Furry companions driving pet food industry growth
The world is facing a rapidly ageing population, and Thailand will not be spared from this global trend. The number of people aged over 60 years is expected to increase by 56%, from 901 million to 1.4 billion between 2015 and 2030. This ageing population is driving a growing appreciation for the benefits of pet ownership, as many consider pets valuable companions for the older generation.
In Asia, China and Japan have the highest ageing population rates, and not coincidentally these two countries also have high rates of pet dog and cat ownership. This incipient trend bodes well for the continued growth of businesses related to pet food, veterinary care and pet grooming services in the coming years.
According to the Thai Pet Product Industries Association, the current market value of pet-related industries in Thailand is 24 billion baht, half of which is pet food. The pet food industry has been growing steadily at 10% annually since 2011, double the rate for human food.
Why are pets gaining greater significance in Thailand? Although there is no proven research showing that affection for animals grows with a person’s age, there is a noticeable trend toward greater pet ownership by the elderly and childless couples in societies such as Thailand with ageing communities and declining birth rates.
All societies embrace the notion of animals bringing joy and companionship to humans. Senior citizens, singles and couples without children are generally willing to spend more time and money in providing their pets with nutrition and care on a par with what they provide for their own family members, part of a worldwide pet “humanisation” trend.
These days pet food is characterised by sumptuousness in terms of variety, quality, creativity and packaging, and not surprisingly might be mistaken for human food. Premium lines now include high-quality natural, organic, grain-free and chemical-free products. Prescription foods and supplements are also available for treating pet ailments including heart, kidney and liver disease. Prescription food costs at least 15% more than normal pet food, but owners have proved willing to invest in the health and well-being of their fluffy companions.
Another new trend that is bound to catch on in Thailand is the customisation of pet food, which has been promoted by Nestle Purina USA and Tails.com in the UK. For the right price, pet owners can obtain the most appropriate food according to their pets’ age, breed, weight, activity level and eating habits.
According to the International Trade Centre (ITC), Thailand is the world’s fourth largest pet food exporter, with a total export value of 35.5 billion baht in 2016. The export value in terms of price and quantity has grown at an 11% annual rate since 2011. Japan is one of Thailand’s top pet food export destinations, but exports to the US and Italy have also recorded impressive annual growth rates averaging 15% and 8% respectively since 2011, as these countries
have some of the highest pet ownership rates globally.
Thai manufacturers have long established a sound reputation in the global arena for high-quality food products. Major pet food manufacturers in Thailand develop pet food with consistently high standards on par with human food grades.
The big players in Thailand’s agriculture industry, such as the Betagro Group and Charoen Pokphand Foods, have gained strong footholds in the pet food industry, cashing in on higher profit margins than those enjoyed by the animal feed industry.
Thailand occupies an enviable sweet spot in the pet food industry’s value chain as the country is one of the world’s top exporters of tuna, a primary ingredient in cat food. Ease of access to fresh tuna sources has encouraged existing providers of canned tuna products such as Thai Union to expand their product lines to include cat food. It has also spurred the entry of international manufacturers including Mars Petcare and Nestle Purina Petcare to set up production hubs in Thailand to meet domestic and export demand.
The pet food industry is not without its challenges. Every growing industry faces inevitable setbacks from stiff competition, and Thailand’s pet food exports are being challenged by the rapid growth of Chinese pet food production. China has the world’s second- and third-largest cat and dog ownership rates, reporting a whopping 58.1 million cats and 27.4 million dogs in 2016.
According to the National Bureau of Statistics, China’s domestic pet food production grew to 1 million tonnes from 700,000 in 2015 to meet ever-increasing demand. Production growth is expected to increase further as more companies look to expand capacity with new plants and technology.
Although China’s reputation for food safety and quality is still clouded by frequent scandals over chemical contamination, they have not slowed the country’s massive growth in production nor affected its highly competitive position as a major global exporter.
Thailand may hold a seeming advantage given its reputation for high-quality food production standards, but its seafood industry continues to face damaging accusations of slavery, human trafficking, and illegal, unreported and regulated (IUU) fishing, which raises potential threats from boycotts of Thai seafood products. The country’s pet food industry will bear the brunt if Thailand does not meet world industry standards for sustainable fishing. As a result, leading pet food manufacturers such as Mars Petcare have pledged their commitment toward securing sustainable sources for 100% of their supply.
Despite the supply challenges and competition, Thailand can strengthen demand by diversifying its export channels to more neighbouring countries in Asean, given the proximity advantages. Thailand is already exporting to Malaysia, Indonesia, the Philippines and Vietnam, and although export values are modest, they have been growing steadily in double digits over the past five years.
Thailand’s exports are not as robust as in the past, with various industries still struggling, but the country remains a world leader in farm products, comprising a sixth of the nation’s exports, and pet food remains one of the few industries that is resilient and growing steadily domestically and globally.
As Thailand remains a trusted national “brand” as a net exporter of food, the government can enhance the global reputation of the country by setting up innovation centres to spearhead more new initiatives, such as the use of more corn, rice and tapioca as pet food ingredients. This will help the pet food industry diversify its offerings and stay a step ahead of the competition through innovation. It may also be a longterm solution to solving the problem of declining farm product prices.
EIC, a unit of Siam Commercial Bank Public Company Limited, offers indepth macroeconomic outlook and sectoral impact analyses. For more information, please visit www.scbeic.com or contact eic@scb.co.th