EU milk makers eye Thailand exit over Oceania rivals’
- European milk producers have called on the Thai government to cut tariffs on dairy imports or face job losses and an exodus of operations
- Some have already called it quits and shut down long-established factories, while others are considering a move elsewhere in Asean
Thailand is the world’s second-largest exporter of flavoured UHT milk-based drinks by volume, but its dairy production could come under threat as European producers consider moving elsewhere in the region, according to a report to the government by major Thai milk producers obtained by This Week in Asia.
Producers in Thailand such as Switzerland’s Nestle and the Netherlands’ FrieslandCampina have long relied on imported dairy ingredients from the European Union, the United States, Australia and New Zealand, as Thai domestic production is insufficient for their needs.
According to the report, this will result in producers from nations that cannot access zero-tariff New Zealand or Australian milk ingredients paying as much as 214 per cent more for these essential factors of production.
Oliver Fall, vice-president of consultancy Edelman Global Advisory who is familiar with the negotiations between the Thai dairy industry and the government, told This Week in Asia that some European milk producers’ operations in the kingdom had already ceased while others could soon be moving to Indonesia, Malaysia or Vietnam.
FrieslandCampina, which had been operating in Thailand for about 67 years, announced in July last year that it was exiting the pasteurised milk business in the country and closed the factory at Lak Si it had operated for decades saying it was necessary for its “long-term strategy”.
To level the playing field with companies from New Zealand and Australia, producers that import from the US and Europe in particular are now asking the Thai government to consider lowering tariffs or look into pursuing fresh free-trade agreements.
“Tariff imbalances are creating destabilising and compounding vulnerabilities in the Thai dairy sector … this may encourage an assessed 40 per cent of the largest producers to reduce investments or exit the market,” according to the industry report, “Critical Requirement For MFN Tariff Revisions To Support The Thai Dairy Industry”.
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“International food and drink producers are showing a preference to close and reduce operations in Thailand … compounded by the global inflationary environment, the situation has deteriorated substantively in the past 12 months,” it said.
Ultimately, Thailand’s growing number of milk consumers would suffer due to fewer choices and higher prices, said Chris Humphrey, executive director at the EU-Asean Business Council.
“The higher costs will get passed onto consumers. It will also perhaps hold back the local industry because they will not be able to innovate and grow,” Humphrey said.