800 T/mth goes to their network of other farms. 2.3 Quality control Most ofthe 56 members ofthe Thai Feed Mill Association (TFMA) have at least GMP (Good Management Practice) accreditation. The smallest mill capacity inthe Association is around 5 – 6,000 T/mth (medium-large from a Vietnamese perspective). Feed quality control is under the control ofthe DLD – the TFMA is not involved at all. There are always markets for low and high quality feeds – small companies compete on price. 4 2.3.1 Registration of livestock feed products and testing: The DLD (Bureau of Livestock Standards and Certification) only specify a minimum of four parameters for each type of livestock feed – protein, moisture, fat and fibre percentages. These are the minimum requirements for registration ofa commercial formulated feed – and all products must be registered with the DLD andthe percentages specified (that will be inthe label). There is a registration fee of 1000 Baht/every feed product. DLD are responsible for testing of these products and there is a specified protocol for testing. Random product samples are taken from all mills at least 3 times per year. Each sample is divided into three – one forthe DLD laboratory for testing, one forthe DLD (in thecaseof disputes) and one kept by the mill. The cost of testing of these official tests is borne by the DLD – 4000 samples at 2000 Baht/test – a total budget of 8 million Baht/year. Testing is carried out inthe DLD laboratory. The testing follows a specified protocol (for Group Aand Group B residue substances – see DLD handout), as well as testing each sample to see if it meets the product registration. This is possible given that there are only 4 nutrition parameters to test (unlike the 15 required for registration in Vietnam – for which the Vietnamese DLD does not have capacity to test). Other regulations relating to feed safety are the responsibility ofthefeed mills. The DLD is not responsible for implementing the penalty/punishment procedure. If the product fails the test, the mill and police are informed andthe matter may go to the Court. A fine or prison sentence may be imposed – but usually a fine. The highest fine has been 50,000 Baht. The mills are expected to keep regular records of their testing procedures and these are inspected by DLD officers. There is a cooperative approach to feed quality control (part of GMP and HACCP procedures). 2.3.2 Promoting GMP and HACCP systems The DLD is encouraging mills to have accredited GMP (Good Management Practices) and HACCP systems – mills first get GMP accreditation and then may go on to HACCP. The DLD provide training courses - free of charge to mills - a week of workshops are offered 5 times/year. In 2007, 86 mills were GMP approved and 44 HACCP approved (out of 655 total mills). According to the Thai Feed Mill Association, “almost all” of their 56 members had at least GMP accreditation. 2.3.3 Export products only from “standard farms” Only 35 mills supply livestock feed to the “standard farms” which are those licensed to produce meat products for export. EU-approved food safety monitoring and auditing systems are in place, including traceability. In this way, the Thai government (through the DLD) keeps a close control on feed safety and food safety of export products. Food safety is a high priority (see the handout from DLD which outlines the DLD role for food safety from purchase of raw materials through to farm inspections and slaughtering). 5 2.4 Price control The domestic price of livestock feed has been controlled by the Thai government since 2003 through the Ministry of Commerce (Department of Interior and Internal Trade). A cap is put on the maximum price able to be charged by individual mills for their products (based on costs of production, etc.) The FAO considers that Thailand government control ofthefeed price is “unusual”, and has come about because ofthe political influence of farmers – who often protest against rising livestock feed prices. Livestock feed is on the “sensitive list”. The Thai Government has to balance “big industry interests” with “farmer interests”. According to the Thai Feed Mill Association these prices have been largely unchanged since 2003, but they have now coordinated a request to the government for an increase (because of rising raw material prices) that is currently under consideration. The Thai Feed Mill Association says that the price increase for each feedmill is considered on its own merits – even though it seems they play a major role inthe application process. The Association also indicated that some small mills operate outside this price control system – but it could be safely assumed that they would not be charging high prices for their products. 2.5 Role of Thailand Feed Association The Thai Feed Mill Association (TFMA) has 56 members who pay a membership of 20,000 Baht/year, independent of mill capacity. Members produce 70% of livestock feedin Thailand. The TFMA describes itself as a “service organisation” – assisting members by providing information and training. Members can “exchange information and discuss difficulties”. They also say they are “a one stop shop for Government – we have all the information” – and appear to act as a lobby group forthe larger feedmills to government, mentioning that they “propose policies”. The Association has three working groups – raw materials purchasing, feed marketing and technical (quality) committees. They appear to be highly influenced by the larger mills, particularly the CP Group – both the current President and Secretary ofthe Association are employees of CP. The FAO Regional Office alluded to this. The TFMA appears to be co-ordinating an application to the Ministry of Commerce fora rise inthe selling price of commercial feed – although they say prices will vary depending on the individual mill situation – a “company-by-company” submission. The Association also plays a role in applying to the Government each year forthe amount of soybean meal imports that can be made at the “quota” tax rate (4%). The “official” quota is too small, andthe over-quota rate is officially 119%. Because of this, firms must notify the TFMA (in about June the year before) of how much soybean meal they wish to import each year, so that the Association can calculate how much they need to apply for. After the application is “considered”, the Association notifies mills of their import amounts. 3. Participation of SMEs inthe livestock feed sector in Thailand 6 SMEs in Thailand focus on dairy cattle because they can’t compete with CP and Betragro in other areas. Some SMEs inthe livestock sector (e.g. a piggery with 2000 sows) will have their own mill. SMEs should target the local market – produce an acceptable product for domestic consumption. Some main information and insights from the two visited SMEs are given inthe remainder of this section. Thai Feed Mill Company has a capacity of 200,000 MT/year (18,000 MT/mth), produces a range of livestock feeds and employs 110 persons. The mill has GMP accreditation. The Company has 2 other mills and one broiler processing factory. By Vietnamese standards this mill and company would be large (rather than medium). Mualek Dairy Cooperative was established in 1972 and has around 800 members (around 20,000 head of cattle including 8-9,000 milkers). They provide a variety of services including: milk marketing, livestock feed products, fuel, veterinary and AI services, pregnancy testing, credit (against milk sales), rice straw inthe dry season. They appear to be supported by people from government (DLD) and universities (e.g. the university livestock people developed their feed recipes). The feedmill was set up in 2002 – sponsored by the Asian Development Bank through the Ministry of Agriculture – with an establishment cost of 40 million Baht. They produce pelleted and ground feed – roughly 50% of each. The products are “guaranteed” by the DLD (we assume this means the product quality). The capacity ofthe mill is 10T/hr and production is 1700 T/month. This makes it a small-medium mill by Vietnamese standards. Products are “made to order” and not generally stored for more than one week. 3.1 Challenges facing SMEs When asked about challenges facing their mill the manager of Thai Feed Mill Company replied “maintaining our sales volume – we must sell above the breakeven point”. This positive marketing approach is very different to the typical responses from Vietnamese mills when asked about challenges. 3.2 Advantages of having SMEs operating inthe sector According to Thai Feed Mill Company, they feel they have an advantage being smaller in that they can sometimes buy small quantities of raw materials on the local market more cheaply. Raw materials are about 80% ofthe cost of their products. Normally they keep a one month inventory – but at the moment “it is different” (because ofthe recent increase in raw material prices). Their strategy is to buy quality raw materials from merchants inthe provinces. They have educated the up-country middlemen – “they must make the raw material product up to our standards.” 3.3 Feed quality of SMEs Thai Feed Mill Company is also “serious” about quality control and have an adequate laboratory with NIR analysis equipment. The DLD people with us on the trip said that “some ofthe laboratory equipment is a bit old.” They appear to work closely with the DLD on feed quality monitoring. 3.4 Strategies used by SMEs to compete with larger mills inthe sector 7 As mentioned by Thai Feed Mill Company, they consider “sales and service” to be their strength. They aim to “improve production ofthe farms by lowering production costs” – even though their price is not low. They consider thefeed conversion rates (FCR) of their products to be better than their competitors. Sales strategy is to target the north and north- east areas. Another company mill targets the south. They advertise in livestock magazines. Targeting farms for direct sales is also a strategy. As for Mualek Dairy Cooperative, they seem to be well managed and offer a diverse range of services to members. They appear to be confident about their products (which are tested on cooperative leaders’ farms) and their buying strategies for (and skills for locating) raw materials. The hygiene standard ofthe mill for stored products was not high, andthe laboratory was only basic. They don’t store a lot of raw materials – but “buy fresh continually”. 4. Role of public policy inthe sector in Thailand 4.1 Government policy supporting livestock feed SMEs There are policies which directly support or affect firms inthe feedmill sector, although they are not specifically focused at SMEs. The DLD can assist with education and advice on how to set up GMP and HACCP standards. They provide free training for this (see earlier). The DLD will audit feedmill plant for GMP. All official feed sample testing is done inthe DLD laboratory – free of charge to the mills. The sampling is done by DLD officers at no charge to the mills. Credit is also supported through a number of avenues. The Bank for Agriculture and Industry can provide loans to SMEs (at rates of 2% lower) and “interest holidays”. The SME business bank will fund SMEs – those that have “a business plan” and meet the criteria of “one district one product” (the Mualek Dairy Cooperative had this slogan at their feedmill). There is no government-provided storage for raw materials. The DLD officer thought that the “private sector is much better for this”. The Thai Government controls the price ofanimalfeed (see earlier). Government has not applied the “overquota” tax rate (119%) on soybean meal fora number of years, even though the import quota is routinely exceeded. An application for exemption is made each year by the Thai Feed Mill Association. VAT for ingredients andfeed products is 0% - considered a “special business” (agricultural business). The Thai Feed Mill Association gets support from the Ministry of Commerce – e.g. can hire a consultant to help SMEs upgrade plant (technical advice), and check “calibration” (of feeds). Additonally, the Thai Government compensates 75% of market value for livestock that have to be destroyed because of disease. 5. Policy issues for Vietnam raised by the FAO Regional Livestock Office The FAO office considered that SMEs in Vietnam currently face great difficulties in light ofthe devaluation ofthe dong, high interest rates and high inflation rates. Tax and interest 8 holidays might be needed if small businesses are to survive. Domestic investment will become more difficult as credit is tightened in an effort to control inflation. The CP Group is planning a substantial expansion in Vietnam. Foreign investment is favoured by the devaluation ofthe dong. CP has 4 plants already in Vietnam but will invest US$30 million to upgrade capacity by 600,000 T/yr – starting in early 2009. The FAO Regional Livestock Offcie considered that there are opportunities for livestock production in Vietnam. Vietnam has many ducks – but Avian Influenza is an issue. However, ducks require low capital so this is an advantage. Vietnam is buying cattle and livestock materials from Laos and Cambodia. Why? SMEs should look for import gaps. There is potential to go back to draft animal power (because of rising energy costs), and promote cattle raising and cattle feed. Government polices are needed on biofuels. The Thai government will soon zone production areas for food versus energy production. Planning is needed for this. 6. Lessons learnt and their applicability to Vietnam 6.1 Lessons applicable to animalfeed policy makers The DLD has different strategies of quality control for export-oriented livestock products (i.e. animalfeedfor export-oriented farms) and livestock products forthe domestic market. Firms producing livestock feedfor export-oriented livestock farms are strictly controlled. However, for both export-oriented and domestic market oriented firms, the Thai DLD is responsible for testing inthe DLD lab system, and all the tests required by the DLD are free-of-charge. Asking enterprises to keep regular records of their testing results is a good way of monitoring feed quality as well as helping enterprises to get used to the GMP and HACCP procedures. Free training courses on GMP and HACCP might be useful for encouraging mills to have accredited GMP and HACCP. Currently, similar policy is still not able to be applied in Vietnam due to lack of financial and human resources. At the moment, Vietnam DLD does not do the testing but encourages other capable units to provide this service. The Thai government considers feedmills as agricultural business which enjoys a 0% VAT. The same situation happens in China. This should be a good policy for encouraging the production and reducing the price ofanimal feed. Additionally, the Thai government controls the price ofanimalfeed which is an interesting policy idea for Vietnam to reference. 6.2 Lessons applicable to SMEs Attitude toward challenges and external shocks: It appears that the marketing approach of SMEs in Thailand is rather positive. Instead of waiting for support from government or elsewhere, they focus on how to sell above the breakeven point. 9 Feed ingredients: Try to source material locally, as much as possible, look forthe cheapest good quality ingredient with the cost as low as possible. This needs to be considered inthecaseof Vietnam because Vietnam has capacity to produce raw materials for livestock feed. Seek niche opportunities: SMEs can always find a “niche market”, being “niche producers”, using “niche raw materials”: in other words, there are always markets for low and high quality feeds. SMEs can compete on price and after sale-services for farmers. Cooperative structure: The form of Mualek cooperative is also a good example for Vietnam feed industry to learn. The cooperatives with multiple services supplied to members by the Mualek cooperative could work in Vietnam. 6.3 Possible role forthe Vietnam Feed Association Through information attained from Thailand Feed Association, it is possible forthe Vietnam Feed Association to learn from their experience to play a more active policy role. However, a change in structure ofthe VFA should be made so that it can be supported both in finance and organization. The Vietnam government has a policy to encourage an active role forthe private sector, so it is hoped that a more pro-active policy role forthe VFA can be supported and promoted inthe near future. 10 Appendix I: Working schedule in Thailand Date Time Place to visit Contact Address Monday (June 09) Flight to Bangkok Tuesday (June 10) 9:00 – 11:00 Bureau of Livestock Standard and Certification - DLD Mrs. Kanungknit 089-132-1818, 02 -653 -4444 ext 3127 Bureau of Livestock Standards and Certification Department of Livestock Development Phaya Thai Rd., Bangkok 10400, Thailand Wednesday (June 11) 9:30 at the Mill (whole day trip) Thai Feed Mills Mr.Teerasant Sirichayaporn Executive chairman Thai Feed Mills Public Company Limited e-mail - tfmpm2@csloxinfo.com Mobile : 081-567-8101 Thai Feed Mills (Saraburi) Co.,Ltd. 35,Moo 8, Phatthanapong Road, Tambon Tontal, Amphoe Saohai, Saraburi Province 18160, Thailand. Tel : 036-222-260-4 Fax : 036-222104 Thursday (June 12) 9:30 at the Mill (whole day trip) Muaklek Dairy Cooperative Ltd Prof Somkiat Prasanpanich from the Department ofAnimal Science in Saraburi 9:00 -11:00 FAO-UN Regional Office for Asia andthe Pacific Vishnu 081-6442329 (local call) or 06681- 6442329 (from overseas). 39 Phra Atit Road Bangkok 10200 Thailand Friday (June 13) 14:00 – 16:00 Thai Feed Mill Association Mr. Pornsil Patchrintanakul, President of Thai Feed Mill Association Secretatary: Ms. Sukanya Chaichuen 313 Silom Road, Bangrak, Bangkok 10500 Thailand Tel 66 (0) 2 6382213, 6258203 Fax 66 (0) 2 6310850 889 Room No. 170 17Th Floor Thai Cc Tower Building South Sathorn Yannawa Sathorn Bangkok 10120 10120 Sathorn Saturday (June 14) Flight back to Hanoi [...]... Thailand: • Along with other countries in East Asia (e.g Vietnam, Malaysia andthe Philippines) Thailand is experiencing rapid growth in its livestock sectors, in particular pig and poultry production • Thailand has become one ofthe leading exporters of broilers worldwide, and before the Avian Influenza crisis ranked number five in 2003 after the United States, Brazil, France andthe Netherlands • As... poultry meat production andanimalfeed products that has influence all over Thailand Furthermore, the company runs various business groups of agro-industrial products in over 20 countries including Myanmar, Cambodia, and Vietnam It is involved in livestock and fish; chicken and pig breeds; equipment and medicines for animals; broiler production; chicken-raising promotion; andtheanimalfeed import and. .. export business Animalfeed production is one of CP’s major activities with over 100 plants in China, just under 20 in Thailand as well as a number of new plants inthe various neighboring countries inthe Mekong Sub-region • Apart from CP, several other large andmedium food-processing companies have emerged and include manufacturers ofanimal feeds These large andmedium agro-industrial firms have contributed... JBIC) has also extended credit to small- and medium- scale companies 13 • Thailand, Malaysia and Indonesia have adopted the Japanese SME model with variations to suit each nation's cultural and social environment In Thailand for instance, large companies are allowed to develop ancillaries, which can operate within the same factory premises and yet are entitled to have independent recruitment, wage structure... Livestock feed sector in Thailand • Charoen Phokphand Group (commonly known as CP), a business that started in Thailand over seventy years ago, originally as asmall shop selling seeds CP began their push into Vietnam by emphasizing feed quality andthe necessity for educating producers about the benefits of high quality feed • Charoen Pokaphand Company (commonly known as CP) is a large-scale producer in. .. provides rural families with an opportunity to participate as contract producers Thailand has some similarities to Vietnam in terms offeed manufacturing andanimal production but literature regarding these industries in Thailand is not readily forthcoming To have some understanding of how smallfeed manufacturers exist in relation to the giant companies such as CP would be beneficial Livestock sector in. ..Appendix II: List of participants 1 Ms Sally Marsh_University of Western Australia 2 Ms Nguyen Le Hoa and Ms Pham Tuyet Mai_Center for Agricultural Policy, Institute of Policy andStrategyfor Agriculture andRural Development, Ministry of Agriculture andRural Development, Vietnam 3 Ms Bui Thi Oanh_head oftheAnimalFeed Division, Livestock Department_Ministry of Agriculture andRural Development,... generally an issue in east Asia In 2005, the Corruption Perceptions Index of Transparency International gave a rating of 2.6 to Vietnam, on a scale of one to 10 where 10 corresponds to the highest integrity standards Most other countries inthe region received higher grades, including Malaysia (5.1), Korea (5.0), Thailand (3.8), Laos (3.3) and China (3.2) Only the Philippines (2.5) and Indonesia (2.2) appeared... turned the attention ofthe macro planners from large scale production to smaller facilities During 2000, a program entitled Agricultural Production Quality Standard and Management Improvement was financed by the ADB Agriculture Sector Program Loan (ASPL) enabling a number of agro-industrial plant initiatives to begin Examples are projects to construct rice mills, smoked rubber plants andanimalfeed manufacturing... Thailand smallenterprises have less than 50 employees andmediumenterprises have 50 to 200 employees • Smallandmedium industries (SMIs) have been promoted and constitute a major group of agro-industry with subcontracting arrangements between the assembling firms andthe SMIs becoming common inthe market The then Overseas Economic Cooperation Fund or OECF (now Japan Bank for International Cooperation . Ministry of Agriculture & Rural Development CARD Project 030/06 VIE Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain:. According to Thai Feed Mill Company, they feel they have an advantage being smaller in that they can sometimes buy small quantities of raw materials on the local market more cheaply. Raw materials. by increasing employment of the rural labor force working for them and those engaged in their contract farms. • In countries such as Thailand and Vietnam where there are many isolated farmers