Saha Farms's production restart overwhelms export growth, deflating prices and returns A ban on US grandparent stock will constrain supplies, boost 2016 prices and profits Cruel working conditions cast a dark cloud over reputation of Thai broilers exports

While it has not been an easy year for Thailand's poultry sector, they can still choose to make the future harder on themselves.

 

 

 

Over the medium term, with Saha Farms restarting production after coming out of bankruptcy, the supply vacuum created by its shutdown two years ago has now turned into an oversupply. Due to its economy-stopping political crises, domestic chicken consumption is only up 1.8% or 19,000 tonnes in 2015 and is only 30,000 tonnes or 2.9% in the two years since 2013 when Saha Farms entered bankruptcy.

 

Exports jumped a healthy 15.1% or 76,000 tonnes over those two years, including a healthy 6.2% or 34,000 tonne increase in 2015, to 580,000 tonnes. In particular, Japan and the EU absorb 86% of Thai broiler exports and saw their 2015 shipped volume increase by 9%, to a USDA estimated 500,000 tonnes. 

 

Unfortunately, with Saha Farms post-bankruptcy re-start bloating this year's chicken production, the combined 106,000 tonne increase in consumption and exports is swamped by a 150,000 tonne increase in chicken meat produced over these same two years.

 

As a result, by December, domestic chicken prices were more than 20% of their level at the start of 2015. This left large integrators with no profits while smaller operators were running net losses. Going forward, early 2016 will see returns bottom out, but with limited prospects thereafter.

 

On one hand, America's bird flu outbreak made Thailand ban imports of  US grandparent breeding stock, upon which its broiler production depends. At the time of publication, this ban had not been lifted. At the very least, this implies that broiler output will stay unchanged at 1.65 million tonnes.

 

However, if the ban is not lifted soon, output could fall by 3% to 5%, into the 1.55 to 1.60 million tonne range. With export demand staying strong, domestic consumption steadily growing and feed costs falling, this should give a 15% boost to prices and restore profitability.

 

 

 

On the other hand, integrators badly need to move their chicken processing practices —and public image— upmarket. In late November, international media outlett reported that workers preparing processed chicken for export face brutal, violent, slavery-like working condtions. A November 25 2015 Reuters article ("Migrants processing Thai chicken exports abused, exploited —researchers") reported allegations by NGOs Finnwatch and Swedewatch that, "Migrants processing Thai chicken for its biggest export market, Europe, face widespread abuses by their employers."

 

A November 26 Bangkok Post article ("Migrants processing Thai chicken abused, exploited.") quoted Swedewatch investigator Kalle Bergbom. According to Bergbom, the abuse begins with, "extortionist recruitment fees" designed to keep workers, "in a debt bondage situation." Reported abuses included, "child labor, withheld overtime, violence inflicted by supervisors, insufficient annual leave, salary cuts, substandard wages, management cover-ups, deportation of pregnant workers and forced overtime."

 

Most damning of all, two of the six investigated chicken processing plants were controlled by leading exporter CP and another by its rival, Saha Farms. It follows reports several recent reports of cruel worker treatment —and even enslavement— in Thai owned fishing boats and shrimp processing plants.

 

If Thailand was exporting chicken to brutal nations indifferent to human rights, all this would not matter. However, with 80% of its exports going to Europe or Japan, wealthy consumers all over the world are now aware of Thai poultry's brutal human cost: In mid 2015, the EU threatened to ban Thai meat and seafood imports if human rights abuses continue.

 

On one hand, Thailand had no control over bird flu outbreaks that make US breeding stock unsafe to import. It was inevitable that sooner or later, Saha Farms would resume operations and create today's depressed market conditions.

 

On the other hand, Thai integrators have now repeatedly denied being "unaware" of abusive, slavery-like conditions in their feed-to-meat supply chains. To the outside world, it looks like a technologically advanced poultry exporter is seeking acceptance by wealthy, upmarket consumers —while exploiting or even enslaving the very people who process its exported chicken.

 

One thing is for sure: Thailand cannot remain a, tech-savvy upmarket chicken exporter to First World countries while persisting in despicable, downmarket mistreatment of its agribusiness workers. If Thailand's broiler sector does improve its treatment of laborers, it risks losing its good reputation and could find its chicken exports being shunned, or even banned.