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Thailand agribusiness report

BMI View: At the time of writing Thailand's political tensions were consuming the lion's share of government time. The prime minister was holed up in an army base as red shirted demonstrators occupied some of the capital's main business district and had little time to focus on issues affecting the country's important agricultural sector. While many farmers from the north and north east left their farms to add their voices to the protestors in Bangkok, fields in much of the country dried out as El Nino Southern Oscillation weather pattern saw drier than normal conditions. Infestations of plant hoppers also damaged crops of rice and cassava.

The local price for milled rice fell from THB19,000 per tonne in December 2009 to THB11,800/tonne in late April 2010. The government had been planning to buy 900,000 tonnes of rice to push up the price. However, with the prime minister in an army camp for most of April, plans stalled as the government was distracted by the increasingly violent situation in the capital Bangkok.

The low prices forced the government to abandon plans to release 500,000 tonnes of rice from its rice stocks to the market. The government's high stock levels of more than 5mn tonnes have been putting downward pressure on prices despite assurances from the government that stocks will not be put on the market in the coming months.

Despite Thailand being the world's second largest sugar exporter, the first half of 2010 saw fears grow of shortages on the domestic market. As retail prices for the sweetener rose in the provinces, the government said it planned to extend price controls enforced in greater Bangkok to the whole country. We believe the government's interference in the internal sugar market through quotas and price controls are the major cause of the shortages.

In the dairy sector, a combination of the recovering Thai economy and the expansion of the government's free school milk programme has seen a wave of new investments in processing capacity. The Dairy Farming Promotion Organisation (DPO), which sells Thai-Denmark branded dairy products, and Nongpho Dairy Co-operative both announced they would increase their processing facilities to meet the demand for milk from schools.

Meanwhile, in January French dairy giant Danone said it was considering using Thailand as a production base for the Association of Southeast Asian Nations (ASEAN) market following the implementation of the ASEAN Free Trade Area (AFTA). The company has already shown its confidence in the potential of the Thai market by investing THB572mn in a processing plant in Ayutthaya that opened at the start of 2010.

In the first quarter of 2010, a number of coffee shop chains announced ambitious expansion plans in both Thailand and neighbouring countries. The investments will help boost consumption of coffee in Thailand which still lags behind other Asian countries such as Japan and South Korea. Most ambitiously, telecommunications conglomerate and Charoen Pokphand Group subsidiary True Corp announced it would open branches of its True Coffee fascias in Laos, Cambodia and Vietnam in 2010 and plans are also underway for direct investment in China.

by S. C.
10 may 2010, World News > Asia