3. The dairy industry

As is the case in most developing countries, cattle in Thailand were used primarily for draught and for meat production and not for dairy farming (Suzuki 1997). Hence the dairy industry remained of very small size until relatively recently. It is said that Indian migrants started dairy farming in Thailand in the eighteenth century. According to Chantalakhana (1995), dairy farming in Thailand during the 1940s and 1950s was unimportant, and mainly in the hands of dairy cattle raisers of Indian or Pakistani origin living in the suburban areas of Bangkok. Chantalakhana points out that the promotion of dairy farming was confined to experimental scale farms operated by the Department of Livestock Development and Kasestart University, which at the time operated under the Ministry of Agriculture and Cooperatives. In the 1950s, the distribution of powdered milk to government health clinics and schools took place under a joint program between the United Nations and the Thai government. This programme made Thai people familiar with milk and provided a foundation for the subsequent development of the dairy industry. In 1956, a Dutch company started producing plain and flavored milk in Bangkok (Suzuki 1997).

Thirasuttakorn (1995) explains that the systematic development of the Thai dairy industry only really began in the early 1960s when His Majesty the King of Thailand became interested in the Danish dairy industry following a visit by the King to Europe. This led to the establishment of the first dairy - the Thai-Danish Dairy Farm - at Muak Lek in Saraburi Province (to the north-east of Bangkok) in 1962. When the cooperation program between Denmark and the Thai government finished, the Dairy Farm Promotion Organisation (DFPO) took over the project farm^[5]. Since then, the DFPO has played an important role in introducing technology to farmers and organizing dairy cooperatives in the central region. It was privatized in the mid-1990s, but still works as one of the largest producer organizations in the country (Suzuki 1997).

It seems that while the industry was to play a role in the improvement of Thai diets and in saving foreign exchange, perhaps of more importance was the industry’s perceived ability to contribute to the social objective of improving the incomes of poor producers and rural households with little or no land. According to Danida (1995), this latter goal is the criterion that should be used to evaluate the industry. Polvatanasug (1995), on the other hand, has the view that the objective of the government for the industry is to progressively replace imports of dairy products by local production. Pichet (1991) adds the generation of employment and the development of milk processing and dairy product manufacturing to these objectives.

The dairy industry received a boost in 1978 when the Dairy Farm Promotion Organisation of Thailand drew up what turned out to be an ambitious 10 year plan to raise fresh milk production to a level necessary for self-sufficiency. In 1983 the Ministry of Industries introduced a regulation affecting skimmed milk imports. This regulation involved a mixing ratio. It required producers of pasteurized or ultra-heat treated milk to use at least one part of raw fresh milk for every part of recombined milk (Chantalakhana 1995). Also in 1983, the Ministry of Commerce introduced a permit system for milk imports. According to Chantalakhana (1995), under arrangements that existed in 1995, imports are allowed provided the firm involved in importing guarantees “to purchase 20 kg of fresh milk for each one kg of imported powder milk” (p.2).

The dairy industry remains largely under the control of the Ministry of Agriculture and Cooperatives. There are a number of other agencies that also influence the industry, with the most important of these being the following.

• The Dairy Farming Promotion Organisation is a state enterprise that was established in 1971. Its broad objectives are to promote dairy farming; to provide training in dairy husbandry through extension work; and to develop the processing of milk products.

• Support services similar to those provided by the Dairy Farming Promotion Organisation are provided by the Department of Livestock Development. These include training, extension, veterinary services and artificial insemination.

• The Bank of Agriculture and Agricultural Cooperatives (BAAC), a semi-government institution, is the main lender to the agricultural sector in Thailand including the dairy industry.

• The government organisation responsible for the promotion and supervision of cooperatives is the Cooperative Promotion Department. It encourages the establishment of cooperatives with the objective of improving the standard of living of their members. It also monitors the management and operation of the cooperatives to ensure that they run according to government regulations.

The Thai industry is organized along cooperative lines. Thirasuttakorn (1995) explains that there are a number of basic requirements to form a cooperative. There must be a minimum of 60 farming families, with at least 300 cows between them. The distance from the milk collection point should be no more than 20 km and there should be an approved market for the milk. Importantly, the intending cooperative should have veterinary and artificial insemination facilities available. Not just any farmer can become a cooperative member. Farmers have to have passed a training course on dairy farming and have a minimum of 10 rai of land and preferably a minimum of 5 cows. Danida’s view is that the five cow requirement has resulted in an industry based upon a “small rural elite” (p.6).

In 1994, there were 63 primary dairy cooperatives in Thailand, operating under the umbrella of the Dairy Cooperative Federation of Thailand. There were about 12 500 dairy farmers and no more than 50 000 milking cows (Danida 1995). This compares with 114 cooperatives in 1962 (Chantalanhaka 1995). Most farmers raise three to five dairy cows, although some farmers have as many as 10 cows. About one percent had more than 40 cows. Seven of the dairy cooperatives had processing units in 1994. The cooperatives also operate feed mixing plants to meet the animal feed requirements of members and they also provide technical advice and training to members.

Thirasuttakorn (1995) points out that the cooperatives often lack the financial resources to invest in milk collection facilities and in transport and processing facilities. She also indicates that the limited number of people in the dairy cooperatives with an adequate knowledge of management, accounting and extension is a problem for the industry. It seems that for many cooperatives, in the early 1990s, the scarcity of trained personnel resulted in them being run by government officers. Cooperative members had little, if any, say in the operation of the cooperatives.

The largest dairy cooperative is the Nong Pho Dairy Cooperative in Ratchaburi Province. Set up in 1977 with the help of a government grant (Prohmtong 1991), it is located about 70 km south west of Bangkok and had 4 358 members in 1992. The Nong Pho Dairy Cooperative has received strong support from the Thai royal family and expanded its activities to include a dairy factory and an animal feed manufacturing plant. Since 1980, it has operated a milk plant capable of producing ultra-heat treated milk. Prohmtong (1991) provides details of the establishment of other dairy cooperatives in Thailand as well, and explains the nature of the support that the government has given to the cooperatives. In brief, this assistance has included the following:

• The provision of money to cooperatives for investment in cattle and equipment;

• Training of farmers through extension programs in dairy cattle management and dairy cattle health;

• Training and education of cooperative management; and

• The provision of loans to farmers for animal feed and for the purchase of animals.

For their part, the cooperatives engage in the activities listed below.

• The operation of milk collection centres where the farmer can ship milk. This milk is purchased at a base price adjusted for butterfat content, protein content, bacterial count, sediment, water content and farm hygiene.

• The processing of milk or the sale of the milk to other processors.

• Operating feed mills to produce feed concentrate and feed rations for members.

• The bulk purchase of equipment used by dairy farmers on their farms.

• Providing extension services to farmers to improve farm management.

• Facilitating loans from the Bank for Agriculture and Agricultural Cooperatives.

• Running seminars to improve management practices.

Some of the features of the dairy cooperatives in Thailand are shown in Table 3.1 and in Table 3.2.

Table 3.1 Dairy cooperatives in Thailand

Because of the time and labour constraints facing the farmer, dairy farming is generally only combined with the raising of poultry (Chantalakhana 1995). Farmers, organised into 32 different zones or groups depending on their location in relation to the cooperative of which they are a member, receive payment for milk on the 5^th, the 15^th and the 25^th of each month. The price they receive is based upon the fat content of the milk as well as its bacterial count (Chantalakhana 1995).

Table 3.2 The numbers of dairy farmer members, dairy cows and the quantity of fresh milk collected at different collection points, 1995 to 1999

Source: Office of Agricultural Economics www.oae.go.th

The dairy industry has played a part in the restructuring of the Thai agricultural sector that was mentioned in the first section of this report. As an example of the types of changes involving dairying, some farmers in the Central Plains have switched from the growing of rice to the growing of grass for dairy cattle. Dairy farming requires a relatively large capital investment. A cow in the early to mid 1990s cost between Bt15 000 and Bt20 000 (about US$600 to US$900 at the exchange rates prevailing then). As well as the capital required to purchase cows, farmers must build pens and convert rice land to grass land (Sectoral Economics Program 1995). Rice farmers who move out of rice growing into dairy farming receive a long term loan from the government backed Bank of Agriculture and Agricultural Cooperatives (BAAC) to buy five dairy cows, repayable in 12 years. The interest rate was 9 percent per year with a seven-year grace period for capital repayment. Additional loans at 9 percent interest were also available to build pens, for land preparation for the growing of animal feed and for water supply development. The grace period for these additional loans was two years. The government guaranteed the price of milk to these farmers. The obligation of farmers was to reduce the area of rice and replace it with grass at the rate of 5 rais of grass per dairy cow.

Farmers raising beef cattle receive similar incentives to those given to dairy farmers. They would not be eligible for additional loans to build pens, but would be eligible for one year loans of about Bt7000 to Bt10 000 each year to be used as working capital in beef raising. The period of eligibility was nine years after four years of participation.

Of Thailand's 74 provinces, in 1993 only two provinces were without dairy farms (Chantalanhaka 1995). The large farms make use of imported Friesian Holstein cows as breeding stock, but “the economic viability of purebred cows for milk production has not been clearly shown ...” (Chantalanhaka 1995, p.5). The Central region of Thailand is where most dairy cattle are to be found, but the region where growth has been the strongest has been the North-eastern region (Figure 3.1).

Cows make up over 50 percent of the dairy herd and each produces on average about 10.89 kg of milk per day. Farmers received Bt7.96 per kilogram for milk in 1995, a price almost unchanged in nominal terms since 1993 (Table 3.3). Milk production figures between farmers vary greatly. Suzuki (1997) found from a survey of 12 farmers in the Thaluang Dairy Cooperative^[6] that production per cow varied from 8.44 kg per day for the worst farmers to 14.42 kg per day for the best farmers. Surprisingly, in Suzuki's survey there was no decline in daily production in the dry season. Chantalakhana (1995) believes that the high price of land has led to a shortage of forage while employment opportunities away from the farm for the younger generation has led to labour shortages. Chantalakhana (1995) points out that dairy research has been given top priority in Thailand, with major effort being directed towards improving milk yields to between 10 kg and 15 kg per day and reducing calving intervals from an average of 450 to 500 days to 360 to 370 days.

As mentioned earlier and in common with the beef industry, most dairy farms have only a few head of cattle. Over 21 000 dairy cattle were held on farms with less than 2 rai of land and 27 930 dairy cattle were on farms with more than 140 rai. Over one third of dairy cattle were in herds where cattle numbers were between 10 and 20 head.

Figure 3.1 Dairy cattle numbers by regions

Table 3.3 Dairy animal numbers, the farmer’s milk price and daily milk production

Note: Dairy cattle numbers are different from those in Table 3.2 because of different reporting periods. Data from 1966 to 1999 are from Livestock Situation 1998 and Trend of 1999. Data for 2000 are from Livestock Situation 1999 and Trend of 2000

Figure 3.2 and Figure 3.3 show the distribution of dairy cattle according to herd size in the four regions and the distribution by farm area, again in the four regions. Both figures make clear the dominance of small farms in the dairy industry.

Figure 3.2 Distribution of dairy cattle by herd size and region, 1993

Figure 3.3 Distribution of dairy cattle by farm area and region, 1993

The dairy industry has a number of problems. Collection and transport costs are high and refrigerated distribution systems are poorly developed (Kehren and Tisdell 1996). Farmers have only limited access to pastures and this can lead to overgrazing and low levels of milk production. Due to the limited availability of pasture as a source of feed, the use of concentrates, industrial by-products and crop residues is of importance. Pichet (1991) argues that improved feed management would lessen the need for concentrates as well as reduce the level of nitrogen fertilizer used. He also says that greater use should be made of agro-industrial by products.

Opinions about the future of the industry vary. On the one hand, Polvatanasug (1995) believes that the industry “will probably not increase greatly over the next few years” (p.28). The reasons for this is that forage is limited and land prices have been increasing. On the other hand, by 2001, the Department of Livestock Development (1996) expected the demand for raw milk would have been 972 210 t, which represents an average annual increase of 9.67 percent over the 1994 consumption of 403 933 t. On a per person basis, consumption of drinking milk in 1994 was 6.81 kg, with most of the consumption occurring in urban or semi-urban areas where marketing facilities, education and income levels serve to facilitate milk consumption. The Thai government introduced a school lunch program in 1994-95 to encourage milk consumption by school children outside urban areas. Its overall objective is to increase consumption to 15 kg per person by 2000 (Chantalakhana 1995).

The Department of Livestock Development has identified problems the Department believes face the industry. These relate to high production costs due to high feed prices; low milk production efficiency due to poor management and poor quality animals; the use of low fat powdered milk to produce drinking milk rather than raw milk because of lower costs; and the poor quality of raw milk. Chantalakhana (1995) believes that the high price of land has led to a shortage of forage while employment opportunities away from the farm for the younger generation has led to labour shortages.

In the Seventh National Plan that ran from 1994 to 1996, the Department of Livestock Development had programs to improve production efficiency. The improvements were achieved through artificial insemination, improvements in animal feeding, animal care and health. The outcome of these projects, according to the Department of Livestock Development (1996) was to increase production from 7 kg per cow per day to 10 kg per cow per day. The number of cows also increased from 165 700 in 1991 to 266 100 in 1994. Milk production overall increased from 193 000 t in 1991 to 326 400 in 1994. As is the case in most developing countries but particularly those where there is a tradition of consuming dairy products, there is an informal milk sector. Franchises have been given to hawkers and small shops to sell bulk pasteurized or boiled milk. There is no reliable public information on the size of the informal sector.