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Thailand Food and Drink Report Q1 2010
Business Monitor International, Nov 2009, Pages: 75
The Thai economy has taken a beating from the global financial crisis, with BMI now forecasting that real GDP will shrink by 4.5% in 2009. This has inevitably had a negative impact on consumer confidence, and in turn, the country’s food and drink sector. Nevertheless, a number of major producers have posted positive results, as discussed in BMI’s Q110 Thailand Food & Drink Report.
In October, Thailand's leading canned tuna exporter, Thai Union Frozen Products (TUF), announced that its net profit increased by 12% year-on-year (y-o-y) to THB1.02bn (US$30.53mn) in Q309 ending September, despite a sales decline of 8.3% % y-o-y to THB16.93bn (US$506.7mn) during the same period. On the back of these encouraging results, the company has said that it now expects to achieve 10- 12% growth in net profit during FY09. TUF has said that the higher-than-expected profit growth was boosted by lower costs and value-added products, while a rare period of lower raw tuna prices also certainly helped.
With global fisheries' output falling there has been inevitable upside pressure on prices in recent years, pressure that came to a head with early-2008's commodity price spike that pushed the cost of fishing to almost unmanageable levels for many small producers. These high prices ensured that the collapse of demand that accompanied late-2008's global financial crisis was severe and this, coupled with the general unravelling of the global commodities complex, has served to push prices down. Aware that this is a temporary phenomenon, TUF has taken steps to restructure and reduce costs. Indeed, one of BMI's core long-term views for the global food and drink market is that food prices will remain on an upward trajectory. They will remain to some extent cyclical, but growing demand-side pressures will mean that in the long term we see a structural movement upwards.
TUF has also been focusing on the diversification of its export markets. Generating half of its 2008 revenue in the US, TUF is hugely exposed to demand downturns in that market, and with Japan and Europe among other key export destinations, TUF has found itself reliant on those markets where the economic downturn has been most severely felt. The company has taken steps to address this in recent years, with a particular focus on Russia and the Middle East, as such new export destinations are the key to long-term growth.
Moving on to the drinks sector, we see that local major Thai Beverage Plc (ThaiBev) is another company that is looking to diversify its operations and reduce its dependence on its domestic market. Currently accounting for 5% of total revenues, ThaiBev has stated that it wants to boost the contribution of its international operations to one-third of revenues within three years. While the Thai economy does show signs of recovery in 2010, with real GDP growth forecast to reach 2.2%, those food and drink companies that have diversified their operations as discussed above will be in the strongest position to weather any future economic storms.
The Thailand Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Thailand's food and drink industry.
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