Robust growth in the demand for meat in the last two decades in the Philippines has been propelled mainly by continued high population growth rates, at about 2.3% per annum (NSCB, 2000) and the rapid rise of urbanization, particularly in the provinces around the National Capital Region (Metro Manila), covering the regions of Central Luzon and Southern Luzon. There are also major urban centers in the south, Metro-Cebu in the Visayas islands, and Metro Davao in the southern island of Mindanao. Demand growth for meat has been impressive, even with modest and often interrupted improvements in per capita incomes.
The livestock sector (including poultry) almost single-handedly carried the lagging agricultural sector into positive aggregate economic growth, almost doubling its share in total agricultural value-added within a span of 20 years. The growth points in the livestock sector were mainly the hog and poultry industries, which accounted for about 85 percent of meat output in 2000 (Government of the Philippines, Bureau of Animal Statistics, 2002). The growth performance of these two sub-sectors occurred during a period of rapid changes in world and domestic market environments and policies, and was also influenced by the shifting political economy within the Philippines of livestock and feed grains.
Other recent developments affecting livestock producers include growing social pressures against the adverse public health and environmental impacts of intensified production in the increasingly densely populated urban and peri-urban areas. Developments in the food service industry, more specifically in the institutional markets for broiler chicken meat (i.e., fast-food chains, hotel and restaurant institutions), underlie a rapidly emerging demand for food-safe meat, especially in major urban areas.
4.1.1 Philippines Trade Policy Response to a Changing Global Environment, 1980-2000
The movement toward greater openness to overall trade in the Philippine economy has considerable long-term significance to the livestock sector, although special exemptions have delayed seeing the effects. The movement for overall trade liberalization was driven both by external pressures and internal policy initiatives to achieve greater efficiency and competitiveness in the international arena. The Import Liberalization Program (ILP) and the first Tariff Reform Program (TRP-I) in the early 1980s were twin components of the Philippines structural adjustment program (SAP) under the auspices of the IMF and the World Bank, designed to address major internal and external economy-wide imbalances.
The pursuit of subsequent trade reforms in the latter half of the 1980s through the 1990s, however, were attempts by the political leadership to shed the image of the Philippines as the ‘sick man of Asia’. Trade reforms were embodied in a series of Executive Orders (EOs) and Republic Acts (RAs) involving the scaling down of tariffs, particularly in manufacturing products, narrowing the protection wedge between sectors, reducing the number of tariff tiers, and raising tariffs for erstwhile penalized sectors such as agriculture. These embodied the second and third tariff reform programs in the 1990s (TRP-II and TRP-III). The series of trade reforms had the impact of the switching of the pendulum of protection between industry and agriculture. The effective rate of protection to agriculture on average exceeded that of industry for the first time in 1995.
In the 1990s, there were two major trade agreements that would shape the levels and character of trade protection for the livestock industry. These were the 1992 Agreement on Common Effective Preferential Tariffs (CEPT) among members of the ASEAN Free Trade Area and the 1995 WTO Agreement on Agriculture, followed by the WTO-associated Sanitary and Phyto-Sanitary Agreement (SPS) and the revised agreement on the Technical Barriers to Trade (TBT). The ASEAN-CEPT agreements allowed the Philippines to classify meat into the ‘Sensitive List’ of commodities, whose liberalization only needed to commence in 2009. The following WTO Agreements specified minimum access volumes (MAV) for imports of meat products and for an important feedgrain, maize, and set very high out-quota and even in-quota tariffs on poultry meat, pig meat, and on maize, among other ‘sensitive’ agricultural products.
In general therefore, the pattern of trade policy with respect to livestock and feed grains was one that was influenced heavily by the political economy of the times. For the hog sector, nominal tariff protection of output in fact increased from about the 5-percent level in the early 80s to around 30 percent by 2000. In the broiler chicken sector, policy had attempted to unify the rates with the hog industry, starting with a 50-percent tariff in the early 1980s. Effective protection was in fact much less, due to tariffs of the order of 60-100 percent on feed grains during the same period, and the fact that feedgrain accounts for more than half of production costs. The scaling down of nominal and effective tariffs over the years was derailed with the ratification of the WTO Agreement that incorporated the previous mentioned exceptions for sensitive sectors, where the protection on poultry was raised to 100 percent for out-quota imports. The same were done for pig meat, and imported maize was taxed at 60 percent. By the year 2000, the poultry industry still maintained an edge in tariff protection over the hog industry. By and large, the direction of trade liberalization in agriculture was not unidirectional. The character of trade reform was at best one of ‘partial liberalization’. The stakeholders in the hog and broiler industries, however, had differential capabilities in dealing with the distortions created by partial liberalization.
4.1.2 Adjustments to Policy and Market Changes by Smallholders and Commercial Producers in the Hog and Poultry Industries
4.1.2.1 The Hog Production Sector
In the hog sector, smallholder production continued to grow; by 2000 about 77 percent of hog inventories were still classified as held in ‘backyard’ farms. Backyard livestock farms are defined by the Bureau of Agricultural Statistics (BAS) as farms holding not more that 20 head of adult-equivalent animals. This is consistent with a holding of from 1 to 4 sows, undertaking farrow-to-wean operations, selling piglets as outputs to either the neighboring producers or to village traders (viajeros). It could also refer to the holding of 1-2 sows, undertaking farrow-to-finish operations, and selling finished live hogs to the viajeros or to the public wet market meat dealers.
Backyard production systems, however, have evolved over the past 15 years into operations that are highly integrated into the commercial feeds market as well as into the markets for live hogs mediated by the viajeros. The other significant transformation to note is the evolution of smallholder farms with up to 80 head of finishing hogs, even more tightly dependent on the commercial market for mixed feeds and on the market for finished pigs.
The third major development in the hog sector is the emergence of commercial operations, particularly in the provinces on the periphery of Metro Manila. In Central Luzon, commercial hog inventories have long outstripped the aggregate importance of backyard herds, and in Southern Luzon commercial inventories already match those in the backyards. Although backyard production in these two regions has continued to grow steadily, the rate of growth of the commercials has been phenomenal.
A major transformation is also occurring within the commercial hog sector. This refers to the increasingly sophisticated integration of breeding, high-quality internal feed formulation, farrow-to-finish operations, and HACCP-compatible slaughtering and processing of branded products by the very large commercial companies. Growing and finishing operations are done at decentralized sites, either as company-operated farms or through contract production schemes, typically in 400-head modules. The integration of large-scale operations is leading to the development of increased capacity for these established firms to respond to the growing demand by institutional markets for certifiable and traceable food-safe meat products in the Philippines. This is not matched on the small and medium scale operations and may limit their marketing options in the future.
4.1.2.2 The Broiler Chicken Production Sector
In contrast to continued smallholder production development in the hog sector, the broiler chicken industry in the last two decades has evolved into a highly concentrated industry of six (6) very large, vertically-integrated companies engaged in breeding, feed formulation, contract-growing, internal and/or toll dressing consistent with HACCP procedures, and processing of branded meat products. The six integrators now account for about 80 percent of the output of the commercial broiler industry. Furthermore, the integrators have effective control of the day-old-chicks market. The other 20 percent of the commercial market is accounted for by the smaller-sized, independent commercial raisers. The independents also largely depend on the integrators for day-old-chicks supply.
The emergence and growth of grower contracts in the 10,000 to 100,000 bird range has virtually supplanted backyard-level production systems in the Philippines. While there are still identifiable smallholder operations of up to 1,000 birds per farm, these now remain outside the mainstream of the broiler chicken market.
A major development in the industry in the recent years was the near-demise of the independent commercial raisers in the aftermath the "Broiler Crisis" of 1999-2000, stemming from the surge in imports of very cheap frozen chicken leg quarters from the U.S., effecting a prolonged nosedive of domestic live broiler prices to levels below variable costs of production (day-old-chicks, feeds, biologics, utilities, labor). This provoked a steep plunge in broiler inventories, particularly in the regions of Central and Southern Luzon, the major broiler production centers of the country.
The ‘Broiler Crisis’ was interpreted by participants in the industry as the effect of globalization on their broiler business. The crisis exposed two things in the industry: a) a lack of international competitiveness of broiler production in the Philippines; and b) the precarious position of the large and medium-scale independent commercial broiler raisers relative to the large integrators. The latter were able to use the greater flexibility of their vertically-integrated operations to advantage in dealing with rapidly changing relative prices of inputs and outputs.
The relative inefficiency of broiler production in the Philippines compared to many other countries of Southeast Asia has as its root the continued protection that policy accords to both output and to domestic corn producers in particular, and indirectly to corn substitutes and feed grain in general. Trade liberalization in the feedgrain market is key to improving the competitive position of broiler production domestically, and eventually to developing a competitive industry internationally.
The relatively more vulnerable condition of the independent commercial raisers to rising imports arises from their almost complete dependence on the market for live broilers for outlets. Each day of delay in marketing output over optimal schedules results in higher feed costs without corresponding net benefits. Large integrators are organized into the Philippine Association of Broiler Producers, Inc. (PABI). PABI sets daily benchmark prices for live broilers that helps defuse volatility for their members. Furthermore, PABI members have access to dressing, freezing and storage facilities to partly weather a temporary glut in the broiler market. The integrators also have captive outlets for their branded products, institutional clients under contracts, and their own retail stores.
Thus, the ‘Broiler Crisis’ precipitated increased vertical coordination in the broiler industry. Those who could not withstand the losses from the influx of imported leg quarters either became (or reverted to) contract growers of one of the integrators, or simply folded up. Those larger independent operators who remained organized themselves in 2000 into the United Broiler Raisers Association (UBRA). The long-term goal of members of UBRA is to engage in integrated operations within themselves, to take advantage of the economies of scale in breeding, purchase of imported feedgrain, and processing of output. Their current focus, however, is in lobbying for the regulation of imports of chicken parts. To remain in business in the long run, however, it is clear that the UBRA needs to fight for the liberalization of the markets for corn, feedgrain, and day-old-chicks.
The political economy of corn and feed grains is a socially contentious one. The issue revolves around very low productivity, high cost corn farmers (by world and regional standards) on the southern island of Mindanao, identified as among the poorest farming households in the Philippines. Trade liberalization in feed grains would lead to the loss of their present source of livelihood. There are also the interests of the large integrated feedmills to contend with; they are typically vertically coordinated with the large broiler integrators, and with bakeries that are permitted to import wheat at much lower tariffs than is the case for coarse grains. Integrators also have access to cheaper (lower in-quota tariff) corn through their respective MAV allocations (35% tariff compared to 60 percent effective rates paid by everyone else). Under these conditions, neither smallholders nor the large-scale independent commercial raisers are in a position to compete effectively. In a partially liberalized market for feedgrain and meat, while the integrators can live with a highly protected feedgrains market as long as the equivalent (or more than equivalent) protection on broiler output is provided, the independents cannot.
The day-old-chicks market, on the other hand, has become very volatile in the recent years. From average prices of PhP12-14 per bird, prices have fallen to as low as PhP8/bird; but have also soared to as high as PhP25/bird in periods of shortage.[13] While the integrators are in the position to be assured of a steady supply of day-old-chicks for their internal operations (due to programmed imports of grandparent and parent stock for internal breeding operations), the independents have to largely rely on the integrators for day-old-chicks supply. For this reason, some independents have started to band together to engage partially in the production of day-old-chicks for internal use. Clearly, the liberalization of the domestic market for day-old-chicks through the exposure of the breeding and production operations to external competition would provide a counterweight to the position of the integrators.
4.1.3 Growing Effective Demand For Environmental Sustainability and Food Safety Attributes
4.1.3.1 The Intensifying Problem of Livestock Waste Pollution
The intensification of hog and poultry production, particularly in the provinces in Central Luzon and Southern Luzon surrounding Manila, have brought along with them management problems associated with livestock waste. Pig waste receives more public attention as an issue than does poultry waste.
One reason that poultry manure gets off easier is that a number of traders are engaged full-time in contract buying and collection of poultry manure from Southern Luzon farms, at a current market price of PhP4,200 for one truckload of manure (equivalent to 300 sacks), obtainable from units as small as a 6,000-bird farm. The manure is in high demand in high-value vegetable farms in Northern Luzon, and the same volume could fetch a price of PhP8,000 - 12,000 delivered to those farms. The existence of a functioning market for chicken manure, however, does not imply the absence of other environmental problems in the application of chicken manure in the farms in place of chemical fertilizer. Similar markets for dried hog manure have not been observed in the Philippines, although they do exist elsewhere in Southeast Asia.
The problem of livestock waste pollution has so far remained on the level of the adverse reactions of residential populations where high pig density and high population density coincide. The growing conflicts have so far revolved around the discomforts stemming from noxious odors, fly concentrations, perceived respiratory ailments and skin allergies associated with living in proximity to high-density pig farms, and the visual and olfactory pollution of creeks and rivers into which solid pig waste and wastewater are indiscriminately dumped. There is also an increasing recognition among affected populations that polluted creeks and rivers affect human health and inhibit the development of freshwater fisheries.
The policy response to these current and potential conflicts has mostly been regulatory in character. Zoning ordinances at the local government level have now restricted the establishment of new pig and poultry farms at set distances (1-km radius) from town and residential centers. For existing farms within the population centers, however, local politics determine whether livestock activities at various scales may remain, or have to go.
On the regulatory side, clear effluent standards have been set by through national level pollution legislation, particularly on the allowable levels of BOD5 at point source. These standards have been patterned after the U.S. and Netherlands environmental regulations on pollution loads. The Philippines national standards, however, had been designed for general industrial activities, and not specifically for agricultural production activities. When applied to pig farms, the effluent standards have been found to be binding only to commercial pig farms at the size of about 1,000 heads, roughly equivalent to a 100-sow level farrow-to-finish commercial operation. Under this size, pig farms would tend to meet the allowable limits of BOD5 emissions. More fundamentally, current regulatory standards focus on industrially-relevant BOD, whereas the important long-term issues for farming of loading nitrogen and phosphates into ecosystems are not dealt with.
With the regulations at hand, it is technically feasible to identify all pig farms at 100-sow level and beyond, require them to put up waste management facilities and pollution control devices, and monitor them closely as point-sources of livestock waste pollution. It is another thing, however, to deal with a far greater number of backyard farms operating in peri-urban areas. Individually, backyard operations fall outside the legal framework for effluent emission standards. Nonetheless, smallholder-owned animals collectively generate equally high concentrations of pig waste and pollution loads per square km in high density areas, especially where no waste management or treatment exists. Thus, the question: "Do backyard producers in the Philippines pollute more than the commercials?"
While national effluent standards exist, and while smallholder pig producers can be forced to adopt waste treatment facilities and pollution control devices, a blanket enforcement of the regulations on the backyards with the available technological options to date may be the fastest way of sending the smallholder pig producers out of business. To date, the technological options available were designed for commercial operations, characterized by lumpy investments (e.g., biogas digesters), not economically profitable for smallholder-scale of operations. It may be for this reason, among others, that local politicians are reluctant to enforce the zoning ordinances and environmental regulations on backyard livestock raisers.
4.1.3.2 The Growing Demand for Food-Safe Meat at the Domestic Level
The demand for HACCP-conforming food products is not solely externally determined. The rapid growth and now significant share of domestic institutional markets for meat in urban areas (fast-food chains, hotel and restaurant institutions), most particularly for broiler chicken catering to the growing middle-class in urban and rapidly urbanizing centers, has effectively changed the character of the preferences of a significant segment of the market for meat. This development has not escaped the eye of the large integrators. Domestic institutional markets have begun to require that standard meat cuts delivered to them by the integrators should pass HACCP-compatible processes from production to processing. The broiler integrators, on their part, have competitively responded, establishing controls over their breeds, bird nutrition, animal health, antibiotic residue levels, monitoring at toll dressing plants, and re-channeling potentially ‘rejectable’ outputs to the wet markets or supermarkets. Potential "rejectable outputs", however, may simply refer to uneven cuts, existence of discoloration, but may have perfectly passed food safety standards in so far as the production and dressing processes are concerned.
Thus, there indeed is a rapidly growing domestic market for food-safe meat, even as the less discriminating wet markets for non-certifiable and non-traceable meat still remain large, particularly in the case of pig meat. It seems likely that even the pig meat market will exhibit growing effective demand for meat with known food safety attributes in the years to come, particularly as per capita incomes of the population increases, as urbanization further advances, and as the institutional markets also expand for pig meat.
4.1.4 Potential for Continued Participation of Smallholder Livestock Producers in an Increasingly Discriminating Market for Meat and Growing Demand for Environmental Sustainability
Given the favorable existing domestic market prospects and likely continuance of current livestock and feed grain trade policy, the hog and broiler sectors of the Philippines are foreseen to continue the rapid growth that they exhibited in the last decade. The rate of expansion is likely to continue to be determined by internal market forces rather than by external demand factors. The demand-driven Livestock Revolution in the Philippines will continue over the next 20 years; yet the character of that growth, particularly whether smallholders will be included, is still to be seen.
Because of the exemptions received in trade negotiations, the hog and poultry industries for the most part have not been exposed to the rigors of import competition or export demand over the last two decades. While there were periodic surges in imports of broiler chicken parts, the external competition could not have been described as relentless and sustained. The hog sector has resisted foreign competition well, with the relative domestic price of pork to chicken increasing over the last 10 years, while the reverse was true in world markets. Philippines smallholders have likewise benefited from sustained favorable prices of live pigs. The character of the domestic market as well as the feasible production environment, however, is changing, and it is not clear whether smallholders can continue to play the dynamic role they have in the past. Is the ‘livestock revolution’ devouring its supporting cast?
Smallholders are no longer present in the broiler chicken industry in the way they once were, but a few niche markets remain. A number of smallholder broiler chicken producers are affiliated with independent commercial raisers that have breeding operations. Where breeding operations exist, there are about 5 percent of day-old-chicks that come out as Class B chicks, ones of smaller size that cannot be raised to compete with regular-sized batch-mates in the same growing houses. Class B chicks are sold to smallholders at whatever they will fetch. Farmers then feed them independently or in association with larger commercial independents and sell them in the live broiler market. Backyard producers may raise up to 1,000 birds per batch. Smallholders in the broiler business tend to have more links and common interests with large scale independents than they do with the large integrators.
Granting that national policy remains unyielding in providing high protection to corn producers in the Philippines, smallholders will continue to pay 60 percent higher than world prices for feeds. Large integrators, on the other hand, are expected to retain their lower prices for imported corn and other feed grains from quota allocations of cheaper imports under their Minimum Access Volume (MAV) guarantee agreements signed under GATT (35 percent in-quota tariff). A removal of the MAV-in-quota and out-quota tariff distinction would reduce distortions on differential access of large-scale producers to cheaper feeds. An even more drastic across-the-board tariff reduction in feed grains markets would remove distortions that generate differential access to competitive feedgrain prices.
The market for day-old-chicks is currently controlled by the integrators. Continuance of the volatility observed in recent years in the market for day-old-chicks will prevent independent commercial raisers from remaining in the domestic market, regardless of the rate of growth in aggregate demand. Thus would also be the case for smallholders, whose interests are tied to those of the independent commercial raisers. Exposure of the oligopolistic day-old-chicks domestic market to global competition will reduce the volatility and uncertainty in the day-old-chicks market. This move will have far stronger market stabilizing effects for independent producers than would the proposals of the UBRA for the government to impose restrictions and regulations on the volume of grandparent and parent stock that the integrators can import.
The current policy bias towards protecting corn farmers on the basis of social equity arguments is likely to continue. Even some members of the UBRA are uncomfortable with the thought of letting poor corn farmers suffer the fate that almost befell the independent broiler raisers during the broiler crisis. Alternative ways of providing social safety nets in corn-growing areas need to be considered. Furthermore, a strong collective position of smallholder hog producers, independent commercial hog and poultry raisers, and large integrators is coalescing to influence policy towards increasing corn yields, lowering internal transport costs for feeds, and reducing protection accorded to the corn farmers. Bulk grain transport rates are very high and average corn yields are still very low in the Philippines. Productivity-enhancing measures and improved rural roads and inter-island shipping will have far wide-ranging beneficial impacts on both the corn and livestock producers, include the myriad smallholders involved in the hog sector.
The institutional markets for broiler chicken meat and pig meat will continue to grow and develop into more sophisticated and discriminating markets, willing to pay the premium on certifiable food-safe meat products in the major urban areas. While large integrators and large commercial pig farms have developed access to high-quality nutrition, internal animal health services, HACCP-compatible own and/or toll dressing/slaughtering plants and chilling facilities to supply certifiable products, the same cannot be expected of smallholders and small commercial producers in either the hog or broilers industries. Unless industrial organizational changes for smallholders and small commercial stakeholders occurs that allows them access to the necessary facilities and processes for meeting new market demands, these groups will increasingly be excluded from the rapidly growing institutional markets for meat and meat products. If so, they will have to compete among themselves for the remaining, but slower growing markets for live products in the wet markets of non-certifiable meat and meat products.
Furthermore, pollution problems associated with livestock waste are steadily catching up with backyard hog raisers. While commercial farms have been increasingly identifiable as point-sources of bad odors and proliferation of flies, smallholders in peri-urban areas are also being increasingly identified as non-point sources of wastewater pollution of common property surface water resources (creeks, rivers, lakes). Regulatory pollution control and environmental agencies are progressively designing environmental laws that will apply directly to waste management in backyard livestock production systems. Residents in urban and peri-urban areas are now also becoming more aggressive in anti-hog complaints, which may finally make local government officials enforce existing and future local zoning ordinances related to livestock production.
Similarly, contract growers and smallholder livestock producers of both hogs and poultry are now becoming aware of, and are expressing concern over the existence of zoning ordinances and anti-pollution regulations. They hold the clear view that strict enforcement of the latter will drive them out of the business. Existing technologies for controlling pig waste pollution are seen as more useful for commercial pig production operations. The lumpiness of required investments renders the adoption of the existing pollution control technologies in small-scale operations uneconomical.
Milk production is the most important agricultural activity in the Indian agricultural sector. At the national level, around 17 percent of the total value of agricultural production is derived from this sector. The other livestock sectors (meat, poultry, wool and hair, etc.) account for a further 8.3 percent of agricultural value. The milk sector generates an especially high proportion of agricultural output in the northern and western parts of the country.
Milk production was stagnant during the 1950s and 1960s, and per capita availability declined under population growth. Milk output increased substantially with the implementation of the Operation Flood (OF) Programme in 1970 and other dairy development programs implemented by State and Central governments. Other factors in the production growth included increased demand driven by a growing population, higher incomes, and urbanization, all in the context of tight controls on imports of dairy products. This evolution was accompanied by a marked improvement in milk yields. India has emerged today as the largest milk producer in the world, exceeding 80 million tons of liquid-milk-equivalent per annum. This success story was achieved by millions of smallholder producers. The OF program was instrumental in creating strong linkages among millions of smallholder producers and urban consumers.
Prior to OF, the link between the rural producer and urban consumer was erratic and characterized by high margins. OF was a phenomenal success as an institutional innovation that reduced the risks for modern processing plants in using smallholder milk and reduced the risks of smallholder producers in delivering milk to market. It substantially decreased total margins between producers and consumers, and effectively incorporated millions of otherwise excluded farmers into clean milk marketing channels. It functioned best where political support was high and the overseeing cooperative societies were allowed to function as economic units. The heyday of the cooperative movement occurred under highly regulated domestic markets, where commercial imports and exports of almost all dairy products were banned for most of the period, and processing activity was controlled through licensing that favored cooperatives over private entrepreneurs. Strong, charismatic leadership was key to securing independence of the cooperative movement from non-economic considerations that could be harmful to the interests of member farmers. In those geographic areas where cooperative societies had less independence from political leaders and issues, management decisions differed substantially from those that business would make, and productivity was lower.
Termination of licensing requirements for setting up milk processing and product manufacturing under the India Milk And Milk Products Order in 2002 made India's dairy industry arguably one of the most deregulated dairy industries in the world. Many in India believe that unmanaged deregulation of the dairy industry will lead to economic and social problems in the dual context of rapid increases in demand (domestic as well as world) for milk and dairy products and major distortions in world dairy markets. Globalization in this context, it is feared, will lead to increasing scales of operation in the Indian dairy sector, to displacement of smallholders, and to environmental problems. Milk production may become concentrated on large farms and in peri-urban or urban areas as a result of deregulation. Whatever the case, dairy in India is clearly on the threshold of a new era.
As in nearly all developing countries, the "organized" sector in India exists side-by-side with "unorganized" or "informal" sectors for the marketing of milk and dairy products. The organized or formal sector is relatively new in historical terms, and - whether run by the cooperatives or by private business - consists of Western-style dairy processing based on pasteurization, though adapted to the Indian market in terms of product choice. The traditional sector is typically well organized, with a complex net of market agents and a variety of market intermediaries. The reasons underlying the existence of a large informal or traditional sector are the same as those found in other countries where this dual structure is observed: many consumers are unwilling to pay the additional costs of pasteurization and packaging, and consumers often regard raw milk and traditional products obtained from reliable vendors as of better quality than formally-processed dairy products.
Dairy cooperatives represent the organization form comprising the largest share of the milk market; their share of total milk procurement has increased over time and is expected to continue to rise in the future. The informal sector will continue to play an important role in the Indian dairy sector. The repeal of industrial licensing under India’s continuing and widely subscribed-to liberalization policy provides the opportunity for private entrepreneurs and multinational companies to invest in new processing capacities, and may lead to structural changes in the production sector. It seems likely that private entrepreneurs will compete by trying to reduce transaction costs, through increased integration, and possibly through large commercial dairy farms.
Commercial imports of dairy products were a regular feature until the early 1970s, but declined significantly in the 1980s and 1990s. However, imports of milk powders and butter and butter oil increased substantially in the late 1990s, due mainly to low import duties on these two products as an Indian commitment under the WTO Agreement. India has also started exporting small quantities of dairy products during the last decade, but exports are still in the infancy stage. Nevertheless, India has the potential to become one of the leading players in milk and milk product exports. It is located amid major milk-deficit countries in Asia and Africa, and has inherently low costs of production due to cheap labor and traditional feeding systems.
Despite these positive factors, there is a long way to go in order to improve the quality of Indian milk and milk products. In order to become globally competitive, significant investment must be made in the supply chain of milk procurement, processing, and marketing. Training and incentives must be given to the farmers and processors to bring the quality of milk and dairy products up to international standards. Animal welfare, which includes establishing norms for animal protection on the farm, during transport, and at the time of slaughter, is presently not a major issue in India’s smallholder-based and predominantly Hindu-led dairy sector, where cows play an important cultural and religious role. Animal welfare for cows is not currently covered under India’s WTO agreement. Nonetheless, the same cultural factors that protect animals presently may also promote increased interest in animal welfare issues as intensification proceeds. Already, animal welfare issues are coming under increasing public scrutiny.
Seasonality in milk production is a main feature of the Indian dairy sector and is more pronounced for buffaloes, and therefore for buffalo-dominated regions in the country. Such fluctuations in supply result in fluctuations in producer and consumer prices. Procurement prices are marginally higher during the lean season compared with the flush (rainy) period. The weighted-price-index (WPI) of milk relative to the WPI of food articles and all commodities decreased during the 1990s, which suggests an increased production of milk and/or imports of dairy products in the post-reform era. Milk prices increased more slowly in the 1990s than prices of milk production inputs such as oil cakes, fodder, and cattle feed. These trends in relative prices indicate that increased milk production must come from productivity enhancement rather than further expansion of production.
Of all agricultural products, dairy product prices are the most distorted by production and export subsidies in developed countries, especially in the EU and the US. World dairy product prices were expected to increase following WTO implementation as a result of decreasing OECD export subsidies and support prices and lower public stocks. Stronger demand for dairy products was expected to result from the anticipated further growth in consumer incomes. However, world dairy prices exhibited a declining trend. The fall in world prices in the post-WTO period is due to high remaining WTO-compatible export subsidies, large OECD support prices, and other protections that had an adverse impact on domestic prices in many developing countries, including India.
Animal disease, the non-availability of feed resources, and poor animal nutrition are the most important constraints to milk production. However, the situation is worse for smallholders, because of inadequate knowledge and poor access to appropriate corrective measures and resources. In India, the government, cooperatives, the private sector, and a few non-governmental organizations (NGOs) provide veterinary services and artificial insemination facilities for dairy farms. However, the quality of the veterinary services provided by public sector institutions is poor, and institutions providing these services are highly inefficient. Managed privatization and restructuring of livestock health and breeding services and extension services serving smallholders is likely to increase actual access by smallholders significantly.
In this rapidly changing global trade regime, the outlook for technological development in the dairy sector is bright. In order to tap global dairy market outlets for smallholders’ and India’s advantage, more scientific management of dairy animals in terms of breeding, feeding, and health care must take place. More concentrated milk production is likely to develop in peri-urban areas. Food safety concerns, requiring efforts for clean milk production and animal health and welfare issues, will become increasingly important in urban areas. The Indian dairy industry will focus on value creation through an integrated approach to the market and the development of a range of value-added products and production and processing methods.
The increase in demand for dairy products will put increasing pressure on dairy production systems; traditional breeds and feeding practices are likely to give way to higher-yielding breeds, associated intensification of production systems, increased disease risks, pollution and animal health issues, and a greater reliance on concentrates. Currently, Indian dairy farming is dependent on crop residues, natural resources, and open grazing as sources of feed. Expansion of these traditional sources of feeds and fodder to support a large increase in dairy production is unlikely, as available grazing areas and other common property resources are shrinking and are already degraded. Additional milk output will surely have to come from intensified systems based on stall-feeding, and increasingly using concentrates.
Rising human needs for milk and other livestock products have placed environmental concerns in conflict with livestock income objectives. The rapidly increasing demand for dairy products in urban areas has given rise to haphazard growth of production centers in peri-urban and urban areas. The operations are essentially detached from their supporting land base and often generate high amounts of waste that contaminate soil and groundwater. Foul odors are a particular problem. Processing plants tend to be located close to major urban markets, where discharge of waste material is uncontrollable. Pollution of the food chain is also a major issue; pesticides, nutrients, feed additives, hormones, and veterinary drugs used in excessive quantities can contaminate the food chain, showing up in tested milk.
4.3.1 Transformation to a Modern Sector
The Indian poultry sector has undergone a thorough transformation from backyard rearing to commercial farming in the short span of three decades. Poultry is today one of the fastest growing segments of the agricultural sector in India. While production of agricultural crops in the country has been growing at a rate of 1.5 to 2 percent per annum during the last two decades, that of poultry has been rising fast, 6 to 7 percent per annum in the case of eggs. The exact rate of growth of broiler production over the last two decades is a matter of debate, but certainly is in double digits. India ranked fifth[16] in the world in egg production in 2000: producing 37 billion eggs. Similarly, India produced around one billion broilers in 2001. The number of broiler hatcheries too has grown: around 750 in the year 2000 against 77 in 1980. Capital investment in the poultry industry in 1999-2000 is estimated to be around Rs.13, 000 billion, and the industry contributed Rs.102.34 billion to India’s gross domestic product during 1999-2000.[17] The industry has also made significant progress in the areas of breeding, nutrition, management, and health care. Some of its major achievements include availability of several world known brands of commercial hybrid chicks,[18] essential equipment and machinery, medicines and vaccines, compounded poultry feed, disease diagnostic services, poultry training programme, and technical and skilled manpower. The industry can now be considered as self-sufficient to meet its requirements.
The industry is also poised for a dramatic growth in the next two decades. First, Indian population is projected to grow to 1.35 billion persons by 2020; with increasing scarcity of arable land and irrigation water, livestock and poultry are seen as the right answer to the ever increasing demand for high quality protein food for a nation characterized by malnutrition. Second, per capita consumption of eggs and poultry is low, and demand for poultry products is expected to grow with rising per capita income. Third, there is already a marked shift from other meat types such as mutton and beef to poultry meat. Fourth, with the opening of the global market, India has tremendous scope to exploit the situation in its favor to achieve a respectable global position in poultry trade. All this provides the rationale for a substantial and sustained growth of poultry in the next two decades. A recent study entitled Food and Agriculture Integrated Development Action (FAIDA) by CII and McKinsey (1998) projects a very bright future for the Indian poultry industry. According their evaluation, "the poultry sector in India has a potential to grow over 20 percent a year over the next ten years. This will enable it to at least quadruple in size, growing from the present size of Rs.7500 crore[19] to approximately Rs.30,000 crore"[20]
The poultry industry in India is what it is because of its own concentrated, private-sector inspired, efforts. In comparison to other livestock sectors, the poultry industry in India is more science-based, better organized, and exhibits continued progress towards productivity, efficiency and hygiene. It is going through a phase of increasing vertical coordination in broiler production that will continue to change the face of the industry. There will be rapid changes towards large-scale integration, as more smaller independent farmers find it increasingly difficult to run farms with marginal profits or negative margins. The industry is modern, with pure-line breeding, latest vaccines, SPF eggs, veterinary healthcare products, state of the art processing units for eggs and chickens, the latest management practices, export of quality hatching eggs, etc. However, not all is uniform in the industry. Not all States and regions fit the pattern above. The four southern States and Maharashtra together contribute more than half of egg production. Furthermore, rising feed costs, lack of development of rural markets, seasonal/regional fluctuations in egg and meat prices, and lack of cold storage facilities continue to constrain development of the sector even in higher potential regions.
4.3.2 Constraints to Further Development of the Poultry Sector and Emerging Social-Health-Environment Issues
Indian poultry sector performance is impressive in terms of the number of hen house egg produced per bird and the low feed conversion ratio achieved in broilers. But continued growth of the sector will depend on achieving growth in the availability of feed ingredients, especially maize and soybean. India presently only grows 10 to 11 million tons of maize, which does not leave enough after other uses to meet the needs of the poultry industry. Second, either growing (on a limited land base) or importing a larger supply or feed grain implies that genetically modified seeds will have to be introduced, which will be another area of debate. Third, further progress requires improvements in cold chain, electrical and road infrastructure. Finally, further progress towards meeting global food safety, health, and hygiene standards will require public as well as private attention to training and procedures, and enforcement of norms. Furthermore, millions of traditional butchers will either need to be re-trained or moved into alternate livelihoods in order to make progress on food safety, as even domestic urban consumers are demanding.
The link between poultry sector development and the nutritional well-being of the poor is increasingly on the consumption side rather than on the production side. Consumption of animal foods is not widespread in India. Even consumption of eggs is restricted to 22 percent of the households in rural areas. Per capita consumption is very low in all the states except the four states in South India and three states in East India. Yet all states in South India, Assam and West Bengal and to some extent Maharastra exhibit high preference for eggs. Growth in rural incomes has a higher impact on consumption than growth in urban incomes. Demand for both egg and poultry meat by the poor in rural and urban areas is characterized by high income and price responsiveness, indicating that reduction in the price of poultry products and increase in the income of the poor are an effective measure for increasing consumption of protein.
Overall economic reforms initiated in India during the 1990s have resulted in a shift from inward-oriented policies of the past to an outward-looking policy. For a long time, the domestic poultry industry was protected by non-tariff (quantitative restrictions) and tariff measures. However, the protected environment has recently been dismantled. The government under its scheme of phasing out all quantitative restrictions has placed the entire range of poultry products in the category of open general license or sometimes called the free list. India had to do this, as per the dispute settlement proceedings of the WTO. The process of removal of quantitative restrictions on the poultry sector began in 1995-96 and completed by April 2001.
At present, no industrial licensing is required for setting-up units in the poultry sector. Foreign investors now can actively participate in the sector. Poultry feeds are no longer restricted to production in the small-scale sector. Since the poultry sector is part of agriculture, India has made tariff-reduction commitments for all commodities of the poultry sector. The range of tariff binding rates varies from 35 to 150 percent. The bound rate for a principal raw material of the poultry sector, i.e. maize, had been fixed at 0 percent. India has successfully renegotiated, in early 2000, for raising the bound import duty (with tariff-quota regime) on maize with its ‘principal trading partners’. As part of its commitment, India cannot give export subsidies to its producers.
The impact of economic reforms has been noticed in the domestic poultry industry in the following ways: (i) the size of operation of hatcheries has increased, (ii) a number of integrators have emerged, (iii) hatcheries and processing units have started raising finance from the capital market, (iv) a few processing units with up-to-date import technologies have emerged,[21] (v) the tax benefits[22] have been abolished, etc. However the impact of import liberalization has not seriously affected the industry because quantitative restrictions in most of poultry products were abolished only in April 2001. After the removal of quantitative restrictions, imports during 2001-2002 increased by more than 700 percent.
Not surprisingly, the average size of poultry farms has increased tremendously over the last 15 to 20 years. In this process, many small farms have ceased to exist. They have dropped out for a variety of reasons: (i) feed cost is relatively higher for small farmers because of the lower scale of purchasers and the fact that feed purchases are taxed in some states (integrated operations do not pay the tax), (ii) veterinary care services, vaccines, are expensive for small farms, (iii) transport costs for small farms are relatively higher than those for large farms, (iv) the quality of feed (generally compound feed) may be less, and (v) credit to smallholders is either expensive or not available.
A decade or two ago, few persons involved in the poultry sector worried about environmental sustainability and related issues. Today, a broader mass of the body politic is becoming conscious of bio-security issues such as clean air, ground water quality, wastage disposal and health hazards. The poultry sector is dependent on the goodwill of urban consumers, especially those with money to spend; not surprisingly, it is beginning to respond. As more farms become industrial enterprises, liability and legal issues become more important in resource management, even as community structures become less influential in this regard. Skills and management knowledge with respect to the technical side of environmental issues also increase.
What is for sure is that in the next decade, the poultry sector in India will witness drastic changes in terms of structure, production, and processing. The size of farms will continue to increase, and they will have their own breeding farms, feed mills, hatcheries and processing units. Small units will cease to exist in the long run. It is likely that pressures will increase to plant and import genetically modified feed grains such as maize and soybean, and that this will lead to contentious issues beyond the science-based ones. There will also be significant pressure of rapid increase in investment in infrastructure development, production, processing, cold-chain facilities and marketing. This may lead to fundamental changes in food retailing, particularly of poultry products. We are likely to witness increasing separation between processing and marketing activities, with increasing availability of store brands. In the coming years, although wet markets will continue to operate in remote and far-flung areas, retail chain stores selling packaged poultry products will become noticeably more present in towns, even those located in rural areas.
Three major factors have shaped Brazilian agribusiness since the early 1990s. First, Brazil moved rapidly to take advantage of a more open economic system by reducing trade barriers and exposing domestic production to external competition. This move was followed by an exchange rate policy designed to correct an overvalued currency caused by prices being held constant to prevent inflation. Second, an overvalued currency in a more open economy naturally demands additional external savings to make up for a growing trade deficit. External capital flowed in through loans that were attracted by very high internal interest rates and direct investments related to the strong privatization process carried out by federal and state governments. Third, as new investment capital entered the country, industrial concentration increased substantially; for instance, in the supermarket sector, the number of mergers and acquisitions reached a record of 13 in 1998, and 12 in 1999, as opposed to only 2 in 1994. In the midst of these changes, the livestock sector also underwent a major structural change in which many of the small- and medium-sized farmers were increasingly replaced by large operations that supply the agribusiness sector.
4.4.1 The Brazilian Dairy Sector
In Brazil, the price of milk has been regulated since 1945 in an effort to provide cheap milk to consumers. Over the subsequent decades, a "cheap-food policy" led to a series of price controls affecting the prices received by the producers as well as the prices paid by final consumers. The compulsory application of price lists was accentuated in the 1980s as the country was going through a decade of economic stagnation and high inflation rates.
In the 1990s, the Brazilian dairy sector went through two "revolutions." The first revolution started with the opening of the market and the consolidation of Mercosur, which increased competition with imported products. Simultaneously, there was a radical change in the role of the state: after four decades of market regulation, when product prices were controlled by the Federal Government, prices were completely emancipated (as of 1991), and new conditions of relative prices and costs emerged for the entire milk chain. In the mid-1990s, the second revolution took place. At this time, leading companies forced the adoption of a new system for the collection and transportation of raw milk, including milk refrigeration at the farm level.
Today the national milk industry is composed of national groups, multinationals, cooperatives, small dairy companies, and commercial importers. The national groups participate in the purchase of raw milk, processing, and dairy distribution. Having fewer financial resources than multinationals, national groups are regionally limited both in terms of milk collection and in the distribution of finished products. Some national companies have participated in mergers as a way of increasing production scale, and some have been purchased by multinationals. The most important multinational companies participating in the Brazilian market are Nestlé, Parmalat, Fleischman Royal, Danone, and Círio-Bombril. Their activities are similar to those of national companies, with more emphasis on the distribution of finished products. Cooperatives were initially created to increase the bargaining power of producers in the purchase of inputs and in the commercialization of milk. Some are vertically integrated and produce finished products. In the 1990s, cooperatives faced serious competition problems, given the nature of the cooperative business. The scarcity of their financial resources when compared to multinationals, along with the structure of the decision-making process, caused cooperatives to lose their market share, and many of them could not survive in the deregulated environment. Nowadays, of the nine cooperatives created, only two central cooperatives are still in business ("Paulista" Dairy System and "Itambe" - Minas Gerais State Producers Central).
The main milk production areas of the country are in the states of Minas Gerais (30% of national production), São Paulo (10.5%, mostly in the areas of the Vale do Paraíba Valley and São Jose do Rio Preto), Rio Grande do Sul (10%), Paraná (10%), and most recently southern and south-eastern Goias (9%). The production in Goias' savannah started after the deregulation of the sector, and most of it goes to the large consumer centers of Brazil. More traditional areas, represented mainly by the Paraiba Valley in the state of São Paulo and the southern area of Minas Gerais, are also going through restructuring. These areas are sources of raw material for Grade C pasteurized milk, the growth of which has been historically restricted by the industrial strategy of supply control and margin maintenance. Therefore, in traditional areas, where the highest producer price in the whole country has been maintained, there has been rapid restructuring of production systems, with the vanishing of technological packages that became infeasible with falling prices.
Producers have rapidly left the industry, with the number of milk suppliers to the 12 largest processors decreasing by 28% from 1996-1998. Despite this, producers whose daily yield is lower than 50 liters still represent the vast majority of producers in Brazil (87.7%), with a relatively low share of total production. Small producers represent more that 90% of the producers in some states (in the north, northeast, and south). Heterogeneous production systems hinder the establishment of scale economies, especially with many producers in a state of extreme flux. Among major milk producing countries, Brazil stands out as the country with the largest number of producers but the lowest average productivity.
Two important technological changes affecting the dairy industry occurred in the mid-1990s. The first one was the bulk collection of refrigerated milk, a significant improvement in the areas of transport and processing. The cost reduction caused by bulk collection gave producers a large incentive to adopt this new system and to purchase milk coolers. However, at the same that the new technology allowed important gains in competitiveness, it implied a drastic reduction in the number of producers. Smaller producers were particularly hurt; the adoption of the new technology became unfeasible, as cooling equipment was not available to farms producing less than 100 liters per day (which is the case for most Brazilian producers). The smallest cooling system existing today is made for a daily production of at least 200 liters. The alternative for smaller producers was to create producer associations and to use collective cooling tanks. In these associations, tanks are a collective property placed on the farm of one of the associates, who is in charge of sampling the milk for analysis of quality and sanitary conditions of the tank. However, participants have experienced difficulties with management of the process and with issues related to responsibility for milk quality.
The second technological change was the substitution of sterilized long-life milk for pasteurized milk (especially Grade C). Sterilized milk is the product with the fastest growth over the last several years, already attaining a 30% share in the formal market. With the increase in the production and consumption of sterilized milk (UHT), the geographical area of dairy product commercialization has spread immensely. Before this development, most dairy products were marketed regionally, with little or no influence on prices in other production areas. According to Barros et al. (2000), consumer prices of long-life sterilized milk have declined, as shown in an analysis of retail prices in the city of São Paulo. Over the last two years, its price was only 6.6% higher than that of Grade B milk and 24% higher than Grade C milk.
Although fluid milk consumption declined in 2001 because of a faltering economy, the Brazilian government has taken measures to increase the quality of fluid milk. These included the provision of domestic production incentives and the enhancement of export market opportunities, especially for powdered milk. The dairy fund ("Pro-Leite") is valued at R$200 million, and has been most intensively used by producers in the center-west to raise productivity. In addition, large Brazilian dairy companies finance their suppliers under contract. This has been evolving recently along with the bulk distribution of milk. The state government in Sao Paulo, for example, created programs and established cheaper financing to help farmers move toward bulk distribution systems, improve milk quality, and reduce costs through adoption of more suitable logistic systems.
For years, several major developed countries have subsidized domestic milk production, building up large surpluses as stocks. These stocks have been dumped into the international market at prices significantly below production costs, creating a serious policy dilemma for Brazil, which has the natural resources and labor to produce milk at low cost. As trade is progressively adjusted to WTO/GATT rules, the importance of non-tariff barriers has increased. Brazil has the potential to export in the near future up to 50,000 metric tons of powdered milk, mostly whole milk. African countries are the major destinations for these exports, although Mexico is one of the main target markets (USDA; Oct 2001).
4.4.2 The Brazilian Swine Sector
Today there exist two types of swine systems in Brazil: those that are integrated, and those that are not. In integrated systems, producers do not face feed and breeding expenses, which is significant because feed represents 65-70% of total production costs. In independent systems, producers pay all costs. The number of producers with over 200 heads increased in practically all areas of the country between 1985 and 1995, demonstrating the growth in scale of Brazilian producers. In the states of Rio Grande de Sol, Santa Catarina, and Matto Grossa, there are still a fair number of small-scale hog producers, but their numbers are declining.
Swine production in Brazil is mainly for the domestic market, although pork exports have grown in recent years. Domestic per capita consumption of pork increased slower than that of other meats from 1990-2000; empirical estimates indicate that beef and poultry consumption have higher income elasticities of demand than pork. On the production side, although the swine population in Brazil has stagnated, productivity and exports have increased. Producers, mainly in the midwestern and southeastern areas of the country, attribute this increase in productivity to the adoption of new technologies. Increased scale confers little benefit on swine producers; taxes, labor costs, and administrative costs tend to counterbalance gains from feed costs.
In addition to the domestic campaign to increase consumption of fresh pork, Brazilian exporters initiated a marketing program to expand their overseas sales. Pork exporters targeted Russia, Asia, and Latin American countries. Pork exports are projected to continue increasing in 2002, reflecting the substantial results obtained in 2001. Enhanced by the devaluation of Brazilian currency, Brazilian exports have reached new markets. From January to June 2001, the volume of pork exports increased by more than 140%, mostly due to record exports to Russia. Russia is now the major destination of Brazilian pork, followed by Hong Kong and Argentina. New markets such as Lithuania are also promising alternatives. Brazilian exports are not allowed into the Japanese and US markets due to sanitary restrictions.
4.4.3 The Brazilian Poultry Sector
The growth of the poultry sector in Brazil began with the importation in the late 1950s and early 1960s of more hardy and productive breeds of hybrid chicken. By the 1970s, the Brazilian chicken industry was growing by 12% per annum. Most of this growth was led by a few large operations in the south, which was also a large corn and soy producing area. In the 1980s, abundant public credit allowed the largest five companies to double their share of national production. Large slaughterhouses were mainly located in the South, spreading to the southeast with the acquisition of traditional slaughterhouses. A major barrier to entry is the logistical problem of distribution; leading companies tend to be those that efficiently contract out distribution services.
Traditionally, commercial poultry production in Brazil has been based on the "integration" system in which small- and medium-sized farmers grow chickens for large processors. In the state of Santa Catarina, for example, typical farmers have a building housing 6,000-15,000 chickens (Helfand and Rezende 1998). However, the scale of operation in newer constructions is much larger. Today, the standard building houses 24,000 chickens, with automatic feeders and controls for temperature, humidity and light. The trend for the future will be greater integration between the processing industry and a smaller number of large farmers. Most of the growth between 1985 and 1995 in overall number of chickens occurred among larger farms. Indeed, the number of chickens did not grow much among flocks smaller than 10,000 chickens; the number of chickens even declined in flocks smaller than 5,000 chickens (Annex VII). Expansion of poultry production will likely occur on larger farms close to soy- and maize-producing regions.
Although supermarkets receive the highest share of Brazilian poultry production, poultry meat exporters performed well during the 1990s, increasing exports from 649 mmt in 1997 to 1,215 mmt in 2001. Despite this growth, the average export unit price for Brazilian poultry meat has been declining since 1995. In 1997, a decline was caused by a combination of factors including the domestic currency overvaluation and the devaluation of Asian currencies. When the domestic currency was devalued in January 1999, Brazilian exports to Asia and Europe increased. However, broiler exports to Mercosur partners (Argentina, Uruguay and Paraguay) declined by nearly 14% from January-June 1999. Argentina also imposed non-tariff barriers on Brazilian broiler exports. Exports of broilers to Russia also declined substantially in 1999 due to a lack of export credit and competition from the United States. Despite an overall increase in volume, the value of Brazilian broiler exports continued to decline in 2000 due to an oversupply of poultry in the international market. New Brazilian exporters entered the international market that year, enhancing competition.
Brazil’s poultry exports benefit from an exemption from the state value-added tax in the south where production is concentrated. There is also indirect support for poultry production in some states in the center-west region, where processors are offered exemptions from the state value-added tax and infrastructure improvements if they establish their plants in those states. In addition, the federal government provides through the BNDES low interest rates for long-term investments in poultry plants; these have benefited mostly medium-sized grain cooperatives and induced them to invest in poultry and pork production (USDA, FAS Report no BR7626; 1997).
Brazilian poultry exporters also obtain financing (for whole frozen broilers) from Brazilian banks at better rates than financing for domestic production (USDA, FAS Report no BR7626; 1997). Working capital financing lines available for Brazilian industries have also been used by poultry exporters. These funds, available under the PROEX Program (administered by the Bank of Brazil) and known as ACC, feature interest rates below Brazilian market rates. Similarly, as an export industry, poultry producer-processors can get long-run investment loans from the BNDES, at favorable (relative to ordinary Brazilian investment funds) rates.
A factor that has been stimulating exports is the agreement signed by the Brazilian Poultry Exporters Association (ABEF) and the Brazilian Agency for Export Promotion (APEX), to provide R$4.5 million to promote exports of Brazilian broilers. The program is similar to the Market Access Program (MAP) of the USDA in that the Brazilian government pays half of the export promotion costs. Similar to that for pork meat, the export promotion program focuses on market studies and participation in 19 food shows overseas. The agreement contains an export goal of US$1.2 billion in poultry export sales by the year 2002, compared to US$900 million in broiler export sales estimated for 1999 when the program was initiated.
Currently Brazilian raw poultry meat and products cannot be exported to the United States. This country has restricted the entry of poultry products, not only from Brazil, but also from most countries in the Western Hemisphere. This ban is based on the incidence of Newcastle disease in all countries but Canada, Costa Rica, and Chile. Imports from Costa Rica and Chile were prohibited because their meat inspection systems have not been considered "equivalent" to the U.S. system (WAOB, 1998). Brazilian exports of unprocessed poultry meat have also been barred from the EU and Russia for sanitary reasons (Newcastle). The EU provides high subsidies to their poultry meat producers, which has negative effects on Brazilian exporter access to several markets.
4.4.4. Social, health and environmental impacts
Since the eighties policy changes have had substantial social effects. The rural financial changes of the 80’s and 90’s, had significant social impacts in Brazil as official credit reduction affected mainly the smaller farmers because the larger ones were able to obtain funds from other sources like product buyers and input suppliers’ credit. Technological changes appeared to have had similar effects. In the milk sector, new technology of milk collection plus the quality payment system clearly led to enhanced competitivity, but it also implied in drastic reduction in the number of producers, particularly the small ones, for whom the adoption of new technology became unfeasible. The Real Plan impacted the agricultural sector as prices decreased in real terms during the second half of 90´s which negatively impacted farmers. On the consumer side, the agribusiness sector contributed to a better income distribution in the 90’s and food prices increased much less than the general consumer prices after the Real Plan.
In Brazil there has been an active effort to control animal disease so as to access export markets and improve domestic productivity. Currently Brazil is in the process of declaring several southern states regionally free of Foot and Mouth Disease and they are as a country free from swine fever. Changes in the processing sector are also occurring to meet domestic food safety demand.
Specifically domestic food safety concerns has been one of the stimulus to change dairy sector quality requirements. The National Program for the Improvement in Milk Quality (PNQL) reviewed the procedures adopted from the farm level to retailing. After a complete public survey coordinated by the Ministry of Agriculture, the new legislation will come to force in July, 2002, instituting sanitary procedures for milk production and cooling in the farms, bulk transportation to the mills, sanitary procedures in processing and distribution. It also institutes the creation of the Milk Network - a network of laboratories aiming at the support and control of quality maintenance at all stages of the production chain.
Also the Brazilian sanitary control system is structured to meet the needs of market segments. Producers, regardless the production scale, are subject to the same sanitary inspection regulations. The product to be directed to the local city is inspected by municipal authorities which try to meet local specifications, considering the local standards of consumption. In the state system inspection is done by the state and the level of inspection offers the producer the chance of commercialization of the product within standards that accepted by all the municipal districts of the state, but do not necessarily follow the standards of another states or even that of exportation. The federal inspection, on the other hand is done by the ministry of the agriculture through the Service of Federal Inspection. Such a product after inspection can be marketed in the whole national territory or exported.
As the industry is expanding, animal waste particularly the southern part of Brazil where the industry is stimulated by the presence of a large packing-house industry and rapidly growing exports is of increased concern. One consequence of agricultural intensification has been the compromising of water quality in the inland waterways and ground water in Southern Brazil as a result of soil erosion; runoff of fertilizer residues, herbicides and pesticides, and animal wastes. The rising livestock populations have exacerbated environmental problems, particularly the fouling of surface and ground water supplies from increased BOD, nitrates, phosphates, and pathogens. Several cities in Western Paraná have been adversely affected by livestock wastes as well as other pollutants in their water supplies. In some cases, urban water supplies have had to be shut down temporarily due to high pollutant levels in rivers. The use conflict between urban water supply and other uses, and swine production is becoming acute. The Southern States of Brazil have recognized that swine production has become a liability that threatens the health, economy and well being of large population segments in each state requiring urgent remediation and in their recent priority-setting exercise conducted under the Second National Environmental Project three States of Southern Brazil identified water pollution by animal wastes, particularly swine, as one of their highest priority environmental problems.
Thailand's livestock industries have expanded rapidly in the last decade, fueled by booming domestic demand for poultry and pork and high export demand for poultry. Traditional livestock production centers on subsistence agriculture with bovine species used for draught power, and swine and poultry used for household consumption. The increasing urbanization of the population and the demand for export income has promoted the intensification of agricultural industries to cater to increased demand. There has been an increased demand for milk and meat as incomes and population have risen, and livestock numbers have increased as a consequence. Domestic per capita consumption of broilers has increased gradually from 3.5 kilograms per annum in 1973. It decreased slightly after the financial crisis, but rebounded to 12 kg per annum in 2000. Domestic per capita consumption of eggs increased from 120 eggs in 1989, dipped slightly during the financial crisis, and rebounded to 142 eggs in 1997. Per capita consumption of milk has increased steadily going from 4.99 kg/person/year in 1992, declining slightly after the financial crisis, and rebounding to 9.18 in 2000.
4.5.1 Scaling up Livestock Production in Thailand
Among the three livestock sectors in this study, the poultry sector has witnessed the most drastic changes in terms of scaling up. The most significant changes appear in the broiler subsector. Layers and swine follow the same trend, albeit at slower pace. While all these three subsectors share a tendency to become even more industrialized in the future, the dairy farms appear to have found their optimal limiting size (under the existing constraints). The dairy farm size distribution has changed only slightly, as the number of medium-sized farms (with 5-50 cattle) has increased at the expense of very small and very large farms.
The major difference between dairy and other livestock lies in their nature of production. While other livestock systems can be practically detached from the land base, raising healthy cattle at a relatively low cost is rather land-intensive. The land requirement has become the limiting factor for scaling-up in the dairy sector. Except for the dairy cattle industry, which is very land-intensive, scaling up has improved productivity and reduced the unit costs of production substantially.
Since scaling up usually requires more capital, there have always been concerns that scaling up would drive smallholders out of business. Thus far, we have not undertaken any systematic study on this issue. We have learned of numerous cases where small livestock farms went out of business, but in most cases they could not be categorized as "poor farmers." On the other hand, we have found many successful livestock farmers whose livelihoods were improved substantially after they switched from crops to livestock, and continue to expand their businesses via the scaling-up process. Other small-scale broiler and layer producers who went out of business due to scaling up have switched to other businesses, especially agribusiness, including many shrimp farms in the eastern region.
Effects on the environment have been mixed. Modern poultry farms, which usually use closed-system evaporative housing, create less pollution than conventional farms. Most of the environmental problems created by these large farms are indirect, such as an increase in water requirements in the area that probably puts more pressure on other farmers in nearby areas.
As for swine and cattle, the main environmental issue is waste disposal. Thus far, cattle create fewer problems than swine since most farms are rather small. But in highly concentrated areas, there appear to be complaints from many nearby residents. Waste disposal for swine farms has been more problematic. However, more and more larger farms seem to have better waste management. Some alleviate the problem by turning the waste into biogas. Since almost all swine production in Thailand is specifically for the domestic market, scaling up often comes at the same time that inefficient farms are leaving the market. Therefore, the net effect is unclear. It might be the case that the animal concentration (number of animals per square kilometer) is more critical to the environment than the size of each farm.
The effect of scaling up on animal (and to some extent, farmer or laborer) welfare has been positive. As the broiler industry becomes more integrated with developed country markets, it has no choice but to follow the externally driven new farm standards, thus improving the living environment for the animals and their yields significantly. The effect of these new requirements on unit cost is still under debate. Some farmers claim that certain requirements under the new farm standard (such as limits on the total weight of animal per area) have helped them to reduce their unit cost of production. Others found that the requirements increase their costs, but are nevertheless willing to comply since they would provide them access to a higher-value market.
With dairy farms, scaling up from very small farms (with 1-5 cattle) to medium-sized farms (11-50 cattle) usually results in better housing and tends to improve animal living conditions. Moreover, farmers do not have to rely on concentrate feed as much as in most very small farms.
In terms of human health (especially food safety), it appears that more stringent requirements usually arise through external demand. However, since scaling up occurs more often in the exporting sector, food safety standards appear to improve with scaling up, although scaling up itself might not be the cause of such an improvement.
4.5.2 Trade Policies in Response to the Global Environment 1980-2000
Part of the scaling up has been driven by an outward-oriented trade policy. Beginning in the mid-1980s, Thailand put in place a series of liberalization policies in response to both internal and external changes. In the mid-1980s, Thai agriculture began to rapidly lose its comparative advantage. Internally, the cost of production rose rapidly as forestlands were exhausted, and the industrial boom began to attract a large number of young workers from the agricultural sector, resulting in an absolute decline in the size of the agricultural labor force and a rapid increase in real wages in the early 1990s. Externally, there was a worldwide slump in agricultural prices. Thai farmers were caught in a cost-price squeeze.
Before the conclusion of the Uruguay Round (UR), the government launched major tariff reform. The objective of the 1994 reform was to improve the competitiveness of Thai exports by substantially reducing the average applied tariff rate. Under the UR Agreement on Agriculture (AoA) Thailand has made commitments with regard to market access, domestic subsidies, and export subsidies.
Market Access: In terms of market access, Thailand has tariffied all of the import quotas for 23 agricultural product groups into tariff quotas.[24] With regard to livestock, although the tariff quota system does not seem to have resulted in a significant trade barrier, the administration of quota allocation has favored large agro-processing companies and producer associations that are dominated by large-scale processing companies and large-scale commercial farms. As a result, the industrial structure has been affected, since it is difficult for new entrants to break into the markets, which are already dominated by a few oligopolists. In addition to tariff reduction and TRQ, the UR agreement also contains an agreement on trade-related investment measures (TRIMS). Thailand has imposed a local requirement (LCR) on the production of a number of agricultural products, e.g., soybean oil, milk, and silk.
Domestic Support: Thailand is one of a few developing countries that has declared a large amount of trade-distorting domestic support. The livestock sector, however, receives a very small amount of the total trade-distorting subsidies, most of which are in the de minimis category. The products that receive de minimis support are hen eggs, duck eggs, swine, maize, and soybeans. However, the subsidies for those products are only provided in years of very low prices when there are farmers’ protests or requests.
Export Subsidies: Thailand has declared no export subsidies. However, the government has provided some exempt export subsidies in accordance with the AoA in some years. The subsidies are given only for certain products, particularly rice, in the form of loans provided to exporters at below-market interest rates.
4.5.3 Adjustment of the Livestock Sector to Policy and Market Changes (1980-present)
4.5.3.1 The Broiler Industry
Today in Thailand, there are nearly three million farmers who raise chickens in their backyards as a supplementary product, mostly for household consumption. However, commercial broiler farms now account for about 80% of broiler production. According to the agricultural census, the total number of farms that raise chickens increased between 1993-1998, while the number of 500-999 bird and 10,000+ bird farms decreased (see Annex VIII). Most experts in the field agree that as the commercial sector becomes more and more industrialized, small farms are going out of business. At present, the farm sizes considered "too small" to compete in the industry are the ones with 50,000 birds or less. In most cases, the owners of these farms are middle-class businessmen rather than traditional farmers.
Broiler development has been largely undertaken by the private sector, with little intervention or assistance from the Thai government. The major technological changes are in three interrelated areas: foreign breeding stocks, housing, and farm management. Together these technologies have improved efficiency substantially and have replaced most domestic and indigenous technologies. With the adoption of these technologies, the days to raise a chicken dropped from 56 in 1983 to 38 in 2001. The introduction of evaporative cooling houses[25] in the 1990s further resulted in gains in the feed conversion ratio. For instance, in 1980 the feed conversion ratio was 2.2, in 1990 (before evaporative cooling houses) 1.9, and in 2002 (with evaporative cooling houses) 1.75. Currently the cost of raising broilers is 21.66 baht/kg in Thailand, compared to 15.96 baht/kg in the US and 14.06 baht/kg in Brazil.
One major disadvantage that has hampered the competitiveness of the broiler industry is high feed prices. Thailand is a country where farmers are still the majority of population and the notion of "farmers" in Thailand usually refers to small crop farmers rather than livestock "business" farmers. Over the last two decades, the MOAC (and, to some extent, the Ministry of Commerce, MOC) protected soybean and maize farmers, resulting in high prices for major animal feeds in Thailand. Thailand has become a leading broiler exporter, benefiting from cheap labor in the past and the experience of other major exporters, some of which are transnational corporations that invest not only in Asia but also in the US livestock industry. However, Thailand’s wage rate for unskilled labor soared in the 1990s, making the industry realize that it can no longer rely on cheap labor. As a result, some exporters have transformed their broiler exports from frozen boneless chicken to processed or precooked chicken (usually in ready-to-reheat or ready-to-eat form).
Because Thailand’s advantage used to lie in cheap labor and not in feed price, the type of Thai broiler exports that was the most competitive in the past was boneless chicken, which is more labor-intensive than boned chicken. This advantage began to wane, since the wage rate in Thailand rose substantially in the 1990s (up until the financial crisis in 1997), and other Asian countries with cheaper labor costs, especially China and Vietnam, began to catch up on broiler exports. Moreover, Thailand began to lose another former advantage - its proximity to Japan - to China, which has become an increasingly important broiler exporter to Japan in recent years.
There are also three other trends that have affected the future of Thai broiler exports, and possibly the way broilers are raised. First, consumers in developed countries have given more recognition to animal welfare. At present, the European Union (EU) has taken this up this issue with both broilers and layers. Many Thai exporters view the measure as protectionism. However, since the EU has been Thailand’s most important export market for broilers, major Thai exporters tried to comply with those standards. Many large-scale firms are rather optimistic, since they believe that Thailand is in a better position to follow these guidelines than a major competitor like the US.
The second trend is the emerging market for antibiotic-free broilers, especially in Japan. Japanese importers used to pay about a 20% premium for antibiotic-free broilers, which is sufficiently high to cover the increased costs. However, as more broiler farms in Thailand are capable of raising and exporting antibiotic-free broilers, the premium appears to have decreased. The EU does not require antibiotic-free broilers. However, it requires that the growers stop using antibiotics and vaccines for a certain period before slaughtering. Both countries’ more stringent demand has resulted in better farm management that has led to the reduction of antibiotic use in the broiler industry.
The third trend is the move to increase traceability in a "farm to table" approach that has transformed the Thai broiler industry. Since most large-scale farms rely heavily on export, this effective tracking scheme forces them to comply with the export standard to avoid heavy punishment.
As for the domestic market, the success of the broiler industry in keeping chicken prices down has contributed to a continual increase in chicken consumption in Thailand. Domestic per capita broiler consumption has increased gradually from 3.5 kilograms per annum in 1973 to around 12 kilograms per annum in 1997. Per capita consumption decreased slightly after the financial crisis, but has since rebounded to 12 kilograms per annum in the year 2000.
In the past, stringent export standards led to a dual standard system where the domestic market is flooded by lower-quality chicken (including chicken with more residuals such as antibiotics). Since, however, the majority of exports now are not whole birds but only certain parts (e.g., white breast to the EU and tight to the Japan), the rest of the chicken sold in the supermarket are more likely to be of the same export standard. More importantly, technological changes induced by export demand have spilled over to the rest of the industry because of their greater efficiency.
4.5.3.2 The Layer Industry
The layer industry is much smaller than the broiler industry. During the last 5 years, the stock of hen layers has been in the range of 41-42 million (including approximately 10 million chicks), compared to approximately 100 million broiler stock. Total egg production is approximately 8-9 billion annually. During the last five years, more than 99% of hen eggs were consumed domestically. The remaining, which is generally less than or around 1%, is exported. Most exported eggs go to Hong Kong, the Middle East, and to a lesser extent Japan. Exports are used to dump surplus eggs abroad to stabilize the domestic price. Usually the export prices of eggs are considerably less than the domestic prices.
The export of eggs at a price below the domestic price involves some type of export subsidy. The government sometimes provides low-interest loans or, less commonly, outright export subsidies. However, on many occasions, large players agree (through professional associations) to take a cut in order to stabilize the domestic price. Furthermore, the fact that less than 1% of eggs was exported each year suggests that these associations have been fairly successful in controlling the supply of eggs by controlling the number of breeding stock. This is possible because there are less than a dozen large players whose farm size is more than one million layers and who also import, raise, and supply the breeding stocks, even though their market share of eggs combined is about two-thirds of the total egg supply.
Technological changes in the layer subsector resembled the changes in the broiler industry, albeit more slowly. Evaporation cooling houses continue to replace open-house farms to increase productivity. Smaller farms with 20,000 layers or less, as well as the ones in which yields are below 260 eggs/hen/year, continue to disappear and are replaced by larger farms with higher technology.[26] The number of small commercial farms (100-1,000 hens) decreased substantially in 2001, but the number of larger farms of all sizes increased (see Annex VIII).
4.5.3.3 The Swine Industry
The development of the pig industry began with the public sector introducing modern exotic pig breeds from England for breeding and improvement. The animals significantly upgraded the native Thai pigs. The upgraded crossbreeds had improved performance including higher average daily gain, better feed efficiency, and carcass quality (higher lean content), and required better nutrition, better farm management practices, and more complicated vaccination programs.[27] Changing of pig genetics has resulted in changes in housing and farm management required by the animals. The high-productivity European pigs are move sensitive to stress and require more comfortable, more hygienic, and lower-stress environments than those of lower productivity. The use of high-performance European pigs has forced farmers to practice all-in, all-out pig production systems that not only effectively control disease problems on the farm, but also minimize the use of medication and can produce healthier pigs for the market.
Aside from the introduction of new breeds the other technological changes are in feed and housing. It is common for commercial pig farm to adopt high nutritional specification for animal in the farm. Commercial feeds both protein concentrate feeds and complete feed for pigs are produced under feed law regulation controlled by Department of Livestock Development, Ministry of Agriculture and cooperatives. The regulated nutrient specifications are generally lower them the requirement of high performance/high lean pigs in the tropical region and regulation of essential amino acid levels are not existed. Feeding of the commercial feeds to high performance/high lean pigs by either small scale or large scale farmers always cause poor growth, poor carcass quality, poor feed conversion ratio, poor animal health status and high medication cost which always leading to high production cost but low selling price of the animals. It is the reason that farmers always producing their own feed at the farms.
One of the problems facing the swine industry is pig marketing. Generally, pig farmers always raise the fattening pigs until they attain market weight, around 90-110 kg depending on demands of the market. The farmers tend to sell the market pigs to a middleman who collects the animals, slaughters them, and sells the carcasses to butcher shops often located in the fresh markets. Prices of the live pigs are determined by the middleman and vary depending on the demand and supply of animals in the market and the carcass quality of the animals. There may be butchers that directly buy market pigs from the farmers, but their contribution is still very limited.
Since there is a declining margin in pig production, many pig farms in Thailand ranging from small to extra-large farms try to create their own outlets to sell pork and pork products directly to the consumers. The farms may have their own butcher shop in the fresh market, have their own pork shops in town, or have their own pork product factory and distribute via the supermarkets. It is increasingly common to provide more profit margins for pig farming by minimizing the risks in pig production. Recently, a number of pig farms have marketed green pork, which is highly demanded by the consumers and has a very promising future. The butcher shop system in fresh markets will be replaced by the integrated pigs-pork outlet and farming system where the quality and safety of the pork can be guaranteed and strictly controlled.
Inefficient medium-sized and large-scale swine farms are not immune to changes either. The major cause of change for these farms is inefficiency. Ironically, most of these farms abandoned native pigs and opted for new European pigs, just as in large farms. However, these farms do not use employ suitable management techniques for the new breeds, which are much more demanding than the native and American breeds. They still rely on commercial feeds, most of which comply with the DLD standard but are still insufficient for the new European breeds. As a result, their pigs are not very healthy and have to rely on drugs more than they should. They also have poor FCRs. All in all, these farms have relatively higher costs and are therefore more vulnerable to hog price cycles.
As these farms leave the market, there is room for the more efficient farms to expand and become larger. The longer the cycle, the faster the industrialized process, since more efficient farms can expand their production to fill the void left by the abandoned farms. In general, the surviving farms have the following characteristics: 1) these farms are integrated farms (farrow to finish), making it possible for them to control the quality of the feeder pigs and allowing them to keep feeder pigs during the low price season; 2) these farms prepare their own feed so that they can control feed quality; and 3) these farms have their own market channels or secure forward markets via subcontracting.
4.5.3.4 The Dairy Industry
In contrast to other livestock industries, the dairy cattle industry has been extensively promoted and highly protected by government policies.[28] In promoting the development of the dairy industry, the government wanted to promote the small farmers and the poor veterans coming back from the Korean War. The government aided in the expansion of the industry through four programs. First, it launched the Farm Settlement Project in Saraburi, in which it gave small plots of land to veterans and landless farmers. Those who raised dairy cows were also given free input subsidies, credit, technical advice, and services. Second, it started a school milk program; the government wanted to encourage the Thais to drink milk since it believed that milk was very important for good health and height development of the Thai children. Third, in the wake of the world-wide slump in agricultural prices during the late 1980s, resulting in the Thais losing their comparative advantage in crop production as forestland was rapidly exhausted and water became more scarce, the government saw dairy farming as a good alternative for farmers who grew unprofitable rice and cassava. During this time, they established a restructuring policy that granted long-term cheap credit for farmers who wanted to switch to dairy farming. Fourth, the government also chose to implement an import substitution policy in the mid-1980s when urban Thais began to consume more milk and the country was experiencing a serious trade deficit. The government at this time initiated a local content policy.
These policies affected the growth of the industry. There are two important characteristics of the dairy cattle industry. First, the Thai dairy farming system is dominated by integrated agro-dairy farms operated by small farmers. Despite small farm holdings, the farmers still engage in other agricultural activities, e.g., fish ponds, small plots of vegetable and perennial trees, and paddy farms. The second characteristic is that most, if not all, of the dairy farm operators are members of the local dairy cooperatives. In addition to the important function of milk collection and transportation, the cooperatives provide most of the technical services for the members, collectively purchase concentrate feeds and other inputs in large bulk, and provide credit for their members.[29]
Over the last 10 years, the average dairy farm holdings increased quite significantly, yet most of them are still smallholdings. The farm size that has the highest growth in number of farms is the group with 20-49 cows per holding (see Annex VIII). This reflects the fact that as the small farmers gain more knowledge and experience, their accumulated profits have allowed them to increase their farm size by adding more cows. Growth has occurred through following types of policies: 1) production and credit policies, 2) cooperative organization and marketing policies, and 3) the cooperative system. These policies are summarized below.
Production and Credit Policies: Development of the modern dairy industry was first based on wholesale imported breeding technology from Europe. Further breeding improvements have relied upon imported male and female breeders, and more recently, upon imported AI technology and semen. Such technology requires that Thai farmers must adopt modern farm management, which they cannot often afford. Temperate-zone dairy cows cannot be easily adapted to the tropical climate, and thus suffer the problem of heat stress.
Cooperative Organization and Marketing Policy: The cooperative is the critical organization behind the success of the promotion of dairy farms. Because raw milk is highly perishable, it is very important to collect raw milk from a large number of small farmers at a single station in the shortest possible time. The cooperative organizations thus far have been suitable institutions to handle such activities for small farmers; however, there have been two problems. First, the new cooperatives do not have enough capital to invest in collection stations. Secondly, there must be a secured long-term market for the raw milk, as spoilage may occur if farmers have to spend time negotiating with fringe traders. The Thai government has tried to prevent this spoilage problem by persuading the large-scale firms producing dairy products to participate in the milk procurement scheme. These large-scale firms are both multi-national companies and large Thai companies who were asked to help by giving money to cooperatives to build milk collection centers in exchange for an exclusive right to buy all the milk. The government has set a standard price of raw milk that the companies have to pay to prevent the companies from exploiting the captive market.[30]
Cooperative System, Marketing and Protection: The government policy for dairy cattle is unique in the sense that there is an overarching policy that covers all the essential policy components to guarantee success. No matter how many incentives the government gives to the farmers, the production policy will fail if farmers cannot sell their produce at profitable prices. The marketing policy consists of three components. First, there is an establishment of local producer cooperatives to take charge of the tasks of milk collection and sometimes transportation. The perishability of milk forces the farmers to organize as a group and gives them a strong incentive to closely monitor the cooperative management (TDRI, 1995). The key point is that there is no way that the government itself can successfully perform the collection tasks. The local cooperative was the only effective institution for such a task at the time. Today, there are a small number of private milk collectors competing with the cooperatives.
The second component is securing the market with stable prices through private sector participation. A few large companies, most of which are foreign-owned, were persuaded to participate. They were asked to help providing the cooperatives with necessary capital needed for the construction of milk collection stations, and asked to agree to buy raw milk at the government - imposed standard price. In return, they were also promised long-term benefits from other related government policies, e.g., investment promotion and the rights to import skim milk powder in exchange for complying with the government local content policy (or TRIMS). The investment promotion policy exempts them from income taxes and imported duties on machinery and raw materials. Since the tariff quota system has been introduced, these companies have been given a generous quota allocation in excess of the commitment level. Applied tariff rates (5%) are also much lower than the bound in-quota tariff rate of 20%. These measures are, in fact, one indirect way of granting economic rent to the companies in exchange for their cost of participation in the dairy cattle industry.
The last component of the marketing policy is protection. The LCR policy is a form of non-tariff protection because the dairy product companies are allowed to import some products only if they also procure some goods in the domestic market. This is a different form of tax imposed on the companies. As a result, imports of dairy products are restricted. Such protection and other policy measures explain why the domestic resource cost index (DRC) is higher than one, indicating that it is cheaper for Thailand to import dairy products rather than to produce by itself. However, it should be cautioned that the world prices of dairy products are highly distorted as a result of heavy domestic and export subsidies in the EU.
Last, but most important, is the consumption policy, which has successfully stimulated the domestic consumption of milk. The government (first through the Office of the Prime Minister) has continually run a series of campaigns to promote milk consumption. Note that such a policy has direct benefits for the private companies buying raw milk from the cooperatives. Another important policy is the school milk program, which has also directly benefited the milk product companies because schools are not required to buy fresh milk directly from the local dairy cooperatives.
4.5.4 Growing Demand for Environmental Safety
Among the major livestock industries in Thailand, waste from swine farms has led to the largest environmental problems. Wastes from poultry farming and cattle raising have been reused, recycled, or treated, and have not resulted in significant environmental degradation.
Poultry farms generally create pollution in the forms of solid waste, odor, dust, and flies. The level of pollution varies depending on farm size. It has been observed that large-scale poultry farms tend to have better waste management than small poultry farms. For instance, solid waste from large-scale poultry farms is collected and sold as animal feed (for fish) or fertilizer. Odor and dust are still observed, but these are on-site problems that do not become public environmental problems.
Swine farming has been a cause of water pollution in a major river in central Thailand. The major environmental impacts from swine farms have been in the form of odor and wastewater. The small-scale swine farms in Thailand, constituting about 50% of the industry, have been mostly responsible for the wastewater that is released into public rivers. Complaints about odor from swine farms have also been made, but this problem has remained a local environmental problem. Currently the different waste technologies used by swine farms in Thailand include the ponding system, a solid-liquid separator plus holding ponds, a reception pond (one pond only), a biogas digester, and no system at all. A survey conducted by the Pollution Control Department showed that large-scale farms with 5,000 pigs or more tend to use the ponding system or the solid-liquid system to treat their wastewater, while medium-scale and small-scale farms tend to employ the reception pond system. It was also found that 12.7% of the small-scale farms had no wastewater treatment system at all. Though older swine farms tend to lack waste treatment technology, modern farms tend to be equipped with modern waste treatment technology such as biogas digesters. Although incentives have been offered to swine farmers for investing in waste treatment technology, there has been a lack of implementation.
Cattle raising produces wastes in the form of solid waste, waste water, and odor. As cattle raising is land intensive, much of the wastewater created is reused within the farm for watering the grassland. Solid waste is also used as fertilizer within the farm. It has been found that cattle raising in Thailand is the least polluting of all livestock activities, and has not created environmental problems.
In general, dairy farm activities have not yet created serious environmental problems as has the swine industry. However, there is some concrete evidence of polluted water in areas with a high density of cattle farms, such as in one sub-district of Ratchaburi, one of the largest dairy-cattle-growing provinces in the Central Plains. With 400 farms, each with an average of 20 milk cows per year, there will be 2,000 tons of animal waste, and 2,500 tons of wastewater and urine. As a result, the quality of water, measured by the quantity of NH 3-N, COD and BOD, is below the accepted minimum standards. The high concentration of farms in a small area is the major cause of the problem. Whether or not farm size has a negative correlation with the problem is not yet known. But there has not yet been affordable water treatment technology for the small farms. The technology for the large-scale farms is available, but it is not clear whether or not the farmers will use the technology if they are not partly subsidized.
In addition to the farm wastes described above, the livestock sector still produces a negative impact on the environment through wastes created by slaughterhouses. Wastewater from slaughterhouses is drained into public rivers without being properly treated. Since complaints were made regarding the wastewater pollution from swine farms causing water pollution in the Tha Chin river and the Bangpakong River in central Thailand, the Pollution Control Department has taken actions in 2001 by listing swine farms as a pollution source that needs to be regulated. The swine farms also need to observe the wastewater standard of the Pollution Control Department (PCD), and this standard will be enforced beginning February 2002.
Aside from the PCD control of wastewater from swine farms, the Department of Livestock Development (DLD) established farm standards in 1999 for swine, poultry and cattle farms. These farm standards are voluntary and hence farm owners (with the exception of poultry farmers, whose products are exported) rarely observe them. As for swine farms, whose products are consumed domestically, these farm standards have had no impact on practices.
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[12] The section summarizes
the data and arguments developed in detail in annexes III through VI and was
co-written with Achilles Costales. [13] In early 2002, U.S.$1.00 was worth approximately 50 Philippines Pesos (PhP). [14] This section, co-written by Vijay Paul Sharma, is drawn from Annex I [15] This section, co-written by Rajesh Mehta., is drawn from Annex II [16] Based on production figures are for the year 1998. FAO Year Book: Production. [17] In early 2002, U.S.$1.00 was worth approximately Indian Rupees (Rs.) 47. [18] India is the only country among developing countries that has a pure-line breeding program. [19] Output was Rs 75 billion in 1996 or 1997. At present, output is expected to be around Rs 130 billion. One crore is ten million. [20] CII and Mckinsey (1998). [21] Shairaz Foods, in technical collaboration with a Dutch company, entered the poultry sector with latest equipment like environment control system, but it had to close down within five years due to inefficiencies and Indian conditions. Similarly, another company diversified its production from transport to poultry, but it also failed due to unprofessional approach. [22] The poultry sector was getting around 100 percent tax benefits on income, which was reduced to 33 percent in the early 90s. Now they have been abolished. [23] The section summarizes the data and arguments developed in detail in annex VII. [24] These tariff quotas can be divided into 3 groups. The first group is composed of a number of traditional export commodities in which Thailand has strong comparative advantage and hence no need for import protection, e.g., rice, sugar, maize, coffee, longan, and coconut. The second group consists of import-competing products that are required in large quantities by the agro-processing industry, e.g., oilseeds, maize, and concentrated milk. The third group is also import-competing products that have a small amount of quotas (subject to the low in quota tariffs), e.g., garlic, coconut oil, and milk. [25] This is semi-automatic housing which uses large fans and water to cool down the housing that holds more than ten thousand chickens to 28 degree Celsius or less during the hot season. This housing has been responsible for much of the industry’s cost saving and increased productivity. At present, the import content is still high, although there are an increasing number of modified models of evaporative housing that substitute some expensive equipment with local, more cost-effective equipment. [26] As in the case of broilers, the owners of smaller farms who are put out of business often switch to other businesses, especially to other agro-business (including many shrimp farms in the eastern region). This phenomenon is especially occurring in Nakorn Pathom and Nakorn Nayok where almost all new farms have more than 2 million layers per farm. [27] It is worth noting that carcass quality or lean content in the carcass is a very important parameter to in determining the price and ability to sell the animals. Poor-quality carcass pigs (low lean/high backfat) are always sold at lower prices (3-4 baht/kg less than normal) and have difficulties being sold during times of low pig prices. High-quality carcass pigs are always sold at a 3-4 baht/kg live weight premium to the normal prices, and have no problem in marketing during price crises. [28] The modern dairy farms were first promoted in the 1960s through a joint venture with the Danes. During this time, they jointly created the first modern "Thai-Denmark Dairy Farm" in Saraburi, a province in the Central Plains. In 1971, the farm organization was upgraded to the status of state enterprise and named "ODFPT". Its main function is to promote and develop the dairy industry from dairy farms, milk marketing, processing, and consumption promotion. [29] Buying inputs in bulk reduces production costs for members. It is easy to collect debt simply by deducting the members’ debt from their milk sales to the cooperatives. [30] The price is adjusted for quality of milk and determined by the distance from the station to the company’s factory. |
