FBA Issue 32: May / June 2010
Thai poultry: Doing everything right, with no reward in sight     
Thailand's highly competitive, world leading poultry industry is facing a crisis of unprecedented proportions. What is most sad about the situation however, is that this crisis is a by-product of international politics more than a reflection of the industry's competitiveness, which continues to be world leading. Indeed, this is a classic case of doing everything right and having nothing to show for it.
Output rises, demand falls amid political chaos
For the first time since the 2004 Asian bird-flu crisis, Thailand's chicken shipments last year fell by 1.1%, from 401,494 tonnes in 2008 to 397,069 tonnes.  In baht terms, due to the falling price of chicken, the drop was a deeper 4.9%, THB5.54 billion (US$169.9 million) to THB5.27 billion (US$161.7 million). Given the global recession's severity, these declines in themselves were not unexpected. In fact, Dr. Anan Sirimongkolkasem, president of the Thai Broilers Exporters Association, was expecting a more severe fall of 5% to 8%. 
All this comes in the year following the first four months of 2009, when live Thai birds were sliding to as low as THB27-28/kg. With the global recession at its worst, overseas chicken prices had fallen to low levels.  In Europe, broiler prices dropped to as low as US$2,500-4,000 per tonne, from US$5,000/tonne a year earlier. In fact, according to Dr. Anant of the Thai Broiler Processing Exporters Association, the price plunged to as low as US$1.300/tonne at the start of the financial turmoil in January 2009. Prices have since recovered somewhat but political export barriers remain.
Yet, what really matters is the political and export backdrop of this demand drop. In late 2009, antigovernment protesters seized Bangkok's two international airports. This did not merely cut off the country from the outside world. The airport closures came immediately after a paralyzing strike by port workers, which left tonnes of inbound and outbound shipments stranded.
For several weeks, importers of Thai poultry wondered whether the country was even in a position to honor its export commitments.  In March, demonstrations of over 100,000 people demanded that the present prime minister resign. That was just the latest chapter in an intensifying, five year history of political street theatre and unconstitutional actions.
Amid this anarchic landscape, domestic and overseas poultry demand was in a downward spiral even as output approached its historical peak of 18-19 million birds a week, up from only 14-15 million a year earlier. The result has been an increase in supply and a price slump. The reader may rightly ask, 'why did poultry producers raise production in such a depressed, chaotic environment?' The answer has much to do with a reasonable expectation:
Given the restrictions on frozen chicken, Thailand targets to export 400,000 tonnes of mostly cooked chicken worth THB 53.8 billion (US$ 1.65 billion) this year. Because of the false hope of an early return to the raw chicken exports, local players had been boosting production during the year. Apart from Saha Farm, Betagro, CP and GPFT, now the county's top three chicken exporters, had also expanded their facilities and even increased production to get ahead of competition. 
Fully cooperating with the World Organisation for Animal Health (OIE), Thailand became the first country in the world to adopt a biosecurity-based poultry farming system. Called compartmentalisation, it creates zones where chickens are raised totally insulated from conditions outside.
The government was hoping that Japan and Europe, its two top chicken buyers, would be impressed by the fact that it complies with toughter livestock rearing standards than anything found in the west. It was confident that they relax their bans on raw chicken imports from Thailand, which have been in place since the 2004 bird-flu epidemic. Since that disastrous 2004 outbreak, Thailand had never had any serious bird-flu attack. To remedy the damage done, the Thai government did everything demaded by importing countries so that it would be able to export frozen poultry meat again.
EU, Japan ignore world leading efforts
At this time, compartmentalisation has been in place for about two years now, yet the ban on Thailand's frozen chicken exports continues. Last year, everybody seemed optimistic and excited about the prospect of resuming frozen chicken shipments to the world. Having been cleared by OIE a year earlier, everybody thought it was simply a matter of days, or perhaps months, before everything returned to Thailand's pre-2004 glory, when it was one of the world's leading fresh chicken exporters.
Given Thailand's full compliance and non-use of EU-banmed antibiotic growth promoters (AGPs ) in exported poultry, both government and industry had every reason to feel confident. At the same time, if the ban was removed, extra chickens would have to be raised in advance to take advantage of the export opportunity.
Hence, late last year, anticipating a resumption in raw chicken exports, Saha Farms refurbished its THB9-plus billion (US$276.1 million) poultry complex in Phetchabun. "It took us one or two years to recover from the situation and now I think we're fully recovered and are ready to regain our market share," said Dr. Panya Chotitawan, the 78-year-old chairman of Saha Farms Group.
Like many others in the industry, Dr. Panya had wide-eyed confidence in the OIE as the last word in chicken safety. Having strictly complied with the OIE guidelines, Saha Farms believed it would back in export business that year. It did not happen, nor is it likely to happen anytime soon. As the executive vice-president of Charoen Pokphand Foods (CP), Teerasak Urunanon, himself admits, Thai poulterers realized too late that foreign governments do not like to be rushed with respect to issues as politically dicey as food safety. 
As the "compartmentalisation" idea itself came from the OIE, which is dominated by policymakers from EU countries, Thai poultry industry executives believed that the EU would readily abide by it. The result of such misplaced trust is a huge oversupply of for-export chicken amid a stagnating domestic market incapable of handling the glut.
Hence, while Thai poultry made a brave s how of doing its best by establishing a niche for itself in European and Japanese frozen meal lines, Brazil and China are carving up its former share of the far larger frozen chicken market.
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