Seven post bird flu crisis years did not deter Thai integrators from undertaking a risky reinvention of their broiler sector. Thai chicken's productivity, exports, and reputation are reaping the benefits of this far-sighted strategy.
Thailand's broiler sector not merely having a banner year: It is also reaping the benefits of wise decisions made a decade earlier.
By mounting a long-term, rational response to disease outbreaks and trade bans that would have destroyed the poultry sectors of other nations, Thai chicken has recovered not just its world market standing but more importantly, its reputation.
Ten years ago, the industry was badly scarred by a mid-2000s bird flu epidemic that had caused its chicken to be banned from major European, Middle Eastern and Japanese markets. After seeing some of the most rapid increases in broiler meat output (+6.9%) and exports (+16.5%) of any country in the world from 1996 through 2003, bird flu wrecked the industry model.
After 2004's disastrous 33% drop in production and 60% fall in exports, the years 2003 through 2010 were as difficult as the previous seven years were prosperous. Initially, Thailand valiantly tried to substitute cooked chicken exports in place of its now-banned frozen chicken.
Even so, it took until 2012 before total chicken exports exceeded their 2003 peak of roughly half a million tonnes. In Thailand itself, even though the population was 3 million higher in 2010 than in 2002, domestic chicken consumption was lower than eight years earlier. Seven very difficult years followed the early 2000s outbreak: From 2003 through 2010 inclusive, output fell an average of 0.7% annually.
Despite efforts to substitute cooked chicken in place of frozen chicken, exports fell at an average 2.4% annual rate from 2003 through 2010. Throughout this period, domestic consumption staged a weak, partial recovery. Even so, the 1.9% annual rate it rose was very weak for a lower income developing economy like Thailand. By 2010, output, consumption and imports were all significantly lower than in 2003.
Even so, these slumping fundamentals did not deter Thailand's poultry sector from making some very risky –but far-sighted– investment decisions. In the five years before Europe and Japan lifted their bans on Thai chicken, integrators such as CP, Betagro, Saha Farms and GFPT went beyond profoundly expanding broiler production capacity. They reinvented Thailand's once-successful chicken meat production model.
Risk is proportional to expected returns. Investments made by Thai integrators are not exempt from this rule: The 2013 bankruptcy of Saha Farms occurred amid fast rising feed costs and insufficient export demand. Cornered by rising expenses and low returns, Saha Farms found it impossible to pay the debt incurred by such an aggressive pace of simultaneous restructuring and capacity expansions.
The contract farming model which powered Thai poultry's earlier, export-driven development was replaced by vertically integrated in-house production. There was more to this than giving conglomerates like CP, Betagro, Saha Farms or GFPT greater control over chicken farm management: Only large-scale producers could afford the high capital costs of IT-based supply chain traceability, climate controlled housings, air conditioning (to boost growth rates in a tropical climate), biosecurity –and the total writing off and rebuilding of chicken farming infrastructure all this entailed.
In particular, only integrators possessed the technical and human capital capable of complying with EU demands for antibiotic-free meat and who could finance compartmentalized, biosecure poultry housings. The latter was essential to disease control, as they prevent flock contamination by external pathogens and stopped the diffusion of any disease outbreaks into the wider poultry population.
Even before the Europe and Japan lifted their eight-year bans on frozen chicken exports, it was clear that these measures had won back the confidence of multinational industry stakeholders. A report commissioned by the Dutch embassy ("The Poultry Sector in Thailand", Netherlands Ministry of Foreign Affairs, December 2016) notes that as part of their disease and food safety monitoring practices, "Thai exporters have introduced a traceability system for the complete production process from feed to end product."
In conjunction with supply-chain spanning traceability, the report states that measures such as compartmentalization, pre-catching tests and post-catching tests, "guarantee freedom of disease in [Thai] broilers". More recently, a February 2017 case study by Poultry World (www.poultryworld.net/Meat/Articles/2017/2/Case-Study-Thai-poultry-sector-enjoying-turnaround-99873E/) similarly concluded that, "The closed-farming system has been instrumental in preventing a return of HPAI [bird flu] incidents."
The price of such heavy technological and human capital investments was the mass sacrificing of backyard poultry farms and even smaller scale commercial producers. Based on Thailand department of livestock statistics, the number of commercial broiler farms fell from 8,030 in 2008 to 6,082 in 2012 to approximately 5,000 this year.
As the number of farms fell, the number of chickens per farm increased accordingly: From 12,083birds/farm in 2008 to 37,147birds/farm in 2012 and approximately 55,000birds/far this year. Larger scale facilities typically raise 80,000 birds or more. Today, integrators and large farms account for 10% of Thai broiler farms but grow roughly 95% of the country's chicken meat.
As a result, around 80% of Thailand's broiler production now conforms to the UN FAO's highest level possible of biosecurity, with most of the rest featuring "moderate to very high biosecurity" –a proportion much higher than that found in most other large chicken producing or exporting nations– with a large for-export contingent of birds raised without using antibiotics.
In tandem with the above-mentioned boosting of capacity, scale economies, biosecurity and traceability, the best possible chicken genetics and feed formulations were used. That caused broiler productivity to take off: According to Thai department of livestock development statistics, broiler finishing weights jumped 14.6%, from 2.05kg in the mid-2000s (when the bird flu crisis hit) to approximately 2.35kg in 2015.
While broilers yielded more meat, their growth period fell 16%, from 49 days in 2005 to 41 days or less today. Even as broiler finishing weights increased and grow out time fell, broiler feed conversion ratios declined by more than 15%, from 1.95 in 2005 to slightly over 1.60 today. Were it not for native broiler breeds accounting for 20% of inventories (and preferred by domestic consumers), the improvement in poultry performance metrics would be even greater.
Clearly, Thai poultry farms invested in the quality and reputation of their chicken meat as much as they did in animal productivity, farm scale or quantity produced –and now the results are paying off. Since the late 2000s, America, India, Turkey, China and even neighboring Southeast Asian nations such as Vietnam and Indonesia have been chronically dogged by bird flu. By comparison –in a region that has seen more bird flu outbreaks and human bird flu deaths than any other part of the world– Thailand's broiler sector remains free of the disease.
As a result, the industry has defied a slew of challenges including serious diseases, trade bans, years of low capacity utilization, a rising currency and domestic political troubles at home to establish itself on a solid, long-term growth footing. Except for the disruption caused by Saha Farm's bankruptcy in 2013, every year since 2013 has seen Thailand's broiler production increase by at least 4.5% and exports expand by 5% to 15% annually.
From 2010 when the first new large investments in productive capacity came on stream through this year, production has risen annually at a 5.6% rate and exports by 7.8% yearly. Domestic consumption, which even in pre-bird flu boom years increased by less than 2% annually, has risen at a much stronger 4.3% annual pace in the seven years since 2010.
This year is no exception. In 2015 and 2016, Thai integrators successfully replaced America's bird-flu compromised grandfather parent stock with breeder broiler imports from European nations such as the Netherlands, France and Denmark. Hence, they boosted chicken meat production just in time for most of America's rising output to absorbed by rising domestic demand. Among tier 2 suppliers, China's depressed, bird-flu compromised chicken production and Turkey's war disrupted poultry trade created supply shortfalls that Thai exporters were happy to take advantage of.
Consequently, 2017 broiler output is poised to rise a USDA projected 5.1% from 2016's 1.78 million tonnes to a USDA projected 1.87 million tonnes this year. The real story however, continues to be exports. They are rising by another 5.1% to 730,000 tonnes. For while America and Brazil account for 2/3rd of world broiler exports, Thailand has now firmly re-established itself as the 3rd largest world supplier of chicken.
During the bleak years that followed last decade's bird flu outbreak, Thailand lost its third-place world market chicken meat export ranking to China. For a while, it looked like Turkey, Argentina and China could all overtake Thailand's broiler sector and reduce its world market presence to insignificance.
In a curious twist of fate, Thailand ended up getting its H5N1 influenza under control while rival exporters such as Turkey, China and America suffered a succession of seemingly intractable bird flu outbreaks. As a result, Thailand has not just regained its number three world chicken exporter position but greatly lengthened its lead over rivals such as Turkey, China and Argentina.
Most importantly, by offering everything from fresh antibiotic free chicken meat to a remarkably diverse array of ready-to-eat, pre-cooked chicken meals, Thai broiler exporters have defined a world poultry market niche for themselves that enjoys high value-added profits and protection from lower cost commodity chicken suppliers.
Ironically, the Trump administration's recent pressuring for Thailand to open its domestic market to imports of American chicken meat could easily backfire: If it were forced to open its domestic market imports of American chicken, Thai poultry producers would no doubt demand equally unrestricted access to the US market –which is many times larger than that of Thailand.
American trade negotiators are thus at risk of being confronted with a surprise outcome: What if US consumers opt to spend more money per kilogram on imported, pre-cooked Thai, Mexican or Italian style chicken meals than Thais do on commodity imports of frozen AA white feather broiler chicken meat?
One thing is for sure: Few agribusiness stakeholders invest in a more long-term, far sighted manner than Thailand's poultry integrators. It would be foolish to underestimate them.
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