Super Agri Thailand "98
Thailand is one of the few net food exporters in the world and in fact, the 5th largest global food producer. As in past history, this will be the one important contributor to the country's expected economic recovery in 1998. The kingdom should perhaps be better known for its agriculture and fisheries, than for its much fanfare now recession plagued, service, finance and 'big-ticket' industries.
By example, the Kingdom grows 40 different kinds of chili peppers but that is just a miniscule snapshot, as Thailand is clearly the world's leading producer and exporter of rubber, pineapples and prawns besides rice and fishing products. Thailand is also a leading global supplier of cassava. The kingdom produces some 21 million tons of annual fresh cassava roots. Recently this represented about 13 % of the world's total output. Cassava roots are fed to tapioca factories and so turns into some 1.5 million tons of flour and more than 5 times this amount into pellets. The bulk of this output supplies foreign markets, especially to the EC, which absorbs close to 60% of the total tapioca products. The EC has for long been reducing it's own government subsidiaries and so Thailand is reaping some new benefits. The recent Baht devaluation is clearly the new major positive. Versus the EC and the US, the local Thai currency is currently some 60% cheaper. Hardly a marginal amount.
Thais grow a variety of oil seeds for the vegetable oil industry but here, output is still short of demand. Farmers grow palm fruits groundnuts, coconuts, castor beans, soybeans, sesame seeds and sunflower seeds. Only soybeans and palm fruits are of any significance.
Between the year 1982 and 1992, planted areas for each product nearly tripled. Most oil palms grown in the south planted areas. Soybeans are substantial and mostly grown in the North. With nearly 1-mill acres (1994) production reached 452,000 tons. Most of this output supplies the factories of cooking oil. The remaining is for animal feed. Malaysia is the prime competitor as they the worlds biggest palm oil producer. Palm oil is now a major export candidate as its price in local currency is a bargain on world dollar dominated markets.
Thailand has a noted supply of sugar-producing plants, especially palmyra palm, coconut palm and sugarcane. The latter is a principal raw material and so a growing source of income. Between 1970 and 1992 its share of crop revenue increased from 1 to 8 percent. Planted areas are nearly 2.5 million acres. Recently harvests here, represented 4 % of the world have output with exports of nearly 1 billion US $. Mostly to ASIAN countries. The Thai government keeps control over pricing, production and distribution.
Thailand is currently the world's biggest producer of natural rubber. This contributes nearly 12% of total agri-revenue. So it is the country's second most important agricultural product. (Behind Rice). Rubber plantations make up some 4.7 mill acres and this is nearly 9% of the cultivated land. The vast majority of this is in the South.
While rubber is a fairly recent crop, it has evolved dramatically. Over the past decade production more than double and a new high-yield species was introduced. This growth has encouraged the development of the related processing industry. Even in Phuket, there are rubber trees covering many steep hills. A local University study has show that rubber exports are expected to be the fastest growing next year. Note: I am adding STA (56) to my agri/food model portfolio and hope to soon issue a write up on this company. (See note here *) STA is listed in the Agri sector and is Thailand's largest added value rubber products producer.(like rubber gloves).
Some 180-rubber factories operate in the country both small and some very large. Producers of world leading brands of tires, for instance, have subsidiaries in Thailand to get to this key raw material. These so called para-rubber trees, have a live expectancy of 25 to 30 years, after which time they cease to produce rubber latex. This then gives a substantial harvest of wood for a new furniture and carpentry industry.
Pineapples by far are Thailand's biggest fruit crops. In the past 3 years this has produced, fairly constantly, some 2 million tons or, around 20% of the world's total harvest. Most of this crop supplies processing factories for making juices and various canned products (Fruit Cocktail). With little maintenance, pineapple is easy to grow and does so all year around. They are plentiful here are an excellent source of fiber and I think, increasingly popular around the world.
Thailand has a most impressive fishing industry, virtually ranking among the biggest in the world. The annual catch reaches over three million tons of which some 90% are marine fish while remaining are freshwater fish. Inland fishing comes from rivers, reservoirs and inundated areas. Marine fishing takes place in coastal, offshore, and deep-sea areas. Factories process much of the output. Processing plants are often located inland, although some floating factories collect trash fish from fishermen and process it right on board. This is a long and well-established industry. At the turn of the century it was the main source of protein and Thailand has maintained its prominence in this big global business. Tuna is the second most important fishery product. (Prawns are the first). In 1995 some 325,000 tons of processed tuna was sold to the world market for close to 920 mill. US $. The principal products are frozen and canned Tuna. Subscribers will note the dramatic rise in Thai Union Frozen Foods stock from 21 to 62 since thaistocks.com, recommendation.
While non-food related commodities are often price-depressed especially in today's global low inflation environment, they nevertheless make an important contribution. Thailand is rich in extractive resources. The country produces over 40 different minerals including limestone, zinc, tin, lignite gypsum and gemstones. Also recently discovered oil and gas are now top revenue earners. Padeang Industries (PDI) for example, is most likely the world low cost producer of Zinc. Fluctuations in world commodity prices on these raw materials will change rapidly with each one's own success contribution. The production of gypsum has been long expanding while the current recession may now dent this down. Between 1986 and 1992 for example, production here increased from 1.7 mill tons to 7.1 tons. Most of this is exported to Japan.
Thailand has huge reserves in rock salt. This is claimed to be the world's largest reserve. Located in the Northeast with known reserves reported to be 5 Billion Tons. Rock Salt is used in the production of detergent, toothpaste, seasoning powder, chlorine, plastic batteries, corrugated iron, dyes, freon, soap, even fish sauce.
| Exports of tobacco, petroleum products, food and mineral products combined, These are by far Thailand's biggest single group of total export revenues. * |
* Source: Based on Office of the National Economic and Social Development Board OPM, Bangkok 1994
Not so long ago, this was Thailand's biggest manufacturing industry.
The food processing industry has expanded steadily over the past decade, although not as rapidly as other industries of which many are now on an economic downturn. Not, however, the food processing export industry. Here growth remains good and exports are leading the way. In past years this sector has been much forgotten in the heat of the now past manufacturing boom. Today, it remains an ever more important export earner. Food processing is a direct outcome of Thailand's extensive agriculture. On the local stock exchange it is already larger capitalized than the Agri-sector. Both list a total of 29 companies. This will be magnified in 1998, for the special reasons noted below. Perhaps it's even appropriate to be calling next year, "Super Agri Thailand '98".
- The new weak SE Asia's currencies (remember, much global food is priced in US $), will result in part of SE Asia, becoming the new "food basket" for the ever more populated world.
- Thailand has always been and will remain a sort of Agri-power in the region, even to the world. The King of Thailand has for 50 years very committed and made substantial contributions.
- The special weather effect called El Nino is getting some deserved World attention. Regional areas like North Korea and Iraq are in dire need of more food. Who will supply this?
- Thailand's effort in the past few years is notable for adding much value to many of its' basic food products. There are many examples like, instant rice & instant glass noodles, Fish Sauce; Frozen cooked Shrimp & Fish, Pet food for USA (which is a huge business). Cut flowers, rubber gloves & toys, canned fruit & vegetables of all kinds. Frozen vegetables, cassavas powder to Russia etc. And many more.
- Export funds are now more available. The government and the IMF, have new programs to help inject liquidity into the local export industry, so to perk it up. For good reasons, as the food export sector will become the Government's new favored industry, I predict.
- Indonesia in 1998, will be an un-expected big importer of a variety of foods due to expected huge shortfalls arising to the long forest fires, fiasco.
More on the food processing industry…
Processing techniques for this industry are various. Freeze, preserve and dehydrate food. Canning is the most common method. It applies to vegetable fish and fruits besides the vast seafood industry. Dehydrating is less popular and used only for a few vegetables, fruits and seafood products.
Thailand is a leading supplier of fishery products and the seafood processing industry is an important foreign exchange earner. There are factories of shrimps, squids, clams, crab and various fish products. The main products are however canned tuna and frozen prawns. Canned tuna is perhaps the most renowned of Thai fishery products. Since the mid 1980's, Thailand has been the world biggest supplier of canned tuna. A few such products even dominate the whole industry. Biggest markets are to Japan, the US and Europe. Since the US accounts for more than half of Thailand's exports of canned tuna, the recent Thai Baht floatation is highly beneficial to companies like TUF. (See earlier write up).
Many of Thai factories process large quantities of fruit and vegetables. In 1995 their exports reached near 1 Bill. US $. Processed fruits are especially significant accounting for some 3/4 of the total. Thais grow vast quantities of high -quality fruits and vegetables year -round and factories process many of these. While there are more than a dozen of these, Pineapple is by far the most important. Among vegetables, young corn and bamboo shoots are prominent. Canned Tomatoes, which I have tried, are among the best in the World. Many Thai canned products are known for their quality. They have secured steady sales in North America and Europe; these are also distributed in most Asian markets. The main competition comes from China and the Philippines, whose products are slightly cheaper but of inferior quality. In China's case, the recent Baht collapse will give Thailand a pricing edge.
In the 1960's the record showed that the share of agricultural exports to total exports was a high 90 %. This dropped to 70.3 % in 1970 and to 51% in 1980 and finally, to 23% in 1990. Obviously the importance of agricultural exports is much less today than it was 20 years ago. This statement masks however a more important reality. Before and after, data shows that agriculture has contributed enormously to the foreign exchange earnings capabilities of Thailand.
Worth noting, Agricultural productivity did not increase as rapidly as its production, partly because of high fertilizer prices, inefficient farming techniques and a lack of modern farm technology. This situation improved however by end of the 1980's, when the level of fertilizer use and farm mechanization increased dramatically. Continued progress here will make a big difference in enhance productivity.
Still total agricultural employment has remained very high in comparison with the contribution of agriculture to the country's total GDP. This indicates very low labor productivity in the agricultural sector. Even a small improvement will make a big difference in productivity.
| The main point here being that, even after years of rapid industrialization, Thailand still has around 60 % of the countries total work force, employed in the agricultural sector *. |
This means then that food prices, food processing and the successful exports of these, are more important to the countries aggregate populous than the much-publicized elements of the current economic crisis. Also, as noted, new implemented productivity improvements could quickly make a difference in output. It is tempting to conclude that the Thai economic recovery will be kick-started .. "Buttoms up"; from the nation poorest, indeed the vast majority. Wealth would so transfer hands, as it always does, in an economic crisis. *According to the National statistical Yearbook Thailand, 1995.
Note:
Much of the background for the above article comes from The Bangkok Post; Annual Economic Review 1996 and a comprehensive textbook called "Thailand's Industrialization and its consequences". Published by ST. Martin Press in 1995. And various other printed and on the net, news sources believe accurate and reliable.
Relative performance of the Agri and Food sector since the temporary rise of the S.E.T. Index, in mid July '97. The market peeked some 3 weeks after the Baht flotation on July 2 '97. Here is snapshot of relative performance since then.
Market capitalization of the Food Sector (total of 29 companies):
| 34,921 Mill. Baht | on July 20 '97 | S.E.T. Index at 653 |
| 28,047 Mill. Baht | on Nov.21 '97 | S.E.T. Index at 421 |
| % change: -19.7 % | % change -35.5 % |
Market capitalization of the Agribusiness Sector (total of 29 companies):
| 24,430 Mill. Baht | on July 20 '97 | S.E.T. Index at 653 |
| 23,819 Mill Baht | on Nov.21 '97 | S.E.T. Index at 421 |
| % change: -2.5 % | % change -35.5 % |
Percent change of Food and Agribusiness sector from July 20 to Nov. 21 '97: -11. 1 % Percent change of the S.E.T. (during the same period): -35. 5 %
All numbers taken from "Tisco Highlights" weekly bulletin.
Please note, today, I am adding STA (56) to my model food portfolio:The full companies name and address is:
SRI TRANG AGRO-INDUSTRY PUBLIC COMPANY LIMITED10 SOI 10 PETCHKHASEM ROAD, HAT YAI, SONGKHLA 90110
Best Regards to all our subscribers.
Paul A. Renaud
