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Thailand: Marketplace and Gateway to Indochina
By Peter O. Kurz
U.S. exporters are taking advantage of a rapidly expanding economy and growing consumer demand in Thailand to put an increasing variety of U.S. food exports on Thai supermarket shelves.
This market is doubly important for U.S. exporters who are finding Thailand to be a gateway for trade with southern China, Laos, Cambodia, Vietnam and Burma.
In 1991, Thailand imported $2.4 billion worth of agricultural products. By 1995, this figure jumped more than 71 percent to $4.1 billion.
Thailand ranks 18th worldwide as an importer of U.S. agricultural products. Between 1991 and 1996, U.S. exports to Thailand of agricultural, fishery and forestry products more than doubled, from $303 million to $622 million.
Bulk items presently make up the majority of U.S. exports to Thailand, with $339 million worth of sales in 1996. Products such as cotton, wheat, soybeans and coarse grains account for more than 55 percent of these U.S. exports. Intermediate products, including animal feeds, soybean meals and hides and skins, comprise an additional 27 percent.
At $73 million, consumer-ready food products comprised less than 12 percent of Thailand's agricultural imports from the United States in 1996. Though comparatively small now, this category does promise the fastest growth. Fresh fruits, processed fruits and vegetables, dairy products and wine and beer were the leading export items in 1996.
Thai Economy Shows Sustained Growth
The Thailand economy operates as an essentially free market system in which the private sector plays a dominant role. Nonetheless, the government controls some key industries, such as the Electric Generating Authority, Communications Authority and Thai Airways.
Thailand's gross domestic product (GDP) has averaged an 8-percent annual growth rate during the last decade. GDP expansion has not been less than 5 percent for more than 20 years. This steady growth led to a per capita income level of $3,063 in 1996.
The Thailand economy cooled somewhat in 1996, as the growth rate fell to 6.7 percent. Increased industrial competition from its neighboring countries, infrastructure problems and over-investment in the property sector contributed to the decline in growth. On the positive side, certain mid-tech manufacturing sectors, notably electronics and automotive, showed robust gains.
Thailand's ambitious Eighth National Economic and Social Development Plan, in effect until September 2001, has established goals to maintain an 8-percent annual GDP growth rate, control inflation and reduce the poverty level from 14 percent to 10 percent of the population. Forecasters expect growth to remain in the 5-7 percent range.
Domestic Food Sector Flourishes
Thailand remains the world's largest exporter of rice, tapioca, pineapple and canned tuna. It is also a large exporter of sugar, rubber and coffee products, and ranks among the world's top 10 exporters of processed poultry.
But since 1979, Thailand's manufacturing sector has been the driving force behind its GDP growth, while agriculture's share has been steadily declining. By 1994, agricultural exports had dropped to 21 percent of Thailand’s $45.1-billion export market.
Expected growth for the manufacturing sector was 11.9 percent in 1995, while the agriculture sector was expected to expand 3.2 percent, down from 4.2 percent in 1994.
Despite the relative decline in agriculture's share of Thailand's GDP, agricultural exports have steadily increased to more than $13.4 billion in 1995.
Thailand protects its domestic food processing sector through the use of tariff and non-tariff barriers. This has resulted in the tremendous expansion of domestically manufactured snack foods, beverages and other consumer-oriented products for local and export markets.
The food processing industry has grown more than 20 percent annually since 1980, and is expected to maintain that pace through the late 1990s. Thailand's abundant domestic supply of relatively good quality rice, prawns, canned tuna, canned pineapple, canned baby corn, asparagus, mushrooms, bamboo shoots and chicken severely limits imports of these commodities.
Trade between Thailand and its neighbors in Indochina has more than doubled in the early 1990s. In 1994, Thailand’s exports reached $1.44 billion in this market.
At times, Thailand has been in conflict with Cambodia and Burma over issues related to forestry, fishing and border trading. Nevertheless, trade between Thailand and its Indochinese neighbors continues to increase. Developing transportation networks are expected to further improve these linkages.
Consumer Demographics
In 1995, 75 percent of Thailand’s 60-million population were ethnic Thai. Racial minorities included Chinese (14 percent) and Indian, Malay and other groups (11 percent). The country is 95-percent Buddhist; other religious groups include Muslims, Christians, Hindus and Sikhs. Also, 95 percent of the adult population is literate.
A booming middle class is fueling Thailand's increased appetite for imported food products. This developing middle class with a taste for Western-style foods accounts for about 18 percent of the population.
The estimated $600 monthly household income of the Thai middle class may not seem sufficient to account for escalating consumer spending on imports. But this amount masks the economic effect of the traditional family groupings that share a home or family compound and often combine their earnings.
Marketers have noted a new trend in family living in Thailand--an increase in the number of Western-style nuclear families among the younger generation--and are increasingly targeting this segment of consumers.
Thais enjoy dining out. According to government figures, they spend 23 percent of their food budget away from home. In Bangkok, this figure jumps to 46 percent. A strong cultural orientation toward family and group gatherings, as well as the historical abundance of food and pleasant weather, contribute to this trend.
Food Preparation and Consumption
Thai food has the reputation as the hottest and spiciest food in Southeast Asia, with varying cuisines. For example, boiled rice is usually served in the South, while sticky rice is an important part of the diet in the North.
Traditional Thai food preparation requires a lot of time. Thus, breakfast and lunch often consist of Chinese dishes that are easier to prepare. Thai-style cooking takes place primarily for the evening meal.
Rice and a fresh vegetable with a special sauce are basics on the table for every meal. A typical Thai meal might also include a bowl of meat or vegetable curry, a bowl of soup, a vegetable with a sauce, fried fish and a fried vegetable.
Most Thai homes have small refrigerators with freezers, but fewer than 5 percent of Thai households own microwave ovens.
With more than a dozen official holidays every year, Thai consumer purchasing habits are greatly affected by the festive seasons. Food gifts are often given for Christmas, Western New Year, Chinese New Year and other holidays.
Competition Stiff for U.S. Exporters
The United States has not been alone in discovering this market. Foreign competition is intensive. Numerous countries, mostly European, are selling more frozen beef, chocolate, instant coffee, wine and dairy products.
Australia, New Zealand and the Netherlands compete with U.S. exporters for animal-derived products, such as frozen beef and dairy products. These countries have used their efficient production systems and active market development programs to pursue markets in Thailand. Australia and New Zealand enjoy a price advantage because of lower transportation costs.
Japan, China, Canada, France, New Zealand, Chile and Australia compete with the United States in the Thai fresh fruit market. Packaging plays an important factor in fruit quality, and many of these competitors rely on packaging developments to gain a market advantage.
Under Thailand’s traditional market system, importers sell to wholesalers who then sell to local retail outlets, such as hotels, restaurants, supermarkets and discount stores. Some of these outlets also import goods directly.
Importers and wholesalers sometimes sell their own products by vending within retail outlets, although this is more typical for local products than imports.
Best Prospects
U.S. products with the best sales prospects in Thailand include fresh fruit, convenience and health foods, chocolate and other confectionery, frozen foods (particularly french fries and vegetables), biscuits, whipping cream, processed meat, snack foods, processed nuts and condiments.
In Bangkok, consumers faced with long hours away from home have stimulated demand for convenience foods. Bangkok’s commuters spend $1.2 billion annually on convenient breakfast items, with the potential to reach $3.2 billion in five years. Popular consumer-oriented items for this market include cereal, fruit juices, instant hot drinks and dairy products.
Other food items with good restaurant and food service market potential are wine, cheese, condiments, soup bases and specialty items, such as salmon and crawfish.
The demand for imported food ingredients is expanding in line with growth of Thailand's food processing industry. Dietary changes have brought new-found popularity to bakery foods, snacks, dairy products, processed meats, soft drinks and confectionery items.
While most of the ingredients that are used in these products are produced locally, many imported items are still needed, including beverage bases, bakery pre-mixes, dough extenders, dried fruits and nuts, fruit fillings, fruit and other flavors, powdered milk, whey powder, butter oil emulsifiers and spices.
Retail Sector Changing
Traditional Thai wet markets (outdoor markets that sell fresh produce) are found in every town, usually near the central business district. These markets mainly sell fresh fruit, vegetables and meat, which are supplied directly by local sources. They sometimes also serve as wholesale markets or distribution centers. Increasingly, imported goods, such as apples, grapes and biscuits, are available in these markets or nearby shops.
Most of the population still shops in the wet markets. However, due to quality factors, Western-style supermarkets and other food stores are beginning to attract higher income customers.
Supermarket sales are growing fast in Bangkok and other regional cities. This growth is important to U.S. exporters because many imported foods and beverages are sold in these stores. As of January 1996, more than 80 supermarkets were operating in Bangkok. Some are freestanding; others are combined with department stores.
Central Department Store, Foodland Supermarkets, Villa Market, Basket of Plenty and Fuji Supermarket are examples of supermarkets that offer a wide range of imported foods.
Convenience stores have been replacing traditional Thai grocery shops since 1990. An increasing number of franchised convenience store chains, particularly 7-Eleven and AM-PM, are open round the clock in major towns. In January 1995, 7-Eleven convenience stores numbered 553 in Bangkok. Continued expansion of these stores is expected throughout the country.
Gasoline stations also operate convenience stores, and many private convenience stores have successfully copied design and shelving styles from the franchise chains.
Hypermarkets have opened in Thailand within the past five years. Makro, Lotus, Carrefour and Depot are well-known chains. These stores offer a full range of products, usually in large, multi-packages, with emphasis on medium quality and low price. Fresh fruit and vegetables and bakery products are also available, but this produce is mostly supplied by local sources.
Target customers of discount stores are middle- and higher income shoppers and small retailers who purchase large quantities.
Food Service Sector
Hotels and restaurants are a key end-user segment for imported foods, ingredients and beverages. Even though the growth of the tourist industry has slowed in recent years, overall hotel and restaurant demand has remained strong. This is due mainly to the opening of new hotels and restaurants accompanied by increased patronage by middle- and high-income Thais.
Of the more than 300 hotels registered with the Thai Hotel Association, 20 are in the first class category and another 50 are in second class status. Most hotels have at least one international restaurant featuring imported foods and beverages.
Many Thais opt for Western-style restaurants for family or business gatherings. U.S. fast-food restaurants in Thailand have grown at an estimated 30-40 percent a year for the past five years. Popular U.S. restaurants include Kentucky Fried Chicken, McDonald's, Pizza Hut, Swenson's Ice Cream, Burger King, Shakey's and Long John Silver’s. Home delivery services are becoming more common as the restaurants become more popular.
Government Import Regulations
The Thai Food and Drug Administration (TFDA) approves most imports of consumer-oriented food products. Exporters of food products to Thailand must be licensed with the TFDA. A three-year licensing permit to import approved food items costs $600.
Most consumer-ready products are deemed "specific control" products. Each of these products must be registered for an additional $200.
Product samples must be submitted to the TFDA to undergo a thorough product analysis. Samples must be accompanied by seven copies of the package label (showing the ingredients by percentage), descriptions of the packaging and manufacturing process and a certifying letter from the product manufacturer.
For bulk shipments, the TFDA requires a photograph clearly showing the product name, manufacturer's name and net weight. Registration time averages three-six months, but may take up to a year.
Import Duties
Thailand’s high import duty rates restrict food and agricultural imports. Customs duties are levied on most imported items and range from 30 to 60 percent for food products. Import surcharges are occasionally imposed on certain products that are considered competition for local industries.
The Thai Government has begun a major reform of the country's tariff schedules as part of its obligations as a member of the World Trade Organization (WTO). This reform will result in tariff reductions for certain U.S. food products, such as fresh citrus.
However, duties on many high-value fresh and processed food products will remain high, with tariffs on most items at the 30- to 40-percent level by the year 2004. Thus, U.S. producers of meats, some fresh and dried fruits, tree nuts and juices may still find it difficult to penetrate the Thai market.
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Peter O. Kurz is Agricultural Counselor at the FAS Office of Agricultural Affairs in Bangkok, Thailand. Tel. (011-66-2) 205-4000, ext. 2241; Fax (011-66-2)255-2907; E-mail: agbangkok_po@fas.usda.gov.
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