2.2 Growth and Concentration in Thailand^[5]

The beginnings of structural change in livestock production in Thailand can be traced to the introduction of modern production methods in 1946 and the importation of high-yielding stock in 1956 (Poapongsakorn, 1985). Yet major changes did not occur until local and regional markets provided an incentive for major production increases, with the start of the Livestock Revolution in the 1970's. The Charoen Pokphand Company (CP) established its chicken breeding business through a joint venture with US-based Arbor Acres, bringing improved parent stock into Thailand. Subsequently as the regional demand grew, other production technology and modern contractual arrangements based on U.S. patterns were introduced into the Eastern provinces by a rapidly growing agribusiness private firm with its origins in the rice seed business. In 1973, CP exported the first batch of chickens to Japan. The company established the first modern chicken slaughterhouse in the same year, in order to process frozen chicken for the export market. In 1977, the Bangkok Livestock Trading Company initiated a contract farming system in Sri Racha. Since then, slaughterhouses have been established by a number of large companies and contract farming has become common in Thailand (Poapongsakorn, 1985). Subsequently CP went on to become a diversified, and vertically and horizontally integrated multinational corporation, rooted in the feed, meat, and shrimp trade, with four billion U.S. dollars in sales revenues and 100,000 employees by the mid 1990s.

With extension of the CP model to others in Thailand, Thai broiler chicken production went from 474,000 tons in 1983 to over 1.2 million tons in 2001 (Poapongsakorn et.al., 2003). Such rapid growth of broiler production was possible because of the export markets made accessible through unit cost-cutting technology and organization put in place by the private sector, and through supportive regulation and trade liberalization by the State. Rapid expansion of Asian regional demand and European demand in the 1990s provided a vent for expanding production. The Thai broiler market is now dominated by a few integrators, who control the complete supply chain, ranging from grandparent stock farms to the food retail business and export trade. These integrators have become large multinationals that trade all over Asia. Domestically, sharply lower chicken prices and positive income growth were associated with a doubling of chicken consumption from 6.8 kilogram (kg) per person in the early 1980s, to over 12 kg in 2001.

Egg consumption and the layer industry also expanded significantly since the early 1980s, though not as impressively as broilers; roughly 90 percent of eggs produced are for domestic consumption. Annual domestic consumption per capita jumped from 66 eggs in 1983 to 145 eggs 1995, and dropped slightly to 139 in 2001. The supply-side growth of the layer industry can also be explained by the similar factors affecting the broiler industry: the adoption of modern technology and rapid economic growth in the late 1980's. New technology has enabled the industry to accelerate its egg production, from 3,282 million eggs in 1983 to almost triple this figure (9,000 million) in 2001.

Although modern swine breeds was first introduced in the 1960s, and programs were put in place in the mid-1970s to train farmers in modern production and farm management, major changes in the Thai swine industry only began to take place in the mid-1980s. The introduction of exotic pig breeds and evaporation shed cooling has begun to move Thailand into industrial swine production. The production of swine increased from just less than 11 million pigs in 1983 to over 16 million in 2001. The pace of expansion has been slowed by disease problems that limit exports to high-value markets, and also by the regulation of slaughterhouses in a way that constrains growth in the sector. Burgeoning environmental concerns have also been a factor.

The three largest pig-producing provinces, Nakorn Pathom in the West, and Chachoengsao and Cholburi in the East (see Figure 2.3 in the appendix to this chapter), cannot accommodate new large-scale farms because of land constraints and the high risk of spreading disease in already high animal density areas. Therefore, new pig farms have expanded into Ratchaburi (in the West), and Saraburi and Lopburi (in the East). These provinces, particularly the latter two, have abundant water resources. Another constraint is the increasing level of water pollution caused by the farms situated near the extensive river system in Nakorn Pathom and Chachoengsao.

The development of the Thai livestock sector has been highly concentrated in a geographic sense. All the major livestock producing provinces are currently between 60 to 250 kilometers from Bangkok (see Figures 2.3, 2.4 and 2.5 in the appendix to this chapter). As recently as 1990, the major production zones were only 60 - 150 km from Bangkok. The rapid increased demand for livestock products has resulted in the expansion of livestock farms farther away from the capital, particularly towards the irrigated areas and into the watershed of the main river system. In recent years, the road network linking these expansion areas to Bangkok has been substantially improved, resulting in lower transport costs and shorter shipment time.

Unlike poultry and swine, the government, with a view to developing small-scale production, has driven dairy sector development in Thailand. Government has been directly involved in imports of breeding stock, providing production subsidies, tariff and quota protection, and playing a coordinating role between dairy producer cooperatives and dairy processing companies. Coordination has enabled the farmer cooperatives to sell all their raw milk without problem.

During the 1993-1995 period, growth of the dairy industry was greatly stimulated by the government's project to provide free milk to children in elementary schools for 260 days a year. Subsidized milk for students must only be from domestic dairy production; it currently accounts for half of domestic dairy consumption. Domestic milk consumption in 2001 was 9 kg of milk per person compared to 1 kg in the early 1980s.

There has been considerable scaling-up in the Thai livestock sector in the last 15 years, even outside the export poultry sector. Between 1988 and 1998, the share of Thai swine farms with holdings of more than 100 sows went from 3.5 percent to 9.3 percent. Between 1993 and 1998 alone, the share of all pigs on farms with holdings of less than 20 sows went from 55 percent to 32 percent. In 1988, 55 percent of Thai dairy farms had 4 milk cows or less; by 1998, only 35 percent of farms had 4 cows or less (Poapongsakorn et.al., 2003).

In sum, the Livestock Revolution in Thailand occurred only in the last 15-20 years, beginning with the export-led broiler sector. Although private sector innovations such as improved breeds, feed technology, housing, farm management, and contractual arrangement have been the prime sustainers of growth, export opportunities and rapid domestic and regional economic growth during the 1985-1995 period were the essential catalyst. Swine and dairy development have been driven by domestic market demand, and have been significantly affected by policy factors-regulation of slaughterhouses for swine and subsidies for dairy. The livestock industry has grown in close proximity to Bangkok, and heavy concentrations of animals are causing environmental stress. Farm sizes have become significantly larger over the past ten years, even in the case of dairy.