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Thailand's Ample Food Industry Sees Expanding Opportunities

Investment and trade opportunities in Thailand’s copious food industry continue to expand with strategic new programs amid the countdown to regional market integration. Dubbed the “Kitchen of the World,” the country is renowned for offering investors strong government support, rich agricultural resources, skilled labor and excellent infrastructure. The icing on the cake is that Thailand’s central geographic position will give local food businesses barrier-free access to a whopping 600 million consumers when Southeast Asia forms a single market in three years.

Thailand currently ranks as the second-biggest food exporter in Asia, trailing only China, according to the Food Processing Industry Club under the Federation of Thai Industries. The country is the world’s No. 1 producer and exporter of canned pineapple, pineapple juice, processed chicken, rice, canned and frozen seafood, and processed shrimp. Lush and tropical, Thailand is also a leader in sauces made from chilies, curry, soya, tomatoes, fish and oysters.

The National Food Institute projects that Thai food exports in 2012 will reach 1 trillion baht, up from 965 billion baht last year. The 10 member countries of the Association of Southeast Asian Nations (ASEAN) already represent Thailand’s largest food- exports destination in accounting for 20.6% of total shipments, followed by Japan at 14.6% and the United States at 12.8%. The launch of the ASEAN Economic Community (AEC) in 2015 will lift Thai food exports to even greater heights through the country’s closer economic cooperation with its fellow bloc members Singapore, Malaysia, Indonesia, Vietnam, Cambodia, Laos, Myanmar, Brunei and the Philippines. With the AEC’s elimination of trade tariffs, ASEAN countries are expected to absorb a hefty 30% of Thailand’s food exports after single market integration.

A seamless AEC market means that Thai companies can sell products to the ASEAN countries much easier. This will fatten up companies’ revenue, and the additional funds would enable them to invest in R&D and upgrading to elevate competitiveness.

In line with this, new programs are cropping up as Thailand’s food industry anticipates the free flow of goods and services under the AEC. For example, the Ministry of Industry in April 2012 announced a “food valley” project that will boost the country’s productivity. Over coming years, Chiang Mai and Nakhon Ratchasima in the north will be developed as pilot provinces with food companies and research institutes locating there in clusters for highly efficient production, R&D and logistics. A budget of more than 30 million baht has been set aside for the project this year. After a trial run, provinces in central and southern regions will be considered for project expansion.

Under another initiative, the Thai government is encouraging small and medium-sized (SME) food enterprises to engage with companies across the AEC so they can acquire new technologies and ideas to push up their capability.

Even though formation of the AEC gives Thai food companies a chance for business expansion, it also presents challenges. This is especially the case for SMEs in the upstream sector of the industry.

“Overall we see a positive impact from the AEC. But it can depend on whether you are downstream or upstream,” said Wimonkan Kosumas, deputy director general of the Office of Small and Medium Enterprises Promotion.

“Thai SMEs in processed and ready-to-eat food will have a lot of opportunities in trade and outward investment. This is because Thai cuisine has a very high brand image for quality and safety and the popularity of Thai food is growing in Asia. On the other hand, Thai upstream companies providing materials might not be able to compete with countries such as Myanmar and Vietnam after the AEC because raw materials are cheaper there,” she added.

Although the nascent AEC economic bloc is getting a lot of attention right now, Thailand also has free trade agreements with India, China, Japan and Australia that extend opportunities for food industry investors.

Food processing is the core strength of the Thai industry. The country’s food processing sector is comprised of more than 10,000 companies. Major Thai and multinational players include Nestle, Saha Pathana Inter Holding, Patum Rice Mill & Granary, Royal Friesland Foods NV, Unilever, Thai Union, Dole, Charoen Pokphand Group, Betagro, Saha Farms, Thai Beverage, Kellogg’s, Kraft, PepsiCo, Del Monte, Procter & Gamble, Ajinomoto and Effem.
Thailand’s annual production of processed food reaches more than 28 million tons. Government and industry initiatives have helped the processed-food sector upgrade procedures and technologies to international quality standards, bolstering the country’s global competitiveness. GMP, GHP, HACCP and ISO are among the certifications and practices followed.

To support the sector, the Thailand Board of Investment offers a range of fiscal and non-tax incentives to investors. Tax-based incentives include exemption of import duties on machinery and raw materials, and corporate income tax exemptions in all zones. Among the non-tax incentives are permission to bring in foreign workers, own land, and take or remit foreign currency abroad.

Despite advancement by the local industry, Thailand continues to import a substantial portion of the machinery used in the preparation of food and beverages. Such imports totaled US$166 million in 2011. The majority of equipment is sourced from Japan (26%), the Netherlands (11%), Germany (11%) and China (10%). Food industry machinery is therefore considered an area ripe with investment opportunity.

(Source: Thaiembassy)

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ASEAN Economic Community (AEC)