September 7, 2009
Thai swine gets lucky but faces challenges up ahead
Amid recession and H1N1 outbreaks, Thai's swine sector is enjoying a surprisingly good year. Over the longer term, it must abandon protectionism and up its game against an emerging Vietnamese competitor.
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by F.E. OLIMPO
Thailand's pork industry has always been a dizzying roller-coaster ride. So when the swine-flu scare hit in April, almost one year to the day since pork prices started having a good run, industry leaders were half-expecting it with an air of resignation. This time, the pork price crash, which typically happens every two years, seemed to be arriving unusually soon.
In reality however, hog prices held up far better than they could have hoped for. Numbers were already down when high late 2008 feed costs forced farms to cut back inventories. Unusually hot weather further slowed the growth in pigs bred for slaughter, causing hog inventories to drop. As a result, at the beginning of the swine-flu scare, pork prices were at a high of THB120-135 (US$3.52-3.96)/kg, with farm-gate hogs hovering around THB57-58(US$1.67-1.70)/kg. Nor did prices slip from this range.
Of course, while there was no empirical proof that eating pork had anything to do with H1N1 (a.k.a. "swine flue"), fear of the flu made consumers turn away. At the time, no local cases of swine flu had been reported, although it had already killed more than 100 people in Mexico, and caused scores of other cases in the US and New Zealand.
While the effect was more psychological than real, Internal Trade Department director-general Yanyong Phuangrach, expected local consumption and pork to fall. Industry leaders like Betagro Group executive vice-president Nopporn Vayuchote shared this grim view, saying that "corresponding consumer fears of a pandemic" would likely rattle the local market.
Expecting the worst, they could not help comparing the new threat to the 2004 bird-flu crisis when more than 60 million birds were culled across the country, not to mention the damage it caused to Thailand's raw chicken meat exports and domestic consumption, which fell to zero and shrank by about 20 percent, respectively.
"It took three to four months for the Thai business to return to normal," Betagro's Nopporn recalls. He was certain, however, that the effects of the swine-flu problem "would be shorter if consumers understand that the flu does not come from pigs and that swine are actually the victims."
H1N1 hikes poultry price, pork unaffected
On the whole however, things did not turn out to badly. Granted, initial panic over the epidemic certainly impacted domestic consumption, just as it did in other countries.
This was shown by the sudden rise in chicken prices following a surge in demand as consumers started shunning pork. Domestic prices of live broilers spiked upwards 35.2 percent to THB40-45 (US$1.17-1.32)/kg in May after languishing at THB30-32(US$0.88-0.94)/kg in February and March amid oversupply and weak demand.
But contrary to the industry's fears, the H1N1 outbreak did not bring Thai pork prices down. Although the outbreak has long since turned into a pandemic, pork remains near its peak of THB120-135/kg. The price is 15-20 per cent higher than during the same period last year, when it was Bt113/kg. Last year, when feed and fuel costs were high, producers reduced their inventories. Late 2008's inventory scale back helped stabilize pork prices amid the health scare.
The higher pork price, Mr. Yangyong explains, is due mainly to a lower numbers of piglets and higher feed costs. He expects the price to drop slightly later this year due to a greater supply of pigs after the dry season.
Disease used to justify protectionism
Despite this good fortune, swine flu was quickly used to justify a raft of protectionist measures. Ironically, while both government and industry professed hogs were innocent victims, Thailand quickly banned hog and pork imports from Mexico and the United States. This delighted local swine farmers, who have for years been urging the government to ban all hog and pork imports to protect the local industry. In particular, they have been seeking a ban on the imports of low-priced innards, which Thai swine-raisers say have a big impact on local pork prices.
Last year, the country imported about 1,000 tonnes of pig innards and 8,600 tonnes of pork skin. It also imported about THB400 million (US$11.75 million) of hogs and pork products, mainly from Denmark and the United States. Of this amount, pork-meat products comprised 2.8 tonnes worth 1.14 million baht. Every year, Thailand also imports 257 breeds of pig, such as the Large White and the Landrace breeds from America, Europe and Australia.
The pig import ban, of course, didn't help stop the spread of H1N1 virus, in Thailand, which, as of August, had reported 80 deaths, the highest number of fatalities in Asia Pacific so far. Yet Thailand has beefed up the ban by including Australian pig offal imports among those not allowed in the country.
The inclusion of Australian offal imports, interestingly enough, came months before Australia even had its first full-blown case of swine flu. In May, the Australian Quarantine Service complained that Thailand's decision was solely based on a, "suspected case of a novel type of influenzaâ€¦ in a person who had stayed in Mexico and tested positive on her return, but who had already recovered and was not a threat to others."
Mind you, Thailand was not the only country using H1N1 to justify protectionist measures. Government officials defended the action, saying Thailand was merely following the actions of 30 other countries that had banned pork, beef and even poultry imported from countries where human H1N1 cases had been detected. Having been long targeted in extensive Thai hog farmers' campaigns against pig offal imports, Australian swine farmers consider Thailand's explanation to be pure hogwash.
Although Australia rightly believes that the ban was done more for domestic political reasons than to protect health, Canberra does not come with clean hands either. In February 2007, at the request of Queensland, Australia's main shrimp-producing state, Australia banned prawn and shrimp imports from Thailand, supposedly after detecting white spot syndrome virus in a number of shipments. Thai shrimp farmers viewed the ban as politically motivated protectionism.
A missed export opportunity?
Going forward however, Thailand's swine sector faces challenges that protectionism cannot address. Yangyong says Thailand's 2009 production is projected to fall 18 percent, to 11.4 million pigs, compared to 13.9 million in 2008.
Thailand normally consumes 10-10.5 million hogs a year, with the rest being exported in the form of pork. Last year, the country exported 12,463 metric tonnes of pork, mainly to Hong Kong, in the form of frozen carcases, and Japan, as cooked products, at a value of almost THB1.9 billion. Although long lauded as an export frontier, overseas pork sales remain insignificant when compared with Thai poultry meat exports of 415,319 metric tonnes last year.
Low sanitary standards and side-effect outbreaks such as foot-and-mouth disease (FMD) severely limit exports. As a result, exports go mainly to Hong Kong, in the form of frozen carcases, and Japan, as cooked pork.
Despite their minor volume relative to chicken, industry leaders say that pork exports help stabilise domestic prices. While there have been sustained efforts to step up pork exports during the last few years, no significant progress is expected along this line this year, according to Dr. Yukol Limlamthong, director-general of the Department of Livestock Development at the Ministry of Agriculture and Cooperatives.
In the wake of a global economic crisis that reduced the purchasing power of consumers and foreign importers, the country's 2009 exports will not be any different from that of 2008, Dr. Yukol said,. He admits, in an interview with a US-based agribusiness publication, that the "outlook for profitability in pig production in 2009 is not particularly promising" given the rising cost of feeds amid declining domestic and global demand.
Overtaken by Vietnam amid waning exports
Yet, even before the swine-flu outbreak, Thailand had already been losing momentum with respect to hog production. It has in fact, according to Chris Jackson, an export promoter with the British Pig Association, lost to Vietnam its claim to the title of second-largest swine producer in Asia.
Previously, among Asian countries, Thailand only trailed China in terms of swine production. However, an economic crisis at home, jointly caused by the global financial meltdown and domestic political instability, caused a large drop in the incomes of local farmers. This resulted in less money to spend on quality breeds and pig-genetics services.
On the other hand, Vietnam is seeing sustainable growth in domestic pork consumption of about 5 per cent a year. While Thailand cuts back, Vietnamese farmers, supported by their government, are buying pig semen from the UK to improve their breeds, Jackson said.
This is not to say that Thailand's swine sector will just fall over. Being in the center of Southeast Asia, Thailand maintains a significant role as the trading centre for the region, particularly in the field of pig-breeding. Jackson cited the case of ACMC, the UK-based world leader in pig genetics, which has a production base in Thailand, while also maintaining a breeding unit in Cambodia. "We have used Bangkok as a centre to serve the Southeast Asia region," he said.
Besides, among countries in Asia, Thai pork products remain the most competitive, Dr. Yukol says. While the domestic pork line remains unrationalized, export-driven pork is based on the best genetics, fed the best feed, produced by highly professionalised farms and processed by state-of-the-art meat-processing facilities.
Unfortunately, while Yukol is correct, such relative advantages are fluid and ever changing. Vietnam is obviously playing a successful game of catchup. Most disappointing of all, after poultry and seafood, pork was long considered the next great export frontier. With lower wage Vietnam now breathing down its neck, the country needs to abandon its protectionist policies and step up the marketing of Thai pork to the outside world.
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