Structural Changes in Thailands Poultry Sector and its Social - - PowerPoint PPT Presentation

Structural Changes in Thailand’s Poultry Sector and its Social Implications

Viroj NaRanong

Thailand Development Research Institute

November 5, 2007

Overview of Thailand’s broiler

• With the ability to keep its price down

Nominal Retail Prices of Pork, Beef, and Chicken in Bangkok

20 40 60 80 100 120 140 160 180 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Bath per Kg. Pork Beef Chicken

Source: The Ministry of Commerce.

• Broiler per capita consumption has

increased steadily with GDP per capita

Figure 7 Broiler consumption (kilogram per year) and GDP per capita in Thailand

2 4 6 8 10 12 14 16 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 KG.

• 20,000

40,000 60,000 80,000 100,000 120,000 Baht broiler GDP per capita

Source : Thai Broiler Processing Exporters Association and NESDB.

Per-capita Meat Consumption in Thailand 1995-2006 (Kg.)

• 1

9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6

Source: 1995-2004 Rabobank/USDA/FAO 2005-2006 TDRI’s estimation based on OAE’s data and DLD’s formulae

• As the only significant exportable meat, its

production is even relative larger than

• ther meat livestock

Figure 3. Thailand Meat production, 1980-2005.

500,000 1,000,000 1,500,000 2,000,000 2,500,000 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

tonnes

• thers

Cattle meat Pig meat Duck meat Chicken meat

Source: FAO STAT.

Structural changes in the poultry sector over the past decade

• Technological changes which lead to

increasing scales of production (mainly the adoption of evaporative cooling house)

• Moving away from Contract Farming to

Vertical integration

Structural changes: From contract farming to vertical integration

Why contract farming?

• The companies (integrators)

– more flexibility in adjusting the volume of production to seasonal and irregular changes in both domestic and export demand. – Lower investment and adjustment costs (including cost of having idle capacity)

• The contractors (farmers)

– Less risky than normal agricultural production – Relatively lucrative in a “normal” year

Structural changes: From contract farming to vertical integration

Why moving away from contract farming?

• The companies’ (integrators’) choice

– to meet the increasing trade requirements: food safety and animal welfare.

• Five years ago, Nitrofurans and Dioxin were detected in

some lots of broilers imported from Thailand to the EU.

• Some major exporters switched most of their production

toward in-house production so that they would have better control on all the input uses. (“From farm to table”)

• Animal welfare requirements by most EU importers also push

them toward such a move.

– The most significant driver, however, was the HPAI

• utbreaks in 2004 and four recurrent outbreaks

thereafter.

The first four rounds of HPAI

• utbreaks
• The fifth round (early 2007) was also mild and

involved more grazing ducks than broiler farms

Impacts from outbreaks: Export

• Export of raw/frozen broilers has been

banned ever since

• Fortunately, some leading exporters had

already begun their precooked/further product lines

• Other exporters took a while, but are able

to follow the leader shortly

Thailand export value of poultry.

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Million Baht Frozen poultry cuts Prepared poultry Total

Source: The Ministry of Commerce.

Disease controlled measures: The long list

The list of the DLD’s disease control measures conducted in 2006 (see Box 1)

• Stamping out of animals in affected premises with 75% compensation (393,430 birds

destroyed)

• Disposal of carcasses and eggs, and infected/risk materials (e.g., litter, feed, egg

flats, etc)

• Disinfection of affected premises, all infected/contaminated materials and other risk

materials

• Quarantine and movement control
• Nationwide active clinical surveillance and notification for implementing disease

control once a case is suspected according to the current AI case definition

• Intensive surveillance (known in Thailand as “The X-ray Campaign”) for 3 rounds in

all at-risk areas during 1-28 February, 1 June-31 July, and 11-30 September 2006 (145,978 samples collected)

• Routine sampling prior to movement (a total of 522,072 cloacal swabs were

collected between January and October 2006

• Poultry restocking in the affected areas cannot be carried out until 90 days after the

completion of disinfection

• Ongoing long-term campaign on biosafety improvement
• Restructuring of free-grazing ducks to a housing system, registration and flock

identification for 7,333,987 birds of 3,109 owners

• Registration of fighting rings/arenas (2,400 holdings were listed)
• Identification of fighting cocks (248,877 birds of 107,163 owners were registered)
• No AI vaccination allowed

The most significant disease controlled measures

• (Initially) The mass poultry killing (63 millions in

2004—with 100% and then 75% compensation)

• Farms with opened housings are requested by

the DLD to upgrade to closed (evap-type) farms

– The DLD has not changed its formal farm-standards, though (there is still official standard for opened farm)

• (However) Farms that did not comply with the

request are not allowed to move their chicken

• ut or to restock the new batch of day-old-chick

New measures

• Biosecurity
• Compartmentalization (since 2006)

What happened to the farmers?

• We telephone-survey our 2002/03

TDRI/IFPRI/FAO SHE Study broiler and layer samples

• The samples in the previous study were

collected from several provinces to reflect divesrsity, but was not representative for the whole country

100.0 170 Number of Observations in 2003 50.6 n.a. 86 Unable to contact via telephone 4 9 10 26 34 48.8 100.0 83 Total Respondents 1 1 1** 1.8 3.6 3 New occupation not specified 2 1.2 2.4 2 Switch to retail business 3 1 2 1 4.1 8.4 7 Switch to Other Crops 2* 1.2 2.4 2 Rent the farm out (still being broiler farm) 1 0.6 1.2 1

• Fish Farm

1 0.6 1.2 1

• Cattle Farm

2 1.2 2.4 2

• Swine Farm

Switch to other livestock farming 1 0.6 1.2 1

• Layer Farm

1 1 1 2 2.9 6.0 5

• Duck Farm

Switch to other poultry farming 2 4 2 6 10 14.1 28.9 24 Stop operating the broiler farm 1 1 3.5 7.2 6

• Raise fewer broiler chicken than

in 2003 2 4 5 18 23 27.6 56.6 47

• Raise same number of broiler as

in 2003 1 2 1 1 3.5 7.2 6

• Raise more broiler chicken than

in 2003 2 5 8 20 24 34.7 71.1 59 Continue to operate the broiler farm n.a. L MH ML S Size % of 2003 samples %respon dents Number of farm Activities the Broiler Farms in our 2003 study do in 2007

broiler farms

• We were able to contact 49% of our 170 samples
• Among the respondents,

– 71 percent continue to operate on their broiler farms

• Over a half operate the farm of the same size as they did in 2003, with about

7% expanding and another 7% decreasing their farm size.

– Among the 29% who discontinued their broiler farms,

• 6 out of 24 respondents switched to another type of poultry farm (duck or

layer)

• 2 have rented their broiler farms out, presumably to other broiler operators.
• The great majority of the broiler farms are still in poultry business.
• Of those minorities who left the poultry business,

– 4 are still in the livestock business. – 7 switched to crop farming. – A few moved out of agriculture (retail business).

• Large broiler farms in our samples also affected adversely (4 out of

9 left the poultry industry).

Table 12 What the Layer Farms in our 2003 study do in 2007: A Telephone Survey Result

Source: Telephone survey by TDRI, March 2007 Large (L) = >20000 Small (S)= 1-5000 , Medium Low (ML) = 5001-10000, Medium High (MH) = 10001-20000 Note: Number of Observations in 2003 are 97 farms 100.0 n.a. 97 Number of Observations in 2003 59.8 n.a. 58 Unable to contact via telephone 14 8 11 6 40.2 100.0 39 Total Respondents 1 1.0 2.6 1 Non-Agriculture 1 2 3.1 7.7 3 Other Agriculture 1 1 2.1 5.1 2 Swine Farm 2 2 4.1 10.3 4 Fish Farm 1 2 3.1 7.7 3 Eggs Retailer 1 3 5 4 13.4 33.3 13

• 2. Switched to other activities

6 3 4 2 15.5 38.5 15

• Raise fewer chicken than in 2003

2 2 2 6.2 15.4 6

• Raise the same number of chicken as in 2003

5 5.2 12.8 5

• Raise more chicken than in 2003

13 5 6 2 26.8 66.7 26

• 1. Continue to operate the layer farm

L M H ML S Size % of 2003 sample s % respondents Number of farm Form

Layers

• Similar result to broiler
• Most respondents who discontinued their

layer business moved to another livestock

• r other agricultural acitivities.

Futures of Small holders ?

• Even before

the HPAI

• utbreak in

2004, the future of small holders in the poultry sector looked bleak. NB: Data from 2002/03 survey (estimation of profit frontier function)

61 55 52 Layer Large >50,000 Medium >10,000– 50,000 Small <=10,000 Farm Size (Number

• f birds)

N=97 87 88 71 49 Broiler (contracted farms) Large >20,000 N=18 Medium High 10,001– 20,000 N=27 Mediu m Low 5,000– 10,000 N=51 Small <=5,000 N=74 Farm Size (Numbe r of birds) N=170 % of maximum profit efficiency

Futures of Small holders after HPAI

• utbreak?
• If anything, the gap between large and small farms tends

to be widened over time.

• Some small holders’ advantages in the past—such as

having lower investment cost in housings and sometimes getting higher prices of chicken stool or can use it more productively to feed the fish stock in a pond beneath the chicken house, have ceased to be their advantages since they are required to upgrade to evap-type housings to deter the HPAI epidemic.

– Practices like opened farm and farm over fish pond were deemed “risky” and were forbidden in most areas. – In many areas, chicken stool has become a liability rather than a valuable asset it once was.

Futures of Small holders after HPAI

• utbreak? (2)
• Smaller contract farms with opened housings also

required by their patron to upgrade their poultry housings after the outbreaks.

• Those unable to comply had to stop being contractors.
• For those who were able to comply, many were

contracted only on a rotating basis, due to the decreasing demand.

• Some were offered--by their original patron, a duck

contract instead of a broiler contract.

– Compared with a typical broiler contract, the duck contract is generally less lucrative—partly because of the longer raising period, worse feed conversion ratio, and lower number of birds per batch.

• Most contractors who were offered the duck contract

settled for it because otherwise they would have to leave their housings unused.

• Still many former contractors were not offered any

contracts at all.

• Faced with these problems, some farm owners

remodeled their chicken housings to raise swine instead.

• Other farms (of all sizes) switched to other livestock or

non-livestock professions.

• There remains some idle capacity, but the usable idle

capacity is probably much less than the 30% estimated by some “experts”

Trend of Thailand’s Poultry Sector in the Future

• The HPAI outbreaks have been the most important factor to shape

Thailand’s poultry sector in the past few years.

• Strong and devastating as it has been, the HPAI is unlikely to

determine the future of Thailand’s poultry industry.

– The structural change has almost completed and is unlikely to be reversible. – the adjustments go on, but at a slow pace rather than a massive change that would affect the poultry sector drastically

• Thai broiler industry will go on with higher levels of

industrialization, more vertical integration

– Most large integrated firms will include food processing as a part

• f their operation.

– The higher degree of industrialization and vertical integration will make it easier for the poultry industry to comply with the foreign importers’ food safety and animal welfare requirements, making these problems less important issues for the industry in the future.

Trend of Thailand’s Poultry Sector in the Future

• As things tend to return to “normal” poultry

business, the future of the industry will be shaped mainly by basic drivers, such as feed supply and demand.

• Another significant trend would be that: the

industry’s movement toward replacing chemical protection—such as antibiotics, antiseptics, or even vaccination, with biosecurity and compartmentalization will gear this industry toward more integrated industrialization.