Dairy Industry and Its Quality Issues - Research Paper Example

Dairy Industry and Its Quality Issues Australian dairy product exporters have significant opportunities within Thailand, which is the biggest importer of food and beverages in South-East Asia with a total market value of dairy products reaching A$2 billion in 2000. This is expected to increase by approximately five per cent in 2001. (www.austrade.gov.au)         Although milk production in Thailand commenced in 1961, the real expansion of this industry started in 1983. Thai milk production is anticipated to grow steadily over the next few years, but is not expected to match the rate of growth in overall demand. As a result, there is increasing opportunities for dairy products. Skim milk powder is the major dairy export from Australia to Thailand. There are also niche markets for products such as: 1.         Premium ice cream 2.         Cheese 3.         Basic dairy ingredients such as skim milk powder, whole milk powder and whey (www.austrade.gov.au)         The strong growth in the UHT and liquid milk sectors presents significant potential for Australian investment in terms of joint ventures in existing manufacturing or farming facilities. (www.austrade.gov.au)         Thailand is a net importer of dairy products. Local milk production is not sufficient to meet consumer needs, falling short of demand by about 60 percent. Demand has increased due to strong, continuing government support for a general public awareness program and a school milk program. The program managed by the National Milk Drinking Campaign Board (www.thaimilk.com) for schools has greatly increased milk consumption among school children. It is projected that within 5-10 years, milk consumption will increase tremendously. There is growing affluence in Thailand and a general shift towards changing consumption patterns. The growth rate for milk consumption increased from 14 per cent between 1989 and 1993 and is currently increasing at approximately 20 per cent per annum. This is a result of Thai consumers paying more attention to a healthy diet and developing a growing awareness and demand for dairy items such as milk and yoghurt. Some of the growing trends in the industry that create opportunities for overseas suppliers follow: 1. The trend for supply of dairy products from Australia is increasing in line with the growing demand from tourists in Thailand. Tourist numbers increased nearly 10 per cent on average, exceeding nine million in 2000. 2. Thailand is also a major convention/incentive destination. In 2000, the number of business visitors and convention delegates increased by 15.85 per cent and 10.84 per cent, respectively. Moreover, Thailand serves as a rest and recreation centre for United States warships. 3. There are more than 280 000 hotel rooms that require servicing in 2001. (www.austrade.gov.au)         Projections made by the National Milk Drinking Campaign Program indicate that milk consumption in Thailand will reach 35 kilograms per capita annually by 2011, taking into consideration the consumption growth rate per year of 20 per cent. (www.austrade.gov.au)         In 2003, the ASEAN Free Trade Area (AFTA) (www.asean.or.id) was approached full implementation, that resulted in a free-flow of goods and products throughout the 10 countries of the Association of South East Asian Nations, which includes Australia. There is significant potential for Australian investment in terms of joint ventures in existing manufacturing or farming facilities for the local and export markets. The new Bangkok International Airport was in operation since 2005. That increased demand on the food service sector. Imported products are required to cater for the increasing tourist arrivals and the growing number of flights requiring servicing. It is advisable to establish relationships with end users now with the aim of catering for the expected increase in demand. This could represent a significant amount of revenue for Australian exporters of dairy products. Finally Thailand consumes more than 1.71 million LME (liquid milk equivalent) tonnes of dairy products every year. Today, per-capita consumption is in excess of 29 kilograms per annum. 22% of that is local milk, while 78% is imported milk (Royal Thai Government) Political Factors         In Thai Fiscal Year (TFY) 1995, October 1994 - September 1995, the average Thai tariff was 7.8 percent calculated as a ratio of import duties collected to total imports arriving in Thailand (including imports of goods on which tariffs were waived as part of Thai government investment incentives). (www.moc.go.th/thai/db/Commit.html)         The Thai Ministry of Commerce requires import licenses on agricultural products. While licensing requirements have been dropped on a number of items in recent years, licenses are still required for some 43 categories of items. In the food products area, licensing requirements remain for powdered skim milk and fresh milk. (www.moc.go.th/thai/db/Commit.html) Cultural Factors         In Thailand education is highly valued by many Thai's. The Thai government has played a central role in the education of milk and its many benefits. This is extremely beneficial for Australian product. Many Thai parents are now being informed about the high benefits of their children drinking milk. (Tasker, 1997, p47)         The Thai religion, which is Buddhism, is a very strict religion that often despises the consumption of alcohol. Thus the introduction of new flavored milk could be highly regarded in social arenas. This is a product that is natural and contains no alcohol, which is promising for the Thai market. (Cory, 1986, p4)         The Thai culture has traditional foods that are almost always served with rice and often these meals are spiced. The flavored milk will be an excellent refreshing drink to accompany rice or spicy dish, as milk is known for its ability to sooth the mouth after a spicy meal. The flavored milk will additionally be a healthy treat for the children and the family. (Cummings, 1999, p160; World Book, 1991, p224) Social Factors The Thai population is enormous standing at around 61.4 million people and it is growing at a rate of 1.5% per annum. This gargantuan population will be a benefit to the introduction of Australian milk product. The large population is being highly educated on the benefits of milk especially the children who are being encouraged to increase their consumption. Additionally the warm climate in Thailand will benefit and increase the likely hood of the consumption of flavoured milk as a refreshing, nutritional cool drink. (Cummings, 1999, pp28, 46) Regulations and Legal Factors         The Food and Drug Administration (FDA) (www.fda.moph.go.th/enginfo.htm) must approve food products prior to importation. Dairy products must be labelled (or have a sticker) displaying the following information:         Generic name of the product         Trade or brand name of the product         Registration number         Name and address of the manufacturer         Name and address of the importer         Date of manufacturing and expiry         Net weight and volume         Any additives used Additionally Local manufacturers are required to use local milk as follows: 1. Ready-to-drink recombined milk manufacturers must use one part of imported powder milk with at least one part of local fresh milk. 2. Milk powder manufacturers are required to purchase at least 50 tonnes a day of local fresh milk in their first year of operation. 3. Ready-to-drink milk and powder milk manufacturers are required to increase their purchases of local fresh milk by 20 per cent annually until the plant is running at full capacity. (www.austrade.gov.au)         Control on the import, marketing, distribution and sale of dairy products in Thailand is shared between a number of government bodies, including the Food and Drug Administration (www.fda.moph.go.th/enginfo.htm), the Customs Department (www.customs.go.th) the Ministry of Agriculture (www.moac.go.th) and the Ministry of Commerce (www.moc.go.th). The Thai dairy industry is heavily protected by tariffs and the FDA has strict import registration regulations, which can take up to six months to complete. The Ministry of Commerce imposes conditions on local milk importers and is considering issuing an import quota of 55 000 tonnes. Products imported under the quota are subject to a five per cent import tariff. Businesses that want to import more than the set quota must pay 225.6 per cent import tax, a rate agreed under Thailand's commitments to the WTO (world trade organisation). Thailand is also committed to the WTO to open a quota of 2320 tonnes of unprocessed milk at a 20 per cent tariff, with a rate of 43 per cent for amounts exceeding the quota. The quota for ready-to-drink milk is 26.7 tonnes taxed at 20 per cent. Further imports will be taxed at 87.6 per cent. Milk importers are required to register and obtain an import permit for each shipment from the Ministry of Commerce prior to import. It is expected that by 2004 the quota for ready-to-drink milk and unprocessed milk will increase to 2400 tonnes, with an in-quota tariff rate of 20 per cent. Import duties on dairy products are as follows: Raw milk - 20% (VAT exempt), 44% applies to amounts that exceed the quota Powder milk and cream - 5%, 232.8% applies to amounts that exceed the quota Ready-to-drink milk - 20%, 89.4% applies to amounts that exceed the quota Milk for infants - 5% (www.austrade.gov.au) Economical Factors The presence of the Asia Pacific Dairy Association formed last December by seven dairy producers - Thailand, China, India, Australia, New Zealand, Vietnam and the Philippines - will hone the production efficiency of the regional dairy industry. Further, the association will function as a watchdog to detect shipments of dangerous or substandard milk powder for sale in member countries. The ready-to-drink milk industry in Thailand is worth about 9.2 billion baht a year, with UHT milk making up 75% (seven billion baht), followed by pasteurised milk at 15% (1.2 billion baht), sterilised milk 5% (500 million baht) and yoghurt 5% (500 million baht). (World Reproter TM, 2000, p2)         Australian chosen form of entry to Thailand is a joint venture; their partner will be the Thai Dairy Industry Co. Ltd. With the help of Austrade, Australia will be able to establish a suitable partnership. They opted for a joint venture, as it will give us a greater opportunity to adopt their marketing strategies to the Thai market. The Thai Dairy Industry Company is already established in the Thai dairy market, being the number one seller of condensed milk. Australia and Thai Dairy Industry will unite in a joint venture with each party having a share of 50% each. The Thai Dairy Industry has enough equity to have a voice in management but not enough to completely dominate the venture. Australia will be providing the Australian milk, as it's highly regarded in Thailand. There will be mutual agreements in all areas within the venture. Australia and Thai have developed a planned model that they will follow for the entry into the Thailand market. (Terpstra And Sarathy, 2000, p396)          Model - After extensive research Australia discovered a joint venture was the best option, with the Thai Dairy Industry being their chosen partner. In the following six months they aim to extensively research the Thai market and evaluate their best opportunities and develop marketing plans accordingly. The joint venture will officially be up and running as of March 2011. The employees will predominantly consist of Thai personnel, although Australia dairy industry has requested that some people from Australia are incorporated into the culture. They will continually be supplying Australian milk to the Thai Dairy Industry whereby they will develop UHT flavored milk and other milk products later on.         The joint venture will allow Australian dairy industry to gain greater profits and returns from equity as they are in a partnership. This increase in profits will allow them to venture into other markets, develop new products, spend more time in research and development and perhaps even increase their market share. It will also allow Australian dairy industry to gain better market feedback and have a greater control over their production and marketing (Terpstra And Sarathy, 2000, p396) Business Operations Due to the ASEAN free trade area (AFTA) approaching full implementation in 2003, free flow of goods and products throughout ten countries of the Association of South East Asian Nations is allowed. This has positive outlooks for Australian investments, in particular, joint ventures. There are many aspects of the organization that need to be discussed in terms of how it will be operated in Thailand. Australian dairy industry joint venture partner will be the Thai Dairy Industry Co. Ltd. With the help of Austrade, they will be able to establish a suitable partnership. The Thai Dairy Industry Co. Ltd. is already established in the Thai dairy market, being the number one seller of condensed milk. They have a popular and familiar brand, 'Mali', A branch within the Thai Dairy Industry will be allocated for the import and promotion of UHT milk from Australia. This branch will be run by both native Thai Dairy Industry employees and Australian employees. That way, there'll be a mixture of UHT milk knowledge and dairy experience and cultural understanding and experience of the Thai market. The Thai Dairy Industry already manufactures UHT milk in 1lt, 200ml and 250ml packs. This milk needs to go through a very thorough process of modern technology from Australia, the import of fresh milk from Australia will decrease the length of the process and lead towards the ability to produce and sell fresh milk in Thailand. The fresh milk will help to improve the quality and production of The Thai Dairy Industry's Orchid Sterilized Fresh Milk. Production of the UHT milk will increase and the quality of the milk will be improved. "A key determinant in the Thai market is the pricing, which must be competitive with other imported products," (Austrade Thai Dairy Industry Information). The price range is an important factor as the product currently sits in the development stage of the product life cycle. There are no competitors, so the ability to charge higher prices is evident; however, being a fairly new product, many Thai people may not be willing to pay much money for an unfamiliar product. The retail price for the milk must cover all the costs incurred for importing and production of the product. This factor is the most important for the product and is going to be thoroughly covered. The profile of the product will already be slightly established due to the familiarity projected by the Mali brand amongst Thai people. Furthermore, the Australian and Thai joint venture needs to also be acknowledged during the promotion campaign. This is an asset as "Thai consumers view Australia as a reliable and reputable source of fresh 'clean and green' products," (Austrade Thai Dairy Industry Information). Promotions will be conducted at the Australia Day Celebrations in Thailand, and by participating in the Asia and Food Technology Fair in Bangkok from 3-6 October. It is appropriate for the launch of the product to be around this date, with weekly luncheons being held on Saturdays for executive chefs. The organization also intends to become in alliance with the National Milk Drinking Campaign Board. Sponsorship or co-promotion will help to increase awareness. Campaigns will be targeted at all Thai people, but in particular, parents and school children. In market promotions, TV and print advertising will be utilised as well as advertising on buses to ensure an extensive reach. The milk products will be sold to retail shopping centres, grocery stores and markets. The joint venture will join the established new and modern factory of the Thai Dairy Industry Co. Ltd. This is situated in Bang Pa-in, an industrial state, and is fully equipped with the latest dairy technology. More renovations can be made in order to house the possible extension of the organization producing UHT milk and fresh milk in the factory to sell to the Thailand market. References         Anonymous (Oct 1993) "Pastures new" The Economist, London, p73         Cory.S. (1986) "World Religions" The Moody Bible Institute of Chicago Brochure         Cummings.J. (1999) "Thailand: Lonely Planet" 8th edition, Lonely Planet Publications, Australia         Tasker.R. (April 1997) "Potential for milking" Far Eastern Economic Review, Hong Kong         Terpstra.V And Sarathy.R. (2001) "International Marketing" 8th edition, Harcourt College Publishers, New York         "The World Book Encyclopedia" (1991) Volume 19, T, World Book Inc, Chicago         "The World Reporter TM (Jan 2000) "DAIRY INDUSTRY: Small milk plants warned to boost standards or fail" Asia Intelligence Wire         http://www.austrade.gov.au         http://www.moc.go.th/thai/db/Commit.html         The Royal Thai Government Read More