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U.S. Soybean Exports to Thailand: A Golden Opportunity, But No Guarantees
By Kit Norland
Thailand ranked as the ninth-largest market for U.S. soybeans in 1996, and the seventh-largest for December of that year. "The future for soybean imports from the United States has never looked brighter," says Peter Kurz, the U.S. agricultural counselor in Bangkok.
Why now?
Until last November, exporting U.S. soybeans and soybean meal to Thailand was like trying to walk through a closed door. The Thai government, by long tradition, protected domestic soybean growers and crushers in order to stimulate production and hold down imports. Prices were supported by an agreement between crushers and producers to buy set quantities of soybeans. Farmers and government officials alike believed that domestic production could come close to meeting demand.
But economic developments, beginning as ripples in the late 1980s, created a drive to reappraise, readjust and ultimately change Thailand's feed import policy.
Livestock Market Feeds Demand
Thailand's livestock and feed industries have expanded rapidly in the last decade, fueled by booming domestic demand for poultry and pork and keen export demand for poultry. Another factor driving up feed demand is aquaculture's growing need for oil meals.
To understand Thailand's soybean market, one must get to know its poultry market. Thailand now ranks among the world's top 10 exporters of processed poultry, primarily to Japan and the European Union (EU). About 20 percent of all Thai poultry production is exported.
The poultry industry enjoys a strong market at home, too: chicken is the most popular meat among Thais. In 1996, domestic chicken consumption jumped 11 percent, and broiler consumption will likely climb another 9-10 percent this year.
Domestic demand for poultry and pork continues to skyrocket, thanks to rising incomes and changing lifestyles. Between 1989 and 1994, monthly per capita income in Thailand soared 253 percent. And the younger generation of more than 10 million Thais fancies Western-style fast foods, many of which feature chicken.
Competitive Pressures Mounting
In the early 1990s, competitive pressures from countries with lower production costs arose to challenge Thai poultry producers and exporters.
From 1994 to 1995, broiler production costs for independent Thai farmers rose by 10 percent, largely due to rising wage and feed costs. Countries with lower costs began biting into markets once dominated by Thailand. In 1996, Thai broiler meat exports totaled 165,000 tons, unchanged from the year before, and could fall to 160,000 metric tons this year. Japan has increased poultry imports from China by 30-40 percent--and cut purchases from Thailand.
Soybean Import Needs Intensify
Except in its northern region, Thailand is too warm for growing soybeans. With its limited production capacity and growing needs, Thai soybean demand regularly outstrips supplies.
As Thai poultry exports declined, demand for higher priced domestic soybeans slackened. Soybean farmers shifted to crops with higher returns, such as sugar cane. This development widened the gap between domestic feed supplies and demand--and increased import needs.
Soybean production costs rose from 26 to 28 cents per kilogram between marketing year 1994/95 and 1995/96, and production dropped from 460,000 to 368,000 tons. Production in 1996/97 is forecast to fall still further to 350,000 tons.
Meanwhile, the Thai feed industry has expanded 3-5 percent a year in the last few years, spurred by a 10-percent gain in broiler production and annual growth of 1-2 percent in the swine sector. Thailand's annual oilseed crushing capacity now stands at about 1 million tons, and so can easily handle the greater quantities needed to sustain its livestock industry.
Thai livestock producers, eager to trim production costs, are more than willing to import less expensive feeds. Prasit Damrongchietanon, president of the Thai Feed Mill Association, believes soybean imports could reach 1 million tons in 1997. ACrushers may import around 600,000 metric tons," he speculates, "and other millers around 300,000 metric tons." Thailand's demand for soybean meal is also rising, and could exceed 1.6 million tons this year. "Thailand will likely import more meal this year than last," says Boontham Aramsiriwat, purchasing manager for Lee Feed Mill, a mid-size processor. "I hope our industry can expand to keep pace with the market."
The Rocky Road to Change
The path to significant change has been paved with policy zigzags and incremental progress. Against a backdrop of lobbying farmers and traders and a lingering belief that domestic feed production could meet demand, the Thai government sought stopgap measures and compromises acceptable to the competing interests of livestock producers, the feed industry and soybean farmers.
One strategy allowed soybean imports under certain conditions. In 1995, the government raised its original import quota from 167,000 to 550,000 tons when soybean crushers called for the increase to meet demand. However, the crushers had to agree to buy the entire domestic wet-season crop at 34 cents per kilogram and to import beans only after November 1, at the end of the harvest.
The government planned to withhold import permits for 100,000 tons until the harvest of dry-season production, which occurs in March and April. But sharp price increases for meat, poultry and eggs prompted the government to allow imports of the remaining quota in November and December.
Thailand's previous system of tariff rate quotas also led to irregular feed purchases and a less stable market. Because tariff rates were not known much in advance, traders and end users could not reap the advantages of locking in prices.
Inflation provided another spur to government action. In 1995, the consumer price index jumped 16 percent. High tariffs on imported commodities, especially those further processed in Thailand, fueled inflation in food prices.
Amid pressures to satisfy domestic demand and remain competitive in the export arena, feed and livestock producers renewed their calls for liberalization of Thailand's feed import policy. Awareness was growing that, in the face of slipping exports and rising inflation, something had to be done to untie the hands of these industries.
On Nov. 1, 1996, the government responded by instituting a policy liberalizing soybean and soybean meal imports. The policy eliminated import quotas. It also slashed the import duty for soybeans to zero and cut the duty on soybean meal from 15 to 10 percent. However, importers are required to buy domestic soybeans and soybean meal at 34 cents per kilogram.
Whether the new policy will remain in place beyond 1997 is open to question; it must be reviewed on a yearly basis. Mr. Damrongchietanon of the Thai Feed Mill Association won't hazard a guess, saying only, "I hope the government won't change." Mr. Aramsiriwat of Lee Feed Mill notes that though the policy has been instituted on a yearly basis, "it is meant to be a long-term shift."
Officials are using the trial period to evaluate the new policy's impact on Thai farmers. They will announce any policy changes several months in advance, giving the feed and livestock industries time to adjust.
Observers warn against assuming that the policy will endure. As in many other countries, tariffs in Thailand can rise and fall with the respective economic needs of producers, processors, exporters and importers--and the political pressures they bring to bear. On the other hand, the policy may reflect Thailand's commitment to the World Trade Organization and open trade.
U.S. Prospects Shine
Thailand's more liberal soybean import policy could represent a golden opportunity for U.S. exporters. Mr. Damrongchietanon foresees excellent growth in Thai demand for soybean and meal products. "Meal prices are very, very high," he says, "and there is no doubt about the market's solidity."
The U.S. share of the Thai soybean market has ranged from zero to 100 percent in the last few years. U.S. exports jumped from nothing in 1991 to $53 million in 1995. In 1996, they more than doubled to $126 million.
U.S. gains in Thailand's soybean meal market, though less spectacular, are nonetheless respectable. U.S. soybean meal exports climbed from $69,000 in 1991 to $9.7 million in 1995. In 1996, U.S. meal exports surged fourfold to $40 million.
The Agricultural Affairs Office at the U.S. Embassy in Bangkok has used recent visits of high-ranking U.S. government officials to encourage Thai cabinet ministers to continue the policy, stressing its benefits to the agricultural sectors of both countries. The American Soybean Association has also stepped up its market development activities to teach buyers about the desirable qualities of U.S. soybeans, and to assist them in learning the ins and outs of importing them.
For the moment, Thailand's quota system seems like a relic from the past. But the future is as hazy as the skyline over Bangkok, and it's unclear whether the new liberal policy will last beyond the end of this year.
The author is an agricultural marketing specialist in the U.S. Embassy in Bangkok, Thailand. Phone: (011-662) 205-4000; fax: (011-662) 255-2907; E-mail: agbangko@ksc11.th.com
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