Earlier this month Charoen Pokphand Foods Public Company Limited (CP Foods) reported a decrease of THB 28,353 million (-4.6% year-on-year) in its 2023 revenues, saying that one of the main reasons for the decline was that the price of swine decreased by 15% on average from 2022 in its main Southeast Asia markets.
Swine prices in Thailand decreased by approximately 31% in 2023, due in part to illegal pork imports which had a knock-on effect and forced the price of swine below the cost of operation, CP Foods said its 2023 annual review published in early March.
2023 profits were also down because of the increase in production costs, including feed raw material prices and the costs of energy. "The overall economic conditions in various countries have impacted purchasing power, resulting in prices being unable to reflect the increasing costs," the company stated in its 2023 annual review.
“There's obviously a gap between the production cost and today's price, so this creates opportunities for imports. The more imports that come in, the more the price of pork can go down,” Mr. Rewat Hathaisattayapong, Head of Feed Business at CP Foods told Feedinfo in an interview last week in Bangkok.
“We notice an overall decline in the [Thai] swine business mainly due to African Swine Fever (ASF) that affected small businesses who have had to adapt to new biosecurity standards. The medium-sized and big farms are obviously more efficient. However, all are dealing with recovery from ASF and volatility in raw material costs,” added Thapagorn Jumnongrat, Vice President, CPF (Thailand) Public Company Limited.
As swine businesses in Thailand were forced to adapt to a post-ASF environment, Mr. Rewat Hathaisattayapong told Feedinfo that CP Foods’ feed operations had to align its business model accordingly.
“During the ASF outbreak, small businesses were significantly affected. Small farms faced challenges due to their scale and lack of biosecurity, leading some to consider ceasing operations. However, over the past two years, some farms, particularly medium-sized ones, have recovered and become more efficient. This recovery was partly due to an increased swine herd, resulting in lower prices. Other factors affecting production costs included raw material prices and operational expenses,” he commented.
“As a large business, we adapted to the new biosecurity systems to maintain our production levels. We support medium and large farms by leveraging the capabilities of our group through full integration. This has enabled us to gain a significant [animal feed] market share of 42% in Thailand, twice as high as our closest competitor,” added the CP Foods’ Head of Feed Business.
Mr. Rewat Hathaisattayapong, however, warned that overall feed industry growth in Thailand is not as spectacular as it was in the last decade. He estimates CAGR at 1-2% per year. This slowdown can be attributed to economic challenges and fluctuations in raw material and ingredient prices. Moreover, animal protein consumption is not really growing right now in Thailand.
In the 11 countries where CP Foods operates directly (Thailand, Vietnam, India, Turkey, Malaysia, Philippines, Cambodia, Laos, Russia, the Republic of China, and the People’s Republic of China), its combined feed production capacity is approximately 36 million tonnes/year, about half of which is produced in Thailand; CPF is also present in six other feed markets via joint ventures. It is also important to note that a lot of the company’s feed production capacity is for internal use on its own farms; feed accounts for only 24% of its total annual sales.
In the current market context, CP Foods said it has enough feed production capacity today and does not have any capacity expansion projects in the pipeline. Instead, the company is looking at feed mill efficiencies.
“We are focused on the upgrade of technologies and ensuring that all factories are automated, that they become smart factories, using AI, blockchain, as we are looking to improve productivity and reduce manpower at the factories and mitigating contamination risks, drawing lessons from the COVID pandemic. We are striving towards 'zero-manpower' operations, which also enhances productivity,” said Mrs. Kobboon Srichai, Head of Corporate Affairs & Investor Relations at CP Foods.
“Consumer purchasing power is lower than it what it used to be; it is lower than what may have been expected after the COVID crisis. Today the focus is aiming to be more efficient and cost competitive,” she added.
Raw Materials and Feed Additives
The CP Foods executives also commented on feed raw material prices, stressing that high costs are nothing new and that the company has been implementing procurement strategies which seek to reduce the impact.
Geopolitical issues and supply chain disruption are having an impact on imports of key ingredients, notably soybean, which CP Foods sources mainly from Brazil, said Mr. Passakorn Sartphan, Assistant Vice President, Corporate Responsibility and Sustainability of BKP (Bangkok Produce Merchandising Public Company Limited, a feed ingredient trading subsidiary of CP Foods).
“We encountered challenges with sourcing raw materials, prompting us to explore local alternatives,” he said.
“Our aim is to replace soybean meal with more efficient alternatives. For example, when chickens consume soybean meal, their digestibility and absorption rate may be less than 80%. In contrast, feeding them amino acids results in a 99% absorption rate. We are looking at replacements that are more sustainable than soybean meal,” added Dr. Pairat Srichana, Senior Vice President, Feed Technology Office, CP Group. “Technology is going to help us, and we'll probably look more at low protein diets with more amino acid usage but again that formula also needs to remain cost competitive.”
Looking at a specific case study, Dr. Pairat Srichana highlighted brown rice from Thailand which CP Foods uses to replace corn to produce a premium chicken product (Benja Chicken). According to CP Foods, Benja Chicken is the first brown rice fed chicken that is 100% natural and chemical/antibiotic free.
CP Foods claims it has adapted its business model to focus on sustainable sourcing and to ensure that everything can be tracked throughout the supply chain. CP Foods’ sourcing policy also calls for what it describes as an “ethical procurement” of feed raw materials, and therefore has strict policies in place with regard to deforestation and suppliers who burn crops. If a supplier burns crop, then they don't buy from them for one year, the executives told Feedinfo. Currently, 100% of the corn used in CP Foods' feed operations in Thailand is fully traceable and verified to be free from associations with deforestation.
As for feed additives, the oversupply situation seen for some feed additives and its effect on prices is likely to have, in the company’s view, a short-term impact. “Price fluctuations are manageable for us,” said Dr. Pairat Srichana.
“We work as a long-term partner with feed additive suppliers,” he added. “We purchase products like acidifiers, plant-based feed additives, pre and probiotics, etc. The alternative to antibiotics approach is a big focus for us. And we use least cost formulation software and learn how to integrate all these additives.”
More specifically on probiotics, Dr. Pairat Srichana said that they are very commonly used in CP Foods’ feed products today. “Learning from major probiotic players, we integrate their products while leveraging CP Foods’ knowledge for long-term applications,” he commented. “We are looking at efficiency of additive usage and looking for the right combinations. We want to understand the benefits over time.”
Be it probiotics or other feed additives, Dr. Pairat Srichana said usage must be geared towards ensuring precision nutrition which also enables a better carbon footprint measurement. “The overall direction of CP Foods leans towards precision nutrition,” he said.
