Get ready for trade
The launch of the Asean Economic Community is expected to promote export trade. David Hayes reports from Thailand.
Thailand’s dairy industry is preparing to enter a new era with the launch of the Asean Economic Community (AEC) in 2015, which plans to accelerate economic and social development across Southeast Asia by removing trade barriers and promoting cross border commerce.
The dairy industry is among various sectors expected to benefit from the launch of the AEC, as larger dairy producing countries prepare to increase milk and dairy exports to other markets around the region. The Association of Southeast Asian Nations (Asean) 10 member countries – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – have a combined population of 600 million people. Many Asean countries have recorded strong growth in milk and dairy consumption due to rising household incomes and economic growth. Thailand is the largest raw milk producer among the Asean members. The kingdom’s dairy farmers have sufficient capacity to supply about 2,800 tons of raw milk daily, sufficient to meet local liquid milk needs and still leave an exportable surplus.
As part of its wider efforts to increase farmers’ incomes, the Thai government is supporting plans to increase milk production and raise domestic consumption of dairy products, at the same time backing efforts to expand exports of milk and dairy goods to other Asean countries. Sales of drinking milk products grew nine per cent in value in 2013, up from eight per cent gain the previous year. Further growth is expected due to the growing popularity of coffee drinks products, mirroring developments elsewhere in Asia, and rising demand for packaged milk products. Thailand’s dairy processors are expanding their production capacity. Two new processing plants are under construction and at least one other under planning to supply the local market and other customers around Southeast Asia.
Raw milk production has grown by over five per cent annually in Thailand since 2008. Dairy farmers are achieving higher milk output through improved husbandry methods, as the total number of milking cows is largely unchanged compared with six years ago.
In 2012, raw milk production reached 1,064,000 tons, according to the government Department of Livestock Development (DLD), up eight per cent compared with 985,000 tons the previous year. Raw milk production has risen 20 per cent overall since 2005 when annual raw milk production stood at 781,000 tons.
Farm gate raw milk prices have risen most years during the past decade, at more than twice the growth rate of milk production. In 2012 the average farm gate milk price was 16.88 Baht (€0.38) per kg compared with 11.48 Baht (€0.26) per kg in 2005.
Raw milk is collected by around 183 milk collecting centres, of which 103 are run as cooperatives formed by small dairy farmers owning an average of 15 to 20 milking cows each.
The 72 milk collection centres are privately operated while eight collection centres are run by educational establishments supplying part of the milk required for the government’s School Milk programme.
About 50 per cent of liquid milk consumption is as school milk by six to 11 year olds across the whole country while the other 50 per cent is for general public consumption, mostly by young people and children. School milk is free to pupils in 200ml UHT packs and one free milk carton per day is provided to 8.6 million pupils from nursery age to 11 years old. It remains the largest use of milk in Thailand with around 1,250 metric tons (mt), or almost half of Thailand’s total raw milk output used for school milk products. A further 800mt is processed into UHT milk, while 500mt is processed into pasteurised milk and other products.
Thailand’s 84 milk processing plants obtain their raw milk supplies from the national network of milk collection centres. Some 68 milk processing plants are pasteurization plants with the other 16 are UHT milk plants. Of total raw milk production averaging about 2,750 tons daily, around 97 per cent is used to produce ready to drink milk, according to DLD figures. A further 2.8 per cent is used to make cheese, while 0.2 per cent of milk production is distributed for sale in rural villages.
However, rising consumption of liquid milk and dairy produce during the past decade has far outstripped growth in raw milk production. According to Thai Customs statistics, the value of dairy imports has almost doubled since 2005, while the value of Thailand’s official liquid milk and dairy exports rose by about 12 per cent over the same period.
In 2012 Thailand imported liquid milk and dairy goods worth US$616.5 million (€449.4m), up 82 per cent compared with dairy good imports worth $339 million in 2005. Exports of dairy goods, meanwhile, reached $139 million in 2012, up 12 per cent compared with $124 million in 2005.
New Zealand is the largest supplier of imported dairy goods, according to Thai Customs figures, accounting for 39 per cent of total imports in 2010. The US is the second largest supplier accounting for 18 per cent, followed by Australia. Skimmed milk powder is the largest dairy import with 59,000 tons allowed in 2010, according to Thai Customs.
Thailand’s major dairy exports are sweetened condensed milk, condensed milk and non-concentrated milk and cream products. Almost all exports are supplied to other Asean largest export market taking 31 per cent of exports, followed by Singapore at 19 per cent and the Philippines with 18 per cent. Sweetened condensed milk exports stood at 17,000 tons in 2010 while condensed milk exports were 3,700 tons. Non-concentrated milk and cream exports totalled 14,700 tons for the year.
Thailand’s state-run Dairy Farming Promotion Organisation (DPO), which makes the Thai-Danish milk brand, is one of several dairy processors looking to develop sales to other Asean countries in future.
Thai-Danish UHT milk in brick packs has been available in Myanmar, Cambodia and Laos for many years. Direct exports to these neighbouring markets are expected to rise in future due to the increase in visiting tourist numbers and rising household incomes resulting from economic improvements.
DPO buys 500 tons of milk daily for its five processing plants. The company is currently building a new UHT milk production plant in Lampang in northern Thailand that is expected to open by the end of this year.
The Baht 700 million (€15.7m) Lampang plant is intended to use growing milk production developing from the northern region that dairy farmers are finding difficult to dispose of, particularly during school holidays when school milk supplies are stopped.
When the new plant is completed and in production, DPO’s daily raw milk purchases will increase from about 18 per cent at present to about 30 percent of Thailand’s total raw milk supply. UHT milk and other products from the Lampang plant will be exported to China and Vietnam. DPO also plans to expand its original dairy plant in Saraburi, central Thailand, and set up a powdered milk plant to use surplus milk production as total raw milk output grows in future.
Meanwhile, CP Meiji is constructing a second dairy processing plant in Saraburi that is planned to increase the company’s total processed milk, yogurt and other dairy goods capacity in Thailand to 300,000 tonnes per year when the new facility starts up later in 2014.
The new plant is designed to produce 160,000 tonnes of milk and yogurt products yearly and will more than double CP Meiji’s total existing capacity in Thailand, which is capable of producing 140,000 tonnes of milk and dairy products annually.
Total pasteurized milk sales in Thailand were worth Baht 16 billion (€359m) in 2013, CP Meiji estimates, up seven per cent compared with 2012. The company has a 53 per cent share of Thailand’s pasteurized milk market, compared with 47 per cent in 2010.
Meanwhile, Foremost Friesland (Thailand) plc remains Thailand’s largest drinking milk products supplier with a 19 per cent market value share in 2013.
The company is currently promoting its Foremost 55 brand using celebrity endorsements, anticipating that more consumers will switch from drinking bottled mineral water, tea in cans and other soft drinks, to drinking milk in future.