CPF adjusts feed-meal business amid changes

Charoen Pokphand Foods is having to adapt its feed-meal business to cope with structural change in both the trading and manufacturing culture of the sector, the goal being to manage an integrated business in terms of supply and services.

The strategy will allow CPF to serve farm operators from upstream through to downstream service, as well as in management and marketing, enabling farm owners to sell their output to the company at prices they prefer, said Virachai Ratanabanchuen, executive vice president at the company's Livestock Feed Unit.

In the near future, CPF's income structure will also be changed, with farm business generating one-third and feed meal and food products accounting for the remainder.

In particular, the successful acquisition of Hong Kong-listed company CP Pokphand will help the income contribution from feed-meal business to increase from the current 39 per cent to 54 per cent, he said.

At the same time, income from food business will decline from 18 per cent to 13 per cent, and that from the farm sector from 43 per cent to 33 per cent.

The company's livestock-farming business model has been changed, paving the way for large farms with more than 100,000 chickens in order to assure survival amidst rising production costs.

However, small-scale farmers, whose business depends on market prices, will be gradually phased out, said Virachai.

Moreover, rising demand for alternative energy will lead to higher raw-material costs for feed business. The company is still exploring business opportunities in feed-meal business overseas, said Adirek Sripratak, CPF president and chief executive officer.

Pakistan

It is also negotiating the purchase of a feed-meal company in Pakistan, with a deal likely to be completed in the near future, he said.

However, CPF's business pattern abroad has been designed for step-by-step investment, focusing on establishing feed mill, livestock farming and processing plant operations. Products that are highly competitive will also be exported.

The company yesterday celebrated its latest standard certification, ISO27001:2005, which has been granted to two feed mills in Nakhon Ratchasima.

The certification will allow CPF to keep all feed-meal formulas secret and maintain high standards, said Virachai.

The company also plans to apply for similar certificates for its nine other feed mills, as well as for 26 plants for both livestock and aquacultural meal and 10 food-processing factories.

The executive said feed-meal business had not expanded as strongly as other business areas because of slow growth in the number of livestock. This is because the industry has to balance supply and demand to ensure fair prices for farmers.

For instance, the number of layer hens has increased from 37 million-38 million birds annually in recent decades to just 41.5 million at present. This has resulted in feed-meal trading via dealers and agents coming to an end.

However, direct marketing between feed-meal manufacturers and farm operators is increasing, as the former can serve all kinds of demand, he added.

"Customers will enjoy our services when we send staff to help them develop and manage their farms, besides which they may volunteer to become alliance partners," said Virachai.

CPF operates 11 feed mills in Thailand with a maximum overall capacity of 6.2 million tonnes per year, making it the country's biggest manufacturer of meal.