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Organic Milk

In: Business and Management

Submitted By nuttarat
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Organic Milk in Thailand
Drinking milk was not so popular in Thailand in the past, but the trend has changed. During the past years, the trend of drinking milk among Thai people increases every year. The milk market has grown by almost 50 percent since 2004 and is expected to grow 44 percent from 2009 to 2014 (International Market Bureau Canada, 2010). However, Thailand’s milk sector is still relatively small compared to the other Asian countries.
Due to the changing of this trend, the agriculturists seize the opportunity of pioneering dairy farms to supply the increased in demand of milk. In the present, Thailand has 117 dairy cooperatives with more than 20,000 households who raise dairy cows. The total production of raw milk is approximately 2.8 thousand tons per day or 13 liters per cow per day (Nualnuplong, n.d.) However, the conception of producing organic milk starts to play an important role in Thailand’s milk market. Organic milk production hasn’t been popular yet. Still, the Ministry of Agricultural and Cooperatives encourages agriculturists to change their old process of milk production into an organic process. As a result, the agriculturists would be able to increase their profitability through a higher price in spite of a diminished production. The question is “Does it worth producing organic milk?” and “Does consumers support this particular premium milk?”
The cost of production of a regular process is approximately 15 baht per kilogram while the cost of an organic process is only at 11 baht per kilogram (Tiew, 2013) The cost of production depends on feed costs which accounted for 70 percent of the total cost. The fluctuation of animal food price pushes more pressure on a cost of production. Therefore, organic process is a better method to reduce feed cost. Because organic process focuses on feeding cows with non-toxic self-grown grass, as a result, feed costs could be reduced more or less. Although supplementary diet for cows is needed, but the price of the diet is unelevated. However, the price of regular raw milk is sold at approximately 18 to 19 baht per kilogram. On the contrary, organic milk, with a subsided cost of production, could be sold at a premium price of 23 to 25 baht per kilogram or 30 percent higher than regular raw milk. Even though, the volume of an organic production is only a half compared to a regular process, but the agriculturists still acquire much higher profitability after expenses.
As for the intermediary, for example “Butterfly” brand, acquiring a high profit margin is possible. The intermediaries purchase raw organic milk from organic farms registered under Dairy Farming Promotion Organization of Thailand (DPO) at a price of 23 to 25 baht per kilogram. Butterfly pasteurizes raw organic milk into its own version. Due to a high competition in milk market, product differentiation through “Organic Milk” is an appealing strategy. Butterfly sets price of its own product at 48 baht per bottle (180ml) and 58 baht per bottle (280 ml). To be thorough, one kilogram of raw milk (25 baht) could be divided into five bottles of 180 milliliters. Therefore, profit margin per kilogram of milk, excluding operating cost, is equal to approximately 215 baht. Back to the question; does it worth to produce organic milk? The allocation of the operating cost and pricing strategy of each firms determine whether the production is worth or not.
The way market act tends to evolve. Health lover or organic trend seems to be the most popular trend for now. The consumers concern more about their health which reflect on their well-chosen foods. These consumers are willing to pay for these premium products as long as the products could fulfill their needs. Lots of baby boomer and generation X are turning into elders which require lots of expense on health products. Not only the elder, who concern about their health, but also the middle-aged and teenagers, who had been fostered about health concerning. An obvious example for this particular trend is food. Consumers not only interested in organic foods, but they also interested in functional food including supplementary diet or vitamins. Although an organic market is a relatively small market compared to regular goods, but the market supports an organic food in a full stream, in middle to upper class, which results in the same pattern for organic milk. The demand for organic milk keeps increasing. A current organic milk demand in Thailand is approximately at 300 to 400 tons per year, but the supply is still limited. Because there are only a few producers who acquired a standard guaranteed from the ministry of agricultural and livestock. In the future, these target consumers are expected to grow further. Moreover, if ASEAN communities are inaugurated, the market for organic milk would demand higher though more competitors exist. There would be more opportunity for organic milk market in ASEAN stage.
From the outsider’s perspectives, organic milk production seems to cost higher than a regular procedure and does not worth producing due to the small amount of consumers. In fact, producing organic milk provides a better profitability and a better opportunity for producer. Besides, this special production provides a better treatment for ecosystem. A regular milk production has already reached its peak. Organic farming is a brand new strategy which supports the higher demand for organic products while the trend of health lover is popular. The future of organic milk will be going on a lot further.

Reference
Case studies of profitable tropical dairy farming systems. (n.d.) Business Management for Tropical Dairy Farmers. Retrieved from http://www.publish.csiro.au/?act=view_file&file_id=9780643095168_CH17.pdf
Consumer Trends: Non- Alcoholic Drinks in Thailand. (2010). International Market Bureau Canada. Retrieved from http://www.ats-sea.agr.gc.ca/ase/pdf/5666-eng.pdf
DPO Show Nom-In-See Cheek Ta Lard Suk Ka Parb.(2012). NeawNa. Retrieved from http://www.ryt9.com/s/nnd/1334949 Jor Trend Karn Bo Ri Pok Kong ASEAN. (2012). Thai Franchise Center. Retrieved from http://www.thaifranchisecenter.com/document/show.php?docuID=526
Ko Nom Ton Toon Tum Thana Farm Farm Ton Bab Kaset-ta-korn Liang. (2011). FarmKaset.org. Retrieved from http://www.farmkaset.org/contents/?content=00288#
Nualnuplong, U.(n.d.) Pa Wa Ud Sa Ha Kum Karn Liang Ko Nom Nai Pud Ju Bun. Retrieved from www.animal.mju.ac.th/E_book/t_dumlong/โครงงานปาฐกถา/milk2.ppt
Tiew, P. (2013) Liang Ko Nom In See Kum Rai Tang Kun 4 Tao. Thairath. Retrieved from http://www.thairath.co.th/content/edu/322929

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