Charoen Sirivadhanabhakdi and the TCC Group
targets biofuel and export crops
By Jon Fernquest |
Yesterday's Bangkok Post business section examined the energy sector expansion plans of Thai Charoen Corporation Group (TCC), the conglomerate controlled by liquor tycoon Charoen Sirivadhanabhakdi.
Large-scale purchases of rural land in Thailand and neighboring countries support the company's plans to diversify into biofuel crops.
This article attracted the attention of Dr. Chris Baker over at the New Mandala blog at the Australian National University (ANU) that specializes in Thai, Lao, Cambodian, and Burmese affairs.
Chris Baker is an economic historian, prolific author, and co-author of the recent book Thai Capital: After the 1997 Crisis (2008) that has one whole chapter devoted to the post-crisis rise of TCC Group. He comments on the article:
"We knew he acquired a lot of urban land in the 1997 crisis because he was one of the few people with cashflow when others were desperate to sell assets in order to stay afloat. He is now one of the biggest urban land owners and developers. We had no idea of his rural holdings. According to this article, he has 'more than 100,000 rai of land in 54 provinces' in Thailand, plus plantation projects covering at least 120,000 rai in Cambodia, plus projects in Laos and Vietnam. Much of the land is under plantations of rubber, sugarcane, oil palm, and tapioca.Charoen is a long-term strategist. Many other urban entrepreneurs might have been wary about acquiring so much agricultural land, but Charoen was probably betting on the agri-price upswing which we are now seeing because of China’s growth and the energy crunch.
Is Charoen an isolated phenomenon, or is he the biggest example of a wider trend? Has there been a more general concentration of land ownership as a result of bankruptcies from the 1997 crisis - maybe not in such huge holdings, but a concentration all the same? How can we find out?"
The commentary by Chris Baker raises several questions. Will large efficient agro-business plantations replace small farms in the future? Will life be worse for farmers working on these plantations? Is contract farming to small farmers who own their own land a better alternative to plantations? Is contract farming feasible?
TCC Group operates four key business lines: beverages, trading in consumer products, property investment and development, and insurance and leasing.
Plantheon Group was set up as a holding firm for the agro-industry ventures of TCC Group three years ago.
Plantheon Group was developed to add value to some of his non-performing rural land assets.
Agro-industry ventures will focus on two sectors that have experienced strong growth, export-oriented agricultural products and crops used in alternative energy:
"Plantheon has four major business groups: sugar industrial business; agriculture business; agriculture in foreign countries (notably in Cambodia, Laos And Vietnam); and "agriculture for the future", offering modern technology for plantations.For the sugar business, Plantheon owns four mills with a total capacity of 66,000 tonnes of cane per day under TCC Sugar Group, while Plantheon Limited focuses on industrial crop plantations covering oil palm, rubber, sugarcane and cassava."
Agricultural land holdings of TCC are extensive:
"Mr Charoen owns more than 100,000 rai of land in 54 provinces including Bangkok. About 20,000 rai have been allocated to rubber since 2004.The group plans to increase rubber plantations by another 20,000 rai by 2010, mostly in Nong Khai, Kanchanaburi, Chachoengsao, Rayong, Prachin Buri and Loei. According to Mr Ananta, the plantations could produce 10,000 tonnes of rubber sheet per year by 2017.
For other crops, the company plans to expand plantation areas for sugarcane, tapioca and palm oil to cope with rising demand in the future for alternative fuels, as well as grow rice on the 10,000 rai in Nong Khai and Ayutthaya.
Currently, the group operates sugar mills in Lampang, Uttaradit, Suphan Buri and Chon Buri. Mr Ananta said the group plans to plant sugarcane on about 10,000 rai in Kamphaeng Phet and Sukhothai.
The company also intends to relocate its sugar mill from Uttaradit to Sukhothai because the latter has more cane but no mill. With the new mill, farmers will no longer need to transport crops to other provinces.
The company is also looking to expand tapioca planting, mainly to supply ethanol factories, Mr Ananta said. TCC now operates a gasohol refinery in Bang Lane, Nakhon Pathom, with a capacity of 400,000 litres a day.
Mr Ananta said the company had also already invested in 1,000 rai of oil palm in Chumphon to supply biodiesel producers."
Recent expansion of business operations into neighboring countries has been rapid:
"Besides agricultural investments in Thailand, Plantheon also sees opportunities in neighbouring countries, especially Cambodia, Laos, and Vietnam.The company has formed a joint venture with local partners in Cambodia to grow oil palm on 68,750 rai in Koh Kong, Cambodia. Another project in Cambodia also includes 52,500 rai of sugarcane plantations.
More than two billion baht has already been invested in Cambodia. The palm oil business is operated by Mong Reththy Investment Cambodia Palm Oil Co, while the sugar industry is overseen by the MRT-TCC Sugar Investment Co.
In addition, the company operates a port management business in Cambodia through Oknha Mong Port Co.
The company is now applying for approval to develop 62,500 rai into for an oil palm plantation in Cambodia that could produce about 200,000 tonnes of oil a year. A biodiesel factory is also in the pipeline there, said Mr Ananta.
In Laos, the group has set up Paksong Highland Co with local partners to grow sugarcane, coffee, macadamia nuts and horticultural crops such as asparagus in Pakse. The investment is estimated to cost around 600-700 million baht. Its Arabica coffee should hit the market in the next three years."
The flurry of new investment has been driven by an optimism that Thailand will play a central role in worldwide markets for energy or biofuel crops in the future:
"We estimate more than five billion baht has been spent in those agricultural and agro-business projects. We are set to invest more than 10 billion baht in the near future to expand the TCC Group's new business lines," said Mr Ananta."We believe Thailand's agriculture sector could be more powerful in the world market, as no other countries in the world produce such a wide range of energy crops such as palm oil, tapioca, rubber and sugarcane."
(Source: Bangkok Post, business section, 05-01-08, temp-link)
Vocabulary:
Thai Charoen Corporation Group (TCC) - a large Thai liquor conglomerate that survived and prospered after the 1997 crisis because it was cash rich
a tycoon - a very rich person
diversify into - creating a healthy variety in the assets held or activities engaged in (in which returns are not correlated)
biofuel crops - agrcultural crops that can be used for fuel and energy (See Wikipedia)
prolific - producing a lot
a co-author - one of two or more people who wrote a book
a chapter devoted to - a chapter in a book that deals with this topic or subject
cashflow - money coming into the business, to keep operations running
desperate - willing to do anything to change the bad situation you are in
stay afloat - stay in business, avoid bankruptcy
had no idea of - did not know
energy crunch - when energy prices suddenly rise, making everything else in the economy expensive
isolated phenomenon - this is the only case, not common
concentration of land ownership - a few people own most of the land, instead of many people owning a small amount
bankruptcies - when businesses go out of business, because they cannot pay creditors (loans, suppliers, etc)
business lines - different businesses the larger business is involved in
leasing - commercial leasing provides an alternative to outright ownership with some benefits (See Wikipedia on commercial leasing)
a holding firm - a company that owns other companies
agro-industry - when large companies own and run farms rather than small farmers (although like CP Group they also contract out to smaller farmers)
ventures - risky new businesses that might succeed or might not
rural - in the countryside, in the farming region
non-performing rural land assets - farm land that is not generating any revenue
Y-oriented - involved with or dealing with Y (for example export-oriented or bio-fuel-oriented)
notably, Y - Y is a case worth looking at
plantations - a large farm especially in a tropical country on which cotton, tobacco, coffee, sugar cane, or trees are cultivated by resident laborers (See Wikipedia)
mills - factories that turn (process) agricultural crops into products taht can be sold in stores
cane - sugar cane, the long stocks before they are processed into sugar (See Wikipedia)
in the pipeline - already planned or begun, but not yet completed (See glossary)
a flurry of activity - a sudden large amount of activity
