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Ministry of Agriculture & Rural Development
CARD Project 030/06 VIE
Developing a strategy for enhancing the competitiveness of
rural small and medium enterprises in the agro-food chain: the
case of animal feed

Thailand Study Tour Report
June 9-13, 2008

Date: December 1 2008

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1. Introduction

The study tour was organized in June 9-13, 2008. (See Appendix I for the working
schedule in Thailand). The delegation included a policy maker representative (from the
Department of Livestock production), a representative from a technical research institute
(Agriculture Research Institute for Southern Vietnam), a representative from a SME in the
animal feed sector and the research team members from CAP/IPSARD and UWA (see
Appendix II for the list of participants).

The study tour aimed at understanding:
• Livestock feed production in Thailand
• Participation of SMEs in the livestock feed sector in Thailand
• Role of public policy in the livestock feed sector in Thailand

The study tour was organized by CAP research team members, with the support of
technical advisors from UWA. Mr.Teerasant Sirichayaporn, Executive chairman of the

protein products such as soybean meal, soybean, some fishmeal and bone meal. SMEs can
have an advantage in proximity to raw materials – buying rice meal, molasses from the
local area (and even rejects from pet feed). For example, the Mualek Dairy Cooperative
sources all raw materials locally (except for some soybean meal from Argentina) – and

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look for the cheapest good quality ingredients – to keep the cost of the feed as low as
possible. They listed their raw materials as:
• wheat bran – from Thailand
• palm kernel – from south Thailand
• cotton seed – from north Thailand
• soybean meal – locally and from Argentina
• cassava – locally
• corn – locally – they contract farms for corn production
• coconut meal – south Thailand

Brokers go from mill to mill to collect waste products – but feedmills using these raw
materials cannot produce feed for GMP (accredited “good management practices”) pork.
SMEs use whatever they can find – they can’t compete for usual raw materials. The SME
has to work out “what are we going to do with this SME?” They can be “niche producers”
using “niche raw materials”. They need to look at the market and provide a service to
farmers.

2.2 Supply chain

There is a high degree of vertical integration in the large companies – from contract
farming of raw material products such as corn, through to livestock production and food
processing.

The number of feedmills in Thailand is relatively stable – there are not many new

four parameters for each type of livestock feed – protein, moisture, fat and fibre
percentages. These are the minimum requirements for registration of a commercial
formulated feed – and all products must be registered with the DLD and the percentages
specified (that will be in the label). There is a registration fee of 1000 Baht/every feed
product.

DLD are responsible for testing of these products and there is a specified protocol for
testing. Random product samples are taken from all mills at least 3 times per year. Each
sample is divided into three – one for the DLD laboratory for testing, one for the DLD (in
the case of disputes) and one kept by the mill. The cost of testing of these official tests is
borne by the DLD – 4000 samples at 2000 Baht/test – a total budget of 8 million
Baht/year. Testing is carried out in the DLD laboratory. The testing follows a specified
protocol (for Group A and Group B residue substances – see DLD handout), as well as
testing each sample to see if it meets the product registration. This is possible given that
there are only 4 nutrition parameters to test (unlike the 15 required for registration in
Vietnam – for which the Vietnamese DLD does not have capacity to test). Other
regulations relating to feed safety are the responsibility of the feed mills.

The DLD is not responsible for implementing the penalty/punishment procedure. If the
product fails the test, the mill and police are informed and the matter may go to the Court.
A fine or prison sentence may be imposed – but usually a fine. The highest fine has been
50,000 Baht.

The mills are expected to keep regular records of their testing procedures and these are
inspected by DLD officers. There is a cooperative approach to feed quality control (part of
GMP and HACCP procedures).

2.3.2 Promoting GMP and HACCP systems

The DLD is encouraging mills to have accredited GMP (Good Management Practices) and


According to the Thai Feed Mill Association these prices have been largely unchanged
since 2003, but they have now coordinated a request to the government for an increase
(because of rising raw material prices) that is currently under consideration.

The Thai Feed Mill Association says that the price increase for each feedmill is considered
on its own merits – even though it seems they play a major role in the application process.
The Association also indicated that some small mills operate outside this price control
system – but it could be safely assumed that they would not be charging high prices for
their products.

2.5 Role of Thailand Feed Association

The Thai Feed Mill Association (TFMA) has 56 members who pay a membership of
20,000 Baht/year, independent of mill capacity. Members produce 70% of livestock feed
in Thailand. The TFMA describes itself as a “service organisation” – assisting members by
providing information and training. Members can “exchange information and discuss
difficulties”. They also say they are “a one stop shop for Government – we have all the
information” – and appear to act as a lobby group for the larger feedmills to government,
mentioning that they “propose policies”.

The Association has three working groups – raw materials purchasing, feed marketing and
technical (quality) committees. They appear to be highly influenced by the larger mills,
particularly the CP Group – both the current President and Secretary of the Association are
employees of CP. The FAO Regional Office alluded to this.

The TFMA appears to be co-ordinating an application to the Ministry of Commerce for a
rise in the selling price of commercial feed – although they say prices will vary depending
on the individual mill situation – a “company-by-company” submission.


establishment cost of 40 million Baht. They produce pelleted and ground feed – roughly
50% of each. The products are “guaranteed” by the DLD (we assume this means the
product quality). The capacity of the mill is 10T/hr and production is 1700 T/month. This
makes it a small-medium mill by Vietnamese standards. Products are “made to order” and
not generally stored for more than one week.

3.1 Challenges facing SMEs

When asked about challenges facing their mill the manager of Thai Feed Mill Company
replied “maintaining our sales volume – we must sell above the breakeven point”. This
positive marketing approach is very different to the typical responses from Vietnamese
mills when asked about challenges.

3.2 Advantages of having SMEs operating in the sector

According to Thai Feed Mill Company, they feel they have an advantage being smaller in
that they can sometimes buy small quantities of raw materials on the local market more
cheaply. Raw materials are about 80% of the cost of their products. Normally they keep a
one month inventory – but at the moment “it is different” (because of the recent increase in
raw material prices). Their strategy is to buy quality raw materials from merchants in the
provinces. They have educated the up-country middlemen – “they must make the raw
material product up to our standards.”

3.3 Feed quality of SMEs

Thai Feed Mill Company is also “serious” about quality control and have an adequate
laboratory with NIR analysis equipment. The DLD people with us on the trip said that
“some of the laboratory equipment is a bit old.” They appear to work closely with the
DLD on feed quality monitoring.


Industry can provide loans to SMEs (at rates of 2% lower) and “interest holidays”. The
SME business bank will fund SMEs – those that have “a business plan” and meet the
criteria of “one district one product” (the Mualek Dairy Cooperative had this slogan at
their feedmill). There is no government-provided storage for raw materials. The DLD
officer thought that the “private sector is much better for this”.

The Thai Government controls the price of animal feed (see earlier). Government has not
applied the “overquota” tax rate (119%) on soybean meal for a number of years, even
though the import quota is routinely exceeded. An application for exemption is made each
year by the Thai Feed Mill Association. VAT for ingredients and feed products is 0% -
considered a “special business” (agricultural business).

The Thai Feed Mill Association gets support from the Ministry of Commerce – e.g. can
hire a consultant to help SMEs upgrade plant (technical advice), and check “calibration”
(of feeds).
Additonally, the Thai Government compensates 75% of market value for livestock that
have to be destroyed because of disease.

5. Policy issues for Vietnam raised by the FAO Regional Livestock Office

The FAO office considered that SMEs in Vietnam currently face great difficulties in light
of the devaluation of the dong, high interest rates and high inflation rates. Tax and interest

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holidays might be needed if small businesses are to survive. Domestic investment will
become more difficult as credit is tightened in an effort to control inflation.

The CP Group is planning a substantial expansion in Vietnam. Foreign investment is
favoured by the devaluation of the dong. CP has 4 plants already in Vietnam but will
invest US$30 million to upgrade capacity by 600,000 T/yr – starting in early 2009.

VAT. The same situation happens in China. This should be a good policy for encouraging
the production and reducing the price of animal feed.

Additionally, the Thai government controls the price of animal feed which is an interesting
policy idea for Vietnam to reference.

6.2 Lessons applicable to SMEs

Attitude toward challenges and external shocks: It appears that the marketing approach of
SMEs in Thailand is rather positive. Instead of waiting for support from government or
elsewhere, they focus on how to sell above the breakeven point. 9
Feed ingredients: Try to source material locally, as much as possible, look for the cheapest
good quality ingredient with the cost as low as possible. This needs to be considered in the
case of Vietnam because Vietnam has capacity to produce raw materials for livestock feed.

Seek niche opportunities: SMEs can always find a “niche market”, being “niche
producers”, using “niche raw materials”: in other words, there are always markets for low
and high quality feeds. SMEs can compete on price and after sale-services for farmers.

Cooperative structure: The form of Mualek cooperative is also a good example for
Vietnam feed industry to learn. The cooperatives with multiple services supplied to
members by the Mualek cooperative could work in Vietnam.

6.3 Possible role for the Vietnam Feed Association

Through information attained from Thailand Feed Association, it is possible for the
Vietnam Feed Association to learn from their experience to play a more active policy role.

e-mail - [email protected]

Mobile : 081-567-8101
Thai Feed Mills (Saraburi) Co.,Ltd.
35,Moo 8, Phatthanapong Road,
Tambon Tontal, Amphoe Saohai,
Saraburi Province 18160, Thailand.
Tel : 036-222-260-4 Fax : 036-222104
Thursday (June 12)
9:30 at the Mill
(whole day trip)
Muaklek Dairy
Cooperative Ltd
Prof Somkiat
Prasanpanich from the Department of
Animal Science
in Saraburi
9:00 -11:00 FAO-UN
Regional Office for Asia
and the Pacific
Vishnu
081-6442329 (local call) or 06681-
6442329 (from overseas).
39 Phra Atit Road
Bangkok 10200
Thailand
Friday (June 13)
14:00 – 16:00 Thai Feed Mill
Association


reported by FAO (2004) around 1,000 million tonnes of animal feed is produced globally

every year, including 600 million tonnes of compound feed (FAO 2004). As of 2004, more
than 80 percent of this feed was produced by 3,800 feed mills, and 60 percent of the world
total was from 10 countries.

During the 1960s and 1970s, the majority of the Thai population was involved in an
agricultural activity and its share in GDP was up to 36 per cent. In the late 1990’s this share
was reduced to just over 10 per cent although, 50 per cent of the labour force was still
involved in agriculture. Physical limits of arable land, however, have forced Thailand to shift
from extensive to intensive farming systems with public investment consisting of
infrastructure development and provision of supporting services and with private sector
investment focusing on on-farm development and the use of high payoff inputs.

To increase the value of agricultural produce and hence returns, and to reduce the risks and
uncertainty associated with agricultural production, agro-industry has been introduced, first to
supply the domestic market, and second to cater for overseas demand. The overemphasis on
growth without equity has deprived the marginal rural villages of their right to also enjoy the
national prosperity and so has turned the attention of the macro planners from large scale
production to smaller facilities.

During 2000, a program entitled Agricultural Production Quality Standard and Management
Improvement was financed by the ADB Agriculture Sector Program Loan (ASPL) enabling a
number of agro-industrial plant initiatives to begin. Examples are projects to construct rice
mills, smoked rubber plants and animal feed manufacturing plants. Eight regional central
cooperatives markets, two in each of the four regions were designed to act as regional outlets
for all the 770 central cooperative markets at the sub-district (Tambon) level scattered all over
the country. Growth in agro-industry production and exports along with the emergence of
large- and medium scale private producers of agro-industrial products, also provides rural
families with an opportunity to participate as contract producers.

and fish; chicken and pig breeds; equipment and medicines for animals; broiler
production; chicken-raising promotion; and the animal feed import and export business.
Animal feed production is one of CP’s major activities with over 100 plants in China, just
under 20 in Thailand as well as a number of new plants in the various neighboring
countries in the Mekong Sub-region.
• Apart from CP, several other large and medium food-processing companies have emerged
and include manufacturers of animal feeds. These large and medium agro-industrial firms
have contributed to the rural sector by increasing employment of the rural labor force
working for them and those engaged in their contract farms.
• In countries such as Thailand and Vietnam where there are many isolated farmers with
limited access to transport, appropriate spatial organization of agricultural industries will
be different to those countries where animal production is closer to the big cities and or
ports – infrastructure is important.
• Larger feed mills may be more efficient and produce better quality output but may not be
competitive in some isolated regions in places such as Vietnam or Thailand.

Concerns in the livestock feed sector in Thailand
• There is a heavy and increasing reliance on soybean meal and fishmeal with increasing
concerns being expressed about the costs of these imported inputs.
• Corruption is generally an issue in east Asia. In 2005, the Corruption Perceptions Index of
Transparency International gave a rating of 2.6 to Vietnam, on a scale of one to 10 where
10 corresponds to the highest integrity standards. Most other countries in the region
received higher grades, including Malaysia (5.1), Korea (5.0), Thailand (3.8), Laos (3.3)
and China (3.2). Only the Philippines (2.5) and Indonesia (2.2) appeared to be more
corrupt. Yet, according to a recent Investment Climate Survey (ICS), corruption is less
severe in Vietnam than in any other developing countries in the region, save Malaysia.
• Rising prices in raw material prices for livestock feed products.

SMEs in Thailand
• Definition: 100m Baht and below for capital-intensive firms, less than 200 employees for

Rising prices for grains – current situation and outlook
• Wheat, maize, rice, and palm oil prices are at record levels. While gains for maize prices
seem to be leveling off, wheat and palm oil (both important commodities for food deficit
low income countries) prices are continuing to strengthen.
• Meanwhile most developing countries, including Thailand, are trying to introduce policy
measures to bring down prices (banning/taxing exports, lowering import duties), and to
shelter vulnerable consumer groups from rising prices (vouchers, targeted subsidies to
urban poor). Thailand today announced setting aside (through distribution quotas) low-
priced 5-kg bags of rice for vulnerable consumers. All of these interventions, however
and unfortunately, will lead to higher price volatility.
• Strangely enough, meat prices (with the exception of poultry) seem not to show the
impact of higher feed prices. However, poultry prices are near double the AI-affected
prices (adverse consumption response to AI outbreaks in mid-2006). If you look at
poultry prices, the impact of AI around the world has really put prices on a roller coaster.
US chicken cuts export values are currently near $1000/tonne while Brazilian prices are
$1,700 (supported by high value cuts going into the EU in the context of a WTO-induced
reduction in tariffs). It is expected that meat prices will start rising over the course of
2008 (except pigmeat in the major exporting countries where farrowing levels in 2007 has
resulted in surpluses that are building up in stocks).