Dhanin Chearavanont (15): Integrated production, from farm to table
In 1970, we decided to introduce broiler chicks from Arbor Acres, a poultry company in the U.S., to Thailand. Now, we needed someone to raise them.
In the U.S., it was common for feed companies to contract this work out to farmers. We decided to adopt a similar system in Thailand.
Under this approach, Charoen Pokphand Group would arrange funding for farmers, acting as an intermediary with banks, and do everything from providing guidance on building chicken coops to supplying feed. We would also supply vaccines to keep the birds healthy and dispatch veterinarians as needed.
Thai farmers were skeptical at first, and it took repeated visits and explanations on my part to convince them.
What I told them was this: Regardless of the market price, once the chicks reach a certain size, CP will buy them back at a preset price. At last, farmers in Sri Racha, Chonburi, a province southeast of Bangkok, were persuaded, and in 1975 they began raising large numbers of broilers for us. Despite their initial wariness, once one farmer signed a contract, many others quickly followed suit.
To ensure we could deliver large numbers of chicks to the farmers, CP built a facility for incubating eggs in 1973. At the same time, we constructed a feed plant and a factory for processing broilers into meat in Bang Na, on the outskirts of Bangkok. Because broilers were bred to be uniform in size, it was possible to process them by machine. In successfully automating this process, we resolved a problem that had plagued the poultry industry for years.
Doing it all
We also built a plant to supply ourselves with fish meal, a vital ingredient in chicken feed. Moreover, we even created a company for building chicken coops and another for transporting the broilers.
In this way, CP established a vertically integrated structure that handled every step of the chicken production process -- from the upstream operation of feed supply to the downstream operation of meat processing -- within Thailand.
Because the first farmers we contracted with were concentrated in Sri Racha, we built a feed plant in that area in the late 1970s. Since then, CP has aimed for "the ultimate form of vertical integration." Our approach is to concentrate feed plants, incubating facilities, chicken farms, slaughterhouses and meat processing plants in a single region. This means chicks are hatched, raised and processed, all within a relatively small area.
CP has built three such hubs for its broiler business -- one on the outskirts of Bangkok, one in central Thailand and another in northeastern Thailand. We employed the same kind of localized, integrated approach in our hog and shrimp farming businesses. This method is not only more economically efficient, it also makes it easier to trace the route food has taken to reach consumers.
Today, vertical integration has spread even further in both directions. On the upstream end, we have worked to improve corn varieties and have succeeded in creating excellent, high-yield seeds. On the downstream side, we have entered the fast-food and retail businesses to sell our group's products directly. No other company has built such a thorough supply chain, one that reaches from the field to the dinner table.
In the course of developing our chicken business, we also brought substantial benefits to Thai farming villages. We bought feed corn from farmers and created new jobs by setting up chicken farms and various plants. And more than anything else, we made it possible for these villages to regularly consume chicken, something that had been prohibitively expensive before.
Dhanin Chearavanont is chairman of the Charoen Pokphand Group.