Pomelo Value Chain Study

REPORT For the "Integrated Supply Chain Management of Exotic Fruits from the ASEAN Region" The European Commission's Asia-Invest Programme, Postharvest Technology Research Institute, Chiang Mai University, Thailand

Nov 2008

THAI POMELO’S VALUE CHAIN ANALYSIS AND SUPPLY CHAIN MANAGEMENT SYSTEM TO EU MARKETS

Jutamart Taka & Joerg Rosenkranz Consultants 115 M. Nong Kiew T. Muang Kaew, A Mae Rim, Chiang Mai 50180 Thailand phone/fax: +66 53 110 723 mobile: +66 85 030 2656 e-mail: [email protected] [email protected]

THAI POMELO - VALUE CHAIN ANALYSIS AND SUPPLY CHAIN MANAGEMENT SYSTEM TO EU MARKETS

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Executive Summary Fruit orchards cover many parts of Thailand’s agricultural area and fruit production is a substantial income earner for small farmers and small or medium sized industries. Thailand is among the top three suppliers providing Southeast and East Asian consumers with high quality tropical fruit. Yet in the EU many of these fruits are virtually unavailable or underrepresented, despite the fact that there is a trend for exotic and quality health products among European consumers. It is the assumption that the potential of Thai fruits as for example for Thai Pomelo is by far not utilized to its full capacity for European markets and that therefore it is necessary to identify gaps and opportunities to overcome and assess market accessibility for successful market penetration. For this it is necessary to link people in different sectors of the supply chain to overcome the obstacles and increase competitiveness. Volumes and value of Thai pomelo exported to the EU have been increasing until 2005/2006 and since then declining again to approx 50 % of the 2004. According to information from the Department of Agriculture the declining figures since 2006 were mainly a result from management and quality issues emerging at the one group able to sell towards EU markets, as only this group has so far the phytosanitary requirement “canker free certification”, mandatory towards exports of citrus fruits to the EU. So far the supply towards EU markets can come only from the canker free certified areas of Wieng Kaen in Chiang Rai province. Therefore the following report addresses mainly the situation of this supply line with some additions and comparisons to other practices only if relevant. The constraints and opportunities for different sectors of the supply chain were identified from the farmers, the farmer group/cooperative, trader and middlemen, to packing house and exporter. Key on determining the future opportunity of Thai Pomelo towards export markets is competitiveness as Thai pomelo can hardly compete with emerging and indreasing competition from other supplyer countries. As it is clear that competitiveness of Thai Pomelo cannot be reached by lower prices the sector is left with two directions of competitiveness strategies either decrease production costs an increase efficiency or through value addition. The options of value addition includes quality improvement, development of Thai quality and variety distinction and promotion and branding of such on a national platform level or value added certification schemes as organic and Fairtrade certification on group level. There are still potential areas of improvement in the direction of decreasing costs and increasing efficiency, they are limited, although they should be utilized to full extend. Recommendations for intervention focus mainly on the value chain towards the EU market and have been compiled from the consultant findings and the results and recommendations of the workshop held with stakeholders in October 31st 2008 in Chiang Mai. There are basically two areas of recommended intervention: A) One addresses the sector strategy on the national level and the Thai Pomelo industry in general to ensure the competitiveness of Thai Pomelo in the global market, an area to be addressed with a set of concrete realistic and practical initializing interventions. The interventions on this level are to work on a national platform, to support and integrate research


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and development on product improvement, product distinction and ways to further overcome phytosanitary requirement challenges. This would also include to diversify and extend areas of phytosanitary certification as well as GlobalGAP certification for such areas. B) Another set of recommended interventions targets on strengthening the capacities of growers and grower organizations with a number of concrete activities in the field, as addressing training, extension and infrastructure at this level. The recommendations include strengthening of producer organization(s), management, transparency and member participation, group ownership of GlobalGAP certification and improved supply chain management. Other activities would be to set up a set of rules of production on farmer and farmer group level, production manual, recording tools and internal control and enforcement, as well as production training and extension (- continuation) and coordination of such, towards quality production. Other identified intervention areas are the packing house setting at producer level and traceability improvements, transfer of capacities and knowledge to the farmer organization level and to Integrate new producer base. Another set of potential intervention targets on value addition towards improved competitiveness as through exploring potentials of value adding through Fairtrade and/or organic certification. Another potential would be identifying additional value addition for non-export qualities and undergrades through value addition on domestic trade patterns and processing (juice, freeze dried marmalade) to increase the economic competitiveness of the product line in general.


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Table of Content 1.

INTRODUCTION ........................................................................................................... 5 1.1. Background .................................................................................................................. 5 1.2. Objectives and Terms of Reference ............................................................................. 6 1.3. Methodology ................................................................................................................ 6

2.

LIST OF ABBREVIATIONS ......................................................................................... 7

3. 3.1. 3.2. 3.3. 3.4. 3.5. 3.6.

BASIC SUB-SECTOR FEATURES .............................................................................. 8 General Issues ............................................................................................................. 8 Production Area .......................................................................................................... 9 Production ................................................................................................................. 10 Feature of Pomelo ..................................................................................................... 11 Competitiveness features ........................................................................................... 12 Thai Pomelo Variety and Distinction Features ......................................................... 15

4.1. 4.2. 4.3. 4.4.

MARKET ANALYSIS .................................................................................................. 16 World Production and Trade of Pomelo.................................................................... 16 International Market Demand Features .................................................................... 16 Demand of Pomelo and EU market ........................................................................... 17 Thailand Export Market and Position of Thai Pomelo in the World Market ............ 19

5.1. 5.2. 5.3. 5.4. 5.5. 5.6.

QUALITY ASSURANCE AND CERTIFICATION/STANDARD SCHEMES ...... 20 Phytosanitary Certificate (Canker free Certificate) .................................................. 20 Thai GAP ................................................................................................................... 21 GLOBALGAP ............................................................................................................ 22 HACCP and GMP ..................................................................................................... 22 Fairtrade Standards, Labeling and Certification ...................................................... 23 Organic Standards and Certification ........................................................................ 25

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5.

ALONG THE VALUE CHAIN/ CHAINFUNCTIONS AND MECHANISMSผิดพลาด! ไมไดกําหนดที่

6.

คั่นหนา 6.1. 6.2. 6.3. 6.4. 6.5. 6.6.

Definition/explanation ............................................................................................... 28 Industry Structure - Supply Chain of Thai Pomelo Industry ..................................... 29 Characters and Role of Chain Actors ........................................................................ 30 Supply Chain Management Systems .......................................................................... 35 Transportation and Cool Chain System: ................................................................... 36 Traceability: .............................................................................................................. 37

7.

COMPETITIVE ADVANTAGES AND SECTOR STRATEGY .............................. 39 7.1. General Review in Thailand ...................................................................................... 39 7.2. Competitive Analysis ................................................................................................. 41

8. 8.1. 8.2. 8.3. 8.4. 8.5.

CONSTRAINTS AND OPPORTUNITIES ................................................................. 43 Growers ..................................................................................................................... 43 Farmer Group/Cooperative ....................................................................................... 45 Traders/Middlemen ................................................................................................... 47 Exporter and Exporter’s Packing Houses ................................................................. 47 Subsector Constraints/Opportunities Analysis .......................................................... 49

A. B.

INTERVENTION DESIGN .......................................................................................... 51 INTERVENTION ON NATIONAL SECTOR LEVEL ................................................. 52 INTERVENTION AT GROWERS AND PRODUCER GROUP LEVEL .................... 54

9.


10.

LIST OF INTERVIEWS .......................................................................................... 6211. REFERENCES/SOURCES .......................................................................................... 62

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1. Introduction 1.1.

Background

Fruit orchards cover 24 million hectares (14.3%) of total 51.2 million hectares of Thailand’s agricultural area and fruit production is a substantial income earner for small farmers and small or medium sized industries. Thailand is among the top three suppliers providing Southeast and East Asian consumers with high quality tropical fruit. Yet in the EU many of these fruits are virtually unavailable or underrepresented, despite the fact that there is a trend for exotic and quality health products among European consumers. The EU market in 2006, fresh fruit imports amounted to 25 million tonnes with a value of €19 billion. Of all imports, 58% stemmed from other EU countries (intra-EU trade), the remainder was imported from outside the EU (mainly from developing countries). Between 2002 and 2006, total value of imports increased by nearly 20%, and the volume increased by 16%. The volume of extra-EU imports decreased by 10% and the value remained stable. Developing countries (DCs) account for 37% of the value and 40% of the volume of fruit imports in the EU. Between 2002 and 2006 both the value and the volume increased, by 23% and 25% respectively. DCs have a strong position in bananas, pineapples, mangos, papayas, lychees, guavas, dates, passion fruit and avocados. It is realized as an opportunity for farmers and other actors to generate higher value addition by means of penetration of such oversea markets although there is increasing competition from other emerging supplier countries. Actual demand and supply features are still highlighting the potential for Thai fruits for EU fresh and health food markets, but cost-effective marketing channels, certification, advanced post-harvest technology, and related services may not always be in place or -more so- the requirements are not always understood or adopted by the stakeholders. There are divergences between Thai practices and European quality and certification requirements remaining obstacles to export. It is the assumption that the potential of Thai fruits as for example for Thai Pomelo is by far not utilized to its full capacity for European markets and that therefore it is necessary to identify gaps and opportunities to overcome and assess market accessibility for successful market penetration. For this it is necessary to link people in different sectors of the supply chain to overcome the obstacles and increase competitiveness.


1.2.

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Objectives and Terms of Reference

The main objectives of the assignment were to 1. Provide an update/overview of the Thai Pomelo sector in domestic and international aspects. 2. To study and update the basic value chain analysis and supply chain management system, starting from farm level to retailer level, i.e. growers, middlemen/traders, manufacturers/processors/ packing houses, exporters, logistics providers, importers and retailers and identify supply chain management solutions for the sector. 3. To assess the risks, constraints, internal and external factors by taking into account all the related regulations, such as GLOBALGAP requirements, HACCP and GMP, retailer expectations and potentials of other quality and certification schemes as Fairtrade and EU organic certification in order to expose the critical issues of the sector and the ranking of gaps between actual practices and European requirements as well as other relevant risks and factors. 4. Include concerned stakeholders for the validation of findings and the implementation of interventions in order to propose valid action plans towards improved market access for Thai Pomelo into EU markets.

1.3.

Methodology

1. Gather, update and complete information from different sources through systematic desk research. 2. Conduct in-depth interviews among different stakeholders such as producers, processors, exporters and potential buyers (importers and retailers). Some interviews have been done via e-mail correspondence or phone. 3. Analyze, confirm and summarize collected data for review also in form of a paper provided as input to workshop with stakeholders. 4. Analyze opportunities and constraints within the sub-sector and weight those interactively with stakeholders 5. Weight sector strategies and intervention ideas 6. Complete documentation of findings

Findings and opinions in this report are those of the consultants and do not necessarily impress the opinion of the the European Commission's Asia-Invest Programme or the Postharvest Technology Research Institute, Chiang Mai University, Thailand


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2. List of Abbreviations ACFS BAAC BRC brix CBI CIF CMU CPD DEP DIP DOA DOAE EC EU EU (ECC) 2092/91 FAO FOB FLO FTA GAP GlobalGAP GMP ha HACCP IPPC ISO JAS Mil MT MMT MOAC MOI NSTDA NOP rai Soel TISI THB TRF

National Bureau of Agricultural Commodity and Food Standards Bank for Agriculture and Agricultural Cooperatives British Retail Consortium Measurement of sugar to water mass ratio Center for the Promotion of Imports from Developing countries Cost, Insurance and Freight Chiang Mai University Cooperative Promotion Development Department of Export Promotion Department of Industrial Promotion Department of Agriculture Department of Agricultural Extension European Commission European Union Mandatory European Regulation on Organic Agriculture and standard compliance Food and Agriculture Organization FOB is an incoterm for Free On Board or Freight On Board. It specifies which party is responsible for which shipment and loading costs Fairtrade Labeling Organisation Free Trade Agreement Good Agricultural Practices (former EurepGAP) International Good Agriculture Practice third party certification system administered by Food plus Good Manufacturing Practices hectare Hazard Analysis and Critical Control Points International Plant Protection Convention International Standard Organization Japanese Agriculture Standard (contains also regulation on organic food produce) million metric tons million metric tons Ministry of Agriculture and Co-operatives Ministry of Industry National Science and Technology Development Agency National Organic Program – Mandatory Standard for organic agriculture products to and in the US Thai land measurement - 6.25.rai equals 1ha Stiftung Oekologie und Landbau (Foundation Ecology & Agriculture) Thailand Industrial Standard Institute Thai Currency, Thai Baht. converts at date approx. 48 THB:1 Euro (March,2008) Thailand Research Fund


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3. Basic Sub-sector Features 3.1.

General Issues

Agricultural and agro-industrial products make a significant contribution to Thailand’s export revenue earnings. The agricultural product sector accounted for about 8.89 % or 375,560 Million Baht (approximately 7,803 Mil Euro) of total Gross domestic products in 2007, according to the Office of Agricultural Economics, Ministry of Agriculture and Co-operatives. The export earnings from the fruit sector accounted for 4.34% or 46,544 Mil Baht (approximately 969.6 Mil Euro) of all agriculture products in 2006 and increased to 5.49% or 48,432 Mil Baht (approximately 1,009 Mil Euro) in 2007. The value of exported fruits and fruit products was 46,544 million THB in 2006 and increased to 48,432 million THB in 2007.

140

12,000

120

10,000

100

FOB Value ( MIL THB)

8,000

80 6,000

Ton

Value MIL THB

Exhibit 1; Thai Pomelo Export 2001-2007 – Value and Volume

Quantity (Ton)

60 4,000

40

2,000

20 0

0 2001 2002 2003 2004 2005 2006 2007

Source: Thai custom, 2008

The value of exported Pomelo accounted for 119 million THB or contributed 0.25% of Thailand’s total fruit revenues in 2007 and thus provided a 0.011% share of the country’s agricultural export revenue. Thus Pomelo is still a small sector within Thai fruit exports and with only a small quantity of the export targeted to Europe.


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Exhibit 2; Volume of Thai Fruit Exports in 2007- Major Fruits and Pomelo

Source: OAE, 2008

Exhibit 3; Value of Thai fruit export in 2007 - Major Fruits and Pomelo

Source: OAE, 2008

3.2.

Production Area

Nowadays the pomelo cultivation area in Thailand is approximately 295,846 rai or 47,335 hectares (2007), increased by 6.97% since 2006. Actual fruit producing area is 200,965 rai or 32,154 hectares according to DOAE.


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Pomelo cultivation is spread all over Thailand. Still according to the figures from the Office of Agriculture Economics in 2007 the main production, 32.01 % of cultivation area is found in the South, followed with 24.71% in the Central and 21.04% in the Northern region respectively. Chumporn is the province producing most pomelo in Thailand followed by Samutsongkram. Other major provinces for pomelo production are Nakorn Pathom, Suratthani and Nakorn Sri Thamarat, Chiang Rai and Pichit. Exhibit 4; Pomelo Production Area Distribution in Thailand

Pomelo Production Area Central

South

West

East

North

Northeast

1% 21%

25%

4% 17%

32%

Source: OAE, 2008

3.3.

Production

Total pomelo production in Thailand increased between 2004 and 2007 from 243,829 tons to 308,079 tons. The average yield was also increasing from 8.44 ton/ha (1,350 kg/rai) in 2004 to 9.58 ton/ha (1,533 kg/rai) respectively. Exhibit 5; Production of Pomelo in Thailand

farmers Production area Total Yield Average yield

unit families rai hectares ton kg/rai ton/ha

2004 62,046 180,614 28,898 243,829 1,350 8.44

2005 64,093 192,103 30,736 276,628 1,440 9.00

2006 65,029 197,562 31,610 295,210 1,492 9.33

2007 65,638 200,965 32,154 308,079 1,533 9.58

Source: Department of Agriculture Extension, 2008

Pomelo is a perennial crop with a life cycle of approximately 20 years - depending on how well the soil is cared for. Pomelo trees start normally fruiting when they are 4 to 5 years old and the production is about 20-30 fruits per tree with a weight of about 1.2 – 2.5 Kg per fruit. The taste of fruits from younger trees is not stable yet but when the trees get older fruit taste becomes more homogeneous. The average yield becomes higher in the 8th year and maximum


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yield is reached when the trees are 12 – 15 years old with more than 100 fruits per tree. After this period, yield starts to decline again. Pomelo is ready to harvest approximately six months after flowering. Once first harvest begins, fruit can be picked at least 3-4 months consecutively. So far this is exclusively done manually. Fruits do not drop when mature, and rind color change is a good indicator of maturity. At maturity, the color of the rind changes as the oil glands become more prominent and shiny. The fruit should be harvested immediately in order to obtain the highest quality and longest shelf life, which under controlled conditions may be as long as 8 months. Having a rather thick rind, little post-harvest treatment is considered necessary. Picked fruit are washed to remove dust and sooty mould and then dried prior to packing in containers. The thick rind reduces the requirement for packing material between fruit. The fruit will store for a longer period under refrigeration (7–9°C; 85–95% relative humidity) but fruit appearance can deteriorate as the rind begins to shrivel. Pomelo is susceptible to a range of pests and diseases. Citrus canker, citrus black spot, citrus dieback and greening, navel orange worm, citrus mal secco, orange stem pitting strain of tristeza and citrus fruit borer are all potential production and quarantine risks. Due to its perennial nature, diseases can become a very serious issue as some of them have no known cure or control measure other than the removal of affected trees. As a perennial crop it is a sustainable crop if grown with limited chemical inputs and if soil fertility is sustained by consistent application of organic matter. Further reduction of chemical fertilizers, pesticide and herbicide applications would improve this crop’s eco-efficiency as would long-term soil management and transition to organic systems.

3.4.

Feature of Pomelo

The pomelo (or Chinese grapefruit, pummelo, pommelo, Lusho Fruit, jabong, shaddock) Citrus maxima (Merr., Burm. f.), also Citrus grandis (L.), is a citrus fruit, usually a pale green to yellow when ripe (but also pink or red). The fruit is distinguished larger than a grapefruit and the largest fruit in the citrus family, growing as large as 30 cm in diameter with specimens recorded up to 6 kg in weight. The pomelo is native to South-East Asia, where indigenous names include som o (สมโอ) in Thai and bưởi in Vietnamese. In Burmese, the fruit is called kywègaw thee in the south and shaupann thee in upcountry. In Malay and Indonesian, it is known as limau/jeruk bali ("Balinese lime/orange") after the island of Bali. In the Philippines, while the common name is pomelo, it is also known as suha in Tagalog and boongon in Visayan. In Chinese, the fruit is known as yòuzi (柚子), although the same Chinese characters can also be used for the yuzu, a different species. The Japanese refer to the pomelo as buntan (文旦) or zabon (朱欒), apparently both derived from a Cantonese captain whose name is read Sha Buntan in Japanese. Pomelo is an ancestor of the -in the west more common- grapefruit therefore sometimes referred to as the “grandfather of grapefruit”. Actually the point of origin for grapefruit was as a cross between pomelo and orange created in the West Indies. Pomelo is round or pear shaped, depending on the cultivar, and tends to have relatively thick rind. Rind color is generally light green or yellow. The flesh varies in color from pale yellow to


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rose/pink. The juice sacks are large and lightly crunchy, containing a mildly sweet acidic juice. It is said that the fruit develops better flavors in tropical environments. The pomelo has less of the common grapefruit's bitterness, but the membranes of the segments are bitter and usually discarded. Like grapefruit, pomelo has fibrous flesh, separated into segments by membranes. It is common for the pomelo to have sixteen to eighteen segments, in comparison with the grapefruit's twelve. Pomelo cannot be eaten with a spoon like grapefruit. They are best peeled with all the pith and thick white membrane removed. The peel is sometimes used to make marmalade, or candied then dipped in chocolate. The peel of the pomelo is also used in Chinese cooking and candy preparation. The Thai group of pomelo is variable in shape, color and taste. The Chinese group contains a large number of fruits, including giant oblate ones with thick rinds but plenty of juice. For consumers, pomelo is a good source of vitamins and natural antioxidants, which are supposed to have properties preventive to heart diseases and cancer. It is low in fat with high fiber content, has limited sugar and salt content and contains no cholesterol.

3.5.

Competitiveness features

Volumes and value of Thai pomelo exported to the EU have been increasing until 2005/2006 and since then declining again to approx 50 % of the 2004 level (see exhibit 6). Exhibit 6; Thai Pomelo Export top EU between 2001 – 2007 in Value and Volume

30

1,200

25

1,000

20

800

15

600

10

400

5

200

0

0 2001

2002

2003

2004 Year

2005

2006

2007

Volume (MT)

Value (Mil THB)

Thai Pomelo Export to EU between 2001-2007

Value (Mil THB) Quantity (MT)

Source: Thai Customs, 2008

According to information from the Department of Agriculture the declining figures since 2006 (exhibit 6) were mainly a result from management and quality issues emerging at the one group able to sell towards EU markets, as only this group met the phytosanitary requirement “canker free certification”, mandatory towards exports of citrus fruits to the EU.


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Problems in production have been canker, recently increasing also black spot as well as Quality Control related matters at the producer group level as ripeness stage and size grading issues. The general market development and the development of farm gate prices of Pomelo have not been much exciting recently. Farm gate prices have been declining steadily since 2004 to about half the price level from that time (Exhibit 7). There is no separate figure for the export of fresh cut pomelo available as it is grouped or accumulated in the overall figures of fresh cut fruits in the export statistics. However it is generally reported to be a small quantity and of not much significance towards EU markets yet – but with a growth potential. Exhibit 7; Price and Net Profit at Grower Level in THB (2005-2007)

14,000 12,000 10,000 8,000 6,000

Price the farmers received

4,000 Net profit (THB/Rai)

2,000 0

Net profit (THB/Ton)

‐2,000 ‐4,000

2005

2006

2007

Total Production Cost

Source: OAE, 2008

Basically this negative price development is blamed on increasing competition from countries like China and Vietnam. Domestic production has been slightly increasing but not to a level that would justify the decline in prices to this extend. It is also not assumed that domestic and international demand decreased significantly or reached a rigid ceiling of demand, justifying such a decline in value. It is obvious that the decline in producer margins is caused by increased production costs in general. The decrease in prices is obviously caused by direct competition (more pomelo from within Thailand and from other or new export countries on the international market), as well as more indirect competition on the local market through more new kinds of food and other fruits such as apples, pears and grapes from China or new varieties as dragon fruit and jujube produced now in Thailand. Therefore it can be said that increased competitiveness is key for the further development of the Thai pomelo industry. It is assumed that Thailand cannot increase competitiveness through lower prices to compete with new producing countries in Asia (as China or Vietnam) as prices are low already and farm gate prices occasionally already below production costs.


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Therefore only strategies, to either lower production costs through increased cost efficiency, or - in the first place- through value addition, can be seen as feasible solutions. On the other side Thailand has a strong advantage in efficiency, infrastructure and price competitiveness as well as buyers preference compared to other traditional pomelo producing countries in South East Asia – as to Philippines or Indonesia, Laos and Cambodia Thailand has a strong competitiveness feature on processed food – in this case mainly ‘ready to eat”, air freight pomelo cuts - due to its relative higher quality processing and hygiene level and reputation among buyers for this kind of products in comparison with other competing countries as Vietnam or China. Other potential kinds of processing as juice and marmalade are so far not ventured from Thailand and would be worth looking into as a possibility to increase the value of undergrades and seasonal surplus production and such increase economic efficiency and viability of the entire line – including the economic performance of the fresh fruit chain, due to decreased value losses. One main strategy to increase competitiveness could be through value addition either through value adding certification schemes (as described in chapter 5.3 and 5.4) or through product distinction, varietal strategies and branding of Thai Pomelo. Another area for improvement is quality improvement and risk reduction through improved harvest and post-harvest handling and quality management including harvest technique. This would include issues as state of ripeness while harvest, better control of ripeness through reachable fruits by pruning – and in general to avoid damaging fruits by letting them fall or indelicate handling in the post harvest chain. Several times losses and rejections have been reported through insufficient quality control management. Eco-efficiency is rated among stakeholders as improved and seen as sufficiently covered and addressed by G.A.P certification. The sole supplier group for exports to Europe is covered – partly- by GlobalGAP certification. There have been no reported issues of toxic residues in the last years. Exhibit 10; Pomelo Features

Positive aspects • excellent shelf life • easy to handle • market growth potential (“market potential not utilized yet”) • environmentally relatively systainable crop • diverse market channels

Negative aspects • canker and black spot related quarantine restrictions to EU market • limited supply chain due to phytosanitary restrictions • price per unit is high, with indirect competition from other cheaper citrus fruits as Pomelo • lack of superior cultivars or “Thai Pomelo branding” strategies • Pomelo is relatively unknown by many European consumers (“European’s don’t know how to eat Pomelo”) From own analyzis and interviews with stakeholders


3.6.

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Thai Pomelo Variety and Distinction Features

Thailand is a traditional pomelo producer with diverse variety potential - but so far could not effectively promote a distinguished “origin” variety feature and reputation for pomelo towards international markets. Some efforts are undergoing to develop and promote local prime varieties such as an indeginious source of a reddish ‘Chandler’ type variety or ‘Tup Tim Sayam‘ (Siam Ruby) variety. Such varieties from distinctive location fetch premium prices on the domestic market While the traditional domestic markets do not much emphasis on outer appearance but on taste, European consumers – which less “pomelo experience” would judge a product first on its look (without neglecting taste). Exhibit 8; Pictures of the two most common Thai varieties in comparison - Kao Nam Phueng (Siamese Sweet) and Tong Dee (smaller)

Two out of the several varieties grown in Thailand are exported. These are: • Thong Dee - round with dark green rind and sweet, juicy pink flesh • Khao Nam Peung - pear-shaped with yellow-green rind and sweet, pale-yellow flesh Exhibit 9; Pictures of samples of internationally traded varieties

Picture source: CCPP Citrus Clonal Protection Program, http://users.kymp.net/citruspages/pomelos.html

It would be of much benefit for the sector if stakeholders would cooperate in a product distinction strategy and policy to make it clear to international customers and consumers how a Thai pomelo is special and how it can be distinguished and identified. Israel has for example a policy of natural product characteristic and presentation as no waxing and no fancy wrapping. China embarks on colourful individual product wrapping. Thailand may find its characteristic in distinction to those as natural but neat packing and presentation.


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4. Market Analysis 4.1.

World Production and Trade of Pomelo

There is no production and trade data available specific for pomelo – in international statistics (e.g. FAOSTAT) pomelo is grouped in “grapefruit, including pomelo” under product category HS code 080540. World grapefruit production peaked in the year 2000 at about 5.33 MMT but since then has declined to 3.97 MMT in 2005. After that it increased again to above 5MMT in 2007 (exhibit 11). This production fluctuation resulted from disease outbreak and natural disaster (Katrina) in Florida. The US is the world’s number one grapefruit-producing country, which on average accounts for 40% of total world production. China, the second most important grapefruit producing country, accounts for about 8% of total production. Over the last few years, production in China has been increasing, mainly spurred by increased domestic demand. However, the increases were insufficient to offset the shortfalls in the US. Other major producers include Mexico, Israel, and Cuba, contribute each with shares of approximately 6% (FAOSTAT). Exhibit 11 ; World Grapefruit and Pomelo Production, 2000-2007

Area harvested (ha) 2007 2006 2005 2004 2003 2002 2001 2000

4.2.

289,248 258,371 260,236 252,024 256,301 255,784 256,459 256,559

Yield (kg/ha) 174,971 177,086 152,824 196,564 186,364 189,788 201,114 210,465

Yield (ton/ha) 17.50 17.71 15.28 19.66 18.64 18.98 20.11 21.05

Production Qty (tons) 5,061,023 4,575,412 3,977,055 4,953,902 4,776,545 4,854,498 5,157,768 5,327, 557 Source: FAOSTAT, 2007

International Market Demand Features

World import of tropical fruits is expected to reach 4.3 million tons by 2010 and 87% (or 3.8 million tons) of this demand would be from developed country markets. Among the biggest markets for tropical fruit imports are the European market, followed by the United States, of which both markets total up to 70% of the world import demand. For the EC markets, the Netherlands remains a major European transshipment point or gateway for imported tropical fruits.


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Exhibit 12; World Grapefruit and Pomelo Top Importer (Metric Ton, 2001-2005) 7 00,000

) n o T ci rt e M ( e m u l o V

6 00,000

EU

5 00,000

Japan Canada

4 00,000

USA

3 00,000

Turkey 2 00,000 China 1 00,000 China, HongKong 0 $$

$$

$$

$$

$$

$$ Source: FAOSTAT, 2008

4.3.

Demand of Pomelo and EU market

The European Union (EU) is the world’s largest importer of agricultural products and the major imported products are fruits, vegetables, cereals and coffee. Fruit consumption is increasing due to health conscious eating habits and there is great potential towards the consumption of exotic/tropical fruits. There are large differences in fresh fruit consumption rates and patterns between EU member countries. Italy and Spain have the highest consumption rates and together accounted for nearly 40% of the total EU market in 2006. They are also the largest producers of fruit and vegetables. France, Germany and the United Kingdom also have large consumption levels, together with limited production - hence higher imports. The new EU members have variable consumption figures. Overall consumption is expected to grow due to growth in the markets of the new EU member states. (CBI) From 2002 to 2006, fruit consumption grew by 2.7% and the consumption of vegetables remained stable. […] Consumption of tropical fruits [in the EU] is rapidly growing (except for bananas, which are well-established). Growing familiarity with these products and their increased availability are boosting demand. Retailers and manufacturers are seizing new opportunities by offering, washed, pre-cut, pre-packed and portioned fruits and vegetables. A growing number of consumers demand organic and fair-trade products and product diversity. (CBI) France, Germany and the United Kingdom have large consumption levels, together with limited production - hence higher imports.


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Exhibit 13; European Imports According to Producer Country

EU Import of Grapefruit and Pomelo (Value in Euro) 90,000

Value (1000 Euro)

80,000

ARGENTINA

70,000

CHINA

60,000

ISRAEL

50,000

THAILAND

40,000

TURKEY

30,000

UNITED STATES

20,000

SOUTH AFRICA

10,000 0 2000

2001

2002

2003

2004

2005

2006

2007

Year

Source: FAOSTAT, 2008.

It is interesting to compare the difference in growth of Thai and Chinese grapefruit/pomelo to EU markets in exhibit 13. Pomelo is introduced to European consumers as an exotic novelty fruit since approx. 20 years. It is observed that there are differences in countries and regions on how consumers are familiar with pomelo. Beside mainstream European fresh food markets there is also a demand by Asian consumers in Europe for pomelo as for example by people of Chinese origin and tradition, which demand pomelo with size and nice visual appearance for spiritual worship ceremonies. Pomelo is nowadays distributed through all relevant distribution channels for fresh fruit in Europe, from specialty shops to main stream supermarkets and discounters.


4.4.

19

Thailand Export Market and Position of Thai Pomelo in the World Market

The exhibit 6 (pg 9) shows an increase in export of Thai pomelo to Europe until 2004/2005 since then there was a significant decline in sales again. In general Pomelo export from Thailand to the EU is still on a small level in value and volume with few contracts and transactions only

Exhibit 14; Thai Fresh Pomelo Export Figures 2001-2007 2003

2004

2005 2006 Total Pomelo Export

Value (THB) Volume (Kg)

108,252,997 7,609,017

102,038,944 7,313,071

Value (THB) Volume (Kg)

10,605,196 574,000

19,457,502 1,262,211

35,128,770 1,092,908

9.8

19.06

7.54

17.26

17,531,631 621,331

20,697,362 746,822

16.20

99,455,166 6,255,462

2007

132,904,721 9,386,981

Jan-July 08

119,208,816 10,050,906

47,861,185 4,593,958

38,127,029 1,296,670

9,933,320 611,515

5,820969 274,831

35.32

28.69

8.33

17.47

13.81

6.09

20,087,080 702,747

8,977,603 548,379

6,231,451 349,638

20.28

20.20

6.75

5.23

8.17

10.21

11.23

5.84

3.48

32,911,943 2,069,443

14,711,221 540,842

21,241,201 1,372,597

32,308,836 2,928,458

52,030,236 3,575,327

30.40

14.42

21.36

24.31

43.65

27.20

7.40

21.94

31.20

35.57

Export to EU Countries

% share of total value % share of total volume

Export to Canada Value (THB) Volume (Kg) % share of total value % share of total volume

2,802,552 212,481

Export to China Value (THB) Volume (Kg) % share of total value % share of total volume

27,480,078 2,431,537

Export to Hong Kong Value (THB) Volume (Kg) % share of total value % share of total volume

37,215,445 3,685,128

29,799,707 2,900,629

14,896,119 2,628,492

33,073,967 3,660,679

35,768,532 4,466,067

34.38

29.20

14.98

24.89

30.00

48.43

39.66

42.02

39.00

44.43

5,512,032 314,055

5,004,952 328,682

3,494,330 188,352

3,872,848 197,159

4,348,934 251,980

5.09

4.90

3.51

2.91

3.65

4.13

4.49

3.01

2.10

2.51

13,602,673 1,601,471

Export to Singapore Value (THB) Volume (Kg) % share of total value % share of total volume

220,507 10,548

Source: The Custom Department, 2008


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5. Quality Assurance and Certification/Standard Schemes There are mandatory certification schemes for the sector such as phytosanitary certificates towards EU markets as well as voluntary schemes. Among voluntary schemes there are such which are helpful for market access to a level that they become nearly pre-conditions such as GlobalGAP on the agricultural site and GMP or HACCP for the warehouse, processing and exporter level. In addition there are interesting schemes which are helpful for value addition and creating new market entry opportunities and competitevness such as for organic markets and Fairtrade labeling.

5.1.

Phytosanitary Certificate (Canker free Certificate)

Phytosanitary legislation in Europe aims to protect natural fauna and plants crucial to agricultural and horticultural crop production. Specific to the citrus industry (Citrus L., Fortunella Swingle, Porcious Raf., and their hybrids), measures exist to prevent the introduction of Xanthomonas campestris (canker), Cercospora angolensis Carv. et Mendes (black spot) and Guignardia citricarpa Kiely (citrus black spot). The import of citrus is banned without the being in compliance with all requirements in the EC Commission Directive and if these fungi are present on citrus fruits in accordance with European phytosanitary legislation. (EC Directive 2000/29/EC) and (Decision 98/83/EC). The EU produces a list of countries which are known to be free from these diseases or areas free from these diseases within countries where these diseases are known to occur. Thailand is not considered as a canker free country according to the list as mentioned above. In order to apply to canker quarantine regulations, whole pomelo exporters need to comply with all requirements in EC Commission Directive as follows; The main contents in case of canker are (a)

The region of origin of the citrus fruits is free from citrus canker or

(b)

i. no symptoms of canker have been identified in the place of production since the beginning of the last vegetative season; ii. The harvested fruits are free from canker; iii. The fruits have been treated post-harvest with sodium orthophenylphenate, mentioned on the phytosanitary certificate or phytosanitary certificate for re-export (not accepted on organically produced citrus); and iv. The place of production, the packing house, exporters and other handlers are registered with authorities for that purpose.

The main contents in case of black spot are (a)

fruits originate in a country or region free from black spot or

(b)

i. no symptoms of black spot have been identified in the place of production since the beginning of the last vegetative season; and ii. the place of production, the packing house, exporters and other handlers are registered for that purpose.


21

For Thailand, the Division of Plant Protection, Department of Agriculture, accompanies this process, supervises records and documentation and is issuing the necessary phytosanitary certificates for this process. This phytosanitary certification process starts from the selection of the area and growers. Then they ensure that all stakeholders understand the requirements and their role. The government officers visit the pomelo orchards every 60 days and randomly collect pomelo leaves to detect traces of the disease in the laboratory. They also control the post-harvest process and issue the phytosanitary certificate. Beginning 2004, one fruit exporter, Fresh Partners, took initially the initiative to set up a pomelo supply chain which is in complete compliance with EU phytosanitary regulations above. Together with the Plant Protection Research and Development Office, Department of Agriculture, Thailand and advice from Agriculture Economic Research Institute (LEI), which is part of Wageningen UR, the Netherlands and Division International Phytosanitary Affairs in the Netherlands, Fresh Partners has set up a pomelo supply chain in compliance with EU phytosanitary regulations at Wieng Kaen, Chiang Rai. First in 2005, Fresh Partners has exported 5 containers (40’ft container.) of fresh pomelo fruits being in compliance with EU regulations. In 2007 there were 373 farmers who received the phytosanitary certificate for the pomelo towards EU export market. Until now there is still only one area in Thailand in compliance with these EU requirements (Wieng Kaen, Chiang Rai). It is expected by the Division of Plant Protection, Department of Agriculture that other areas (Nakorn Sri Tammarat) could and will be certified as canker and black spot free regions soon as well. Some exporters consider peeling the outer rind of whole fruit Pomelo to avoid the issues of phytosanitary restrictions. Still it is doubtful if such product would be competitive towards the EU market and if it would be still considered as a high value product. The outer appearance and aesthetic feature of the pomelo would suffer through such a process. To a certain extend air freight “fresh cut” pomelo has a market opportunity without being subject to the phytosanitary restrictions, mentioned above. Such product not only maintains a high value but has additional added value.

5.2.

Thai GAP

The GAP programme was initiated in 1998, it is a voluntary standard. The main driver of GAP is the Royal Thai Government; promoting public awareness and creation of regulations and policies encouraging the production of safe food. This GAP programme is to ensure that food crops produced in Thailand are safe, wholesome and meet basic standards and requirements. Thai GAP is also available as a guideline for good agriculture practice including for pomelo production but some quality management requirements are not covered by this as such, as quality requirements according to the order from the buyers, harvest technique and time. Thailand aims to pursue recognition by the GLOBALGAP organization. Up to now Thai GAP is not recognized as equivalent to GLOBALGAP yet. So far Thai GAP certification is not acknowledged on the international level – especially towards Europe. There is no immediate benefit towards exports to the EU and no value addition out of the scheme but an opportunity for self- assessment and gaining experience towards international recognized schemes. 3,699 farmers or 5.63% from the total pomelo growers are inspected according to Thai GAP (One Stop Service Center, 2008).


5.3.

22

GLOBALGAP

GLOBALGAP (formerly known as EUROEPGAP) is a private sector body that sets voluntary standards for the certification of agricultural products. This scheme started in 1997 as an initiative by retailers belonging to the Euro-Retailer Produce Working Group (EUROEP). British retailers in conjunction with supermarkets in continental Europe were the driving force. They reacted to growing concerns of the consumers regarding product safety, environmental and labour standards and decided to harmonize their own often very different standards. EUROEP started working on harmonized standards and procedures for the development of Good Agricultural Practices (G.A.P.) in conventional agriculture, including highlighting the importance of Integrated Crop Management and a responsible approach to worker welfare. Over the next ten years a growing number of producers and retailers around the globe joined in with the idea, as this matched the emerging pattern of globalised trading: EUROEPGAP began to gain in global significance. To align EUROEPGAPS’s name with the now realized proposition as the pre-eminent international G.A.P.-standard and to prevent confusion with its growing range of public sector and civil society stakeholders, it was decided to re-brand to become GLOBALGAP in 2007. GLOBALGAP is a pre-farm-gate standard, which means that the certificate covers the process of the certified product from farm inputs and all the farming activities until the product leaves the farm. After farm gate level other food security and quality assurance system are to be in place as HACCP and ISO based GMP systems GLOBALGAP is a business-to-business label and is therefore not directly visible to consumers. It is basically a system to reduce risk and liability issues in the chain – based mainly on the interest of the retailers to avoid risk emerging at the level of agricultural production, which otherwise would not be covered by food safety guarantee systems as HACCP or GMP which addresses the level of processing only. GLOBALGAP does not “per se” increase value or provide premium prices. Still it is becoming a requirement set by retailers in international trade and thus becoming a pre-condition for market access especially in case of fresh fruits and vegetables.

5.4.

HACCP and GMP

HACCP is not (yet) mandatory in the case of whole fruit product chains (but for fresh cut or processed fruit). GMP is increasingly mandatory for export operations and still not implemented at all levels for the Pomelo value chain – especially at producer group level as provisory seasonal packing stations are used. For export to the UK the certification according to BRC (British Retail Consortium) is normally required.


5.5.

23

Fairtrade Standards, Labeling and Certification

Fairtrade certification (usually addressed as “Fairtrade” or “Fair Trade Certified”) is a product certification system designed to allow people to identify products that meet agreed environmental, labour and developmental standards. Products carry the Fairtrade Certification mark as a guarantee to consumers that participating producers in the developing world get a better deal to enable them for social and economic development. Beyond being paid a fair price (at least Fairtrade Minimum Price), the Fairtrade Premium helps producers to build necessary social economic and environmental infrastructure. By definition and through its history Fairtrade targets “South – North trade” issues – therefore there are no FLO Fairtrade certified producers in Europe. Fairtrade Labelling Organisation (FLO) and FLO-CERT The Fairtrade Labelling Organizations (FLO) International is a non-profit, multi-stakeholder association involving 23 member organizations (national Labelling Initiatives and Producer Networks), traders and external experts. Overseen by a standard-setting body, FLO International, and a certification body, FLO-CERT, the system involves independent auditing of producers to ensure the agreed standards are met. Companies offering products that meet the Fairtrade standards may apply for the licence to use the Fairtrade Certification Mark for such FLO certified products. The FLO International Fairtrade certification system covers a growing range of products, mostly food, including coffee, bananas, honey, cocoa, dried and fresh fruits and vegetables, juices, nuts and oil seeds, quinoa, rice, spices, sugar, tea and wine but also footballs and cotton and cotton products. Exhibit 15; Fairtrade (FLO Certified) Retail Value and Growth Pattern

Data source: FLO statistics,2008


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In 2007, the global retail value of Fairtrade-certified sales surpassed €2.3 billion worldwide, meaning an annual growth of 47% (compared with 2006). Sales are further expected to grow significantly in the coming years. According to the 2005 Just-Food Global Market Review, Fairtrade sales are expected to reach US$ 9 billion in 2012 and US$ 20-25 billion by 2020. The FLO Fairtrade system is intended to guarantee that producers receive fair terms of trade and fair prices. Additionally to the Fairtrade Minimum Price, the Fairtrade Labelling system guarantees an additional “Premium” to producer organizations or worker bodies to enable them to invest in social, economic or environmental development. With FLO-CERT the Fairtrade movement developed a credible and transparent third part certification system accredited against ISO 65 requirements. Although some other Fairtrade certification and label schemes have emerged and developed by private organic certification bodies as IMO and Ecocert, FLO certification is the most comprehensive and relevant fair-trade certification scheme and the one most recognized by consumers and traders international. While the global trend is already showing a steady and progressive increase (exhibit 15) , some countries and some product categories show an even more significant growth pattern for Fairtrade products as the exhibit 16 shows. As no data on Pomelo or citrus fruit is available fresh fruit banana was chosen as an example to illustrate the market development for a fair trade fresh fruit product Exhibit 16; UK Fairtrade Certified Retail Sales by Value 1998-2007 (£ million)

Data source: Fairtrade Foundation UK, 2008.

Fairtrade certification could create several significant benefits for the sector, as: 1. A Fairtrade certified project could open new market channels for Thai pomelo into EU. Fairtrade certification can create market entry points. 2. The farmer could get better prices and receive Fairtrade premium to develop their group’s activities. 3. Value addition and reputation gains for Thai pomelo. 4. Extension, certification and inspection services are locally available


25

Still there are also costs and challenges within the scheme: 1. The Fairtrade specific ecomomic standard settings for country (Thailand) and product (pomelo) is not available yet. But on demand, FLO may establish a country and product standard price level. 2. The grower group needs to be organized according to Fairtrade requirements to comply with the Fairtrade standards. 3. Costs of certification are significant for groups with small output. Still if the group has a concrete buyer, proving demand, they may apply for some grant from FLO International for the beginning.

5.6.

Organic Standards and Certification

Another strong opportunity could be the development of organic certified Pomelo towards EU and other markets, as this market sector shows continuously increasing demand and market growth and such create interesting market entry points and premium prices. Exhibit 17 Some figures and quotes illustrating market relevance and growth of organic certified products -

Global demand for organic products continues to grow, with sales increasing by over $5 billion a year.

-

The most important import markets for organic products continue to be the European Union, the United States, and Japan.

-

The UK organic market (2.83 billion Euro) is now the second largest in Europe after Germany (4.6 billion Euro). USA:

More than 13,6 bn Euro in 2007

> 20% growth

Germany:

More than 4.6 bn Euro in 2007

= 15% growth

Great Britain:

2,83 bn Euro in 2007

= 22% growth

Source: The World of Organic Agriculture: Statistics & Emerging Trends 2008

In Europe, the organic share of the total food market varies from approximately 6% of total food sales in Switzerland and Austria, 4.5% in Denmark, to 3% in Germany and 1.6% in the UK. (Soil Association Market report 2007).

Since the early 1990s organic food production has had growth rates of around 20% a year, far ahead of the rest of the food industry, in both developed and developing nations. Future growth is expected to range from 10-50% annually depending on the country (Wikipedia)

“Global sales of organic food and drink have increased by 43 % from 23 billion US Dollars (17.8 billion Euro) in 2002 with sales reaching 33 billion US-Dollars (25.5 billion Euro) in 2005. The “Organic Monitor” expects sales to have approached 40 billion US-Dollars (30.9 billion Euro) in 2006. Although organic agriculture is now present in most parts of the globe, demand remains concentrated in Europe and North America. The two regions are experiencing undersupply


26

because production is not meeting demand. Thus, large volumes of imports are coming in from other regions.” (Soel, 2007). “Organic fruit & vegetables comprise most revenues in the European organic food industry. They are typically the entry point for many first-time buyers of organic products. Consumer demand for organic fresh produce continues to strengthen and healthy growth rates are projected to continue as sales channels for organic products broaden. Although the organic vegetables market accounts for most revenues, the organic fruit market is forecast to show higher growth. Sales of organic tropical & exotic fruit are expanding rapidly.” (Organic Monitor #1001-42 The European Market for ORGANIC FRUIT & VEGETABLES, June 2005)

Although there are reports of decreasing sales at some “boutique” outlets for organic products, as a result of the global economic crisis, there is still an unchallenged growth expectation for the overall organic market with the biggest growth taking place at mainstream outlet channels, adding more organic products on the shelfes. Organic Regulations The technical standards of organic agriculture are nowadays represented by statutory law (for example the European Regulation on Organic Agriculture (EEC) NO. 2092/91) or additional civil law regulations (Guidelines of Growers Associations) in most developed consumer countries. Where also in developed countries previously only private Associations and their labels have been defining what is organic and what is not, the status of organic becomes increasingly defined through legally binding regulations and law. Since the 1990s the terms “organic” or “bio” for agricultural products became legally defined in the main consumer states for organic produce. Exhibit 18; Organic Production is defined by Standards and Regulations

European Council Regulation (EU) 2092/91

NOP (National Organic Program)/USDA

JAS (Japanese Agricultural Standard of Organic Agricultural Products)

Especially in those regions with widely developed organic markets, the large number of private and association labels and different standards in the past became confusing to buyers and couldn’t contribute to market transparency and the establishment of trust among consumers anymore. Therefore, in such countries, the technical standards are nowadays represented by statutory law (for example the European Regulation on Organic Agriculture (EEC) NO. 2092/91), the NOP/USDA Standards for the United States or the JAS/MAFF Standards in Japan. Even though these national standards may differ in some details, the general aspects are much the same and are in accordance with the international definitions of organic agriculture, created with the participation of producers and stakeholders in the organic movement from all over the world - much facilitated through the International Federation of Organic Agriculture


27

Movement (IFOAM). The IFOAM standards are “minimum standards”, which the private association standards of its members should apply to. Certification against IFOAM standards is as such not accepted in the main target markets but the fulfillment of the regulation and certification requirements according to the legislation is mandatory. Organic production and certification at some areas could create several significant benefits for the sector, as: 1. New market channel (market entry points) into EU market. 2. Value addition. Certification and inspection services for international recognized organic certification are also locally available. Still there are costs and challenges to this opportunity: 1. Costs of certification especially high per unit for groups with small output and while conversion. 2. No organic project for pomelo is implemented yet. 3. Implementation towards organic production, including training and certification needs at least 2-3 years. 4. There is still lack of support to the farmer to fulfill the standards. 5. Organic practices are technically demanding for fresh fruits. 6. Producers may be reluctant to change their way of production, take the risk and burden such investment.


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6. Value Chain / Supply Chain Functions and Mechanisms 6.1.

Definition/explanation

A value chain can be defined as “an organized system of exchange from production to consumption with the purpose of increasing value and competitiveness” while supply chain means "All activities relate to transform natural resources, raw materials and components into a finished product that is delivered to the end customer”. A value chain is by original definition not a supply chain. Value chain refers to the full range of activities that are required to bring a product (or a service) from conception, through the different phases of production, to delivery to final consumers and disposal after use (Kaplinsky and Morris, 2001). Further, a value chain exists when all the stakeholders in the chain operate in the way to maximize the generation of value along the chain. This definition can be interpreted in a narrow or in a broad sense. In the narrow meaning, a value chain includes the range of activities performed within a firm to produce a certain output. This might include: the conception and design stage, the process of acquisition of input, the production, the marketing and distribution activities, the performance of after-sale services, etc. All these activities constitute the ‘chain’ which link producers to consumers. On the other hand, each activity adds ‘value’ to the final product. This classic value chain approach is not of applicable or not practical in the sence of this assignment as we have many actors in a diverse complex supply chain with mostly only one or two steps of value addition per unit. The ‘broad’ approach to value chain, mostly adopted in the development sector for agricultural products, looks at the complex range of activities implemented by various actors (primary producers, processors, traders, service providers, etc) to bring a raw material to the retail of the final product. The ‘broad’ value chain starts from the production system of the raw materials and will move along the linkages with other enterprises engaged in trading, assembling, processing, etc. Wherever the word ‘value chain’ is used in this report it will be exclusively utilized to refer to such broad definition and describes the different steps of a product from its source until (in our case) the export-import level. Within the time frame of the assignment and towards achievement of the ultimate goals of the study this report does not claim to include a full value chain analysis in the academic sense but describe and analyze the situation, constraints and opportunities along the chain of the product including the supply chain, the chain of transformation and only to a certain extend the distribution chain. Additional it can be said that Thai pomelo is so far acquired through a not much consolidated chain as there are several potential chains with only few transactions and with frequently changing stakeholders and structures – thus analyzing in dept the economic performance of each stakeholder would not only be difficult, as not all relevant data would be easily provided by such businesses and would vary much from each transaction, but also not much of value. As for example the principle exporter and organizer of the chain in 2006 did not continue in 2007 and other stakeholders came in in 2007 and 2008.


6.2.

29

Industry Structure - Supply Chain of Thai Pomelo Industry

Exhibit 19; Sector map for Thai pomelo industry Vendor stalls

Growers at the North 16,390 Rais

95% from total production in 2007 Middlemen

Growers at the Central 19,247 Rais

Markets in major cities Retail stores

Packing House Growers at the South 24,933 Rais

5% from volume share in 2007

China 35.6%** EU 6.04%**

Growers at the Northeast 945 Rais

Exporter

Farmer group/ Cooperative

Hongkong 44%** Manufacturer Canada 3.48%*

Growers in the East 3,195 Rais

Others10.88%* ** volume share

Supporting Industries FARM LEVEL Agr. Inputs (seed, fertilizer, pesticides) Inspection/Certification Testing Service Equipment Irrigation R&D

FIELD CONSOLIDATION Packing Materials Transport Waxing service Finance

PROCESSING

MARKETING

Equipment Packing Material Warehouses R&D Inspection/Certification Cool chain Transport Finance

Freight forwarder Agents Trade fairs IT Inspection/Certification Finance Cool storage

So far the official value chain for pomelo towards the EU market appears as from the grower to farmer group/cooperative and to the exporter. This chain is smaller than other existing supply channels in Thailand. The only place/group supplying through this chain is the pomelo producer group in Wieng Kaen district, Chiang Rai province. This group received the Canker free certificate from the Department of Agriculture, Ministry of Agriculture and Cooperatives. Therefore the value chain of this group’ produce is the main focus for this study. 95 % of the Pomelo is sold domestically through a chain of middleman. Of the 5% exported only 4.4 % is intended for EU markets. Other export channels source mainly also through unregulated chains of middleman.


30

6.3. Characters and Role of Chain Actors GROWERS General Characteristics and Cropping

The pomelo growers in Thailand cultivate Pomelo on an approximately average of 4.5 rai or 0.72 hectares per family. Presently there are 65,638 pomelo growers (OAE, 2008) in Thailand. They are mainly dependent on family labour and hire external labour mainly in the harvest season. The family members are in charge for weeding, watering, fertilizing and chemical application to monitor pests and diseases. Pomelo is harvested by hand, cut from the stem with a knife or scissor. The average investment costs for Pomelo orchards is about 67.350 THB per/ha according OAE (OAE, 2008). Main production cost are for pesticides, other chemical agents, fertilizers, fuel for water pump and labor. The largest area of Pomelo cultivation is in the South (56.23%) followed by the North (17.79%) and the Central (17.09%). The major varieties for export markets are Khao Thong Dee and Khao Nam Pueng. The average yield in 2007 was 9.38 MT per hectare increased by 2.75% compared with 2006 (9.33 Ton per hectare). According to interviews with pomelo growers in Nakorn Chai Sri, Nakorn Pathom province, the pomelo production area is decreasing. The pomelo growers replaced pomelo with other crop such as paddy (attractive price in rice crop 2007/08), guava, and rose apple. There are several explanations such as the price of pomelo maintained basically on the same level while production costs increased significantly, urbanization pushes the land price in the outskirt of Bangkok up, old pomelo cultivation area became more vulnerable to pests and diseases (some orchards are older than 20 years) and loss of soil fertility. Old pomelo trees would need to be replaced with new seedlings but the farmers are uncertain of the high investment and production price fluctuations, some areas have been subject to repeated flooding. Although the harvest time is to a certain extend all year round - the major production yields between August and September (“Som Pee” - season) and main second season is in April to May (“Som Tawai”- season). As pomelo can be stored for several months they are marketed the whole year – although with seasonal and regional price fluctuations. The pomelo producers in Wieng Kaen cultivate approximately 5-6 rai per family (or approx. 1 ha). Some of them cultivate also other cash crops such as rubber to decrease the risk from pomelo production and price fluctuations. The main varieties grown in Wieng Kaen are Thong Dee and Khao Nam Puang with some Chandler/Pink Pomelo (10%). Harvest Time and Shelf Ripeness Shelf ripeness is a major quality issue for pomelo. Shelf ripeness is primarily influenced by the moment fruits are picked and by the way they ripen during storage and shipment (product characteristics, duration, climatic conditions). The ideal shelve ripeness can vary according to consumers and trade channel. For example, pomelo exported by sea to EU countries should be ready to consume after 4-6 weeks, but at its best after 6-8 weeks. Main seasonal production of pomelo from Vietnam and China is harvested and released to the market later than Thai pomelo. Especially in China, the harvest season starts only from September and continues to January. Therefore the Thai growers have a competitive advantage


31

for a certain time window in the early season (especially around August) and an interest to harvest as early as possible. This tendency carries opportunities but also the risk that producers tend to harvest too young pomelo and when the shipment arrives in Europe the buyer may reject the shipment as the taste and brix level is not acceptably by their buyer’s standard. Losses, Rejects and Undergrades Pomelo fruits have a thick skin, therefore suffer minimum loss and less damage compared with other fruits while post-harvest handling According to the interview with the pomelo farmer in Wieng Kaen it was found that they can get approximately 1 of 3 of the whole fruits for grade A from each tree. These pomelos are sold for approximately 18 THB per fruit while the rest are undergrades which they have to sell domestically or to Cambodia. The price of such under-grade pomelo may drop to 2-4 THB per kg. The pomelo become under-grade because of size, or general appearance of the fruit (skin is not beautiful). These reasons for rejection do not affect the taste or sweetness of the pomelo at all. Therefore they still can be sold into domestic markets or potentially be used for future processing. It is important to understand that the ratio and price level for undergrads have a major effect on the economic performance of the Pomelo chain. Methods of Transaction and Payment The payment method is different from one to another region in the country. Still it is mainly based on negotiation and verbal agreements. Generally there was a decline in farm gate price levels for Thai Pomelo over the last 3 years but there are different price developments in different areas, origins and varieties. Still market prices (domestic wholesale price levels) have been increasing in the same time but slightly decreased in 2008. TRADERS/ MIDDLEMEN Almost 95% of pomelo in Thailand is channeled through a chain of traders/middlemen. The middlemen take an important role to gather the fruits from individual farmers or informal producer groups to the packing house and on to the major markets in the big cities. The rest is often sold from roadside stalls in pomelo-growing areas. For export market, some traders/middlemen provide services for grading and waxing or final packaging depending on the order from the exporters. But there are few traders who can handle the requirements at this level. They are mostly located in the central area. Some of traders and middlemen are also pomelo growers. For the EU market, there is only Wieng Kaen area to supply to this market channel at the moment. Here, the producer group takes the role to gather the pomelo instead of traders and middlemen. Traders and middlemen buy the grade B or undergrade pomelo for domestic market or for export to neighboring countries such as Cambodia. Normally the traders/middlemen pay in cash to the farmer directly after the buy pomelo from the farmer and based on verbal agreement.


32

Exhibit 20; Development of farm gate prices of 2 major Thai pomelo varieties

14 12

THB/Kg

10 8 6

Thongdee

4 2

Khao Nampueng

0 2004

2005

2006

2007

Source: OAE, 2008 Exhibit 21 ; Average Price of Pomelo on the Sample of Thong Dee Variety

40 35

THB/Kg

30

Thongdee(Big)

25 20 Thongdee (Small)

15 10 5 0 2003

2004

2005

2006

2007

2008

Source: Dept of InternalTrade, 2007

FARMER ORGANIZATION OR POMELO PRODUCER COOPERATIVE Presently there is only the one pomelo producer group in Wieng Kean, Chiang Rai providing the service to gather pomelo from its members and sell it to the exporter or trader. Therefore the officially exported pomelo to EU market comes solely from the management of this producer group which supplies to the exporter and not from the gathering of middlemen. According to the interview with the group representative approximately 30% of the pomelo from their members will be collected by the committee of the producer organization and sold to


33

the exporters. The rest of the pomelo (approx. 70%) will be sold to local markets which members have to manage by themselves. The producer group also provides the service of grading, cleaning, and waxing including to a certain extend the traceability system according to the requirements of the exporter or buyer. In case of pomelo export to EU markets, the container will be closed loaded and closed at the seasonal packing house of the group and sent directly to the port. The shipment is still exported under the exporter’s name and responsibility. The producer group set up the temporary packing house within their community. The packing house operates only in the harvest season and using the labour within their community. Grading and Quality Control Normally the farmers get used to sell according to the size of pomelo for their existing market channels such as China and Hongkong, while the European buyer prefer to buy pomelo according to size, weight and number of pomelo in each box. The growers need to adjust their behavior for the grading and selection of the pomelo to different markets. Through this process the quality control according to the order and requirements from different market is very important. PACKING HOUSES There are approximately 5 main packing houses mainly located in Nakorn Pathom province and including 1 temporary packing house located in Wieng Kaen, Chiang Rai as mentioned above for export market. They provide service of grading, quality control, cleaning, waxing and packing of the product. Packing houses act as a central location for large volumes of fruits to be combined before redistributed to the exporters or they belong to exporting companies. After receiving pomelo from traders/middlemen, the cleaning stage proceeds. The pomelo must be left to dry after wax treatment in order to preserve the outer rind of pomelo in a fresh look. The packing is done according to customer requirements. Some packing houses do not rely only on pomelo; they also handle other fresh fruits or vegetables in their product line according to season. Some packing houses provide only the service for pomelo packing and some supply also fresh cut pomelo for some department stores in Bangkok and nearby provinces. In general, packing houses build up informal relationships with traders/middlemen in order to have consistent supplies and high quality of pomelo. Costs range from EURO 0.2/fruit for basic services to up to EURO 1/fruit for customized work. This product is then sent directly to the port and dispatched out of the country under the name and contract of the exporter. Still only some exporters use the services of such third party packing houses as others operate their own facilities. MANUFACTURERS/EXPORTERS Many exporters are also processors in their own right. In the export chain for pomelo, manufacturers lose normally between 15-20% due to defects, post-harvest issues and heat damage. Pomelo is kept cool in refrigerated containers to be sent overseas. Some Manufacturers and Exporters also process ready to eat pomelo fresh-cuts. This kind of product has a certain competitiveness advantage from Thailand due to the better reputation of its food processing and hygiene level. In case of fresh cuts the issues of phytosanitary restrictions are also avoided. This kind of product is also in line with trends towards convenient


34

ready to eat and small portioned food for European consumers. Still the relative high price (through air frightening) still limits the volume of this market segment. Thailand is also one of the most extensive countries for air freight export. Almost hundred percent of pomelo is sold fresh. Manufacturers and exporter are subject to several food safety, hygiene and quality standards required by foreign buyers. There are several certification schemes depending on each importer’s preference. Manufacturers/exporters do not rely solely on pomelo but have a mixed portfolio of products. Pomelo ranges from 2-5% of the total product line of such manufacturers/exporters. Quality Control For the EU market, where normally the final packing is done in the field at Wieng Kaen, some exporter also send their staff for the purchasing process and quality control of the pomelo before export. This way the exporter intends to ensure the consistency of the product with quality and grading requirements before shipment. DOMESTIC TRADERS There are more than 100 domestic traders that collect off-grade or lower grade pomelo for the domestic wholesale markets. They usually establish a long-term relationship with traders/middlemen and have a verbal agreement to buy all of their low-grade supply at an agreed upon price. These transporters have no cold storage trucks and there is an estimated loss of 20% (up to 30-50% in summer) due to heat and poor handling in transit at this stage. There are no traceability or monitoring systems in place for these actors in the chain. They will likely be left out or decrease in number as supermarkets replace traditional local market structures also in Thailand. DOMESTIC WHOLESALE MARKETS There are four main wholesale markets in the Bangkok area that service smaller local retail outlets as well as wholesale markets in other cities. These markets receive lower grade produce from domestic traders. As the price is very low to begin with (as low as 1/20 of that of export grades), profit margins are quite low for this segment of the chain. RETAIL OUTLETS There are two types of domestic retail outlets. One covers the local retail outlets that include smaller markets, vendor stalls within the wholesale markets, restaurants and hotels. Fruit vendors in smaller local wet markets will buy pomelo from bigger wholesale markets to include in their product range. The second type of domestic retail outlet includes about ten larger retail companies operating supermarkets such as TOPS and hypermarkets such as Tesco Lotus, Carrefour and Macro. Most of these outlets are establishing traceability and safety requirements and so they usually deal with (already GAP certified) manufacturers directly as their suppliers. Standards depend on the outlet but still tend to be less strict and more flexible than international ones. Retailers normally sell pomelo in two forms - whole fruit and ready to eat (fresh cut). International retailers include all kinds of outlets and follow country specific channels of distribution.


35

6.4. Supply Chain Management Systems The supply chain of Thai pomelo consists basically of 4 channels as following; i) Supply chain through Traders/ Middlemen for Domestic Outlets – Whole Fruit

Direct sale by farmer’s Growers

Middlemen

Street vendors Major markets in the main cities Retailers such as Tesco, Carrefour

This domestic consumption value chain is towards the major market for pomelo in Thailand. Domestic pomelo consumption accounts for 95% from total domestic production (Source: DOAE, 2008). The middlemen take the main role to control price and quality in this value chain and are responsible for transportation. Normally the price that the farmers receive from this channel is low and there is high competition among domestic producers from different pomelo producer provinces such as Chainat, Prachinburi, Pichit. The quality criteria for this chain is mainly focusing on the taste of pomelo (often based on reputation of grower location) while the outer appearance is of lesser priority. High reputation for taste and respective premium prices are paid for pomelo from some areas in Thailand such as for some varieties from Nakorn Chai Sri, Nakorn Pathom or for the reddish Tab Tim Siam variety from Nakorn Sri Thammarat where farm gate prices can be as high as 40 THB per fruit from Nakorn Chai Sri and 100 THB per fruit for Tab Tim Siam from Nakorn Sri Thammarat. Still this production is very limited. The product form in this case is beside whole fruit also fresh cut which faces growing demand especially in the premium lines of retailers and supermarkets in the main cities. The actual tendency is that retailers start to contact directly to the producer group to source fresh products directly from the growers. Through this way the retailer can better control the supply chain and better ensure quality and traceability. This kind of supply chain management is still in the earlier stages and meets limitations by the experience and management capacities of the producer groups. ii) Supply Chain through Traders/ Middlemen towards Export of Whole Fruit

Growers

Middlemen

Packing house

Port (Export) (under the exporter’s name)

This supply chain is provided for the source of pomelo where the quality is acceptable for export markets but the packing house is not located in the growing area such as for chains from Prachinburi, Chainat and Chumporn provinces. Therefore the middlemen provide the service to gather the pomelo and grading with quality control before delivering to the packing. The packing houses take the role for grading and quality control again and provide the service for cleaning, waxing and packing until the product is ready for shipment. Normally the exporter organizes the shipping company and the responsible for the packing house ends at the point when the container is closed at the packing house. The form of product from this chain is only whole fruit


36

of pomelo. Most of such packing houses are still of lower industry standard on just basic infrastructure and thus can provide only the service to prepare whole fruits for export. iii) Supply Chain through Farmer Group towards Export of Whole Fruit

Growers

Packing house Farmer group/Cooperative

Port (Export) (under the exporter name)

This value chain is mainly observed in areas where the agricultural production site is close to a packing house and the grower can sell their pomelo directly to the packing house. The packing house for whole fruit does not require sophisticated technology and sometime can operate directly in the production area such as in Wieng Kaen, Chiang Rai. The majority of export produce is channeled through these two above mentioned value chains. The packing house is normally busy in the pomelo season (August to September and March to April). Some packing houses deliver fresh cut for the domestic market as well (retails and supermarket) when out of season and less work for export packing occurs. iv) Supply Chain through professional manufacturer towards Export of Fresh Cut

Growers

Middlemen

Manufacturer GMP, HACCP

Airport (Export)

This value chain is mainly for the fresh cut pomelo where processing units are required to have high hygienic standards and are covered by certification for food processing. The manufacturer normally handles with different products, which allows him also to ship several products together in one shipment via airfreight.

6.5.

Transportation and Cool Chain System:

For the domestic market where demand of whole pomelo is much higher than for fresh cut, the traders or middlemen mostly use normal trucks for transport of pomelo from producers to the market. For the domestic fresh cut pomelo, the operator has to deliver the product to the department store as soon as possible after final packing. There is normally no cool chain and the operator delivers only day by day to ensure the fresh look and unspoiled outer appearance of their product. For exported whole fruit the cool chain system starts only when all final boxes have been loaded into the reefer container. Normally the temperature control is set at 10’C at all time of transportation. The fruit can be kept with an uninterrupted cool chain for at least 2-3 months. The shelf life of whole pomelo can be up to a year without an effect to the internal quality which is possible if the fruit is intended for fresh cut, but the outer appearance of the peel suffers after 2-3 months. For fresh cut pomelo, the uninterrupted cool chain is very important. This market segment is still small and the exporter normally exports by air freight together with other fresh fruit and


37

vegetable products. There are reports on disruption of the cool chain at airport and customs handling in Bangkok

6.6.

Traceability:

Legal frame The General Food Law (Regulation (EC) No. 178/2002) introduces requirements on traceability of food that is marketed in the EU and became in force on the 1st of January 2005. Traceability in the EU follows the “one step back-one step forward’’ principle. By this is meant that any business in the food chain, whether it is a farmer, food processor, transporter, importer, distributor or retailer, should be able to identify the immediate supplier of the product (one step back) and the immediate buyer (one step forward), with the exemption of retailers to final consumers. The traceability requirements in EU legislation cover the chain from the importer to the retailer. In other words, the EU legislation does not introduce requirements for producers outside the EU yet. However, the EU importer must: 1. Know and document from whom they have bought their food product (ingredients) 2. Know and document to whom they supply their products 3. Label their products so that they can establish traceability in case of a food safety problem. These three issues are also the most important ones when suppliers in developing countries implement a traceability system (CBI). Traceability in developing countries – a buyers’ requirement Although the traceability legislative requirements do not directly apply to food exporters they do have to apply to the traceability requirements through their importers’ demands. The key issue of traceability for the European trading partners is that if in case a product sold proves to be faulty, the importer of that product should be able to determine what batch of products put on the market needs to be taken back. This will only be possible when record keeping is being done, since the more precise a company knows what product or ingredient caused the problem, where this product or ingredient came from and in what batch of final products this product or ingredient was used, the smaller amount of products he will have to withdraw from the market. So in practice, the EU request that systems and procedures should be in place to ensure traceability will go beyond the EU border and therefore it will be of utmost importance that every part in the food chain, including those in developing countries, will be able to give required information and documentation on traceability. Implementing a traceability system Issues to consider when implementing a traceability system are following; 1. Knowledge and documentation regarding the source of produce. All input of raw materials and ingredients used in one product must be documented, including information on origin.


38

2. Knowledge and documentation on which products are used during production process. This information includes record keeping of which products, i.e. ingredients are mixed or processed to the final product of production process and should be kept per batch of product so that, in case there is a problem with one set of products, it can be identified which steps are made within the production process and which batch contains faulty products. For primary production, this could be pesticides or any other products used for the crop. 3. Knowledge and documentation to whom the operator supplies their products. This information should be kept per batch of product so that, in case there is a problem with one set of products, it can be identified which client(s) must be notified. 4. Labeling of the product so that traceability can be established in case of a food safety problem The actual trend is to implement traceability based on bar code systems. Bar code labeling is globally recognized as a fundamental technology that, when put into practice by all participants in the supply chain, is a highly efficient traceability system that can pinpoint the origin of the problem to a specific region, logistics, processing or packing facility, group of producers/growers, or individual producer/grower.

Exhibit 22; Information available from bar code traceability system Information available from retail point Product ID# Shipper & shipping dock 4 Pallet Number Best_by Date Producer/Grower Lot Number Country of Origin

Information available from shipping/logistics point Shipper & shipping dock Shipping Date Pallet Number Best_by Date Producer/Grower Lot Number Country of Origin

Information available from farm/producer point Producer/Grower Lot Number Country of Origin Pick/Packing Date

In 1977, the European Article Numbering (EAN) Association was formed for the purpose of creating the EAN.UCC System, a code based on the U.S. UPC bar code. The EAN.UCC system provides for the standardization of bar codes, EDI transactions sets, XML schemas, and other supply chain solutions across all industries, and is based on 13 numbers (the U.S. UPC bar code is based on 12 numbers). On buyer’s demand some exporters have been started to introduce bar code systems for Thai Pomelo to the EU market. Still the system needs the underlying data on producer level and systematic records in place to prove valid.


39

7. Competitive Advantages and Sector Strategy 7.1.

General Review in Thailand

Pomelo production as a perennial fruit crop requires quite high initial investment. The initial cost per hectare is according different sources between 2100.- Euro (DOA and OAE, 2008) and 10,000.- Euro (incl. labor, agricultural inputs cost). The cost of land is not included in these figures. Therefore potential growers need to have capital. There is no large producer who dominates the market or any large scale agricultural estates for pomelo but production is based on small holders. The major production costs are for pesticides, fertilizers, fuel for water pump and labor. As the oil price has increased since the last 2 years, it pushed the costs for agriculture inputs up as well. As a response, the farmers incorporated increasingly integrated agriculture techniques to decrease the expenses for external inputs, especially by using compost and local agriculture inputs from their farm. Domestically, competition in the pomelo sector is relatively high. The farmers have to compete with pomelo supply from different sources and regions. There is a diversity of varieties in Thailand with quality and taste differentiations of pomelo from various regions and areas. Especially pomelo from some distinctively known areas receives better prices. Thus it happens that the pomelos from other sources are channelled via such high-reputation growing locations to increase the price as the consumer cannot easily identify the origin from the outer appearance. Exhibit 23; Domestic Pomelo Production Still Increasing T h a i P o m el o P r o d u c tio n (1 00 0 M T ) 3 50

3 00

2 50 20 0 5

2 0 06 Ye ar

2 00 7

Source: OAE, 2008

Still even though better prices are received in such a distinctive pomelo growing area as in Nakorn Chaisri, production there is decreasing due to several reasons, such as growing urbanization. Farmers in that province state as the main reason to stop cultivation that the pomelo trees in this area are becoming already too old and the high costs of production and reinvestment. If the farmer wants to re-plant he has to spend much more, compared with the last investment 15-20 years ago. Beside that, last year the rice price was very high. It attracted many farmers in this area to convert pomelo orchards to paddy fields where the farmer gets faster


40

return and can grow many crops within one year. This phenomenon also occurs at other major pomelo production areas such as in Pichit. In this area some farmers converted pomelo orchards to paddy fields as they could not receive the canker-free certificate from the Department of Agriculture and as the price of pomelo dropped and become not cost-covering. Although such interviews with farmers indicates a decline in production in some areas the figures from the Office of Agriculture Extension still indicate a small increase in Pomelo production on the national level until 2007 (exhibit 23). The indirect competition by increased fruit imports such as for apple and pear from China also affects the domestic consumption pattern and pomelo market. These fruits take over some of the domestic fresh fruit market share as well. The pomelo from Wieng Kean is quite bitter in taste with lower brix compared with the pomelo from other sources in Thailand and therefore has a lower price and competitiveness on the domestic market. The pomelo from Wienk Kaen have mostly brix levels around 7-9, while EU buyers prefer brix levels of 10-12. Exhibit 24; Thai Pomelo Export To Different Target Countries in 2006 and 2007

Thai Pomelo Export

Value mil THB

60 50 40 2006

30

2007 20 10 0

Country

Source: Thai customs, 2008


7.2.

41

Competitive Analysis

Key on determining the future opportunity of Thai Pomelo towards export markets is competitiveness. Analyzing the less encouraging and partly declining figures for Thai Pomelo it can be said that competition is growing to an extend of threatening the potential of pomelo exports from Thailand. (see Exhibit 7 on growers cross profit and exhibit 13 comparing especially Chinese and Thai export value trends). Taking the already low farm gate prices in comparison with production costs it becomes clear that Thailand has no chance to compete just by price with its basic and emerging key competitors for Pomelo export to the EU, as China or Vietnam. On the other hand Thailand has several features and competitive advantages still partly not utilized. One major advantage is the different seasonality of Thai Pomelo where Thailand can supply to European markets basically all year round and especially earlier than its competitors. Another major advantage of Thailand is the good infrastructure and reputation of its food industry, especially important for the potential sector of fresh cut Pomelo. This infrastructure advantage includes existence of experienced industries, handling fresh fruit and vegetables, physical market access in terms of regular flights, accessible shipping routes and developed high standard processing facilities. Thailand has a good country image (good food – exotic holiday destination). European Consumers who have been introduced to Thai pomelo while their holidays in Thailand generally would prefer to buy a Thai pomelo at home and are disappointed by more widely available Chinese ’honey pomelo’ (which it’s said “does not come up to its name”). Even ethnic Chinese buyers in overseas markets give a high value to Thai Pomelo. Exports of Thai Pomelo to China, Hongkong and Singapore are actually increasing as shown from the figures of Thai customs (exhibit 24). Pomelo is still an exotic and comparable high price product in Europe. Some collected samples of retail prices for Pomelo in Europe are between 1.20 and 3.80 €/fruit. Thai Pomelo is considerable more expensive – and potentially higher valued - than Chinese Pomelo. Exhibit 25 Price Comparison - Samples of Price Levels of Pomelo from different Countries in Europe €/kg FOB

Sample of Retail Price in Europe

Vietnam

0.77- 1.25 € (2007)

-

Thailand

0.80 €

2.50-3.80 € pc

China

0.50 €

1.20 -1.50 € pc

As it is clear that competitiveness of Thai Pomelo cannot be reached by lower prices the sector is left with 2 directions of competitiveness strategies


42

1. Decrease production costs – increase efficiency 2. Value addition As there are still potential areas of improvement in the direction of decreasing costs and increasing efficiency, they are limited although they should be utilized to full extent. The key for sustainable success of Pomelo towards EU markets have to be seen in the second option – value addition. This could include quality improvement, development of Thai quality and variety distinction and promotion and branding of such - or value added certification schemes as organic and Fairtrade certification. The Thai pomelo sector lacks a national competitive strategy, as product destinction or focus on product features, which is seen as basic necessity for further success. Exhibit 24; Comparison of Key Competitor Countries towards EU market

Key Competitor

Thai Advantage

China

Recognized as one of the best in taste (if harvested in the right time) Better yield Year-round and earlier season supply Higher reputation on safety and quality of processing Smoother logistics

Vietnam

Recognized as one of the best in taste Higher reputation towards standards and quality Smoother logistics Better infrastructure Better established in the market – experience and relations Recognized as one of the best in taste Exotic reputation feature

Israel

Competitor Advantage Cheaper prices Higher volumes Able to export pomelo from some provinces without EU quarantine restrictions Investors interested branded ‘honey pomelo’ widely in compliance with international standard schemes as GlobalGAP consistancy and reliability of supply Cheaper Better yield More consistent labor supply Fast in developping market penetration and flexibility in adopting to buyers requirements

Branding, Nearer to EU market Able to export pomelo without EU quarantine restrictions Higher yield Higher standards and quality Higher volume Consistency and reliability of supply Approach of environmentally strategies and reputation only non-waxed, no plastic “shells” or nets…) National Quality strategy towards competitevness


43

8. Constraints and Opportunities The focus of this chapter is on the supply to export chain of pomelo towards the EU market. Tthe supply of the whole fruit of fresh pomelo can only from the canker free certified areas of Wieng Kaen in Chiang Rai province. Therefore the following chapters address mainly the situation of this supply chain with some additions and comparisons to other practices only when relevant.

8.1.

Growers

CONSTRAINTS: •

Increase of production costs Growers note that the costs of fertilizers and pesticides are relatively high (up to 40% of total production costs - depending on the farming system). As a response many farmers moved towards integrated farming techniques and to increase soil fertility with more organic inputs vs. external synthetic fertilizer. Also costs of fuel for irrigation pumps and transportation increased and amounts for approximately 40% of production costs. Since the oil price increased since 2006, it pushed the fertilizer and agriculture input prices by 150 -500% up, compared with the fertilizer price level in 2006. Although oil prices decreased recently again the input prices still maintain on the high level so far.

•

Risk and financing In some areas orchards are relatively old and need re-planting – in others extension is ongoing or needed to fulfill economy of scale requirements. Still pomelo requires a relatively high initial investment compared with other short production cycle crops. It needs more than four years before first harvest and full harvest is not realized until the 8th or 9th year. This creates financial risks and burden to small scale growers.

•

Small scale production pattern Pomelo farming is based in small scale farming patterns in Thailand. Although this has advantages in risk management and environmental terms it is a constraint in management requirements and flexibility of adjustments as well as for capital resources

•

Insufficient pruning High trees make it difficult to check ripeness level of individual fruits before harvesting

•

Lack of understanding and knowledge of proper farm and production management There are no clear formulated and enforced production rules (such as for soil management and good agricultural practice) and post harvest rules for the majority of farmers. The practice of pomelo production is not unified.

•

Lack of documentation, record and accounting skills Generally the small scale pomelo farmers are not very familiar with farm records and documentation of inputs. Although some of the farmers do it, it is not always sufficient systematic and unified. It is necessary for the farmer to keep farm records to monitor costs of production, quality production management, a traceability system and to comply with relevant certification requirements as well.


•

44

Only a small portion of growers are covered by GlobalGAP so far GlobalGAP is becoming a pre-condition for access to European markets. In the Wieng Kaen area only a minority is in compliance with GlobalGAP certification so far. Retailers in Europe have the preference of GlobalGAP certification and mostly a clear cut policy to buy only GlobalGAP certified fresh produce as soon as the supply of such is assured. Therefore GlobalGAP became somehow a pre-condition for market entry to the EU. 74 growers or approx 70 ha of orchards are certified or in the actual process for GlobalGAP certification in the Wieng Kaen area with an approximate expected output potential of 780 MT in 2009.

•

Significantly lower prices for non-A and off-grade pomelo Only approximately one third of harvested pomeloes are of grade A export quality. Another third is considered as Grade B and another third are sold as undergrades. The price of Grade A pomelo is between 15-18 THB per fruit while the price of undergrades is between 3-4 THB per kg prices for B-grades fluctuate significant according to market channel. Due to this significant price difference the ratio of different grades influences the ecomic performance severely.

•

Taste and harvest time In some areas (Wieng Kaen) the right harvest time, taste and quality requirements have not been met in cases. Normally the best harvest period for the main season is between August to September to get the mature pomelo. But as the farmer want to push their product into the market earlier in order to get better prices there is a danger of premature harvest. This also affects the exporter and importer as the pomelo was too young and the quality not satifying. It is challenging to determine the proper harvest time to ensure that the pomelo has good taste and can be released to the market still earlier than those of the competitors.

•

Pomelo variety The major varieties, which are widely grown in Wieng Kaen are Khao Nam Pueng and Thong Dee with little percentage of Chandler (pink pomelo). The Chandler or pink pomelo has a growing demand for some markets. Still as long as there is no clearly defined common strategy it is difficult to say which varieties should be promoted for the export market to the EU as a unified distinguished “Thai pomelo”.

•

Phytosanitary Certificate (Canker free certificate) There is still only the area of Wieng Kaen with phytosanitary certificate (canker free cerfificate) from Department of Agriculture to fulfill the requirements of EU regulation so far. Still due to the cooler climate it is difficult in this area to reach highest taste features and required brix levels – especially in the crucial early season.

OPPORTUNITIES AT GROWER LEVEL ARE AS FOLLOWS: •

More farmers are interested to join the project

•

Required and accepted Certification systems and services are available locally or regional for GlobalGap, phytosanitary certification as well as value adding schemes as organic or fairtrade certification


45

•

Training for improved production, quality and management to be continued and is expected to have an impact.

•

Competent service providers for training and extension can be identified in the region. Strong support organizations.

•

Services for research and development available through Chiang Mai University, Mae Fah Luang University and others

•

Government and policy makers supportive to the project and good cooperation among all stakeholders

•

Varietal diversity and seedlings for selection of varietal strategy are available to growers

•

Access to loans and financial services available to growers through BAAC and other schemes

•

Costs of production and environmental issues can be covered by integrated farming methods and farmers are open to it

8.2.

Farmer Group/Cooperative

There is only the producer group in Wieng Kaen to be able to officially supply towards the EU market due to phytosanitary requirements. Therefore this analysis is based mainly on this group. CONSTRAINTS: •

Lack of understanding for the farmer group management There are few formalized groups of pomelo growers but they are still weak and lack understanding and capacities on small farmer group management or cooperative business. Improved management on group level is conditional for improved quality as well as for GlobalGAP option 2, traceability systems and opportunities as Fairtrade or organic group certification.

•

Lack of clear production and post harvest rule and enforcement Although the Thai GAP is available as guideline for the good practice for pomelo production but some quality management requirements are not covered by this as such, as quality requirements according to the order from the buyers, harvest technique and time.

•

Lack of capital and cash flow to expand their business on group level The farmer groups do not have own capital to invest or for certification costs yet and are depending mainly on pre-financing from buyers or on support organizations.

•

Certification Cost and certification ownership Certification costs are high and are high per unit as the groups are also still small. Global GAP certification is paid and owned exclusively by one exporter who is not absorbing all production. As the group does not own the certificate it can not utilize it for other market channels. As the group is the only area qualifying towards export to the EU this creates a bottleneck.


•

46

Facilities at collection points and temporary local packing house are below standard The producer group has only temporary collecting points and post harvest facilities set up in corporation with the exporters and covered by the GMP and quality management of the exporters - thus limiting convenience and capacity of increasing market channels. Although the group has actually access to a forklift the facility has no ramp to use it. By manually loading - troughing the cartons – damages can easily occur. While waxing quality problems occure where temporary workers are not sufficient aware of the technique (especially proper waxing at the cutting point)

•

Size and Quality Grading The farmers are familiar to grade according to the size of the pomelo while the EU customers require a more differentiaded grading according to size, weight and number of fruits per box. In the Wieng Kaen Group procurement is done through a quota system which could lead to insufficient emphasis on grading related quality focus.

•

Feeling ownership of the group business The producer groups are still young organizations and there are people and member’s involved with their own individual interests and with different purposes. The members understand that it is a place where they can sell their product - still they do not fully understand the concept of a cooperative and the member ownership principle.

OPPORTUNITIES AT PRODUCER GROUP LEVEL ARE AS FOLLOWS: •

According to DOA the area scope of phytosanitary certification can be increased to other groups and areas

•

Required and accepted Certification systems and services are available locally or regional for GlobalGap, phytosanitary certification as well as value adding schemes as organic or fairtrade certification, which then could also strengthen the group in the process

•

As the groups would become larger certification costs per unit would decrease in group certification schemes.

•

Training for improved quality control and management to be continued and expected to have an impact.

•

Competent service providers for training and extension can be identified in the region. Strong support organizations.

•

Services for research and development available through Chiang Mai university and others

•

Government and policy makers supportive to the project and good cooperation among all stakeholders

•

Varietal diversity and seedlings for selection of varietal strategy and unified product are available towards product distinction strategies

•

Strategies on group level to maximize A grade output and utilize or increase value of undergrades or B grades could prove benefitial to members


•

Fairtrade certification

•

Development of an organic program and organic group

8.3.

47

Traders/Middlemen

In the case of the pomelo export to EU market, the farmer sells pomelo through the management of the producer organization in partnership with the exporters. Therefore there is less concern for the trader/middlemen for this market – still traders and middleman absorb most of the fruits which are not intended for export – which is the larger part and the performance of this segment is crucial to the overall economic performance of the pomelo value chain. CONSTRAINTS: •

Management skills Traders/middlemen mostly are not concerned about traceability. The normal trade practice is based on verbal agreements. Prices are low

•

Facilities at collection points are below standard Cleaness at collection points of traders/middlemen is necessary to ensure food safety, hygiene and quality. Some level of investment would be required to provide basic infrastructure. Currently, collection points of such middle man are mostly located quite close to inappropriate places e.g. toilets, kitchens; this poses risks from bacteria or diseases carried by insects, especially if the collection house has no screens. Moreover, most traders/middlemen do not have cold storage to maintain the quality of pomelo and prolong shelf life for higher value addition and quality strategies

•

Change in domestic trade patterns. Although the traders and middleman play still an important role in absorbing B grades and undergrades for the domestic market it is assumed that domestic trade patterns change increasingly to supermarkets which have different supply chain patterns and traceability and quality requirements

OPPORTUNITIES AT THIS LEVEL ARE AS FOLLOWS: So far traders/middlemen take the role of gathering the pomelo from producers and provide the service to deliver to the next trader or wholesale market or vender stall or even outlet. On the other hand, they also provide the cash flow to the producer as the grower prefer to receive cash directly after they sell pomelo. On the long run it would be benefitial to the grower group to have their own packing and grading facilities which could also handle the domestic trade channels for quality and added value lines directly to domestic outlines.

8.4.

Exporter and Exporter’s Packing Houses

CONSTRAINTS: •

Consistency of supply


48

There is sometimes an oversupply of quality (grade A) pomelo in peak seasons and shortage of quality pomelo in low seasons. This is particularly vital for the reliability of shipment according to order, time and quality. Therefore, exporters cannot commit to additional markets. •

Product quality The exporters do not always have full control over the quality control chain and the producer group has been often unreliable in terms of quality and grading requirements – thus the exporters bear a great risk and faced severe losses in several cases.

•

Certification Cost In order to gain access and maintain relationships to markets, exporters must submit to buyer demands for various certification processes. The likely costs of undertaking food safety program need to be considered at an early stage. In practice, the main costs for Thai businesses have been in the following areas: upgrading prerequisite systems (the major source of cost), training of personnel, consultancies, external audits and setting up and maintaining documentation systems. These can cause a large overhead in terms of raw costs and labor to manage the schemes. These problems are particularly severe for small or medium scale exporters.

•

Maintaining the System Setting up and operating safety standard system(s) has proven to be a major challenge for many companies. It remains a continous challenge keeping systems up-to-date in subsequent years. Among the keys to success are internal and regulatory audits (which provide suggestions for improvement), regular review of customer complaints and the business's own records of safety and quality problems, a regular program of staff training, building up essential reference materials (e.g. on key hazards). Since safety standard implementation is still relatively new in Thailand, this is an area where both businesses and regulatory agencies are still building up experience and expertise.

•

Branding (product appearance and market distinction of Thai Pomelo) strategy Ideas for product upgrading primarily comes from buyers; exporters need to be more proactive in terms of packaging, branding and marketing. Common sector strategies are missing and there is a tendency just to copy product presentation and packing “the Chinese style” with fancy plastic based packing materials. It would be worth looking at the Israel approach for the European market (‘all natural”- no waxing and plastic wrapping) or develop a distinguished Thai style for packing and presentation.

•

Currency fluctuation The profit margin of exporters can be seriously affected by currency fluctuations. In general, this is a common risk for international businesses.

•

World Economic Slow down The present world economic crisis which started from the subprime mortgage problems in the States and spread to Europe and other part of the world leads to unsecure market outlook for a high value - high price product as Thai pomelo would be considered in Europe.


49

OPPORTUNITIES AT THE EXPORTER LEVEL ARE AS FOLLOW: •

Improve post-harvest handling and transportation procedures in conjunction with the supplier groups in order to decrease percentage of rejected product

•

Upgrade product offerings, such as providing mixed fruit and convenience foods as fresh cut to increase value and differentiation

•

Explore product innovation such as freeze-drying, fruit juices, etc.

•

Companies could set higher buying prices for off-season pomelo

•

Improved management, documentation and traceability systems for certification requirement compliance

•

Product upgrading, packaging and branding

•

Explore possibilities for product innovation such as convenience food packaging, etc

•

Protection against currency fluctuation through contract agreements or insurance schemes

•

Building up a national platform to develop a national strategy for Thai pomelo destinction (streamlined variety strategy, grading and quality definitions, packing features, promotion and branding)

8.5.

Subsector Constraints/Opportunities Analysis

The study team used the following table to categorize the constraints on the basis of variable factors. Constraints are selected by the survey team that affect significantly the pomelo subsector and likely show an impact within 6 months after the constraint has been worked out. The following factors that are considered to be of most importance as indicators for enhancing export opportunities of Thai pomelo towards EU markets. A. Increased export to EU market B. Increased economic performance - efficiency C. Higher percentage of product is export quality

1. 2. 3. 4. 5. 6. 7.

Constraints

A

B

C

Total Program Intervention Possibilities 7.3 Yes 6 Partly 5.3 Partly 6.6 Yes 8.6 Yes

Increase of production costs Risk and financing Small scale production pattern Insufficient pruning Lack of understanding and knowledge of proper farm and production management Lack of documentation, record and accounting skills Only a small portion of growers are covered by GlobalGAP so far

7 na 5 6 7

10 8 5 7 7

5 4 6 7 8

7

7

na

7

Yes

7

na

na

7

yes


8. 9. 10. 11. 12. 13. 14. 15. 16.

17. 18. 19. 20. 21. 22. 23. 24. 25.

26. 27.

Significantly lower prices for non-A and off-grade pomelo Taste and harvest time Pomelo variety Phytosanitary Certificate (Canker free certificate) Lack of understanding for the farmer group management Lack of clear production and post harvest rule and enforcement Lack of capital and cash flow to expand their business on group level Certification ownership Facilities at collection points and temporary local packing house are below standard Size and Quality Grading Feeling ownership of the group business Management skills Facilities at collection points are below standard Change in domestic trade patterns Consistency of supply Product quality Certification Cost Branding (product appearance and market distinction of Thai Pomelo) strategy World Economic Slow down Currency fluctuation

50

na

9

na

9

Yes

7 7 8

8 7 na

7 7 9

7.3 7 8.5

Yes Yes Yes

9

9

9

9

Yes

8

9

9

8.6

Yes

7

7

7

7

Yes

8 6

na 6

8 6

8 6

Yes Yes

8 8 8 6

8 7 8 7

na 7 8 7

8 7.3 8 6.6

Yes Yes Yes Yes

6 6 8 6 9

7 7 8 na 8

na 7 8 5 5

6.5 6.6 8 5.5 7.3

no Yes Yes Partly Yes

5 5

na 6

na na

5 5.5

no no

We replaced the factor “increased production” (B) from the last report matrix (2006) with “Increased economic performance – efficiency” Consequently all factors are now equally valued as all of these factors are of equal importance for the Thai pomelo export towards EU markets. The identified constraints were assessed on the basis of all the factors mentioned above. In below table, each of the constraints was rated according to the degree of their impact on the given factors. The rating was done on the basis of the outcome with secondary information and the impression and experience gathered during the field survey by the study team. The last column of the table, illustrates the probability to address constraints directly or through service providers.


51

9. Intervention Design Intervention Area Recommendations for intervention focus mainly on the value chain towards the EU market which is at the moment only possible for pomelo from Wieng Kaen, Chiang Rai, due to the issue of phytosanitary certification. Additionally there is the peeled pomelo or fresh cut market which is still small compared with the whole fruit export potential. Recommendations are compiled from the consultant findings and the results and recommendations of the workshop held with stakeholders in October 31st 2008 in Chiang Mai. There are basically two areas of intervention: A) One addresses the sector strategy on the national level and the Thai Pomelo industry in general. An area to be addressed with a set of concreate realistic and practical initializing interventions to ensure the competitiveness of Thai Pomelo in the global market. The interventions on this level are; Intervention A 1 Sector Strategy - National Platform Intervention A 2 Research and Development Intervention A 3 Extend area of phytosanitary certification and GlobalGAP certification B) Another set of recommended interventions targets the strengthening the capacities of the growers and grower organization with a number of concrete activities in the field addressing training, extension and infrastructure at this level. The interventions on this level are; Intervention B 1 Strengthen Producer Organization Programme: B 1a Management, Transparency and Member Ownership Programme: B 1b Ownership of GlobalGAP certification

Intervention B 2 Improving supply chain management Programme: B 2a Rules of Production on farmer and farmer group level – production manual – recording tools - internal control and enforcement Programme: B 2b Production training and extension (- continuation) and coordination of such towards quality production Programme: B 2c Packing House at Producer Level Programme: B 2d Traceability Improvement

Intervention B 3 Transfer of Capacities and knowledge to the Farmer Organization Level Intervention B 4 Integrate new producer base Intervention B 5 Value addition for product Programme: B 5a Strategy for value addition on domestic trade pattern Programme: B 5b Fairtrade and/or organic certification Programme: B 5c Identifying additional value addition for undergrades through processing (juice, freeze dried marmalade)


52

A. INTERVENTION ON NATIONAL SECTOR LEVEL COLLABORATION - EXPORTERS - POLICY – PRODUCT DIFFERENTIATION STRATEGY - R&D Intervention A 1 Sector Strategy - National Platform Programme: Working Group – Differentiated Thai Pomelo Competitiveness and Product Strategy Although Thai Pomelo has the advantage of good reputation (or consumer expectation) towards a high quality product, there is no unified strategy on the promotion of a THAI differentiated variety, quality strategy and branding to increase competitevness. It is clear that Thai Pomelo can compete on the international level in the long run only as a high value and (defined) quality product – delivering on its reputation. Partners Manufacturers and Exporters, DOA, Department of Export Promotion, Fruit and Vegetable Exporter Association, Consultation with Buyers/importers, PR consultant Related Activities ¾

Set up a working group and national platform for a Pomelo export product strategy

¾

Organize a workshop to elaborate a voluntary sector strategy including: 9 Defining the features of Thai Pomelo towards export (to Europe) – “product distinction strategy” 9 Defining a variety strategy towards export – e.g Kao Nam Pueng variety as “Siamese Honey Pomelo” and a Chandler type as “Siamese Pink” with size and colour and brix benchmark standards. 9 Design a strategy for product presentation and packing for Thai Pomelo towards European markets in distinction to Chinese packing style (wher each fruit get’s plastic “dressing”) or Israel packing style (all natural – no waxing – no plastic- individual fruit packing). Thai style could be something “neat’ but “natural” appearance and environmental friendly or biodegradable. 9

Decide on branding and promotion strategies of THAI Pomelo towards EU markets Exhibit 25; Beautiful Pomelo skin feature of a Thai Pomelo (Kao Nam Phueng variety)

Performance Indicators

¾

There is a strategy for a defined distinctive Thai Pomelo product including varietal and quality criteria - decided and adopted by key stakeholders


¾

53

There are recommendations and samples for a distinctive Thai pomelo presentation and packing style and branding

Intervention A 2 Research and Development Programme: Production - Research and Development towards quality improvement Quality is the key for competitevness and sustainable market success. Presently the pomelo supply to the EU market - from the one area solely qualifying to European phytosanitary requirements so far - has frequently quality problems such as insufficient taste features and low brix. Research is not a “short term intervention” – still several approaches are already ongoing and “on hand” and expected to be crucial for the further success of the sector. With the Post Harvest Institute of Chiang Mai University a competent partner is “on board” of the project and the continuation and implementation of quality improvement strategies and techniques is crucial. The activities and results are supposed to be in close cooperation with the extension and interventions in the field. Partners CMU, Chiang Rai Horticulture Reseach Center, Office of Agricultural Research and Development Region 1, Department of Agriculture, Wieng Kaen pomelo producer group. Related Activities ¾

R&D on quality improvement towards taste features and brix content e.g. through the use of mineral trace element fertilization and soil improvement.

¾

R&D on ripening management techniques (increase early season quality output) – e.g. through water management, fertilizer management…

¾

Variety selection and breeding development with focus on Thai variety distinction incl. outer appearance features.

¾

Methods of seed reduction in breeds and through cultivation techniques.

¾

Provide the essential expertise needed by diagnostics laboratories in the areas of pathogen identification and disease prevention, treatment and eradication.

¾

Assist and coordinate academic sector to pilot research findings and make them accessible in the field

¾

Identify and optimize best pruning practices

Performance Indicators ¾

Methods and strategies for production and quality improvement are available, tried and introduced to the producer areas.

¾

The quality of pomelo export from Wieng Kaen becomes better and more consistent

¾

Produce is accept by the buyers/importer as a dinstinctive premium quality product

¾

The number of rejected container due to insufficient ripeness or brix is decreased or eliminated.

¾

Increase of Grade A output and decrease of Grade B and undergrades.


54

Intervention A 3 Extend area of phytosanitary certification and GlobalGAP certification Programme: Increase the production area So far only on group is in in compliance with the EU standards on phytosanitary requirements. This threatens the Security and Consistency of quality supply towards EU markets. According to DOA other areas could be addressed by canker free and black spot free certification as well. Partners CMU, DOA, growers and exporters Related Activities ¾

Identifying extension area

¾

Preparing and implementing certification and group infrastructure at this area


At least one more area (producer group) is covered by phytosanitary certification and GlobalGAP and is ready for exports to EU markets

¾

Supply of quality Thai Pomelo towards EU market is stable and sufficient for different exporter and buyer channels

¾

Export of Thai Pomelo towards EU increased and stabilized

B. INTERVENTION AT GROWERS AND PRODUCER GROUP LEVEL - EXTENSION - MANAGEMENT - INFRASTRUCTURE - QUALITY CONTROL Intervention B 1 Strengthen Producer Organization Programme: B 1a Management, Transparency and Member Ownership A well functioning producer organization is a pre-condition for success, also for the implementation of the other following recommended interventions. It is important for the producer group to have effective and transparent management systems. The pomelo producer organization in Wieng Kaen is still a young organization. There are many demands and requirements towards export markets as traceability, quality management, control and certification. Most of the farmers in Thailand are small scale farmers and may not easily understand the importance of such issues. The producers in Wieng Kaen still lack understanding on proper structure and tools for farmer group management and suffered already from set-backs and internal conflicts at this level. This leads directly to quality problems such as member harvest too young pomelo and not proper functioning QC. Member ownership and cooperative responsibility must be strengthened with help of training and outside moderation. The formation and strengthening of a functioning farmer organization is generally one of the most challenging tasks in agriculture project development – with the group in Wieng Kaen being no exception.


55

Partners Wieng Kaen Pomelo Producer Groups, CMU, DOA, Office of Chiang Rai Cooperative Promotion, DOAE Related Activities ¾

Training on farmer group/cooperative management to the members of the Pomelo producer group.

¾

Study tour for the member of the producer group to visit and exchange experience with other successful producer groups in terms of management and participation of members into the group business.

¾

Regular meeting (assembly) among members with facilitation from advisors Programme: B 1b Ownership of GlobalGAP certification

The Global GAP certificate of the Wieng Kaen group was initiated and paid by one exporter. Although this seemed to be convenient at the beginning it creates a severe marketing constraint towards exports to the EU, as the one exporter who has the exclusivity to utilize the certificate is not absorbing all production of the group. As the group does not own the certificate it can not utilize it for other market channels. As the group is the only area qualifying towards export to the EU this creates a severe bottleneck Certification costs are high and are high per unit as the group is also still small. Still GlobalGAP certification should be owned by the group – especially as it is the only group so far qualifying for EU exports. Partners Wieng Kaen Pomelo Producer Groups, CMU, Exporters Related Activities ¾

The group should become owner of it’s certificate

¾

The group should apply as a group directly for GlobalGAP certification and ask for quotation from different certification providers.

¾

Calculation and budget for GlobalGAP certification is planned and available and must be in the long run covered by the sales margin (additional costs put on price calculation to buyer)


The group owns it’s GlobalGAP certificate and utilize the certification towards different customers


Bookkeeping and reports of the organizations are available and of best practice.

¾

All documents related to the producer organisation and its cooperative business are well recorded and filed.


¾

Certification requirements on the internal control level are met and corrective measurements followed up on group level

¾

Members actively participate in the development of the group

¾

The group raises and transparently administers capital

56

Intervention B 2 Improving supply chain management Programme: B 2a Rules of Production on farmer and farmer group level – production manual – recording tools - internal control and enforcement There are no clear formulated and enforced production and post harvest rules for the majority of farmers. The practice of pomelo production is not unified. Although the Thai GAP is available as guideline for the good practice for pomelo production but some quality management requirements to be addressed at producer level are not covered by this as such, as quality requirements according to the order from the buyers, harvest technique and time… Partners Wieng Kaen Pomelo Producer Groups, CMU, DOA Related Activities ¾

Quality and grading requirements to be integrated in the GAP based production manual and internal control mechanisms

¾

Training and education program for the producers to understand the content in the production manual and internal production rules


Production and post harvest handling manual is in place and understood by the members as well as implemented

Programme: B 2b Production training and extension (- continuation) and coordination of such towards quality production There are still several possibilities to improve production techniques at individual farm level through extension and training (in coordination with intervention A1 and B7) as for example to address issues as insufficient pruning/high trees – which makes it difficult to check ripeness level of individual fruits before harvesting, another focus is on the determination of ripeness of fruits and best handling practices. Partners CMU, Pomelo producer group in Wieng Kaen Related Activities ¾

Continuation of training and education program according to needs

¾

Regular meeting among the members of farmers



¾

The members understand and adhere to the production rules.

¾

Better performance of product such as better quality of the product.

¾

The consistency of pomelo output improves.

57

Programme: B 2c Packing House at Producer Level The producer group has only temporary collecting points and post harvest facilities set up provisory in corporation with the exporters and covered (only if) by the GMP and quality management of the exporters - thus limiting convenience and capacity of increasing market channels. Although the group has actually access to a forklift the facility has no ramp to use it. By manually loading - troughing the cartons – damages can easily occur. Partners Wieng Kaen Pomelo Producer Groups, CMU, DOA, DEP, TISI - Thailand Industrial Standard Institute, Exporters Related Activities ¾

A budget is set up including own (member) contribution and external resources

¾

A plan for a permanent collection point and packing house plan is designed with consultation of expertise.

¾

Transfer of the knowledge from the exporter to the producer group in regarding the post harvest handling and packing house management.

¾

Construction of the producer group owned facilities

¾

GMP practices apply for the producer owned facility

Performance Indicators ¾ The group is able to supply to different customers in an effective risk minimizing and convenient way ¾

The quality of the products out of the packing house is accepted by the buyers – damages and losses are minimized

¾

High value output of the production area is increased for export and domestic quality market channels

¾

More value is added by the producer organization level

¾

The packing house of the producer group applies to guidelines of GMP standards (although GMP certification is not required yet) Programme: B 2d Traceability Improvement

Traceability becomes increasingly a pre-condition for prime market access especially towards EU exports. The implementation of a traceability system on such producer group level does not require a bar code system or special software as this would be required at the exporter level) but a uniformed practical record system to collect and record the data needed for traceability in a practical and verifiable way through lot and batch numbers, based on sub-group code, grower ID and harvest date. Such system would be than compatible to feed into the system of each buyer as well into commodity flow control and traceability requirements of different certification


58

standards as GlobalGAP, fairtrade or organic - as well as the record requirements of the phytosanitary certification process. Partners CMU, Pomelo producer group in Wieng Kaen, DOA, exporters Related Activities ¾

Traceability plan from farm to the port

¾

The techniques and technology has to be chosen

¾

The traceability plan and technolpgy has to be inform to all stakeholders (from farmer till exporter).

Intervention B 3 Transfer of Capacities and knowledge to the Farmer Organization Level Programme: B 3 Grading and Quality Control - Transfer of Capacities to the Farmer Organization Level The group has different (potential) buyers and market channels. For each transaction there is a new (provisory) product consolidation, packing facility and quality control system set up according to varying criteria- in cooperation with the buyer. This is not only inefficient – it leads to conflicts, misunderstandings, confusion on requirements and limits the development of a regular market success for quality produce. For instance the producer group used to sell their pomelo according to the size of pomelo but the EU market requires to buy from them in the form of size, weight, and number of pomelo per box. A competent but still flexible (according to specific buyer requirements) Quality Control System should be set up at producer organization level for all their output and respective human resources developed. Partners Wieng Kaen Pomelo Producer Groups, CMU, DOA, Exporters Related Activities ¾

The clear grading and quality control system has to be set up for all outputs of the group - respective mechanisms, criteria and manuals are to developed.

¾

Training on grading and quality control among board and members

¾

Set of quality criteria and classifications to be developed and communicated by training and manuals to all members and staff and also available to potential buyers


Different quality requirements and different grades are clearly defined and can be identified by members and staff

¾

Through a Quality management system or system operation plan (SOP) responsibilities for quality control and mechanisms of adjustments are formulated and in place

¾

Quality control systems are implemented, documented and verifiable for all outputs of the group (although requirements would vary)


¾

59

No rejection of pomelo from the buyer or importer due to mismatched quality or grading criteria

Intervention B 4 Integrate new producer base Programme: B 4 Increase the members of producer group There is sometimes an oversupply of quality (grade A) pomelo in peak seasons and shortage of export quality pomelo in low seasons. Reliable supply is particularly vital for the reliability of shipment according to order, time and quality. As a result of limited supply, exporters cannot commit to additional markets. Limited size of the group threatens the economic viability of necessary management and certification requirements (“economy of scales”) Partners Wieng Kaen Pomelo Producer Groups, CMU, DOA, DOAE, Exporters Related Activities ¾

Identify, train and formally integratete new members by application and screening process.


The producer base grows

¾

Production is able to meet order of existing and new buyers

Intervention B 5 Value addition for product Programme: B 5a Strategy for value addition on domestic trade pattern With the improvement of management quality control, traceability and own permanent logistic and packing facilities the group would be enabled to address domestic premium markets. As a majority of produce (B grades, undergrads or seasonal oversupply) is not absorbed for the export channel, it is seen as most efficient to increase the value of the non-export portion of products to increase the overall economic performance of production and thus increase the competitevness of the export chain as well Partners Wieng Kaen Pomelo Producer Groups, CMU, DOA, Domestic outlets Related Activities ¾

Conduct the feasibility study for increased value markets for non export margins

¾

Corporate with the domestic quality product outlets.


The discussion regarding the Pomelo for the domestic outlet was done between the producer group and the outlet representatives.


60

¾

New market channels are established for quality market channels on the domestic level where production and quality standards and traceability apply.

¾

Better price for non-export margins and thus improved overall performance and competetivness of the Pomelo production from the organization.

Programme: B 5b Fairtrade and/or organic certification It would be most realistic – based on a strengthened and functioning producer group- to apply direct for Fairtrade certification. It is assumed that this would boost market entry points as well as direct and indirect returns. Based on this step it would be recommended to consider an organic pilot project as well – although this is technically more demanding and would need more time for implementation and conversion. Partners Pomelo producer group in Wieng Kaen or other, CMU, FLO liaison staff Related Activities ¾

Training on principles opportunities and requirements on fairtrade

¾

Set budget for a fairtrade pilot project

¾

Application and preparation for certification

¾

Identify potential fairtrade buyer (please be aware that buyers normally only commit after the group is certified)

¾

Introduction of organic principles and standard/certification requirements and consideration of feasibility or interest in a pilot project in this direction.


¾

Farmers and board are informed on fairtrade opportunities and requirements and made a decision on application

¾

If the group decides for this intervention the application and implementation process is put forward

Programme: B 5c Identifying additional value addition for undergrades through processing (juice, freeze dried marmalade) This study is targeting fresh Pomelo – still it is realized that after grading for export market, about 30-35% of pomelo are undergrades. The price of this pomelo may drop to 3-4 THB per kg. Increasing the value of undergrads could improve the economic performance and competitevness of the production chain. There are different potentials to increase the value of undergrade product through processing. During the interview with the buyer, there is one potential importer interested for concentrate pomelo juice with fairtrade certification. There are offers of freeze dried Pomelo in the internet and Thailand has the advantage of high standard diversed freeze drying facilities. There is also the possibility of a small scale community business project as for Pomelo marmalade or candy…It would be worthwile looking further into this opportunity


61

Partners Pomelo producer group in Wieng Kaen. Manufacturers, CMU, Thailand Research Fund Related Activities ¾

Conduct the feasibility study for details on processing Pomelo and potential partners.

¾

Link between producer and manufacturers/buyers for processed Pomelo.


¾

report on opportunities and feasibility of processing Pomelo.

¾

potential buyers for processing Pomelo are identified and consulted.

Exhibit 26;Pomelo juice from Laos for a French fairtrade market chain


62

10. List of Interviews Date Interviewees Organization/Company 30 Sep.2008 Mr. Samran Pomelo Producer Group, WiengKean 30 Sep.2008 Mr. Boonward Pomelo Producer Group, WiengKean 10 Oct 2008 Mr. Songpol Thacharoen Dep. Of Agriculture Extension 11 Oct 2008 Mr. Suvit Nakornpathom Agriculture Office 11 Oct 2008 Mr. Cherd Kongprachak Farmer, Nakorn Chaisri, Nakornpathom 12 Oct 2008 Mr. Tim Thaitawee Packing house, Thai Tawee Pomelo Farm 13 Oct 2008 Mr. Ruber Verbruggen Verbruggen B.V. 16 Oct 2008 Mr. Wantawee OK Interfresh Co, Ltd. 17 Oct 2008 Ms. Sumalee Suwannabutr Pichitr Horticultural Research Centre 17 Oct 2008 Ms. Rattana Polchan Skytex Co., Ltd. 18 Oct 2008 Ms. Duangporn Amatrattana Division of Plant Protection, DOA 18 Oct 2008 Ms. Ladda Swift Company 18 Oct 2008 Mr. Wichitr Nuanplab Nakorn Sridhammaraj, Office of Agriculture 18 Oct 2008 Mr. Preecha Kaewchei Nakorn Sridhammaraj, Office of Agriculture 18 Oct 2008 Mr. Boonserm Sukpinyo Office of Agriculture Economic The suvey team also joined with the meeting of Pomelo producer group in Wieng Kaen with staff of ISCM in September 22, 2008.

11. References/Sources ChiangMai University. 2006 Fruit Value Chains and Gap Analysis between Thai Practice and EUROEPGAP: Pomelo. Final Report Exotic Fresh Fruit : Pomelo Subsector. 67 pp. C. Pongpanich et. al,. 2008. Enhancing the Competitiveness of Thai Fruit Exports: an Empirical Study in China. Contemporary Management Research. Vol. 4, No. 1, March 2008. Pages 15-28. Duy Lam Nguyen. 2006. Current Difficulties and Solutions for Enhancing Production and Export of Vietnamese Fruits. Food Quality Control Center, Vietnam Institute of Agricultural Engineering and Post Harvest Technology (VIAEP). EuroMedCitrusNet. 2007. Safe and High Quality Supply Chains and Networks for the Citrus Industry between Mediterranean Partner Countries and Europe. Contract No. 43146 (Food Quality and Safety). Evans, Edward A et. al.2007. Marketing Opportunities For Jamaica’s Grapefruit Industry. Food Safety And Value Added Production And Marketing Of Tropical Crops. 26th West Indies Agricultural Economics Conference (Caribbean Agro-Economics Society) in collaboration with 42nd Caribbean Food Crops Society Meeting. Puerto Rico, July 2006 pp.123-135. Fauzi Mohd.et al. 2007. An Assessment of Market Potential of Selected Tropical Fruits in the Netherlands. Federal Agricultural Marketing Authority (FAMA), Malaysia. FLEXNEWS. 2007. China: Healthy Growth Forecast in Citrus Industry as Government Policy Bears Fruit. Food Industry News. December 13, 2007. Kaplinsky, R. and M. Morris. 2001. A Handbook for Value Chain Research. Brighton,United Kingdom, Institute of Development Studies, University of Sussex. Khairuddin Md. Tahir. 2005. Asian Tropical Fruits Deliver Social and Economic Benefits. International Tropical Fruits Network (TFNet). International Consultation on The Role Of Biodiversity In Achieving The UN Millennium Development Goal Of Freedom From Hunger And Poverty. April 18-19, 2005. Liu Xinlu. 2001. The Past, Present, and Future of China's Citrus Industry. China/FAO Citrus Symposium. Beijing. China. 14-17 May 2001.


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Noppachit Luangchorsiri. 2008. Decrease Process, Documents and Time: Strategies for Improvement of Trade Facilities and Logistics. Division of Logistic Strategy. Office of State Investment Analysis. Office of National Economic and Social Development Board. Thailand. Office of National Economic and Social Development Board. 2006. National Income of Thailand 2006. December 2007. OAE. 2008. Situation and Trend for Important Agriculture Products of Thailand in 2008. January 2008. Palasuberniam K.2007. The Enterprise and the Importance of Quality for Market Access in EU. Embassy of Malaysia The Netherlands. Federal Agricultural Marketing Authority (FAMA), Malaysia. Phil Ross. 1997. Opportunities for Commercially Under-exploited Tropical Fruits, Vegetables and Nuts. Rural Industries Research and Development Corporation. RIRDC Research Puplication No 97/80. Sandra Kipe. 2004. The World Fresh Fruit Market. Tropical Products Division.

Foreign Agricultural Service, Horticultural and

SME Development Programme.2006.Value Chain Study Report: Pomelo in Vinh Long. MPI – GTZ SMED Programme.Vietnam. Shangjie Gao. 2007. Prospect of EU-China Fruit and Vegetable Trade. Power point presentation. Jianong Fruits and Vegetables Co., Ltd. Juye County, Shandong Province. China. Thai Custom Department. 2007. Thai Custom Annual Report 2006 – 2007. December 2007. Vu Thanh Tu Anh and Brian JM Quinn. 2008. Private Ordering and the Structure of Fruit Markets in the Mekong Delta. Working Paper No. 357. Stanford Law School. CBI. European market access requirement: Supply chain management and traceability for food. CBI Market Information Database.

WEB –Sources : FAO STAT

www.faostat.fao.org.

EUROSTAT http://epp.Eurostat.ec.Europa.eu/portal/page?_pageid=1090,1&_dad=portal&_schema=PORTAL Center for the Promotion of Imports from Developing Countries http://www.cbi.eu/marketinfo/cbi/?osadcampaign=dpa Fairtrade Labelling Organization International (FLO)

www.fairtrade.net

GLOBALGAP

http://www.globalgap.org/cms/front_content.php?idcat=19

Stiftung Ökologie & Landbau

www.soel.de/fachthemen/oekolandbau_welt.html

Chainat Agricultural Office

http://chainat.doae.go.th/

Department of Agricultural Extension

www.doae.go.th/

Office of Agriculture Economic

www.oae.go.th/zone/zone6/address.htm

Wikipedia

http://en.wikipedia.org/wiki/European_Union#Single_market

Department of Agriculture

http://210.246.186.28/pl_data/index.html

Pomelo Value Chain Study

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