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All content in this area was uploaded by Pornsri Laurujisawat
Content may be subject to copyright.
“
T
“
CPF: a
c
T
hai, A
E
c
ase stud
E
C and
W
y of the
b
W
orld Ag
b
est Pra
c
ricultur
a
c
tice Co
n
a
l develo
p
n
tract Fa
r
p
ment”
r
ming
d
r
☺
r
ives
Part 1 : The Important roles of Agriculture 3
Part 2 : Contract Farm: Collaboration; Working to increase 7
production & marketing in agriculture development
Part 3 : CPF and a Case Study of Best Practice Contract Farm: 13
Win, Win, and Win-Three Benefits;
benefit to farmer, benefit to business, benefit to the nation and common wealth
Part 4 : Marketing mechanisms to create sustainable value chain: 23
Part 5 : Summary and recommendations 28
1
First of all, I would like to say” Thank you” to the Mekong Institute(MI), for inviting
me to talk about “CPF and a Case Study of a Private Company in Contract Farming
Arrangement with Small Farmers; Improving Income by Linking Small-Scale Farmers to
Market Opportunities” today.
The Mekong Institute (MI) is an important and expert international organization
worldwide, especially in the Great Mekong Sub-region (GMS). MI also has as its goal to
apply agricultural development mechanisms to enable the poor rural people to overcome
poverty and enjoy food security. Especially today; MI has one new mission to focus on the
cooperation of agricultural management with the private sector. Example;
today's workshop project is focused on “Regional Workshop and the Structure Learning
Visit on Successful Contract Farming Models in Cross
Border Trade”. The project has received scholarships from
the New Zealand government to develop
the participants from GMS, Cambodia, Lao PDR, Myanmar,
and Vietnam (CLMV), by using the study area based in
China and Thailand.
The CP Group has worked in the agricultural business for more than 90 years
in Thailand. At present, the CP Group also invests in 14 countries and has 12 trading
offices around the world. Particularly, the CP Group practices the philosophy of ''three
benefits; benefit the country, benefit the people, benefit the company and its employees.
As both the MI and CP Group look beyond to achieve agricultural
development in creating food security and the sustainable growth of nations in
global common wealth.
Then, it is a very great chance for me to join the MI meeting today. I also would
like to thanks Mr.Adirek Sripratuk, the CEO of CPF and Mr.Teerasak Urunanon, Executive
Vice President of CPF, who give me this valuable opportunity to work in the continuous
“CPF : a case study of the best Practice Contract Farming drive
Thai, AEC and World Agricultural development”
2
learning environment of the CP Group and give me the excellent chance to collaborate
with the MI team in this meeting.
Moreover, thanks also to the many CP friends who have supported me by giving
me many kinds of information material and recommendations to do “CPF : a Case Study
of The Best Practice Contract Farming drives Thai, AEC and World Agricultural
development”.
And most of all, I would like to thank Mr.Dhanin Chearavanont, the chairman of
the CP Group, who has established the concept of "working ways "for all CP staff as
a “Dedication to Society”
Today, I divide the presentation into 5 parts
1. The Important Roles of Agriculture
2. Contract Farm: Collaboration; Working to increase production & marketing in agricultural
development
3. CPF and a Case Study of Best Practice Contract Farm: Win, Win, and Win-Three
Benefits; benefit to nations and common wealth benefit to farmers, and benefit to business
4. Marketing mechanisms to create sustainable value chain
5. Summary and recommendations
Thank you to participants, I hope this presentation will useful
for our cooperation between MI and private sector (CP GROUP) soon.
Dr.Pornsri Laurujisawat
pornsril@yahoo.com
Tel 66-8-1-826-1800, or 66-0-90-974-6855
3
Agriculture is the world oldest industry that was developed at least 11,000 years ago in Middle
East. Considering as today always realized, “Agriculture, is the most important industry in the world”
(www.whyisimportantagriculture.com, 2009)
First of all, the Agriculture sector provides sufficient food to feed everyone. And also,
supplies materials for three other 3 requisites; clothing, accommodation and medicine. Moreover, it is
the raw material for other sectors, such as the service, industry.
Because of a consumer’s demand of high quality with low cost price products, production
processes are required adopt technology and integrated concept as well as concerned to add value
to satisfy customer in each process’s chain.
----------------------------------------------
*William C Kirby et al, 2009 (International agribusiness in China : Charoen Pokphand Group, Harvard business School)
POULTR
Y
Reg
a
supply chai
n
A
griculture
i
benefits; ch
i
added valu
e
environmen
t
Mor
e
that is expe
n
Y
INDUSTRY
a
rding to ad
v
n
, make th
e
i
s not only
i
cken meat
f
e
and return
t
.
e
over, some
n
sive and m
a
P
p
r
ri
c
S
e
p
r
pl
a
In
p
r
et
F
o
P
In
t
v
ance techn
o
e
rapid dev
e
basic agric
u
f
or eating,
w
to use in o
t
crops like
c
a
y be lackin
g
rimary Agricul
t
r
oduct (corn,
c
e, etc.)
e
condary Agri
c
r
oduct (animal
a
nts, farms)
termediate
A
r
oduct (poultry
c.)
o
od & Restau
r
rocessed
t
egrated co
n
o
logy and v
a
e
lopment of
u
lture produ
c
w
aste for bi
o
t
her objectiv
e
c
orn, sugar
c
g
in the futu
r
Wa
s
Mea
t
t
ural
soybean,
c
ultural
feed
A
gricultural
,
egg, pig,
r
ant
n
cept & Val
e
a
lue added
m
f
agricultural
c
t as befor
e
o
-gas. In ad
d
e
s but also
c
ane is a m
a
r
e.
s
te
t
Corn 0.2
Soybea
n
A
nimal f
e
Chicken fre
s
1.27$/kg
Chicken Fur
t
Product 3.7
$
e
Added in
S
FO
O
G
envi
m
anagemen
t
business
a
e
. For exa
m
d
ition to, w
a
its’ process
a
terial to pro
d
8$/kg.
n
mill 0.57$/kg
e
ed 0.48$/kg
s
h meat
t
her
$
/kg
S
upply Chai
O
D FOR EVER
Y
G
REEN ENER
G
(bio gas wit
h
ronmental c
o
t
concept in
a
nd evolutio
n
m
ple, the p
a
ste is not
o
to bio gas i
s
d
uce bio-die
s
n
Y
ONE
G
Y
h
o
ntrol)
whole integ
r
n
of huma
n
oultry has
m
o
nly thing a
b
s
not destro
y
s
el instead
o
4
r
ated
n
kind.
m
any
b
le to
y
the
o
f oil,
5
Second, Employment: about 38% of the world workers are employed in the agricultural
sector. So many people have an income from Agriculture. When they have enough money, they will
pay for food and other necessities, such as cloth, medicine, T.V., etc. The earned income allows
them to a have better quality of life and continuous development to the “better way of living”
The percentage distribution of the labor force by occupation (2007)
Sector labor force (persons) percentage
Agriculture 1,125,375,000 38
Industry 663,221,000 22
Service 1,212,404,000 40
World Labor Force 3,001,000,000 100
Source : CIA World Fact book, 2007
Third, Agriculture is “national security”. It is the very basis of the political and social
stability of a nation, because the task of food distribution in each country is the government’s first
priority. (http://ezinearticles.com, 2009)
Food security is a major concern and an issue that exists when all people, at all times, have
physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and
food preferences for an active and healthy life. (FAO, 2009)
According to increasing population and climate change, it will cause food insecurity in the
future. Moreover, food security is not just a poverty issue; it is a much larger issue that involves the
whole food system and affects every one of us in some way. (www.foodsecuritynews.com, 2009). So,
all of the sectors (private and government sector) have to collaborate to solve starvation problems.
Finally, agriculture is the most important economy sector. In most countries, important
parts of GDP consist of the agricultural sector. National development is also come from agricultural
development.
Summery important is agriculture can be best explained in the words of Dhanin
Chearavanont, Chairman, Charoen Pokphand Group (CP)
“Chickens feed the family; families build the village; villages & cities from the country.
Agricultural products are a nation’s wealth; they are like the oil in the ground, and are the
energy source to sustain mankind. Industry develops because agriculture develops.”
6
According to the importance of Agriculture, the largest amount of labor is used in this sector,
but GDP from the agriculture is lower than in other sectors, i.e; industry and service. As the table
shows; agriculture is inefficient in the country.
Agricultural Sector in selected countries, 2008
country Agricultural GDP/total GDP (%) Agricultural Labor / total labor (%)
China 11.30 43.00
Thailand 11.60 42.60
Malaysia 10.10 13.00
Vietnam 22.00 55.60
India 17.60 60.00
Source : http://www.indexmundi.com
The productivity in agricultural and all sectors calculated from the ratio between the outputs
with the resources used in production. Production efficiency increases when producers can increase
output, while using the same or less resources input.
On the above table showed that there is not enough efficiency from agricultural production in
some countries such as India, Vietnam, China and Thailand respectively. In addition, the increasing
demand for quality product and food safety especially in the regulations of foreign countries, such as
animal welfare, traceability, carbon footprint, etc, as well as the uncertainly of the world market will
bring about a necessary high investment in agribusiness. Therefore, the challenge is to find a
solution; how to increase efficiency and productivity by solving the problem of high investment costs
in agricultural production today.
7
Moreover, there are some evidences showed that there may have food insecurity Especially,
in South and Southeast Asia Area where the GMS is based soon because the output food production
less than demand. The expert team of the GHI suggested importing food. How will the farmers in
GMS be, while most of them are poor and have income in the agricultural occupation?
To do depth analysis, please let’s study the Global Harvest Initiative (GHI) pass the “Total
Factor Productivity (TFP) Growth in global agriculture since the Mid-1990” as followings:
The Global Harvest Initiative (GHI), the independent study institute, presented in 2012 annual
report at the food prize Symposium in Iowa, that there will occur food insecurity situation because of
inefficiency in food production. However, the impact will show different situations in different areas as
these; (Global Harvest Initiative’s 2012 GAP Report, 2012)
1. South and Southeast Asia
The South and Southeast Asia region will be able to satisfy 82 percent of total future food
demand by maintaining its current TFP rate. The remainder will need to be met through imports and
productivity increases. (Some countries in this area are ASEAN countries, India Pakistan, Sri Lanka,
Maldives etc.) South and Southeast Asia is in some part of GMS. Because the data showed there will
be food insecurity in this region, and the expert of GHI recommend to import food.
How small farmers will able to survive from outside exporters? How our region can maintain
food production due the small farmers may have to finish their jobs and out from their occupation?
Then, this situation is serious. We shall protect problems before occurring by increase productivity of
production and enlarge local market but how to that?
8
2. East Asia
Due to increased and changing food demands, East Asia will be able to satisfy 74 percent of
total food demand in 2050 by maintaining its current TFP rate. The remainder will need to be met
through imports and productivity increases. (Countries in this area are China, Macao, Hong Kong,
Taiwan, Japan, North Korea, South Korea, and Mongolia). This area also has some part in GMS
and faces the same problem as in South and Southeast Asia area. Unfortunately, both areas are in
GMS.
3. Sub-Saharan Africa
Only 13 percent of Sub-Saharan Africa’s total food demand in 2050 can be met if the region’s
TFP rate remains constant. This significant gap will need to be closed through investments in
productivity improvements, selective expansion, intensification, and trade. (Some countries in this
area are Sudan, Congo, Kenya, Madagascar, South Africa etc.)
9
4. Middle East and Northern Africa
The Middle East and Northern Africa region will be able to satisfy 83 percent of total food
demand in 2050 by maintaining its current TFP rate. With increasing demands on limited water
supplies, investments in the agricultural value chain will be needed to maintain or advance food
production levels. The remainder will need to be met through trade and safety net programs. (Some
countries in this area are Egypt, Lybia, Morocco, Saudi Arabia, United Arab Emirates, Iraq etc.)
5. Latin America and the Caribbean
The region encompassing Latin America and the Caribbean will produce a substantial food
surplus by 2050 if the current TFP rate is maintained. However, investment is needed in infrastructure
and continued productivity improvements to maximise the region’s prospects to become a net food
exporter. (Some countries in this area are Brazil, Chile, Peru, Argentina, Mexico etc.)
It m
suggested i
m
gotten inco
m
efficiency a
n
today rapidl
y
eans that i
n
m
porting fo
o
m
e from doi
n
n
d productivi
t
y
.
n
GMS, th
e
o
d. How a
b
n
g agricultur
a
t
y and solvi
n
e
supply le
s
b
out farmers
a
l occupatio
n
n
g the probl
e
s
s than de
m
in GMS wi
l
n
. Then, the
e
m of high i
n
m
and and t
h
l
l be? Most
challenge is
n
vestment c
o
h
e expert t
e
of them ar
e
to find a so
o
sts in agric
u
e
am of the
e
poor and
lution to inc
r
u
ltural prod
u
10
GHI
have
r
ease
u
ction
11
Contract farming (CF) is agricultural production carried out according to an agreement
between a buyer and its farmers, which establishes conditions for the production and marketing of a
farm product or products (http://en.wikipedia.org, 2009)
At the end of the 20th century, Contact Farming (CF)
has become more important in the agricultural and food
industries of the developed and developing countries. Spurred
by changes in (international) competition, consumer demands,
technology, and governmental policies, agricultural systems are
increasingly organized into tightly aligned chains and networks,
where the coordination of production, processing and distribution activities is closely managed.
CF can solve the problem of farmer access to inputs (Key and Runsten, 1999). Well-managed
contract farming is an effective way to coordinate and promote production and marketing in
agriculture. CF is an approach that can contribute to both
increased income for farmers and higher profitability for sponsor
businesses. Contract farming reduces risk and uncertainty for
both parties as compared to buying and selling crops on the open
market. It is view as essentially benefiting sponsors by enabling
them to obtain cheap labor and to transfer risks to farmers.
CF also drives strengthen smallholder access to markets. CF is one of the main instruments
to link small scale farmers to domestic and even foreign markets, thereby to reduce poverty (IFAD,
2003; Dannson, 2004; World Bank, 2007).
12
⌧
Indonesia, Agronomists in Indonesia noted that soybeans grown at research stations
produced yields more than twice those achieved by small-scale farmers, (Roling, N, in Beets, W.,
1990:256).
Philippines, in just 10 years the pig production grew an estimated 9 million heads in 1996 to
nearly 14 million heads in 2004. There is evidence to show that the figures changed because of the
commercial farm and sub-contract farm system. The structure in pig production changed, as before
about 77 percent of total pigs inventories were still held in “backyard”.
Over 1997–2004, there were “backyard” pig farms about 60 percent (BAS, 2005). The figure
of “backyard” was less because companies operated farms through contract production schemes
(Costales et al. 2007).
Large commercial companies are integrating breeding, high-
quality internal feed formulation, farm-to-finish operations, and
HACCP-compatible slaughtering and processing of branded
products.
The success of production expansion has led to an increase in local consumption, i.e.
consumption pork per capita in the Philippines rose from 11kg in 1990 to 18 kg by 2003. Moreover, in
the last decade, meat imports supplemented was reduced. Real average incomes per capita
increased at an annual growth rate of 1.3 percent, from $4,028 in 2000 to 4,241 in 2004 (world bank,
2006)
In India, production yields and farmers’ income increased as a result of the use of hybrid
seeds and the availability. (http://www.fao.org/AG/AGS/AGSM/contract/cfchap1.pdf, 2008)
Some example of CPF Contract Farm:
Recently, CPF has expanded its business in many countries. Most of them in poor counties.
Some face starvation and lack of food if the price of food is very high. Example, in Kenya and
9
13
Tanzania (CP interested in investment there) have the chicken price risen to 4.5$/kg.? Bangladesh is
a country in South Asia that has a lot poor people with low education and a low quality of life. We
believe if these countries have the good contract farm system which CPF uses successfully in many
developing countries in Asia, the cost of food will be lower than it is currently. The successful projects
can make people in these areas have a better life and nutrition by consuming and quality products,
while the economy grows and the results of poverty is reduced.
So, contract farming is the option to solve the inefficiency of Agriculture. It will help both the
farmers and the company. Also it can increase the confidence of the farmer about the income. That is
the farmer has a guaranteed market and the company has "quality products for sale and supple to
plants (Issariyodom et al, 2008)
Following to the http://www.fao.org/AG/AGS/AGSM/contract/cfchap3.pdf. There are
five models of contract farm as details :
STRUCTURE
– MODEL
SPONSORS GENERAL CHARACTERISTICS
Centralized
Private corporate
sector
State development
agencies
Directed contract farming. Popular in many
developing countries for high value crops.
Commitment to provide material and
management inputs to farmers.
Nucleus
estate
State development
agencies
Private/public
plantations
Private corporate
sector
Directed contract farming.
Recommended for tree crops, e.g. oil palm,
where technical transfer through
demonstration is required.
Popular for resettlement schemes.
Commitment to provide material and
management inputs to farmers.
Multipartite
Sponsorship by various
organizations, e.g.
State development
agencies
State marketing
Common joint-venture approach.
Unless excellent coordination between
sponsors, internal management difficulties
likely.
Usually, contract commitment to provide
14
authorities
Private corporate
sector
Landowners
Farmer cooperatives
material and management inputs to farmers.
Informal
developer
Entrepreneurs
Small companies
Farmer cooperatives
Not usually directed farming.
Common for short-term crops; i.e. fresh
vegetables to wholesalers or supermarkets.
Normally minimal processing and few inputs
to farmers.
Contracts on an informal registration or
verbal basis.
Transitory in nature.
Intermediary
(tripartite)
Private corporate
sector
State development
agencies
Sponsors are usually from the private sector.
Sponsor control of material and technical
inputs varies widely.
At time sponsors are unaware of the practice
when illegally carried out by large-scale
farmers.
Can have negative consequences.
Generally, contract farming system including 4 sectors ; government sector, financial sector,
farmer and company (Issariyodom et al, 2008).
Government sector support contract farm regulation such as animal welfare, traceability.
Financial sector support financial with low interest rate.
Farmer receives financial support and material, technology and management skill. Then, they
can produce high quality product and sell to company. So, they will receive high income for
better life.
Company provides material, technology and management skill to farmer and receives high
quality product from farmer.
15
9 Material such as feed, breeder.
9 Technology such as architectural design,
9 Knowledge management such as management practices, feed information
9 Production management such as they can estimate amount of the product, then
plan marketing with the requirement of local and international customers.
General Model of Contract farming system in Thailand
Marke
t
Ex
p
ort
Distribution
Foreign Market
Domestic Market
Government Sector
Financial Sector Company
Production management Knowledge management
Regulation
Financial Support
Farmer
Duck Chicken egg
Broiler
Pig
Source: Issariyodom et al, 2008
16
Charoen Pokphand Group (CPG) is the Thai largest business conglomerate that was founded in
1921. With businesses and affiliates operating within Agro-Industry and Food, Pet Food, Seed,
Fertilizer and Plant Protection, Crop Integration, Marketing and Distribution, International Trading,
Real Estate and Land Development, Plastic, Telecommunications Automotive, and Other Industrial.
CP Group currently employs over 250,000 people.
Its largest subsidiary is Charoen Pokphand Food (CPF) that is Thailand’s leading Agro-Industrial
and food conglomerate. CPF have operation and investment domestic, 14 overseas and 12 trading
offices into 2 main business lines.
Oversea Business of CPF
Country Livestock Business Aquaculture Business
1. Vietnam x x
2. Lao x x
3. Cambodia x x
4. Burma x -
5. India x x
6. Bangladesh X
*1
x
7. China x x
8. Taiwan x -
9. Russia x -
10. Turkey X
*2
-
11. Malaysia x x
12. Philippines X
*3
x
13. Indonesia x -
14. Kenya x -
17
From example, CP Contract Farm in abroad
*1 In 2010, CP Group plans to establish the contact farm up to 50 cases in Bangladesh.
*2 In Turkey, CP Group has 687 contract farms: 650 broiler farms and 37 hen egg farms, up to
present.
*3 In Philippines, CP Group will start swine farm in 2010. And CP will do cooperation contract farm
with local farmers soon.
18
Operating in oversea, CPF follow CP’s corporate values “Three Benefit”; benefit to nations
and common wealth, benefit to farmers and benefit to business.
Benefit to nations and common wealth
Whenever, CP does the investment in any country, CP always concerns itself with benefit to people in that
country as the first priority. Because CP realizes about when countries are developed, CP will be developed too.
Example in CP in China is referred to supply chain as a “dragon,” an auspicious symbol of power in China.
Because of China’s geographical diversity and the fact that its various regions were in different stages of economic
growth and social development, CP’s China operations introduced customized “dragon” systems that varied in length
and depth. This supply chain strategy was the first modern end-to-end agribusiness system launched in China”
(William C, Kirby, et al, 2008)
Benefit to farmers
“Typically, CP and local farms signed legally binding contracts, in which farmers provided labor to raise
livestock, and CP provided feed, breeders, and technical support such as on-site veterinarians and technicians to
help farmers raise healthy livestock. CP also bought fully-grown animals from these contracted farmers, processing
and distributing the end products to market. Under normal circumstances, Example in China, contracted farmers
could earn a profit of RMB 1.5 (about 22 US cents) per chicken. If each farm raised 10,000 chickens each cycle,
and there were five to six cycles a year, each farmer’s annual profit was as much as RMB 90,000 (about
US$13,171). Depending on local market preference, the extent of processing differed. For instance, in the relatively
undeveloped areas where locals did not habitually buy processed food, the end product in the market was fresh
chicken.” (William C, Kirby, et al, 2008)
Benefit to business
CP is one company as a general company that wants to achieve profit for giving salary to employees and
receiving cash flow for its internal operations.
19
Animal Feed
The first business unit of Agro-Industrial and food
business is animal feed. Charoen Pokphand Foods is
the leader and pioneer in the manufacture and
distribution of livestock feed. CPF produces livestock
feed in the forms of concentrate, powder and pellets for broilers, layers, swine and duck. The
livestock feed is distributed by more than 600 sales representatives throughout the country. In
addition, a portion of the livestock feed is sold directly to large animal farms in Thailand. Agriculture
products such as corn, soybean meal and broken rice are use in the production of livestock feed
under fully computerized formulation and production processes to ensure consistent quality as
required. CPF has a system to randomly check the quality of raw materials and products. Quality
control at different stages of production helps raise confidence in the quality of the CPF’s products.
Livestock business
Chicken integrated process business is one successful business of CPF.
20
Feedmill
CPF strives to develop new formulas and source out raw materials which are safe and high-
quality in order to get the finest quality animal feeds.
Breeding
CPF develops animal breeds by natural mean
process without using any bio-chemical method.
Farming
CPF employs integrated closed farm and applies modern production technology approved by
international standards.
Processing
CPF’s processing plants employ the latest production technology and meet international
regulations, on par with animal welfare standards.
Adding Value
CPF adds more value to processed meat products to create cooked food products by flavoring
and cooking through the process of boiling, steaming, frying, baking and grilling according to
customer specifications
CPF’s traceability combines information of its state-of-art
technology for feed and farm management together with high
standard and efficient food manufacturing operation. The system is
able to facilitate of trace back, ability to provide data to ensure
proper management of biosecurity emergencies, quality and safety
issues, giving instantaneous control in any scope and scale of problem. CPF ensures that there is a
systematic record for tracing backward throughout the whole production process, from final product,
farm, animal feed and ingredients. At any point in the supply chain, CPF is able to track the finished
product status and distribution toward its end.
21
The integration of quality assurance system, food safety, and traceability with vertical
integrated Poultry and Aquaculture production, enable CPF to differentiate its value of product and
services to consumer. The traceability from Farm to Fork becomes the strength of CPF.
CPF continues the development in IT infrastructure to capture data across supply chain,
recognizes the increasing importance of traceability to consumer demand and achieving global market
access. Our Track and Trace system will be enhanced this year and we plan to continue leveraging
these information technology systems to drive efficiency and provide traceability throughout the food
supply chain.
Contract farm of CPF : The farmers are our Lifetime partners.
CP cannot do integrated chicken business well
if there is not contact farm as our lifetime partner. CP
projects have the objective of ensuring farmers get a
sustainable income and better quality of life so that
the whole country may develop. When operating an agribusiness, CP begins by analyzing the market
potential, i.e. global and domestic market conditions, production volume, export and import conditions,
pricing, knowledge capacity, production potential, human resource potential, and food safety and
environmental concerns. Contract farming finds its place in this method through CP’s “Complete
package program”, which also includes building links between farmers and financial institutions.
Farms involved in the complete package program benefit from cost reduction, risk reduction,
increasing yield and income. CP also provides any new technologies needed for the business
development of its contracted farmers.
CPF contract farm in Thailand
Contract Farm system of CPF in Thailand in 2010 is about 5,000 contacts, divided into four
types of livestock animal as these;
1. Chicken Meat about 2,000 contacts
2. Layer Farm about 1,600 contacts
3. Duck Meat about 200 contacts
4. Swine about 1,200 contacts
Res
u
P
Exa
m
Thi
s
majesty wa
n
advisor, in 1
until they h
a
and establi
s
Farming Vill
a
Non
g
result of an
facilitate th
e
methods to
T
The
Bangkok Ba
“
…
rainproof.
need to
d
village ...”
u
lt farmers
a
P
revious chic
k
m
ple Succe
s
s
village oc
c
n
t farmer h
a
0 years, fro
m
a
ve 24 rais a
s
h the co
m
a
ge Compa
n
g
Wah is an
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Farmers were provided supports in many ways as follows:
1. Land allocations
2. Construction of homes and swine house, and circulated fund
3. Academic knowledge offer
4. Marketing supports
Objectives
1. To trail on combination agricultural development and to increase farmer incomes.
2. To reduce risk in agricultural price and to ensure farmers’ status in returning fund back to
financial institution.
3. To add value to agricultural products.
4. To keep the plentiful in soil and to protect the forest.
Participants
1. Local Governmental Agency
2. Bangkok Bank
3. Charoen Pokphand Group
4. Farmers
Criterions for Project
The committee is consisted of governmental agency, CP Group, and bank. Farmers, who
brought their own land joining in the project, will automatically be eligible for the program. However,
other farmers who were eligible must obtain sincerity, love to farming and animal raising, free from
disgusting disease, and be well habit. Selected farmers will be sent to train for 2 weeks, then after
completed training, farmers can work in the project/program without paying fee. In addition, farmers
will receive:
24 rais of land
A house
A swine house
Swine breeds, farming equipments, feed, medicine
24
Procedure (1st phase)
1. Financial: all farmers loan fund from Bangkok Bank which CP Group plays as a guarantor.
2. Farmers are responsible for production cost, which is a profit guarantee on swine
production. This is in accordance to help farmers in returning back loan to the bank and receive
enough income for their livings.
3. 50 farmers, who participate in program, will learn on how to do swine farming and plant
growing.
4. Nong-Wah Agricultural Village is responsible on swine farming.
5. Nong-Wah Agricultural Village is responsible for constructing feed mill where produces feed
for swine in the project.
6. Nong-Wah Agricultural Village receives academic supports not only in breed, but only in
feed, medicine, raw materials, farming equipments, and advices from husbandry.
7. Charoen Pokphand Group is responsible for marketing terms. The company will provide
distribution channels and performs as a risk taker when a market price is fluctuating.
Procedure (2nd phase: since April 1, 1987)
After farmers completely returned loans to bank, Charoen Pokphand Group also gave
ownership to farmers’ right. A group of farmers has gathered together and set up “Nong Wah
Agricultural Village Co.,Ltd.,” by divided as following:
1. Owner of farmers’ property such as houses, swine houses, and land allocations.
2. Owner of farmers-company’s property such as swine finishing farms and central property.
Summary:
From the CPF Contract Farming Model, it has shown many reasons present that the system
can drive agriculture development in Thailand, AEC and World Agriculture, as follows:
1) Human Resource Development: Many kinds of knowledge will be transferred from the
company to the contractors during the working on the CPF Project. The knowledge compound of
integrated know-how key success factors such as farm raising, farm management, and business idea
concepts.
2) Support strategy for successful business: In addition CPF farm workings also supports
some factors leading to a more successful business; such as animal feed (the best quality animal feed
of the world), good breeders, etc. This will make CPF contract farmers get better efficiency, good yield,
and stable revenue according to happy expectations. This support material is come from the
25
company’s research and development with difficulty. Farmers will receive the correct knowledge and
they don’t need to do trial for mistake anymore.
3) Develop innovation together: CPF always create new innovation such as smarter
machines, etc. This smarter machine will be taken to implement using in grassroots contractor farms
too. The expectations are to help farmers to work easier and more efficient.
4) Marketing assistance can assure farmers a certain income: CPF also assists in the
marketing. Both sides; "farmers and the company" will have supportive marketing agreements. The
marketing agreement, such as "buy- back policy" with guarantee prices, etc, will decrease farmers
stress because they can ensure marketing and cash return. This will support each other; because
when farmers have less stress, they will be able to take better care of their farms, while the company
will get qualified products for their premium marketing. From the model, to develop Agriculture in the
long term, should consider the marketing together too.
5) Agriculture Development: CPF Contract Farming will improve agricultural development
with both sides; farmers and the company.
6) Economic growth: When farmers get their approved income, they are able to repay their
bank loans. This will solve an income distribution and the nation's poverty problems. Farmers will have
a better and stronger position. It means this activity can improve the overview of Thailand's economic
growth.
7) Social & Innovation Development: The agricultural development enlarges benefits for not
only both sides (farmers and the company) but also the country's social development. This activity is
more powerful than other normal "Human Resource Developments", such as training. Example, if
compared with normal training; the outcome shows the participants will forget this information in a few
days.
8) Know-how from the contract farming concept, is like the "learning by doing concept"
After receiving knowledge from the company; farmers have opportunities for real practice while
working. This will lead to “mutual development”. Finally, the farmers will be improved and will pass on
their newly acquired actual working knowledge and experience. The more capable farmers, the more
social improve development. Since, agriculture is native to Asia’s life; summary, we can say that
"Contract Farming" is one way of Asia's social, economic growth and life development. It also can
increase new innovation with sustainability. Example, if farmers can create new ideas that they have
an opportunity to practice in their real activities, it means the new ideas, can be created "continuing
and added value". Then, it means; “The CPF farm system will support social progress to create new
and continuing innovations.
9) Moreover, since, CPF contract farming is ''concept cooperation'' working between farmers
and the company; then, the concept of quality, productivity, Yield on the effectiveness, efficiency, and
26
sustainability are a major concern. It means consumers will get the best products and services.
And the agricultural industry continues to be improved.
10) Especially, CPF Contract Farming model can be able to be developed to work in all
products or / and countries around the world. It means we can develop agriculture in Thailand, AEC,
world along with the development of economic growth, social improvement with sustainability.
11) This also supports people to get enough food for consumption. Agriculture produces food
which is the important thing for all humans, then, Contract Farming impacts on world human life
too.
The case study: Chicken eggs and students in the video
This is an example to present that even, small young children in schools still be able to learn
and practice by raising chickens from the “CPF best practice contract farm model” and get eggs for
their nutrition food and good health food. Moreover, when children get eggs more than their need to
consume, they can sell the oversupply of eggs to markets in society. It means that the students can
also learn business pass the contract farm system. See Video:
27
The previous successful experience shows that contract farming is a way of increasing
efficient and solving starvation problem. However, Contract farming alone cannot solve the poverty
problem in the long term without the marketing.
It means marketing is tool to distribute a production to consumers and generate income. It is
important because its make the sustainable in production process. Include with the attempt to make
innovation for different customer’s satisfactions.
Even if Contract Farming produces the best products, but if there is no marketing, it will not
able to develop agriculture in the long period.
I think CPF key success’ factor is not only well Contract Farm, then, I would to enlarge my
presentation more than contact farm for this time.
“Marketing is the process by which companies advertise products or services to potential
customers. It is an integrated process through which companies create value for customers and
build strong customer relationships in order to capture value from customers in return”
(Kotler, Philip, et al, 2008)
28
As above model points that the more marketing active, the better of contact farm production.
Nation’s Common Wealth & Sustainability
A
gricultural Innovation
Business
CP Group
Contract farm
Mutual Benefit
Productivity / Quality
Improvement
Human Resource
Development
Marketing
International Marketing
Local
• Fresh Meat(Local /
Modern trade)
• Fast food & Restaurant
• Franchising: Chicken five
star, Chester Grill, etc..
V
alue creation
29
Anyway, since most of the participants are from government sector, then, I would like to use
this opportunity to explain that the government sector has very huge important role to support
Contract Farming system, especially, as following reasons;
1. In fact to operate in agribusiness need to use a high volume of investment. Then, the role
of government is very important in terms of grant low interest rate loans for agricultural development
in underdevelopment countries.
2. To develop the agriculture must develop continually in the whole related chain of
production, both internal and external factors integrated together.
3. For example, the development of agriculture needs to have a well-structure infrastructure,
including roads, irrigation and logistics, etc. Even though, there are good production sectors but if
there is not sufficient infrastructure, the sustainable production and marketing will not occur.
Therefore, in the rural areas, if IFAD can grant money to develop the infrastructure, it will truly
support agricultural development and decrease poverty and food insecurity.
4. However, only infrastructure cannot help people in rural area have a better life. They need
to have knowledge to build their job and live by their own means. Also it requires an increase in
food and income to exit from poverty. The contract farming concept proves that it has many benefits
in developing the rural area when small farmers can cooperate with the private sector.
Summary:
The Contract Farming Concept is a solution to the region's poverty deduction because this
can be developed in the expansion of agriculture in all products and countries. The system is not
only to expand investment, the growth of production but also marketing. Finally, the whole link of this
development will create the development of innovation, regarding to down and up target groups of
marketing. It is the way to increase jobs for farmers and solve the poverty deduction of countries.
However, to succeed in contract farming it is not only the two parties; small farmers and a company,
it is however necessary to include the banker for issue loan for investment and government as a
central party and "eye-witness" in the contract. And since in the first part of my conclusion, if our
region wants to solve the food security problem and poverty, Contract Farming will be an answer to
build the economy and increase common wealth of nation and world human life.
30
1. Global Harvest Initiative’s 2012 GAP Report, retrieve on 24 October 2012.
2. http://en.wikipedia.org, retrieve on 4 February 2010
3. http://www.fao.org, retrived on 4 February 2010.
4. http://www.fransmart.com/business_model.html , retrieve on 4 February 2010
5. Isariyodom, S., C. Rojanasaroj, V. Thongchat, S. Morathop, S. Tongsiri, and T. Dontri, 2008.
Studies of the Contract Poultry Farming System in Thailand Emphasizing Broiler Chickens and
Laying Hens. Research Report to Thailand Research Fund.
6. Key, N and D Runsten (1999). Contract Farming, Smallholders, and Rural Development in
Latin America.
7. Kotler, Philip, et al, 2008 cited in http://en.wikipedia.org/wiki/Franchising, retrived on 4
February, 2010
8. Marites Tiongco, International Food Policy Research Institute Maria Angeles Catelo, University
of the Philippines, Los Baños and Ma. Lucila Lapar, International Livestock Research Institute,
2008, Contract Farming of Swine in Southeast Asia as a Response to Changing Market
Demand for Quality and Safety in Pork
9. Roling, N. in beets, W., 1990:256. cited in
http://www.fao.org/AG/AGS/AGSM/contract/cfchap1.pdf, retrived on 4 February, 2010.
10. Roling, N. in beets, W., 1990:256. cited in
http://www.fao.org/AG/AGS/AGSM/contract/cfchap3.pdf, retrived on 4 February, 2010.
11. William C Kirby et al,2009, International agribusiness in China : Charoen Pokphand Group,
Harvard business School.
12. World bank 2006b cited in http://www.worldbank.org ,retrieve on 4 February 2010.
