FBA Issue 34: September / October 2010

 

 

 

 

In a move many in Thailand's livestock industry consider long in coming, its National Pig Board recently adopted a five-year investment plan to modernize the swine sector and make pork a major export line. Whereas poultry and aquaculture made Thailand an agribusiness superpower, this new policy is designed to address its lagging swine sector. It calls for THB1.5 billion (US$45.2 million) of government funds from this year through 2014.  As we shall see, while the government's capacity to keep its promises is now in question and the sector faces many immediate problems, the private sector's commitment to this plan remains on track.

 

 

Indeed, industry executives were initially very bullish about 2010, with many seeing 2010 as the start of a transformational "decade of the pig." Granted, there were good reasons to celebrate. Compared to poultry or sea food, Thailand's swine sector is immature. Nearly nil exports, and low per capita domestic consumption, when combined with leading edge agribusiness investment implies two things: Yes, Thailand's swine sector lags today, but combined with the above factors, it enjoys the same incredible growth potential that poultry and sea food enjoyed in the 1980s and 1990s.

 

Coming into 2010, last year's swine flu threat quickly faded, bringing relief to an unjustly maligned industry.  While 2009 pork sales temporarily fell 10-20%, that year's hog price didn't fall to THB35/kg (US$1.08/kg), as it did in 2007. It helped that 2009's pig supply was made tight by to a 2008 outbreak of Porcine Epidemic Diarrhea (PED), which killed more than 500,000 piglets around the country. This gave the market good supply-demand balance and a profitable prices going into 2010.

 

Nevertheless, the swine flu crisis did expose the unconsolidated nature of Thailand's swine rearing industry. At this time, Thailand has approximately 220,000 pig farmers concentrated largely in the central and eastern Thailand provinces of Nakhon Pathom, Ratchaburi, Chachoengsao, Chaiyaphum and Surin. Of these, about 5,000 are large-scale farms with more than 500 pigs, and 30,000 mid-sized ones with more than 50 pigs. The remaining 185,000 backyard hog farms usually contain approximately 10-20 pigs and are scattered throughout the country.

 

According to Suthep Angkunsutthiphan, owner of S.P. Farm in Nakhon Pathom, small-scale farmers who raise 10-20 pigs are being gradually squeezed out of the market. This is because they lack the capital to withstand lengthy periods of pork price slumps and rising prices for feed and other inputs. Moreover, such consolidation accelerates whenever a crisis hits the industry. Generally, slowdowns become opportunities for larger players to assume a larger market share.

 

2010 however, was not expected to be a year of cruel consolidation. Initially, the kingdom was on track to a full recovery after a year of global recession. The economy was predicted to grow by 4.5%, with meat exports soaring by at least 20 percent. With the ASEAN Free Trade Agreement (AFTA) taking effect, Thai hog farmers were ecstatic about the prospect of freely exporting meat to Thailand's nine ASEAN neighbours, which comprise a market of nearly 500 million people.

 

Simultaneous with AFTA, CAFTA [the China-ASEAN free-trade agreement] also took effect this year. Although China is known to be a tough competitor, Thailand enjoys a competitive advantage due to the higher quality of its pork, says Yukon Limlaemthong, former director-general of the Department of Livestock Development and now Permanent Secretary for Agriculture and Cooperatives. Early in the year, this prediction was already bearing fruit.

 

Exports, especially to Hong Kong and Japan, were rising as importing Asian countries quickly recovered from the previous year's recession. Hong Kong, Thailand's second biggest pork importer after Japan, is particularly promising. Pork supply in China was very tight and Hong Kong demanded additional imports for re-export to the mainland, where prices were skyrocketing. With this bright outlook, Thailand was forecast to raise 17.6 million live pigs this year, amounting to approximately 1.33 million tonnes of pork meat. Out of these sums, it expected to export 500,000 of these live pigs and 16,000 tonnes of pork.

 

Hence, after successfully enduring a recession, swine flu outbreaks Thailand entered the year with a balanced, growing market, good export prospects and the means to take on the likes of China. Overall, it looked like a good year was ahead.

 

 

Unfortunately, this promising start to a new decade was undermined by an El Niño-induced shift in ocean currents, which caused an exceptionally severe drought from February to late May. Scorched, arid conditions did more than just dry up dams and irrigation canals. This particular drought induced record temperatures of up to 44ºC in certain parts of the country. Consequently, it did more than mere slash grain production and make hog feed prices soar: The drought directly impacted hog farming's economic structure and supply/demand balance.

 

Only the 10% of hog farms owned by big corporations have temperature-controlled buildings for housing hogs. The vast majority of mid-size and backyard farmers cannot afford such cooling systems. This caused backyard swine output to wilt, as heat-stricken hogs lost their appetite and grew more slowly. To manage the situation, many farmers culled their sow population to give more room to animals and minimize heat stress.

 

In addition, the resulting lack of water also unevenly impacted hog production. With no rainwater and wells running dry, backyard farmers had to get their water elsewhere, that is, if they even had the financial means to do so. This raised the water bills of small-scale farmers but not large establishments. Poorer hog producers without the means to purchase water simply had to cull their herds or sell their sows to market.

 

By contrast, integrator-owned farms enjoyed reliable, piped-in water supplies. Their automated cooling systems meant that the hogs did not need to drink any water than usual. Their deep pockets meant that they did not have to give the pigs any less feed either.

 

However, amid rising feed costs and shortfalls in both the quantity and quality of water, the average weight of a live pig ready for slaughter fell to 95kg from the 100kg norm. With the integrators carrying on business-as-usual, the entire fall in average hog weight fell on the shoulders of backyard and mid-size farms: Integrators continued to produce 100kg hogs while drought-impacted backyard farms frequently produced hogs of 90kg weight or less during this time. The quality of integrator hogs stayed constant while both the quantity –and quality– of backyard hogs fell.

 

Therefore, a long-term effect of this drought's uneven impact is that the proportion of hogs raised by efficient, hygienic and productive large-scale farms will rise, just as it did in China several years ago. However, the immediate impact of fewer and lighter hogs was to reduce the quantity of available pork. Amid shrinking pork meat supplies, live hogs sold at THB62-62.50/kg, with pork prices topping THB135/kg. No doubt they would have gone up even higher, if it were not for government price controls.