Commissioned papers (Contd.)

The financial crisis and the livestock sector in Thailand

Viroj Na Ranong

Thailand Development Research Institute
Bangkok

The livestock sector in Thailand has gone through major changes in the last four decades. Before 1960, almost none of the Thai farmers specialised in livestock production. Most farmers raised animals in their backyards and let the animals graze on their own or fed them with by-products from the farm or even food waste. The animals were small but well suited to Thailand's tropical climate.

As Thailand became more urbanised and infrastructure developed, the livestock sector became more industrialised and specialised, involving a smaller number of farms, each with more animals than in the past. Most livestock sub-sectors become more capital intensive. For some, such as the broiler chicken industry, which has successfully transformed itself into a leading export industry, farming has become a large business, with some undertakings attaining the status of multinational corporations. Other sub-sectors have been less successful in export, but some, such as the hen layers and dairy cattle sub-sectors, have come a long way from the past. Even the pig industry, which is burdened with outdated slaughterhouses, has known substantial development in breeds and the ways they are raised.

In recent years, the Thai economy has faced a major crisis, which began in early 1997 and has yet to subside. It manifested itself first as an export slump, which turned to a balance-of-payment and exchange rate crisis, and later a financial and banking crisis threatening to bring down the real production sector. Different livestock sub-sectors have been affected by the crisis, but in various ways. The findings from this study seem to suggest that the difference is in part on how tightly each type of livestock is integrated in the world market.

This paper is organised as follows: the next section provides background information on the main livestock sub-sectors in Thailand. The paper then turns to the government's role, regulations and measures affecting the livestock and related sectors. It further describes the recent crisis and how each main livestock sub-sector has reacted to it. Finally, it touches on government agencies' perceptions of the crisis and the adjustments they have made to cope with it right away and once Thailand has come out of the crisis.

Background

Poultry

The poultry sub-sector in Thailand mainly consists of broiler and layer chickens. Though ducks are also common, their numbers are unimportant and are not comparable to those of chickens. Other poultry are even less significant than ducks. This paper will therefore focus on chickens only.

• Broiler chicken

During the past two decades, the broiler chicken has become the star of Thai livestock exports. Thailand began to export broilers a little over two decades ago and has since become a leading exporter world-wide. At one point, the amount exported was even higher than the amount consumed domestically.

Of all livestock, the broiler chicken has undergone the most change, and the success of the broiler revolution is the key that has kept its price down. Three or four decades ago, chicken prices were on a par with, and sometimes higher than, those of pork and fish. At present, however, chicken has become the least expensive source of protein.

Broiler development has been largely undertaken by the private sector, with little intervention or assistance from the government. In fact, it can be argued that the government has impeded its growth by protecting the soybean industry. Unlike cattle, broiler chickens sold today are of much smaller sizes than in the past. However, the raising period has been shortened substantially, to around 40–45 days. At the same time, the feed conversion ratio has improved considerably.

One major change in raising broiler in the 1990s concerns housing. Evap housing, a semiautomatic environment which uses large fans and water to cool down the housing of more than 10 000 chickens to a mere 28°C, has allowed the industry to save on costs, especially over labour and housing. Many private firms claim that, technology-wise, Thailand's broiler industry can compete with the best in the world,¹ and that its current handicap is largely due to the government's policy to protect soybean farmers, which causes feed prices to be artificially high.

¹ The Evap houses commonly used in the Thai broiler industry are modified from those used in the United States. While the Thai Evap houses are similar to the close-system houses used in the US, the main purpose of keeping them closed is to keep the inside temperature cooler than the atmosphere. Another difference is that the Thai Evap houses do not use full automation, unlike those found in the US, where a house holds more chickens and uses less labour. This is probably because labour in Thailand is much cheaper than in the US.

Indeed, one major disadvantage that has hampered the competitiveness of the broiler industry is feed prices. Thailand is a country where farmers are still the majority of population² and where ‘farmer’ usually refers to small crop farmers rather than livestock businesses. Therefore, in the last two decades, the Ministry of Agriculture and Co-operatives and, to some extent, the Ministry of Commerce have taken pains to protect soybean and maize farmers, and this has resulted in high prices for the main animal feeds. That Thailand has become a leading broiler exporter was the result of her cheap labour in the past and of the decades of experience of her main exporters, some of which have become multinational corporations that invest not only in Asia but also in the US livestock industry.

² In 1996, about 50 percent of the Thai population were reportedly farmers. However, many of those who call themselves farmers earn more from non-farm activities than from farming.

Because Thailand's advantage used to be cheap labour, not feed price, the type of Thai broiler exports that was most competitive in the past was boneless chicken, which is more labour-intensive than boned chicken. This advantage began to pale as Thai wages rose substantially during the 1990s (up until the financial crisis in 1997) and other Asian countries with lower labour costs - especially China - began to catch up on broiler export. Moreover, Thailand began to lose another past advantage, i.e. her proximity to Japan and to China, which has become the largest broiler exporter to Japan in recent years.

As the wage rate of unskilled labour soared, the industry began to realise that it could no longer rely on cheap labour. As a result, some exporters switched from frozen boneless chicken to processed or precooked chicken (usually in ready-to-reheat or ready-to-eat form). Processed and pre-cooked chicken has become an important part of broiler exports and has continued to grow steadily since 1991. In 1998 Thailand exported 60,943 tons of processed chicken, about 22 percent of all broiler export (Table 1), but more than half of the total export value (Table 2). The growth of this segment has been spectacular, both in quantity and in value. Processed chicken, therefore, is likely to be the star of the future of Thai broiler exports, where more emphasis would be placed on value added than on export quantity or market share.

Two other main trends may affect the future of Thai broiler exports, and possibly the way broilers are raised. First, there is a market for antibiotic-free broilers, especially in Japan. Japanese importers pay a premium for antibiotic-free broilers which is sufficiently high to cover increased costs of production. At present, very few broiler farms in Thailand are capable of raising and exporting antibiotic-free broilers on a large-scale basis. However, antibiotic-free products are most likely to be the new requirement of the broiler industry.

Table 1. Broiler export quantity, 1994–1999 (ton)

Sources: Department of Business Economics, Ministry of Commerce and Thai Broiler Processing Export Association

Table 2. Broiler export value, 1994–1999 (million baht)

Sources: Department of Business Economics, Ministry of Commerce and Thai Broiler Processing Export Association

The second trend is that consumers in developed countries have given more attention to animal welfare. At present, the European Union has taken up this issue for both broilers and layers. Many Thai exporters view the measure as protectionist. Some are rather optimistic, however, as they believe Thailand is in a better position to follow these guidelines than a major competitor like the United States.

The success of the broiler industry in keeping chicken prices down has contributed to a continued increase in chicken consumption. Domestic per capita broiler consumption increased gradually from 3.5 kg per year in 1973 to about 12 kg per year in 1997. After the financial crisis, however, consumption declined to 11 kg per year in 1998 (Table 3).

Table 3. Per capita chicken consumption 1973–1998

Source: Thai Broiler Processing Export Association

Although the industry has been rather successful, it is not immune to crisis, as shown by the 1994–95 crisis, when prices and exports of broilers declined substantially. However, in the midst of that crisis, key players in the industry (whose combined market shares were of about 60 percent) were able to co-operate through professional associations to control the supply.³ In effect, they set up the Broiler Breeding Stock Centre, which has been used to control the supply of breeding stock and thus keep the supply of broilers in check. Judging from the price of broiler since then, it looks like the centre has been successful in stabilising it, although it is probably not the sole factor behind the success. One reason that explains this type of co-operation among big players is that their businesses in the broiler industry are vertically integrated. They are aware that their action in one business may affect the profitability of their downstream operations and presumably take this into account. In addition, since almost all the grandparent and parent stocks are imported and each company's import figures are public, there is no way one player would break his promise without the others finding out.⁴

³ Supply control in this manner is considered illegal under the new competition law passed by the Senate in April 1999.
⁴ The attempt to control supply does not, however, mean to influence the world market, as Thailand's market shares in her major export markets (especially Japan and the European Union) are not very high. In the case of Japan, Thailand supplies about 150,000 tons of broiler each year, about 10 percent of total Japanese consumption (about 1.5 million tons annually, two thirds of which come from Japan's own domestic production). Rather, supply control means an adjustment of domestic supply so that it is not affected adversely by fluctuations in the export price and in quantity.

• Layers

The layer industry is much smaller than the broiler industry. During the last five years, the stock of hen layers has been in the range of 33–48 million (including approximately 10 million chicks), compared to approximately 100 million of broiler stock. Total egg production is approximately 9,000 million annually. During the last five years, more than 99 percent of hen eggs were consumed domestically. The remainder, which is less than one percent, is exported (Table 4). The export figure is expected to be slightly higher than one percent in 1998. Most of the exported eggs go to Hong Kong, the Middle East and Japan.⁵ Usually the export price of eggs is considerably lower than the domestic price.

Table 4. Number of hens, hen egg production, export and per capita consumption, 1989–1999

Source: Office of Agricultural Economics, Ministry of Agriculture and Co-operatives

In the past, there were many small hen farmers throughout the country, and almost all the eggs produced were for domestic consumption, which is evenly distributed in the various regions, except in big cities like Bangkok where demand for eggs is much higher. However, the yield in those small farms was low (less than 260 eggs per hen per year) compared with those achieved in high-tech farms using Evap houses (more than 280 eggs per year). Consequently, smaller farms with 20 000 layers or less began to disappear and be replaced by farms with high technology, especially in Nakhon Pathom and Nakhon Nayok provinces, where almost all new farms have more than two million layers each. The number of farms has decreased. As of today, there are about a dozen large farms (each of which has more than one million layers) whose combined market share is about two thirds of the egg market.

⁵ Hong Kong and Japan together import about 5 billion eggs each year, which is equal to 60 percent of the world egg market.

Some eggs are exported at prices below domestic ones. This means that some type of export subsidy is involved. In some occasions, part of the subsidy comes from the government as low-interest loans or, to a lesser extent, as outright export subsidy (see below). However, in many cases, the large players are willing to take a cut in order to stabilise domestic prices. Furthermore, the fact that less than one percent of the eggs is exported each year suggests that they have been fairly successful in controlling the supply of eggs by controlling breeding stocks.

Domestic per capita consumption of eggs had increased continuously to 142 eggs per year in 1997. However, after the crisis struck, per capita consumption of eggs decreased to about 132 eggs per year in 1998. At present, the prices of eggs and young hens are very good and are expected to continue to be strong in the near future.

Swine

Unlike broilers, pigs have failed to generate an export industry. Thailand used to export live pigs to Singapore but lost the market to Malaysia. Since almost all pigs raised are consumed domestically, pig raising is spread throughout the country, with some concentration in provinces near Bangkok such as Nakhon Pathom and Ratchaburi.

The main obstacle to pig (and pork) export is foot-and-mouth, a highly contagious viral disease affecting practically all cloven-footed mammals. As a large number of cattle is smuggled into Thailand each year, past attempts by the Department of Livestock Development (DLD) to eliminate the foot-and-mouth disease have not been successful, even though the department owns a factory whose main task is to produce foot-and-mouth disease vaccine. The threat of foot-and-mouth disease prevents large-scale export of pigs and frozen raw meat, although cooked pork is usually allowed and some importers accept frozen raw meat from a small number of modern slaughterhouses.

Another problem that hurts pig export prospects is outdated slaughterhouses and slaughtering techniques. There are only four modern slaughterhouses in Thailand. All the others are old or street slaughterhouses, some not fully sanitised. Part of the problem comes from the Ministry of the Interior's regulations, and more important, from a relatively high per-animal slaughter fee (about 50 baht per pig). It is estimated that half of the pigs are slaughtered in illegal slaughterhouses (or slaughtered without inspection in some legal slaughterhouse). However, even for the ones that are inspected, the inspection process is usually not rigorous, since the interior ministry has neither the capacity nor the know-how required to inspect these slaughterhouses systematically.

Using beta2-adrenoceptors agonists (such as Salbutamol) in pigs to increase their lean content has become another problem for the swine industry. Although Thailand has banned Salbutamol, Thai pork has been banned in the Hong Kong market since late 1998 after Salbutamol was found in frozen pork imported from Thailand.

Environmental problems are more common with pigs than with other animals. There has been concern about smells and groundwater quality (notably nitrate contamination), especially in areas where pig farms are common (such as in Nakhon Pathom and Ratchaburi provinces near Bangkok). DLD has for some time been pushing for the creation of pig estates to make environmental and disease controls easier. The idea has received little support from the private sector.

The pig industry has not come along without major developments, however. Native pigs, which used to be predominant in farm backyards, have now almost vanished. Like chicken, they are replaced with imported breeds mostly brought in by private businesses, with little government intervention and with rather limited research and extension facilities. Recently, more pig farms have turned to using Evap houses to keep the pigs cool, which is quite helpful since most fattening pigs raised in Thailand are from western breeds used to cooler climes. Another progress is the recourse to artificial insemination, which is usually done on-farm. In addition, more farms now use software to collect vital data that will help improve farm efficiency and detect and diagnose problems early before they become serious.

Figures on per capita pork consumption are not very reliable since a fairly large number of pigs are sent to illegal slaughterhouses. A rough estimate taking illegal slaughtering into account would put it at about 10 kg per year.⁶ The rough estimate of the Office of Agricultural Economics (OAE) of the ministry of agriculture for 1998 is about 9.3 kg, approximately 11 percent lower than in 1997 (10.5 kg).

⁶ To get reliable time-series estimates is rather difficult because there were major changes in 1996 when the Bangkok Metropolitan Authority's biggest slaughterhouse (with about 500 full-time butchers) closed down. Since then it is believed that the share of illegal pig slaughtering has increased substantially.

Cattle

Traditionally, cattle in Thailand were raised as draught animals to work in the fields, especially in rice fields. However, they have never been as popular as water buffaloes, whom farmers deem more appropriate for working in local conditions. Usually they are sold as beef cattle only after they are retired from work. As for dairy cows, they were originally imported (probably from Bangladesh) by the Indian community in Thailand and were not popular until about four decades ago when dairy cows were brought in from Europe.

• Beef cattle

Beef cattle have never been popular in Thailand. Although many consumers would prefer cattle beef to buffalo beef, each kind of meat could just as well replace the other in most Thai recipes, where beef is usually cut to rather small pieces. There have never been many farms in Thailand that specialised in raising fattening cattle for beef alone. Those that did could only sell in very narrow markets such as foreign-cuisine restaurants or first-class hotels, because their beef was much more expensive than that from draught cattle or buffalo carcasses, itself usually more expensive in turn than pork and broiler and thus less popular.

In fact, beef is the only meat the consumption of which had been declining even before the financial crisis, due to different factors in both demand and supply. On the demand side, besides the relatively high price of beef, the fall in beef consumption can be linked to the rise of a religious sect.⁷ The demand crumpled even more after cases of anthrax were found in Thailand in early 1997. Then the world-wide panic over Bovine Spongiform Encephalopathy, the so-called mad-cow disease which originated in England, added fuel to the fire. On the supply side, as two-wheel tractors become more popular among Thai farmers, the demand for draught animal has continued to drop. As a result, the supply of beef cattle continues to decrease. Modern farms that specialise in raising beef cows face fierce competition from the smuggling of cattle, which is common along the eastern and western borders. Although no one knows the exact figures of smuggling, it is commonly believed that without illegal imports, beef consumption would fall to less than a half of the current figure.

⁷ OAE estimates that per capita consumption of beef has hardly changed in the past ten years (about 2 kg per year). However, everyone in DLD and in the private sector that I interviewed believes that the per capita consumption has been declining.

Table 5. Stock of beef cattle and number of slaughtered cattle

Source: DLD, Ministry of Agriculture and Co-operatives

Non-native beef cows currently raised in Thailand are mainly hybrids of American Brahman and native cows. The American Brahman was promoted by DLD as early as 1975.⁸ However, the pure American Brahman did not take well to the local weather. The department undertook to crossbreed it with native cows to make a hybrid better suited to Thai conditions. At present, the American Brahman hybrid is the predominant beef cow, if one does not count the native cows. However, its fertility rate is still not very good.⁹ Normally, an American Brahman would have a calf in 20–24 months, which is significantly longer than Thai native cows like the Lampoon White, which usually calves once a year. A decade later, DLD also promoted the Australian Brahman (known to Thai farmers as the long-eared cow) among farmers in the Northeast. Because of poor climate tolerance and because many were not fed properly, their reproductive rates were strikingly low.

⁸ Another government agency related to national security brought in male Charolais to breed with native cows twenty years ago. However, after the demise of the Communist Party of Thailand, this agency's role has been rather limited.
⁹ Even in temperate countries like the United States, the American Brahman's fertility rate is not very good.

• Dairy cows

Until four decades ago, dairy milk was not popular among the Thai. Dairy cows (and goats) were raised by the Indian communities in Thailand. The cows were known as Bangla or Cebu, which suggests they were probably imported from Bangladesh and the Philippines. The milk yield was rather low (about 3 litres per cow per day).

In the early 1960s the Danish government helped set up the Thai-Danish Dairy Farm in Saraburi province near Bangkok. The farm was later transferred to the Dairy Farming Promotion Organisation (DFPO), which is the sole state enterprise dealing in dairy production in Thailand. With the Danish government assistance, a number of Redden cows were raised in the farm. The farm has a small-capacity pasteurising equipment and sells pasteurised milk in small bags. A few years later, the West German government helped set up dairy farms and a pasteurised factory in Chiang Mai in the North.

Besides the state-led farms, farmers in a few provinces of the Central Plains, e.g. Ayutthaya, Nakhon Pathom and Ratchaburi, also raised dairy cattle on their own. Usually, the cows they raised came from artificial insemination of female Brahmans (then widely available in Thailand) using imported sperm of milking breeds (such as Friesian, Red Dane, Brown Swiss, etc). The milking yields were still low, however. There was no pasteurising or sterilising apparatuses. Milk was boiled and some was sold to milk collectors, who resold it to dairy companies in Bangkok. However, even boiled milk could not be stored for a long time. When the buyers did not want to take all the milk, the farmers had to discard the leftover. Therefore, there were always conflicts between farmers and buyers. Some farmers began to organise and founded co-operatives with the assistance of the Department of Co-operative Promotion (DCP). A group of farmers from Ratchaburi even requested the king's assistance. His Majesty arranged for the building of a powdered milk factory¹⁰ in Ratchaburi and encouraged the farmers to form a co-operative.

¹⁰ The main reason why the king arranged to have the powdered-milk factory built was to increase the shelf life of milk.

Dairy milk became more popular in the 1970s and domestic consumption was clearly exceeding domestic production. However, the shelf life of fresh milk - even pasteurised and refrigerated - is only a matter of days. This made storage and distribution problematic. Furthermore, whenever the price of imported powdered milk (or skimmed milk) was low, the milk industry tended to import powdered milk and buy less fresh milk from the dairy farmers. In 1984, as it became clear that domestic fresh milk was not in great demand, the government issued a regulation that powdered milk importers would have to buy fresh milk domestically at a specified rate (20:1 for skimmed milk and 2:1 for drinking milk). A few years later, the government also launched a campaign to promote milk drinking.

In 1987, however, the Chernobyl incident brought fears about imported milk. The demand for domestic fresh milk soared once again. Since then, dairy cows have been promoted heavily by DLD and the Department of Co-operative Promotion under the Dairy Cow Development Programme. This programme provides farmers with a loan to cover the costs of 5 dairy cows (mainly imported from New Zealand and Australia), housing, and digging a pond to provide water to the cows and to the pasture. Participating farmers must have at least 10 rai of pasture (1.6 ha) or half of that if they have reservoirs that can provide water the year round. In most cases, these farmers would form a dairy co-operative. Most co-operatives have farm-cooling tanks or plate cooling to collect and preserve the milk before delivering it to buyers. The number of dairy co-operatives, which was only 13 in 1986, had grown to 55 in 1992 and to more than a hundred by 1997.

Furthermore, in 1992 the Ministry of Education began to implement the School Milk Project, to provide free milk to pupils. The budget for this project has grown from 279 million baht in 1992 to 4 387 million baht in 1997, to 5 800 million baht in 1998 and to 6 000 million baht in 1999, an amount currently equivalent to about 300 000 tons of fresh milk, or one half of total domestic consumption annually.

Per capita milk consumption has grown dramatically from 2 litres per year in 1984 to 11 litres per year in 1997. However, according to OAE estimates, it dropped to about 6 litres per year in 1998 and will rebound to about 9.5 litres per year in 1999. Up until the financial crisis, milk consumption in Thailand had been exceeding domestic production and increasing. Moreover, because skimmed milk importers are required to buy fresh milk at specific ratios and at controlled prices, the dairy farmers have had no problem selling their milk and have been doing quite well in the past ten years. This gives the Department of Livestock Promotion, the Department of Co-operative Promotion, and politicians every reason to promote dairy cows in many provinces of the Central Plains, the Northeast and the North.

Since the beginning of the Dairy Cow Development Programme, one of DLD's tasks has been to provide the farmers with artificial insemination free of charge. Remarkably, the Dairy Farming Promotion Organisation is providing the same service to farmers in its promoted areas for a fee. As the number of dairy farmers grows, demand for the service increases to the point that, often, DLD local offices are unable to provide it in timely fashion. In some cases, the department does not have a sufficient budget to cover transportation costs, which must be paid by the farmers. Moreover, DLD services are usually unavailable outside office hours and during weekends and holidays.

Consequently, the Department of Co-operative Promotion has encouraged each dairy co-operative to set up its own artificial-insemination programme. This is not without problems, however. Many co-operative members feel that they are able to get free artificial insemination from DLD, and thus see no reason for the co-operative to invest in its own. Even though, in reality, many have to pay for the service one way or another - especially now that DLD's budget has been cut substantially -, they still feel that it would cost them less than having their own programme. Nonetheless, many co-operatives are aware of the need to have dependable artificial-insemination programmes and have set up their own programmes, although most still depend on DLD for their purchases of frozen semen.

In the 1950s and 1960s, various breeds of dairy cows were imported (see Table 6). However, in the 1970s and the 1980s, DLD turned to promote only the Holstein-Friesian (and its hybrids), which has since become the predominant dairy breed in Thailand. The 1990s have seen slight change as more Sahiwal-Friesians were imported than Holstein-Friesians, as well as 48 Jerseys.

Table 6. Female breeding stock of diary cows imported, classified by breed

* Including hybrids of Holstein-Friesian
Sources: 1952–93 Dairy Farming Promotion Organisation, 1994–97 Department of Livestock Development

At the beginning of the Dairy Cow Development Programme, each eligible farmer had to have at least 10 rai of pasture to raise 5 cows (0.32 ha per cow) or 5 rai if they also had reservoirs able to provide water the year round. Shortly thereafter, however, most farmers retained some of their calves and the average number of cows owned by each farmer has become 12 to 15, though many still own only 5–10 rai of pasture. Furthermore, most farms being close to each other, it is usually difficult to buy additional land adjacent to or near existing plots, even when funding is not the issue. In 1997, the average pasture per dairy cow was about 0.7 rai (0.11 ha). Therefore, many dairy farmers now do not have sufficient pasture land for their cows and have to rely heavily or wholly on feed concentrates, which usually cost much more than grasses.

Using too much feed concentrate is not only less cost-efficient than using a more balanced feed programme, but it can also cause problems for the cattle. While concentrate feeds are protein-enriched, they lack fibre. And although the amount of calories derived from proteins is approximately the same as that from carbohydrates, the kidneys would have to work harder to get rid of the surplus nitrogen. Some DLD officials have pointed out that too much protein content in feed concentrate could reduce the cattle's fertility rate as well.

The government's role

On the production side, the Department of Livestock Development is almost the sole governmental department responsible for the livestock sector in Thailand. Unlike any major crops that are usually handled by several departments, DLD handles every element of livestock production (and, to some extent, marketing) by itself.¹¹ This is useful insofar as the department provides an almost one-stop service for livestock, a happy state of affairs if you compare the broiler industry to the pig industry, for instance, where the meddling of the interior ministry has resulted in the mushrooming of illegal slaughterhouses.

Like other departments in the ministry of agriculture, DLD is not much involved on the marketing side. Though this is not necessarily a bad policy, it sometimes leads DLD officials to focus too much on physical elements and too little on economic issues. For example, there has been a tendency to overemphasise the physical size of the American Brahman (which can reach 700–800 kg) and the milk volume of the Holstein-Friesian (Ministry of Agriculture and Co-operatives, 1981). This attitude is very different from that of private-sector professionals. For example, most veterinarians who work for drug companies in Thailand appear to be very knowledgeable on the economic side of the industry, since one of their jobs is to convince the farmers that their products are cost-efficient. DLD, however, could focus on the production side and leave the economic side to the farmers and the marketing side to the farmers and the Ministry of Commerce.

¹¹ The exception on the production side is cattle, in which the Department of Co-operative Promotion is involved, usually by providing farmers with (or referring them to) a source of credit. The department also promotes co-operation among hen farmers. Another ministry that is involved in the last stage of livestock production is the interior ministry, which is responsible for the issuance of slaughtering licenses for pigs.

However, the direction of livestock development still depends largely on DLD's policy. This section will focus on the department's two important tasks, which are the keys to the future sustainability of the livestock sector: the control of foot-and-mouth disease and the environmental policy. We will then turn to the domestic support policy and measures on livestock, which are implemented by the ministries of agriculture and commerce.

The control of foot-and-mouth disease

Unlike other diseases such as rinderpest, haemorrhagic septicaemia and Newcastle, which have been remarkably well controlled, the food-and-mouth disease has been very troublesome for Thailand for several decades due to three major causes. First, it is caused by a virus which changes its strains very often. Second, cattle are smuggled regularly. Third, the control programme itself has some problems, stemming from both the private sector and the government.

The first problem is not limited to Thailand. When Taiwanese pigs caught the disease, they were barred from the Japanese market and the Taiwanese pig industry was almost wiped out. As for the second problem, the Department of Livestock Development is well aware of it and on occasion has provided assistance to vaccinate cattle near the borders east and west. But this kind of programme is not carried out on a regular basis and thus not very effective. Even Thailand's own food-and-mouth disease control programme has not been very successful. DLD regulations on vaccination have not always been followed by pig farms, as some of them try to cut costs. Since the infection is usually not lethal and outbreaks usually take place every four or five years, some farms - especially the small ones not involved in the export business - gamble on getting away with not vaccinating their pigs or cattle. As for DLD, its vaccine production programme has not been trouble-free either. The department is trying to privatise all of its vaccine production facilities. However, the vaccine industry is not quite popular these days and the private sector has shown little interest in taking over the remaining facilities. At times, especially during outbreaks of the disease, there have been shortages of the vaccine. Recently, either mislabelled or fake FMD vaccines were distributed in both the eastern and southern regions of Thailand during an outbreak.

DLD is aware of all the difficulties in controlling foot-and-mouth and has set itself the short-term goal of having some disease-free zones rather than full-scale eradication. Since one apparent benefit of having disease-free zones is export opportunities, the plan is to set up two such zones, one near the Eastern Seaboard and the other at the southern (Thai-Malaysian) border. To achieve this, DLD requires that all cloven-footed animals in the zones be vaccinated and that disease-ridden animals be quarantined and destroyed. At present, the department expects to eradicate food-and-mouth disease from these zones within three to four years and plans to apply for WHO and OIE certifications by then.

There are, however, still quite a few problems that make the task seem formidable. One is the limited availability and high price of the foot-and-mouth disease vaccine. Since the disease is now only prevalent in tropical areas, not many international vaccine companies are interested in the business. A merger between two leading vaccine companies also caused the price of the vaccine to rise, making it less attractive to use.¹² Second, the high pig slaughter fee charged by the interior ministry has made illegal slaughterhouses very common. Many farm businesses are linked to these slaughterhouses and are unwilling to register or report the total number of animals they have for fear that the information they supply could be used against them in auditing. In effect, DLD may find itself unable to produce, buy or supply a sufficient amount of vaccine.

¹² At present, a large number of swine raisers still do not normally vaccinate their pigs, but would do so only when there is an outbreak of foot-and-mouth. Consequently, there are often vaccine shortages during an outbreak, and only farms that use the vaccine regularly can obtain enough of it.

The environmental policy

As livestock production moves toward industrial farming systems (as opposed to the land-based grazing system) which are usually located near urban areas, pollution has become a major concern in many communities. In Thailand, waste generated by intensive production systems, especially swine production, is a major source of water, land and air pollution. Open layer farms are often blamed by nearby communities for attracting flies. Closed systems, especially Evap broiler farms, are less problematic since the housings are closed.

Naturally, DLD has paid most attention to swine production. To date it has co-operated with the National Energy Promotion Organisation to help about 10 swine farms build power generators to turn pig-waste into bio gas and then electricity.

There have been two approaches in curbing the environmental problems arising from the livestock industry. The first one is to put these farms together on an estate (like industrial estates) and every farm would have to follow the estate's rules and regulations on environmental management. The second approach would be to strike a more even balance between nature and livestock raising in a way that makes it more sustainable in the long run.

The first approach relies on both technological advancement and bureaucratic management. To date, this approach appears to be favoured by the department and the ministry of agriculture in general. However, the approach would require relocating some existing farms to the new estates. This would involve substantial relocation costs and would entail public subsidies and amending the law to force relocation.

While it is clear that this approach would facilitate the government's environmental control programme and help DLD enforce its regulations and standards, there are other concerns beyond the relocation issue mentioned above. First, there is always the possibility of an outbreak of a virulent disease such as the Nipah virus in Malaysia. If there were such an outbreak, having more animals in a relatively small area could cause more damage than otherwise. Second, while there is no apparent economy of scale once a farm reaches a certain size (beyond the fact that the advantage of large farms probably stems from their bargaining power rather than technical efficiency), having a large number of animals in a small area could be disadvantageous where there is no apparent export opportunity. Third, while supporters of this approach view it as the best solution to environment problems, putting more animals in an estate also means that more waste would be discharged each day, which would make managing the environment more difficult, even under normal conditions. If, for whatever reason, there were then a temporary breakdown in the system, the environmental damage would be larger than otherwise.

The second approach, which means returning to smaller-scale livestock production, has some appeal. In fact, this approach could be carried out in mixed or integrated farming, which would be consistent with His Majesty's suggestion in favour of a “content economy” (see below). However, there are a few major concerns regarding this approach. First, most mixed farms are likely to be less technically efficient and probably would not have the same level-playing field as large and super-large farms. Even now, smaller industrial layer farms - each with thousands of layers - continue to drop out of the market, even though their yields are in the range of 250 eggs per hen per year. They are not able to compete with the large farms and can only supply the demand of their own and nearby communities, and this would limit their own numbers and sizes. Second, although they are more environment-friendly than large farms, their concentration - which is likely to happen in many areas - could make environmental problems worse and more difficult to control. In fact, environmental problems in swine-raising areas have been present in some provinces even in the days when most farms were rather small.

The domestic support programmes

In 1991, the Thai government founded the Committee on Assisting Farmers, which consists of various government agencies, mainly from the ministries of agriculture and commerce. The founding of the committee, which is under the Office of the Prime Minister and is chaired by a deputy prime minister, was an attempt to centralise all the projects that aimed at assisting farmers. In practice, the committee has two secretariat agencies, one from the ministry of agriculture to handle the production side and another from the commerce ministry to handle the marketing aspects of the projects. Theoretically, the committee has its own funds. In practice, however, the funds are allocated annually through the usual government budgetary process. Roughly, one half of the funds is used in production projects and the other half in price support or intervention projects.

The production projects, which are implemented by the ministry of agriculture, normally provide inputs to crop farmers at low cost, e.g. seeds and fertiliser. However, little support is given to exportable livestock like broilers, or to other short-lived livestock like layers or even swine. To date, cattle is the livestock that has received the most support from the committee, mostly in terms of long-term credit and low-interest credit to finance initial investment for co-operatives. Financial support going so often to co-operatives could explain in part why the number of ad-hoc co-operatives (especially dairy co-operatives) has increased substantially in the past two decades.

In addition, most livestock also gets support from the committee's marketing projects. Regular projects include low-interest loans to egg exporters (the loans are provided through two layer professional associations) in the magnitude of 20–60 million baht annually. Swine is another livestock that receives assistance quite often and in various forms, including price support, credit to stock frozen pork, to a grilled piglet project (in order to decrease the supply of fattening pigs), etc. The broiler industry received the support of the committee during the 1993–94 crisis in terms of interest-free loans to professional associations to buy and store surplus production.

It should be noted, however, that while some livestock gets sparse support from the committee, the committee itself and the agriculture ministry, which implements the committee's marketing programmes, also provide support and protection measures for cereals and oilseeds, and this, in turn, hurts the livestock sector. Soybean is the most protected crop in Thailand. The protection varies in form and rate and over time (such as moving from quota to tariff restrictions, plus the requirement that those who secure an import quota must buy soybean or soybean cake or both at specified prices). Maize is another crop that is protected sparsely by imposing import surcharge at times. To date there has not been a rigorous study of the net effect of the price-support policy on the livestock sector.

The crisis

The big wave of the financial crisis appeared to hit Thailand in mid 1977, when the baht was floated on 2 July. However, the crisis had begun as early as 1996, when it became clear that Thailand's exports were beginning to lose their competitiveness in the world market. The growth rate of exports, which used be in two-digit figures, sank to virtually zero in 1996.¹³ During the 1990s, Thailand has always had a huge current account deficit (close to 10 percent of GDP annually), but the problem was ignored by the Thai government and international investors alike, since export growth was normally of two digits. Once the weakness of the system was apparent, as early as November 1996, a leading international hedge fund began to short-sell the baht, and soon other hedge funds followed suit. The Bank of Thailand fought them off vigorously and won some battles, but lost the war: eventually it used up almost all of the country's foreign-exchange reserves and had to turn to the IMF.

¹³ According to the Broiler Processing Export Association, the export of broilers also experienced negative growth that year, although DLD figures point in the opposite direction.

The financial crisis and the accompanying credit crunch led to the fall of a large number of companies and to substantial layoffs. This affected domestic consumption of all types of meat, with greater effect on the more expensive ones. Pork consumption decreased substantially, which led to a fall in the price of pigs after the devaluation (see Figure 2 below). Beef consumption, which had begun to shrink even before the crisis, continued to decrease. Even for chicken, which has become the least expensive source of protein, domestic consumption dropped by 20 percent in 1997.

The crisis also affected the livestock sector through feed prices. The weakened baht increased the price of imported feeds and components. Livestock consumed mainly at home was adversely affected by increasing costs and decreasing domestic demand. Besides an increase in feed prices (because of the imported contents of feeds), animal medicine prices doubled within nine months of the flotation of the currency. On the other hand, exported livestock gained greatly from the devaluation, usually more than enough to offset the increasing cost of feed and medicine. Therefore, there is a need to look at the impact of the crisis on each livestock sub-sector separately.

Broilers

The devaluation has resulted in a sharp increase in broiler exports (Tables 1 and 2 above). The price of chickens and chicks has continued to rise. At present, both are at decade highs.

So far, Brazil's financial crisis and subsequent devaluation have had only little effect on Thailand's broiler industry. This is because 90 percent of Thai broiler exports go to Japan and the European Union, neither of which is a traditional market for Brazil. Also, most Thai broilers are either processed or cooked product, whereas most Brazilian chickens are whole chickens.

Probably the most serious effect of the Asian financial crisis on broilers is the credit crunch, which has affected the whole economy and domestic demand. The credit crunch was so widespread that even some exporting firms were unable to secure sufficient working capital to fulfil their soaring orders. For the broiler industry, the credit crunch (coupled with the weak baht) has halted some companies' plans to transform their lines of production to cooked products. So far, this setback makes it more difficult for the industry to reap the full benefit of the devaluation.

Layers

The layer industry began to suffer even before the financial crisis fully hit. In late 1996, the prices of eggs and young hens dropped substantially. Such an internal crisis forced the large players in the industry to get together and attempt to control supplies of both eggs and parent stock. These key players founded a new professional association consisting of members whose combined market share is about two thirds of total egg production in Thailand. So far, the existing professional associations appear to be effective in controlling supplies of chicks, hens and eggs.

The financial crisis affected the layer business mainly through devaluation. Not only did feed and medicine prices rise substantially in late 1997 and early 1998, but per capita consumption of eggs in the domestic market also decreased by more than 10 percent. Although one would expect exported commodities to benefit from the devaluation of the baht, the fact that less than one percent of the eggs produced was exported (and usually at prices below domestic prices) made the benefit negligible compared to the increased costs of production. However, since the industry had already cut back on parent-stock imports in early 1997, the financial crisis has affected neither the price of eggs nor the price of young hens adversely. Both are in fact rising. By May 1999, the price of young hens was more than three times that of early 1997, and the highest price since 1996.

Swine

Thailand's opportunities for the export of swine are rather limited. In 1997, less than 0.5 percent of the total production was exported. After the devaluation, exports soared in late 1997 and 1998, but still amounted to less than one percent of total production. Then, in late 1998, Thailand lost the Hong Kong market to Brazil because Salbutamol was detected in Thai pork exported there. Although the ban is likely to be lifted in the near future, some industry specialists believe that Thai pork will no longer be able to compete with Brazilian pork, now that the Brazilian currency has fallen by 30 percent. Moreover, the Asian crisis has resulted in a sharp rise in exports from these countries to other areas and, simultaneously, in a sharp fall in their imports. Because of this imbalance, the freight from the Western hemisphere to Asia has decreased substantially. Therefore, Brazil is now in a much better position than she used to be a few years ago.

Prospects for the Singaporean market are not much better. According to an official in a leading livestock company, Thai exporters have found that the profit margin of exporting live pigs to Singapore, both before and after the crisis, has never been very attractive.¹⁴

¹⁴ The situation may have changed with the outbreak of Nipah virus that caused more than 100 deaths in Malaysia and resulted in the slaughter of a million pigs there. It is still not clear whether the Thai swine industry will benefit from or be hurt by the Malaysian mishap.

With limited export opportunities, the swine industry did not reap much benefit from the devaluation. Besides, pig raisers were adversely affected by increasing feed prices and decreasing domestic demand. According to the Swine Producers and Exporters Association, both production and domestic consumption have fallen by almost 30 percent since 1997.¹⁵

¹⁵ This is not entirely consistent with the OAE estimate, which indicates that swine consumption fell by less than 13 percent in 1998.

Cattle

Unlike other livestock products, both beef and milk are generally in short supply, but for different reasons. The beef cattle market had been declining even before the financial crisis, whereas the growth of dairy farms has been in two-digit figures throughout the 1990s.

The fact that the beef market was declining even before the crisis set in makes it difficult to assess the impact of the latter. However, it is believed that the consumption of beef will decline even further.

Almost none of the large private companies are interested in the beef cow industry, except for the small high-end market.

As for the dairy sector, it has been well protected by the government since 1987. The requirement that skimmed-milk importers buy fresh milk is almost a sale guarantee for dairy farmers. However, actual imports depend on the relative prices of imported and fresh milk. When import prices are lower than domestic prices (in fresh-milk equivalent terms), the importers would import up to their quota limits. However, when domestic prices are lower, they would only use imports to cover the shortage.

Since the world dairy market is full of protectionism and dumping, the market is narrow and the price of skimmed milk is rather volatile. In effect, the relative prices of import and domestic milk also swing from time to time. With the baht was overvalued in early 1997, the import price was clearly below the domestic price. Yet, almost all importers imported as much milk as their quotas allowed. (Ironically, some large dairy co-operatives with their own UHT milk factory also imported skimmed milk to produce recombined milk along with fresh milk). Since all importers have to buy fresh milk to fulfil the requirement of the commerce ministry, there were occasions when some players miscalculated and stocks of sterilised milk built up.

The crisis has changed this balance somewhat. During the first nine months after the devaluation, as the baht continued to lose its value, the price of imported milk became higher than the domestic price, which was kept constant by DFPO. Simultaneously, feed prices continued to increase, mainly because the dairy industry was heavily dependent on concentrated feeds. Finally, under heavy pressure from dairy farmers, the government decided to raise the price of fresh milk by 30 percent.

This appeared to satisfy the dairy farmers. However, demand for milk dropped substantially after the crisis. According to OAE estimates, per capita consumption dropped from 11 litres per year in 1997 to about 6 litres per year in 1998. As a result, the importers used only half of their import quotas. In fact, it is the School Milk Programme that has saved the sector from collapsing after the slump in milk demand. Now that the economy has begun to recover and the baht again somewhat appreciates, OAE estimates that milk consumption will rebound to about 9.5 litres per year in 1999, and probably return to pre-crisis levels within a few years.

The government's reaction

In 1997 and early 1998, the Thai government (politicians and bureaucrats alike) reacted to the crisis in disarray. The economic depression caused government revenue to fall short of its estimate, even when the estimate itself was revised downward many times. Even before the IMF came into the picture, the Thai government cut its budget thrice. The IMF prescription put even more constraints on the budget, as it required the Thai government to run a surplus budget equivalent to one percent of GDP.

The 1997 crisis led to a 20-percent across-the-board cut in the budget of the ministry of agriculture. But the cut was not prioritised. As a result, each department saw its budget cut by 20 percent. Since the budget cut at DLD did not affect salaries and investments, it fell on service and extension activities. This is particularly important as livestock farmers rely heavily on the department's services such as artificial insemination.

However, one trend that seems to come out of the crisis is DLD reprioritising its roles. According to officials in the planning division, traditionally DLD activities are ranked from highest to lowest priorities as follows:

• production (including animals and vaccines);

• disease prevention and vaccination;

• inspection and certification;

• extension; and

• research.

With the crisis, however, DLD priorities seem to have been reversed, at least to some extent. With privatisation ideas floating around in government circles, the department is planning to reduce its role as producer and leave most of it to the private sector. It will also encourage the private sector and farmer co-operatives (e.g. dairy co-operatives) to take a greater role. As export picked up quickly after devaluation, DLD set out to increase its role in setting standards, inspection, and the provision of certification. Moreover, the department appears determined to give research and extension the highest priority, though the current budget allocation does not reflect this.

In addition, the crisis seems to have brought to the ministry of agriculture another major policy emphasis, namely a “content economy” as suggested by the king. The idea behind it is for integrated farming to provide self-reliance and self-sufficiency among farmers. The basic model of a content economy is for those farmers whose land has a water source (e.g. a pond) or who could provide themselves with one. They would grow staple crops along with fruit and vegetables and raise livestock and water animals. While the ministry of agriculture is attempting to follow this model, it acknowledges that the model is only suitable for some but not all farmers. Consequently, it has classified farmers (and agribusiness ventures) into four categories and has different plans for each group. DLD has been asked to revise its plans and modus operandi accordingly. The four groups are:

• subsistent farmers who own no or little land;

• farmers with some land;

• farmers in agriculture estates or land-reform areas; and

• large agribusiness and agro-industrial ventures.

According to officials in the planning division, the department's tentative plan is to provide similar assistance to the first two groups (e.g. giving each farmer 30 native chickens to raise and use as a source of protein). The difference among the measures and plans for the two groups of farmers lies outside of the department's purvey. For the third group, the department and the ministry propose to build livestock estates that would facilitate the department's control on foot-and-mouth disease and on environmental issues. As for the fourth group, which consists of large agribusiness and agro-industrial ventures, the department will serve as the regulator to facilitate export through better regulation, inspection and certification.

In 1998, for the first time since its inception, the Committee on Assisting Farmers did not receive any budget from the government. The committee still has and could use its revolving fund but current constraints have made it cautious.

Another related development that comes out of the financial crisis is a change in the soybean importing policy, although it is not clear whether it was the crisis that brought it about. In the late 1980s and early 1990s, import quotas were set at the discretion of the government and in unpredictable ways. Then after the Uruguay Round of GATT, in which the World Trade Organisation was founded, the quota system was replaced by a tariff system. The allocation rule was not clear, though. Recently, however, the system was revised in a manner similar to that of skimmed milk imports in that the importers have to buy soybean or soybean cake or both at specified amounts and prices. Although the combined cost of soybean is still higher than the imported cost alone, a few leaders in the broiler industry are happy with the arrangement as they believe that the system is now transparent and predictable.

The other issue that has been resolved is that of the import tax refund. According to Article 19 of the tax code, livestock exporters are eligible to receive tax refunds for the inputs they import. As the refund process was rather slow, the private sector discussed the issue with the government and this has led to speedier arrangements which satisfy at least some of the large exporters.

Concluding remarks

Livestock can be classified by the duration of an animal's lifecycle. For short-lived animals such as broilers, layers and swine, the government has played a rather limited role on the production side, leaving things in the hands of private businesses. At times, the ministry of commerce comes in to provide some scattered assistance on the marketing side, most often for swine and layers. The role of the Department of Livestock Development has been limited to non-production activities, such as disease control (including vaccine production, which it plans to privatise), inspection and certification.

For long-lived animals, especially cattle, the government is more involved on the production side, where crucial services such as artificial insemination have only been available through DLD and DFPO. DCP also supports dairy co-operatives by providing them with credit and, to some extent, assistance on the production side. The government has also set up a requirement that would guarantee sales of domestic fresh milk.

The short-cycled livestock industries operate in a fast-paced environment and have to adjust in timely fashion to occasional upturns and downturns. Only efficient firms survive in the long run. As a result, there are not many large firms in each industry. When they perceive a substantial oversupply problem, they usually attempt to co-operate, through professional associations, and make arrangements to control market supply. while this kind of co-operation might hamper competition in certain ways, so far it has helped stabilise the industry and has not posed serious problems to consumers, partly because the number of players is still large and they control only part of the market. However, the government, particularly the commerce ministry, will have to monitor the situation closely and be prepared to take action should the co-operation to stabilise the industry turn into exercising market power at the expense of consumers.

Most non-tradable livestock sub-sectors (including those whose export share is negligible) are suffering from the economic crisis, as domestic demand falls and prices of feed and medicine rise because of the devaluation, so that some firms have gone out of business. Sector-wide, however, non-tradable livestock has adjusted quite well, and both the layer and swine industries are back to normal. The only exception is the beef cattle industry, which cannot see any future ahead.

Livestock with a large export share, particularly the broiler industry, has not been adversely affected by the crisis. Increasing feed costs were more than offset by increased revenues. In fact, the industry has so far benefited greatly from the devaluation. Current prices of most cereals and oilseeds in baht are lower than before the devaluation. Moreover, the recent scare on dioxin contamination in Belgian poultry is likely to help the industry in the same manner as the Chernobyl incident did a decade ago.

Since the livestock sector weathers the Thai financial crisis reasonably well and appears to be coming out of it quite nicely, it is less likely to see drastic adjustment from the government agencies. To be fair to the latter, the Department of Livestock Development appears to be making some adjustment of its own and has even thought of reprioritising its task in a radical way. It has realised that the private sector has gained much advantage on the production side and will do well without the department resources, especially on short-lived livestock. The department will undertake more research. It is also aware of environmental problems. The committee assisting farmers, with less money in hand, has been using it more cautiously, at least in 1998. DCP has also persuaded the co-operative members to help themselves rather than relying on the department (e.g. for artificial insemination). However, it will take time before the many co-operatives that were founded with government assistance (and under politicians' wings) realise that they cannot always count on such assistance. The commerce ministry too has come to realise that it has to take into account the impact that protection of one product has on other products, and it has devised some schemes that the private sector can live with. Together, one could expect the Thai livestock sector to continue to strive in the near future, although there are still many unresolved problems along the way.

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