FEED Business Worldwide March, 2012

 

How Thai agribusiness will milk ASEAN's 2015 trade integration 

 

by F.E. OLIMPO in Bangkok

 

 

Barring any major hitches, the Association of Southeast Asian Nations (ASEAN) will become a single economic market by 2015. Patterned after the European Union, it is designed to promote free flow of trade among its ten Southeast Asian members by removing tariff and nontariff barriers, import duties and subsidies for all commonly traded products.

 

ASEAN's impending economic integration will create a single market of about 600 million people with a GDP of US$1.8 trillion. ASEAN does not only have the world's fastest growing feed and livestock sector; it is also has skyrocketing dairy consumption. According to the Tetra Pak Dairy Index, global consumption of milk and other liquid dairy products will rise by about 30% from 2010 to 2020.  Much of this growth, however, will happen in the Asia-Pacific region, most especially in Southeast Asia's fast growing economies.

 

Hence, there's little wonder Thailand's dairy sector is excited by it and has even started preparing for it. Relatively well-endowed with domestic feed inputs, brimming with dairy technology, vast agribusiness capital pools and know-how, Thai agribusiness intends to capitalize on Southeast Asia's growing thirst for dairy milk. Per capita dairy consumption is rising quickly in virtually all countries neighbouring Thailand, motivating it to take advantage of this situation.

 

 

 

The state-owned Dairy Farming Promotion Organisation (DPO) announced two months ago it would invest THB1.5 billion (US$48.5 million) over three years to build plants and increase the production capacity for its Thai-Danish milk products.

 

The state enterprise's chairman, Thavatchai Samrongwatana, says the planned investment is meant to cash in on the forthcoming ASEAN economic integration. THB1 billion (US$32.3 million), he explains, would be used to build a UHT (ultra-high-temperature processing) plant on its 320-hectare main factory in Saraburi province. The rest of the funds, according to him, would be spent on a factory to process raw milk from dairy farms in Northern Thailand.

 

Mr. Thavatchai says the new expansion, DPO's biggest in all its 50-year history, would increase DPO's total dairy production capacity by 20%, from 500 tonnes a day to more than 600 tonnes. The extra output, he adds, would be exported to Laos, Cambodia, Burma, Malaysia, Vietnam and the Philippines once the ASEAN Economic Community (AEC) goes into full effect in three years.

 

Since last year, another Thai milk company, Nongpho Dairy Cooperative, has also been exploring ways to expand its operations beyond Thailand's borders in anticipation of fiercer competition at home come 2015.  "This is the first time the company has thought about expanding our business outside the kingdom," says the cooperative's president, Somchai Damtamid.

 

Located in Ratchaburi province, more than a 100 kilometres from Bangkok, Nongpho is Thailand's biggest dairy cooperative. Nonggpho Cooperative's 5,000 members produce over 200 tonnes of fresh cow's milk a day. Its members have about 50,000 cows, most of which are a cross between Holstein Friesian from the United States and the native Thai cow.

 

Formed in 1971, Nongpho has been highly profitable, netting about THB100 million (US$3.23 million) in 2010. It runs several processing plants producing fresh milk in bottle and in pouch, ice cream, yoghurt, UHT milk, among other products. As part of its regional expansion plans, the cooperative will soon distribute its UHT, sterilised and fresh milk in Laos.

 

It also had talks with a company in the Philippines which plans to package Nongpho milk products using its own brand.

 

Not to be outdone, CP-Meiji, the dairy arm of Charoen Pokphand (CP) Group, Thailand's biggest agribusiness conglomerate, has also invested US$65 million to expand its milk plant in  Saraburi province. CP's expansion is in line with the company's five-year plan to double its sales to THB8 billion (US$258 million), from last year's sales of THB4.1 billion (US$132 million), and to boost its overseas market, including exports to Hong Kong later this year.