Thai exports fall sharply but CP Group's rice unit has a winning strategy
By Jon Fernquest[Breaking News Update: Kasikorn Research estimates that the best the country's exports can do next year is stay steady - with minus-five per cent growth possible because of the global economic downturn: read article]
The greatest
monthly export slowdown in six years hit Thailand last
month. The culprit? The combined impact of: 1. the global economic slowdown and, 2. the Bangkok airport closure were the two main causes.
Exports fell 18.6% to US$11.87 billion in November compared to 5.2% growth in the previous month of October. This was the first decline since March 2002 (See nice graph at Thailand Crisis Blog).
Increasing trade barriers and protectionism are a real possibility worldwide as more and more businesses face the possibility of failure (Read recent Washington Post article).
the culprit
- the real cause of a problem or a bad situation
trade barriers - import taxes (tariffs) and other things that make selling foreign goods in a country more difficult
protectionism - policies that favour goods produced within a country (restricting imports)
face the possibility of Y - Y might happen
trade barriers - import taxes (tariffs) and other things that make selling foreign goods in a country more difficult
protectionism - policies that favour goods produced within a country (restricting imports)
face the possibility of Y - Y might happen
Shipments of agricultural commodities that Thailand leads the world in such as rice, rubber, and tapioca saw sharp reductions but sugar saw a sharp increase:
Rice shipment volume
fell 60.9% year-on-year to 397,345 tonnes, rubber declined 28.8% to
188,070 tonnes, and tapioca 57.3% to 143,480 tonnes. However, food
products including seafood, shrimp, chicken and sugar expanded, with
frozen and processed chicken rising 2.7% and sugar up 37.8%. Exports of
industrial products mostly fell, except for rubber products, lenses,
cosmetics, animal feeds and toys (Read Bangkok Post article on
adjustments
to slowdown by Thailand's shrimp industry).
Shipments to China fell more than twice as quckly as shipments to other destinations, a disturbing trend:
Shipments to key markets such as the United States, the European Union, Japan and Asean fell 19.2% to $6.24 billion, with those to emerging markets falling 17.9% to $5.62 billion...Shipments to China for November dropped 36.3% to $941 million.
disturbing trend -
something increasingly common that is worrying
emerging markets - countries that are still developing (but are neither very poor, nor very rich), Thailand, Malaysia, China, Korea are all examples
emerging markets - countries that are still developing (but are neither very poor, nor very rich), Thailand, Malaysia, China, Korea are all examples
Exports success or failure may depend on business strategy
Although rice exports as a whole have taken a hit this year, some companies are bound to be winners and some losers depending on the strategy and approach they take to their export business. .An article in today's Bangkok Post interviews Prasit Damrongchietanon, CEO of CP Group's rice trading subsidiary CP International Trading Business Group.
In the interview he outlines the successful strategy that CP Group has applied to the rice business both domestic and export.
take a hit - were
hurt, decreased
a strategy - a general plan of how you will achieve something
an approach - the way you deal with a situation or solve problems
a subsidiary - a smaller company owned by a larger company
a strategy - a general plan of how you will achieve something
an approach - the way you deal with a situation or solve problems
a subsidiary - a smaller company owned by a larger company
Branded rice
Rice is an agricultural commodity and a commodity is by definition a uniform and relatively homogenous good.The rice produced by one farmer is roughly the same as rice produced by any other farmer and can be interchanged or mixed together and then sold.
By branding their rice CP Group differentiates their rice product from other rice products. Observes Mr. Prasit:
Ninety-nine percent
of our rice is packed and sold under brands, not in commodity form. The
Royal Umbrella brand accounts for 70% of our export volume, with the
balance sold under customers' brands...This year, CP
claimed to lead domestic sales of bagged rice, which represent about
two million tonnes of the total local rice sales of six million tonnes.
Bagged
rice is distributed
largely through modern-trade
channels but our
products are also available at traditional grocery shops nationwide...
a commodity - a uniform and relatively homogenous
good
uniform - the same throughout, regular, does not vary
relatively Y - mostly Y, but not completely Y
homogeneous - each one is the same
branding - building a well-known name and image for a product
differentiates - making your product different to attract customers
distributed - made available to customers through stores and middlemen
middlemen - companies that buy and sell goods (often in bulk) between the factory and the final consumer
trade channels - the ways that a company makes its products available to customers
uniform - the same throughout, regular, does not vary
relatively Y - mostly Y, but not completely Y
homogeneous - each one is the same
branding - building a well-known name and image for a product
differentiates - making your product different to attract customers
distributed - made available to customers through stores and middlemen
middlemen - companies that buy and sell goods (often in bulk) between the factory and the final consumer
trade channels - the ways that a company makes its products available to customers
Cheap and reliable supplies of milled rice essential
CP Group purchases already milled rice and then processes and packages it:As the group does not grow
and mill rice itself, strong
relationships with its partners
including millers and farmers are
crucial in order to ensure
stable supplies. A trading
source
pointed out that the exporters who are able to acquire as much rice as
possible from state bids could make
handsome profits because the rice
in the state stocks had been kept for quite some time and could fetch
relatively low prices. CP has been a regular
winner of the
Commerce Ministry's rice bids in recent years. It won 400,000 tonnes
last year and another 355,000 last month.
CP Groups has invested two billion baht to build its third rice-processing plant in Ayutthaya with an annual capacity to process and pack about 1.4 million tonnes of rice, more than tripling the existing capacity of 400,000 tonnes from its existing two plants in Pathum Thani and Ayutthaya.
Rice contributes 80% of the group's total revenue. The company is diversified and other revenue contributors include exports of canned fruit and vegetables. The group also operates a freight forwarding business and controls a small stake in a shipping and seaport venture with Thai and Singaporean partners.
reliable - can be
trusted to work the way you expect
milled rice - rice from the field dried, dehusked, and put in sacks
partners, business partners - people or other companies you own a business with (each owns a certain percentage of the business)
ensure stable supplies - take steps to make sure you have enough rice, that you don't run out
a trading source - a news source in the trading industry
a news source - someone who provides you information that can be included in the news (newspaper, radio, television)
handsome profits - large profits
fetch low prices - sells for low prices
capacity - the largest amount that can be produced with current resources (factory, equipment, machines, facilities)
annual capacity to process and pack - the amount of processing and packing of rice that can be done in one year (if the factory is used all the time = full capacity = 100% capacity)
a diversified company - a company that has many different kinds of businesses which offset each other (business for some goes up while for others goes down)
a revenue contributor - a business that makes money for a company
freight forwarding - a company that provides logistics services, that arranges and books space for shipments of goods on trucks, planes, ships, and trains (See Wikipedia)
controls a small stake in Y - owns a small stake in company Y
milled rice - rice from the field dried, dehusked, and put in sacks
partners, business partners - people or other companies you own a business with (each owns a certain percentage of the business)
ensure stable supplies - take steps to make sure you have enough rice, that you don't run out
a trading source - a news source in the trading industry
a news source - someone who provides you information that can be included in the news (newspaper, radio, television)
handsome profits - large profits
fetch low prices - sells for low prices
capacity - the largest amount that can be produced with current resources (factory, equipment, machines, facilities)
annual capacity to process and pack - the amount of processing and packing of rice that can be done in one year (if the factory is used all the time = full capacity = 100% capacity)
a diversified company - a company that has many different kinds of businesses which offset each other (business for some goes up while for others goes down)
a revenue contributor - a business that makes money for a company
freight forwarding - a company that provides logistics services, that arranges and books space for shipments of goods on trucks, planes, ships, and trains (See Wikipedia)
controls a small stake in Y - owns a small stake in company Y
Food staple exports resistant to economic slowdowns
Rice is a cheap staple food source: "A gramme of milled rice, enough for a meal for one person, costs only three baht."During global economic slowdowns like the current slowdown households are more likely to cut non-food expenses first, after all everyone has to eat: "Rice is likely to be affected only marginally by the receding economy. As staple food for most people, it [rice] would be the very last item to be dropped from their spending lists."
Rice sales continue to grow in both domestic Thai markets and overseas markets, so CP Group expects strong sales to continue:
The company's rice sales
this year will reach 22 billion baht
from a total of 900,000 tonnes, of which 500,000 tonnes are exported.
The figures represent a 30% rise in volume and 70% in value from last
year, thanks to strong prices for the grain. The growth would
continue next year, by about 50% in volume, helping raise the group's
total sales revenue by at least 30% even as rice prices have shown a
decline after reaching record highs this year. The impressive
growth, expected to be seen in both domestic and foreign markets, would
outpace the
country's export performance, which will likely fall as a
result of relief from
the global food shortage and more exports from
India and Vietnam. Thailand is forecast to export about eight to 8.5
million tonnes of rice in 2009, down from 10 million tonnes this year.
While
many rice traders have already adjusted down their targets for next
year, Mr Prasit expressed confidence that with good trading partners,
better logistics
and strong brands, the group could achieve next year's
aggressive projections.
a staple food - a
basic and important food in everyone's daily lives
households - families or groups of people living together (economics treats this as a unit that makes decisions)
X. After all, Y - Y supports Y (example: He smells bad. After all, he hasn't taken a shower in days.)
likely to be affected only marginally - effect will probably be small
a receding economy - a slowing economy with less economic activity, growing at a slower rate
X outpaces Y - X grows or moves faster than Y
relief from Y - giving help to end difficult situation Y
logistics - the activity of moving goods between factories and to the final store or consumer (includes transportation, storage, and tracking)
aggressive projections - predict large gains (more than most people think is possible)
households - families or groups of people living together (economics treats this as a unit that makes decisions)
X. After all, Y - Y supports Y (example: He smells bad. After all, he hasn't taken a shower in days.)
likely to be affected only marginally - effect will probably be small
a receding economy - a slowing economy with less economic activity, growing at a slower rate
X outpaces Y - X grows or moves faster than Y
relief from Y - giving help to end difficult situation Y
logistics - the activity of moving goods between factories and to the final store or consumer (includes transportation, storage, and tracking)
aggressive projections - predict large gains (more than most people think is possible)
(Source #1: Bangkok Post, business, 23/12/08, November exports drop on airport siege, slow demand, PHUSADEE ARUNMAS
link)
(Source #2: Bangkok Post, business, 23/12/08, High prices lift revenue of CP rice unit: Healthy growth seen this year and next, WALAILAK KEERATIPIPATPONG, link)
