FEED Business Worldwide - June 2012

 

Thailand's poultry sector reborn: The resumption of exports and using reinvention to transform crisis into opportunity 

 

by Eric J. BROOKS

 

 

After years of competing with one hand tied behind its back, Thailand's poultry sector will finally be given the market access its competitors take for granted. The EU recently announced that after eight long years, effective July 1st, it is lifting its ban on raw Thai chicken exports. With Japan also expected to soon fully re-open its market to frozen Thai chicken, world poultry is bracing for its biggest supply shock since the 2003's H5N1 outbreak got Thai chicken almost universally banned.

 

Frankly, this restoration of Thailand's chicken exporting privileges is if anything, grossly overdue: For more than five years, integrated Thai poultry raising facilities have employed biosafety measures and hygiene procedures that put to shame most US, Brazilian and European poultry integrators.

 

Indeed, with Thailand's frozen chicken re-entering Europe, the easy ride that Brazil's poultry sector has enjoyed for the past nine years is now over. A recent Rabobank report on Thailand's poultry sector stated that, "International trade streams will change and Thailand will regain volume which it lost after the 2003 influenza outbreaks."  ("The Return of Thai Raw Chicken", Rabobank Industry Note 312, May 2012). Because Thailand's poultry sector has transformed itself over the past nine years, its return to the international stage implies more than a mere restoration of its old market position.

 

 

 

Before we even get to the global market implications of this move, we need to re-cap not just the consequences of bird flu but how Thai integrators turned this tragedy into new sources of competitive advantage. Essentially, the 2003's bird flu outbreak's devastating impact on Thai poultry cannot be overstated.

 

Before the outbreak, the country's poultry export volumes were starting to rival those of Brazil and America. Thai poultry's large market share in the EU and especially Japan made Brazil the number two poultry exporter, behind the US. Within two years of the post bird flu export bans, Brazil ate up much of Thai raw chicken's former market share, enabling it to vault ahead of the United States as the world's leading poultry exporter. Thailand went from being a serious rival to a distant third place supplier.

 

According to the USDA, in just one year, Thailand's poultry production fell by 33%, from 1.35 million tonnes in 2003 to just 900,000 tonnes in 2004. Exports fell by an even steeper 60%, from 500,000 tonnes in 2003 to a mere 200,000 tonnes in 2004. While domestic consumption recovered quickly and continued growing, it could not make up for lost exports: Thai poultry production would only exceed its 2003 peak last year.

 

Overnight, the country's highly competitive poultry sector was essentially relegated to the world economy's minor leagues. Before the crisis, Thai poultry exports had come out of nowhere to account for 8.3% of world poultry exports in 2003 –and they looked set to account for up to 15% of poultry exports by the late 2000s. Instead, by 2005, Thailand's share of world poultry exports had fallen back to a mere 3.3%. But to Thai poultry's great credit, it has used these years in the wilderness to its great advantage in several ways.

 

First, faced with a ban on frozen, raw chicken, Thai integrators used the export loophole of cooked poultry to create an entirely new niche: Exports of frozen, pre-cooked and ready-to-eat Thai breaded chicken, lemon chicken, chicken pot pies, and yakitori skewers now grace supermarket freezers from London to Shanghai. Partly through domestic demand growth, partly by intensively exploiting the frozen chicken meal niche, by 2010, Thailand's poultry sector was again operating at full capacity, and is experiencing a succession of investment in new facilities up to this very time.

 

Thailand's exploitation of the cooked chicken niche meant that while chicken export volumes did not exceed their 2003 peak for eight years, the value of cooked chicken exports soon equaled or exceeded that of frozen chicken. This is particularly true of markets where a high percentage of meat purchases are accounted for by ready-to-eat meals. In Britain for example, despite the ban on frozen Thai chicken imports had a value of £292 million (US$466 million) versus a mere £30 million (US$48 million) for Brazilian poultry imports.

 

Indeed, Thailand's integrators were also versatile in applying the process technology used for cooked poultry to create equally export-oriented ready-to-eat meals based on their farmed seafood. Hence, the crisis spurred them to create a new marketing format across their entire agribusiness protein lines. According to Rabobank, "The strategy was so successful that [despite the bans on frozen chicken], the industry once again reached full capacity utilisation in 2010/11, resulting in increased [new] investments."

 

 

 

Second, to comply with EU import demands, Thailand's poultry sector introduced a variety of unprecedented biosecurity measures. Alongside predictable investments in new, climate controlled housings that prevented external contamination from reaching broilers, it introduced many leading edge biosecurity techniques rarely equaled in the west or anywhere else.

 

These include compartmentalization, which separates animals and feed of various integrated facilities so that outbreaks cannot spread, and IT-driven farm-to-fork traceability of feed materials, supplements, animals and their processed meat. Other countries may have developed the technologies and processes in question but no one implemented them with the vigour and intensity Thailand did.

 

Interestingly, one irony of the EU and Japan's repeated rejection of Thai poultry exports is that for the last five years, Thai broilers have been raised more hygienically and humanely than their counterparts in prospective importing countries. For example, a 2010 study by Britain's Royal Society for the Prevention of Cruelty to Animals (RSPCA) found that integrated Thai facilities housed 13.5 broilers per square metre, versus 20 broilers per square metres packed tightly into British chicken farms.

 

One fortunate side-effect of giving poultry more space is that it minimizes or makes unnecessary the use of antibiotics, as the probability of infections rises with poultry housing's population density. Indeed, it would not be surprising if the EU's ban on AGPs is to a great extent responsible for Thai poultry's better living conditions.