Thailand: Agricultural production costs surge sharply, agro-input distributors have to make price adjustment

Global Agri-Input Distribution Market Observation

Editror’s note: The interview column of ″Global Agri-Input Distribution Market Observation″ was firstly published in 2023 Market Insight magazine. The interviews covered different types of markets including developed economies and emerging ones.

In this column, we are aiming to gain an in-depth understanding of the current development trend of the global agricultural input distribution market and analyze its characteristics of different markets, providing reference for industry participants.

Thailand: Agricultural production costs surge sharply, agro-input distributors have to make price adjustment

• Distributors bear enormous pressure from manufacturers’ price hikes, forcing them to raise prices in turn, profits shrink sharply

• Market concentration is high, with most companies focusing on the durian crop protection market

• Thai agricultural product prices are stable with slight increases, while agricultural production costs surge

• Regulation policies on chemicals make farmers face risks of choosing low-quality products

• Traditional sales models still dominate the market

Asia is one of the world's largest agricultural production areas. As a representative of emerging agricultural markets, Thailand is full of vitality and draws much attention from overseas investors. For Thailand's agricultural input end-market, recent supply and price fluctuations have significantly impacted the overall market and the distributors. Local companies are responding to market challenges by enhancing delivery capabilities, strengthening innovation services to increase customer stickiness etc. 

In this interview, we invited Chirat Prathuangwong, President of Sotus International Co., Ltd., Thailand's leading local distributor, to share the latest developments in Thailand's agricultural input market and some coping measures Sotus took as a leading player.

Interviewee: Chirat Prathuangwong, President of Sotus International Co., Ltd.

In fiscal year 2022 and the first half of 2023, what is the market situation of agri-input distribution channels in Thailand? How is your company’s business performance, and what are the key influencing factors?

The global disruptive events of the COVID-19 pandemic, the Russian-Ukraine Conflict, and inflation have unavoidably brought sudden changes and turbulences to the agri-industry. The abrupt increase in costs of all supply chain factors, including rising raw material, labor, energy, and transportation, has been too painful and unbearable for manufacturers/suppliers. This phenomenon has had a massive impact on price hikes of agri-products by manufacturers/suppliers worldwide.

Likewise, as a distributor, Sotus has borne a significant burden alone from manufacturer/supplier’s price increments for a long time and can no longer withstand it. Price adjustment, which has always been our last resort, has become crucial for our breakthrough. Undeniably, our price increase affects customers’ buying decisions. Farmers’ buying behavior has changed with more careful decisions, mainly based on the necessary and break-even application and investment for productivity. Their purchases have become lower for agri-products with low or medium demand but remain steady for high-demand products, such as durian. As a result, dealers’ stock forecasting has become volatile, making our sales and import forecasting difficult and hardly accurate. Our price increase is allowed and possible only at a minimal level, while manufacturer/supplier’s prices are soaring very high, drastically impacting 30-40% of our margin and shrinking profits.

Cost, quality, yield prices, and competitors’ prices, especially for any products with available replacements in the market, along with more efficient, careful stock management to properly match customers’ demand and more accurate forecasting, are all key factors influencing Sotus’ business performance in FY2022 and FY2023. However, we have kept moving forward with more stable and mindful paces to respond well to upcoming changes and challenges.

What is the current inventory status of the agri-input channel (especially PPPs) in the Thailand market? Facing product supply and price uncertainties, etc., how does Sotus make procurement strategies and improve operational efficiency?

Overwhelmed by a series of global disruptions, El Nino as a natural global climate change phenomenon has led to a global increase in temperatures and changes in rainfall patterns. El Nino events on average last around five years, which greatly impacts the agri-input portfolio. 

Amidst uncertainties, it requires much experience, careful and accurate prediction of planting circumstances, pest outbreaks, and customer demand for stock and procurement management. Things to be considered for our procurement strategies are as follows:

Products should be in demand by farmers and have a fast turnover. Products should match forecasted circumstances, pest outbreak seasons, drought, or floods. Products should be in high farmers' demand for a higher chance of price increases.

What are the main characteristics of the Thai agri-input distribution channel? What are the most advantageous competitive issues local companies have as compared to a multinational?

Fruit crops have the most significant market volume and value, especially durian. Thailand has been the world’s top durian exporter over the past ten years, particularly to the significant market in China with substantial growth. Therefore, most agrochemical companies focus their PPP market strategies on quality durian production.

Multinational companies’ market strategies concentrate mainly on product efficacy and incentive programs. However, Thai-owned companies can make more flexible decisions and better understand consumer behavior in the agricultural market, which are our competitive advantages.

What are the main challenges and new development trends faced by the Thai agri-input distribution market in recent years? What is Sotus' plans regarding these trends?

In the past few years, the main challenges have been drastic price hikes of agrochemical products, for example, double rising costs of soil fertilizers, 30-60% price increases of pesticide products, and labor shortages due to an aging agricultural workforce. Yield prices remain unchanged or have slightly increased, while production costs have become much higher.

Our challenge in 2023-2024 is to find the best possible solutions for past challenges. New technologies and innovations are tools for better work efficiency, cost and time depreciation, and higher product yields as follows:

-The new application of pesticides and drones is recommended and promoted. Affected by labor shortages, drones will be the best solution, providing lower spraying costs than manual labor and saving time.

-Practical handbooks for major crop production containing recommended application rates of PPPs will be created and provided to farmers for proper PPP use and quality productivity.

-New potential, high-quality products will be explored and tested before launching to farmers.

-Developing quality, efficient and comprehensive social media, such as Facebook, YouTube, and Line applications for easy accessibility by farmers and prompt troubleshooting when needed.

Now, what is crucial for Sotus is that retaining existing customers at all levels, including dealers, sub-dealers, and farmers, is best achieved by maintaining good connections and relationships as partners. For example, we provide product knowledge and information, organize meetings and visits, and keep their database in our records for future development of better service and sustainable partnerships.

How will the Thai government's control of available pesticide molecules affect the market? As an agricultural input distributor, how will Sotus help farmers continue to improve production efficiency in such conditions?

Thai government control of PPPs without in-depth study and public opinion surveys will shrink the platform for agri-entrepreneurs. Only medium or large agrochemical companies can continue, while small ones can no longer survive due to higher import and handling costs caused by government restrictions, leading to losses or lower profits. Another possible impact is that to avoid the government's numerous requirements, some agrochemical companies may find ways to circumvent these higher costs. Some may produce low-quality products for the market as a choice for farmers.

In such circumstances, with Sotus’ strength in financial strategy, we will implement our price increases as minimally as possible to accommodate farmers’ affordability. Our support to farmers is providing knowledge on the proper use of PPPs for cost efficiency and high productivity. Furthermore, our experienced agronomists mostly graduated in agricultural fields, are on standby to provide customer consultative sales services. This is the best we can do to support farmers.

Are there any emerging business models, such as e-commerce platforms, in Thailand's distribution market? What impact will they have on traditional sales channels?

Nowadays, e-commerce is an efficient tool for trading activities. However, for Thailand, e-commerce is less practical and cannot respond well to the entire agri-market because most of the farmer population is middle-aged to old-aged. Therefore, their adaptation and adjustment to e-commerce are minimal.

For the agri-market in Thailand, the traditional sales channel is still an efficient and essential instrument. Agri-products require consultative sales providing recommendations and proper PPP use, which is not easy to convey entirely in an e-format.

E-commerce is most suitable and efficient for products that farmers are familiar with and understands how to use, where the price is the only factor in decision-making, and only a little product information is required.

Government regulations and environmental protection standards continue improving, increasing compliance operation costs. How does SOTUS respond to this trend?

Sotus recognizes the importance of environmental protection. Our environmental commitment is certified by ISO 14001:2004 Environmental Management Standard for our formulation and repacking activities, OHSAS 18001:2007 Occupational Health and Safety Standard, TIS 18001:1999 Health and Safety Standard, Good Manufacturing Practice from the Food and Drug Administration, and Corporate Social Responsibility Standard.

lf you want to share your company story and your understanding to the market, please contact Mickey Shan at: mickey@agropages.com

This article was initially published in AgroPages' '2023 Market Insight' magazine.