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July 2, 2009
Thailand seafood processors ink contract scheme to alleviate shrimp farmers
An eFeedLink Exclusive
Two of Thailand's major seafood exporters have entered into a contract-farming arrangement with 185 shrimp farmers from all over the country in a bid to help the industry from the current slump.
The deal, initiated by Thai Union Frozen Products (TUF) and Marine Gold Products, guarantees to buy 10,000 tonnes of shrimp, worth about THB1.2 billion, from these contract farmers until the end of this year.
Since last year, Thai shrimp farmers have been cutting down production to stabilize prices amid falling demand.
Calling it a "3 Win + 1" strategy, Rittirong Boonmechote, managing director of the shrimp business unit of TUF, said the new arrangement could help the company's shrimp business grow by 15 percent this year.
He said three parties are the key beneficiaries of this business arrangement - shrimp farmers, seafood processors, and seafood buyers overseas. The government - representing the "+ 1" in the equation, is the government, which also benefits from the whole programme.
The first winners in this contract-farming scheme, Rittirong says, are the shrimp farmers. This assures them a buyer for their products at a specified price. The arrangement also allows them to know ahead of time what size of shrimp to produce, eliminating any market risk in the process.
The second winners are the processors - TUF and Marine Gold Products. They will benefit from the scheme in terms of better cost management and steady raw material supply.
Quality control, freshness and food safety, Rittirong says, are managed more effectively with contract farming.
The third winners, he adds are the consumers overseas. Contract farming will assure them timely delivery of finished products, better quality and traceability.
With this scheme, according to Rittirong, the government would be partly relieved of the burden of buying more shrimp that it could handle to mop up the excess supply in the market.
The scheme will enhance price stability and eliminate the need for government intervention in the market, which may lead to wasteful and ineffective spending, he adds.
Rittirong believes that contract farming will reduce risks for all parties involved, especially for farmers who will not have to worry about how to sell their produce during periods of surplus. With a target of how much shrimp to raise, at what size, and at what price they can be sold, the farmers will be better equipped to plan their production effectively.
The company also believes, Rittirong says, that by forming strong and transparent and mutually beneficial alliance, this arrangement will help the farmers, processors, and buyers grow their businesses together over the long run.
Rittirong explains that now is the most appropriate time for the company to pursue this strategy. From May to December, he says, shrimp is in abundant supply and prices are low.
The scheme, he says, gives contract farmers not just a guaranteed market but also a better price for their produce.           
TUF and shrimp farmers had been discussing the scheme for quite some time before it was finally launched. Both parties wanted the plan to succeed as it would help all stakeholders in the shrimp industry from upstream, midstream, to downstream, says Rittirong.
"Traceability and food safety, two issues that our foreign customers are intensely interested in, would be enhanced by this programme which," he adds. "could serve as model for other seafood processors."
Currently, shrimp farmers are facing a shrimp price crisis. Shrimp output is expected to surge from June onward, pushing down prices while costs of raising shrimps are rising. The global economic downturn has also driven down demand for shrimp consumption in restaurants.
However, the shift toward dining at home has resulted in higher demand for retail shrimp products sold in supermarkets, Rittirong says. The company, he adds, remains confident about the growth potential of the country's shrimp sector.
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