Báo cáo khoa học nông nghiệp " Developing a strategy for enhancing the competitiveness of rural small and medium enterprises in the agro-food chain: the case of animal feed " pdf

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

Thailand Study Tour Report
June 9-13, 2008

Date: December 1 2008

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1. Introduction

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

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

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

Thai Feed Mills Public Company Limited and Mr. Pornsil Patchrintanakul, President of
Thai Feed Mill Association played host for the trip. The delegation met with the Thai
Department of Livestock Development, the FAO Regional Livestock Office, the Thai Feed
Mill Association, both small and larger field mills and visited a dairy farm. Further details
of the visits and contacts are in Appendix 1.

The main learning outcomes of the trip in the three areas of interest (above) are outlined in
the following Sections 2, 3 and 4. Some Vietnamese policy issues raised by the FAO
Regional Livestock Office in Bangkok are discussed in Section 5, and key lessons learnt
are outlined in Section 6.

2 Livestock feed production in Thailand

2.1 Feed production and input use

In Thailand, the feed sector is dominated by large companies – particularly the CP Group.
The Thai Feed Mill Association said that their 56 members (some members have more
than one mill) produced 70% of the livestock feed products. Almost all feed is produced
for domestic consumption. The DLD listed a total of 655 mills – but this must include
many small “farmer mills”. Additionally, the Thai Feed Mill Company said that there are
also a number of small unregistered mills that really just mix feed products (grinder plus
bagging equipment) and are not under the control of the DLD.

The number of feedmills has remained relatively stable over a number of years, indicating
a mature livestock feed sector. Interestingly, the domestic price of livestock feed has been
controlled by the Thai government since 2003 through the Ministry of Commerce
(Department of Interior and Internal Trade). Additionally, the annual plan on amount of
imported materials is approved by Thailand Feed Association.

Thailand is usually self-sufficient in corn and cassava for livestock feed, only importing

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

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

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

2.2 Supply chain

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

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

companies entering the market, and many un-competitive firms have already left the
sector. Two SMEs that were visited on the tour were the Thai Feed Mill Company and the
Mualek Dairy Cooperative.

For Thai Feed Mill Company, the marketing share for the company is low – estimated at
2-3%, but they plan to be the biggest producer of cattle feed. Cattle feed was indicated by
FAO staff as one area that CP does not dominate, and hence is often targeted by smaller
mills. Thai Feed Mill Company market to dealers and direct to large-medium sized farms –
with the smallest buyer requiring about 20 MT/month. They supply a bulk product to some
farms.

Mualek Dairy Cooperative sells to their own members, other dairy cooperatives in the
area, a number of large farms owned by the military, a government farm and one private
farm. They are looking to expand their market to agents in Chang Mai. Of their
production, about 900 T/mth is for coop members and the remainder of 800 T/mth goes to
their network of other farms.

2.3 Quality control

Most of the 56 members of the Thai Feed Mill Association (TFMA) have at least GMP
(Good Management Practice) accreditation. The smallest mill capacity in the Association
is around 5 – 6,000 T/mth (medium-large from a Vietnamese perspective). Feed quality
control is under the control of the DLD – the TFMA is not involved at all. There are
always markets for low and high quality feeds – small companies compete on price.


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2.3.1 Registration of livestock feed products and testing:

The DLD (Bureau of Livestock Standards and Certification) only specify a minimum of

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

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

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

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

2.3.2 Promoting GMP and HACCP systems

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

HACCP systems – mills first get GMP accreditation and then may go on to HACCP. The
DLD provide training courses - free of charge to mills - a week of workshops are offered 5
times/year.

In 2007, 86 mills were GMP approved and 44 HACCP approved (out of 655 total mills).
According to the Thai Feed Mill Association, “almost all” of their 56 members had at least
GMP accreditation.

2.3.3 Export products only from “standard farms”

Only 35 mills supply livestock feed to the “standard farms” which are those licensed to
produce meat products for export. EU-approved food safety monitoring and auditing
systems are in place, including traceability. In this way, the Thai government (through the
DLD) keeps a close control on feed safety and food safety of export products. Food safety
is a high priority (see the handout from DLD which outlines the DLD role for food safety
from purchase of raw materials through to farm inspections and slaughtering).


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2.4 Price control

The domestic price of livestock feed has been controlled by the Thai government since
2003 through the Ministry of Commerce (Department of Interior and Internal Trade). A
cap is put on the maximum price able to be charged by individual mills for their products
(based on costs of production, etc.)

The FAO considers that Thailand government control of the feed price is “unusual”, and
has come about because of the political influence of farmers – who often protest against
rising livestock feed prices. Livestock feed is on the “sensitive list”. The Thai Government
has to balance “big industry interests” with “farmer interests”.

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

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

2.5 Role of Thailand Feed Association

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

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

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

The Association also plays a role in applying to the Government each year for the amount
of soybean meal imports that can be made at the “quota” tax rate (4%). The “official”
quota is too small, and the over-quota rate is officially 119%. Because of this, firms must
notify the TFMA (in about June the year before) of how much soybean meal they wish to
import each year, so that the Association can calculate how much they need to apply for.
After the application is “considered”, the Association notifies mills of their import
amounts.

3. Participation of SMEs in the livestock feed sector in Thailand

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SMEs in Thailand focus on dairy cattle because they can’t compete with CP and Betragro
in other areas. Some SMEs in the livestock sector (e.g. a piggery with 2000 sows) will
have their own mill. SMEs should target the local market – produce an acceptable product
for domestic consumption. Some main information and insights from the two visited
SMEs are given in the remainder of this section.

Thai Feed Mill Company has a capacity of 200,000 MT/year (18,000 MT/mth), produces a
range of livestock feeds and employs 110 persons. The mill has GMP accreditation. The
Company has 2 other mills and one broiler processing factory. By Vietnamese standards
this mill and company would be large (rather than medium).

Mualek Dairy Cooperative was established in 1972 and has around 800 members (around
20,000 head of cattle including 8-9,000 milkers). They provide a variety of services
including: milk marketing, livestock feed products, fuel, veterinary and AI services,
pregnancy testing, credit (against milk sales), rice straw in the dry season. They appear to
be supported by people from government (DLD) and universities (e.g. the university
livestock people developed their feed recipes). The feedmill was set up in 2002 –
sponsored by the Asian Development Bank through the Ministry of Agriculture – with an

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

3.1 Challenges facing SMEs

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

3.2 Advantages of having SMEs operating in the sector

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

3.3 Feed quality of SMEs

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

3.4 Strategies used by SMEs to compete with larger mills in the sector

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As mentioned by Thai Feed Mill Company, they consider “sales and service” to be their
strength. They aim to “improve production of the farms by lowering production costs” –
even though their price is not low. They consider the feed conversion rates (FCR) of their
products to be better than their competitors. Sales strategy is to target the north and north-
east areas. Another company mill targets the south. They advertise in livestock magazines.
Targeting farms for direct sales is also a strategy.

As for Mualek Dairy Cooperative, they seem to be well managed and offer a diverse range
of services to members. They appear to be confident about their products (which are tested
on cooperative leaders’ farms) and their buying strategies for (and skills for locating) raw
materials. The hygiene standard of the mill for stored products was not high, and the
laboratory was only basic. They don’t store a lot of raw materials – but “buy fresh
continually”.

4. Role of public policy in the sector in Thailand

4.1 Government policy supporting livestock feed SMEs

There are policies which directly support or affect firms in the feedmill sector, although
they are not specifically focused at SMEs. The DLD can assist with education and advice
on how to set up GMP and HACCP standards. They provide free training for this (see
earlier). The DLD will audit feedmill plant for GMP. All official feed sample testing is
done in the DLD laboratory – free of charge to the mills. The sampling is done by DLD
officers at no charge to the mills.

Credit is also supported through a number of avenues. The Bank for Agriculture and

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

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

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

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

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

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

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

The FAO Regional Livestock Offcie considered that there are opportunities for livestock
production in Vietnam. Vietnam has many ducks – but Avian Influenza is an issue.
However, ducks require low capital so this is an advantage. Vietnam is buying cattle and
livestock materials from Laos and Cambodia. Why? SMEs should look for import gaps.

There is potential to go back to draft animal power (because of rising energy costs), and
promote cattle raising and cattle feed.

Government polices are needed on biofuels. The Thai government will soon zone
production areas for food versus energy production. Planning is needed for this.

6. Lessons learnt and their applicability to Vietnam

6.1 Lessons applicable to animal feed policy makers

The DLD has different strategies of quality control for export-oriented livestock products
(i.e. animal feed for export-oriented farms) and livestock products for the domestic market.
Firms producing livestock feed for export-oriented livestock farms are strictly controlled.
However, for both export-oriented and domestic market oriented firms, the Thai DLD is
responsible for testing in the DLD lab system, and all the tests required by the DLD are
free-of-charge. Asking enterprises to keep regular records of their testing results is a good
way of monitoring feed quality as well as helping enterprises to get used to the GMP and
HACCP procedures. Free training courses on GMP and HACCP might be useful for
encouraging mills to have accredited GMP and HACCP. Currently, similar policy is still
not able to be applied in Vietnam due to lack of financial and human resources. At the
moment, Vietnam DLD does not do the testing but encourages other capable units to
provide this service.

The Thai government considers feedmills as agricultural business which enjoys a 0%

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

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

6.2 Lessons applicable to SMEs

Attitude toward challenges and external shocks: It appears that the marketing approach of
SMEs in Thailand is rather positive. Instead of waiting for support from government or
elsewhere, they focus on how to sell above the breakeven point.


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Feed ingredients: Try to source material locally, as much as possible, look for the cheapest
good quality ingredient with the cost as low as possible. This needs to be considered in the
case of Vietnam because Vietnam has capacity to produce raw materials for livestock feed.

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

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

6.3 Possible role for the Vietnam Feed Association

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

However, a change in structure of the VFA should be made so that it can be supported
both in finance and organization. The Vietnam government has a policy to encourage an
active role for the private sector, so it is hoped that a more pro-active policy role for the
VFA can be supported and promoted in the near future.

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Appendix I: Working schedule in Thailand

Date Time Place to visit Contact Address
Monday (June 09)
Flight to Bangkok
Tuesday (June 10)
9:00 – 11:00 Bureau of Livestock
Standard and Certification
- DLD
Mrs. Kanungknit 089-132-1818, 02 -653
-4444 ext 3127
Bureau of Livestock Standards and
Certification
Department of Livestock
Development
Phaya Thai Rd., Bangkok 10400,
Thailand
Wednesday (June 11)
9:30 at the Mill
(whole day trip)
Thai Feed Mills Mr.Teerasant Sirichayaporn
Executive chairman
Thai Feed Mills Public Company
Limited

e-mail -

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

Mr. Pornsil Patchrintanakul, President of
Thai Feed Mill Association
Secretatary: Ms. Sukanya Chaichuen
313 Silom Road, Bangrak,
Bangkok 10500 Thailand
Tel 66 (0) 2 6382213, 6258203
Fax 66 (0) 2 6310850
889 Room No. 170 17Th Floor Thai
Cc Tower Building South Sathorn
Yannawa Sathorn Bangkok 10120
10120 Sathorn
Saturday (June 14)
Flight back to Hanoi

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Appendix II: List of participants

1. Ms. Sally Marsh_University of Western Australia
2. Ms. Nguyen Le Hoa and Ms. Pham Tuyet Mai_Center for Agricultural Policy, Institute
of Policy and Strategy for Agriculture and Rural Development, Ministry of Agriculture and
Rural Development, Vietnam
3. Ms. Bui Thi Oanh_head of the Animal Feed Division, Livestock Department_Ministry of
Agriculture and Rural Development, Viet Nam
4. Mr. La Van Kinh, Vice director, Institute of Agricultural Science for Southern Vietnam
5. Mr. Pham Thanh Ha, Vice Director, Phu Gia Animal Feed Company

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Appendix III: Background information for the trip

There is limited literature available (in English) on the livestock feed industry in Thailand. As

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

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

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

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

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

Thailand has some similarities to Vietnam in terms of feed manufacturing and animal
production but literature regarding these industries in Thailand is not readily forthcoming. To
have some understanding of how small feed manufacturers exist in relation to the giant
companies such as CP would be beneficial.

Livestock sector in Thailand:
• Along with other countries in East Asia (e.g. Vietnam, Malaysia and the Philippines)
Thailand is experiencing rapid growth in its livestock sectors, in particular pig and poultry
production.
• Thailand has become one of the leading exporters of broilers worldwide, and before the
Avian Influenza crisis ranked number five in 2003 after the United States, Brazil, France
and the Netherlands.
• As in Vietnam, Avian Influenza restricted exports and diverted poultry products to the
domestic market – putting a downward pressure on domestic prices.
• Although Vietnam has lower labour costs than Thailand, the costs of pork production in
Thailand can be up to 75% lower than in Vietnam. In the case of Vietnam, feed
constraints including cost and availability account for much of this difference.


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Livestock feed sector in Thailand
• Charoen Phokphand Group (commonly known as CP), a business that started in Thailand
over seventy years ago, originally as a small shop selling seeds. CP began their push into
Vietnam by emphasizing feed quality and the necessity for educating producers about the
benefits of high quality feed.
• Charoen Pokaphand Company (commonly known as CP) is a large-scale producer in
poultry meat production and animal feed products that has influence all over Thailand.
Furthermore, the company runs various business groups of agro-industrial products in
over 20 countries including Myanmar, Cambodia, and Vietnam. It is involved in livestock

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

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

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

labor-intensive firms.
• In general: in Thailand small enterprises have less than 50 employees and medium
enterprises have 50 to 200 employees.
• Small and medium industries (SMIs) have been promoted and constitute a major group of
agro-industry with subcontracting arrangements between the assembling firms and the
SMIs becoming common in the market. The then Overseas Economic Cooperation Fund
or OECF (now Japan Bank for International Cooperation or JBIC) has also extended
credit to small- and medium-scale companies.

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• Thailand, Malaysia and Indonesia have adopted the Japanese SME model with variations
to suit each nation's cultural and social environment. In Thailand for instance, large
companies are allowed to develop ancillaries, which can operate within the same factory
premises and yet are entitled to have independent recruitment, wage structure and service
conditions.
• Japanese model
: Instead of focusing on the disadvantages of SMEs caused by their size,
modern policies now build on the strengths of SMEs that are associated with their
mobility and flexibility in providing small-lot production of a variety of products that are
in demand in the current economic environment. In the case of unexpected events outside
the control of SMEs, the government carries out emergency relief measures as a form of
safety net to stabilize business conditions.
• The role of SMEs in generation of employment differs between countries but is very
important in East Asian countries such as China, Thailand and Vietnam.

Direct connections between the sectors in Thailand and Vietnam
• In 2006, Vietnam became the leading importer of corn from Thailand with Thai Customs
reporting that 125,000 tonnes of the 306,000 tonnes of corn exported from Thailand in
2006 was shipped to Vietnam.

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