Furry companions driving pet food industry growth
Author: EIC | Economic Intelligence Center
Published in Bangkok Post/Asia In Depth: Asia Focus section, 21 August 2017
The world is facing a rapidly aging population, and Thailand will not be spared from this global trend. The number of people in the world over 60 years old is expected to increase by 56 percent, from 901 million to 1.4 billion between 2015 to 2030. This aging 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 aging population rates, and not coincidentally these two countries also have some of the highest rates of pet dog and cat ownership. This incipient trend has boosted pet related industries over the past few years, and businesses related to pet food, veterinarian care, and pet grooming services are expected to enjoy further growth 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, whereas human food sales have been growing by a mere 5%.
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 rates by the elderly and childless couples in societies like Thailand with aging communities and declining birth rates. The notion of animals bringing joy and companionship to humans has always been widely embraced in all societies. Senior citizens, singles, or 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 humanization trend.
These days pet food is characterized by sumptuousness in terms of variety, quality, creativity, and packaging, and not surprisingly might be mistaken for human food. The premiumization of pet food includes high-quality natural, organic, grain-free and chemical free products. Prescription food and supplements are also available for treating pet ailments like heart, kidney, and liver disease. Prescription food costs at least 15% more than normal pet food, but the premium is commonly accepted by owners 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 personalization of pet food as launched by Nestle Purina USA and tails.com, UK in 2014. For the right price, pet owners can personalize 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. Export value in terms of price and quantity has grown at an 11% annual rate since 2011. Although Japan remains one of Thailand’s top pet food export destinations, in recent years exports to the US. and Italy have also recorded impressive annual growth rates of 15% and 8% respectively since 2011 as these countries are home to the largest number of pets globally. Pet food industry prospects befit serious attention from major Thai agricultural conglomerates.
Thai manufacturers have long established a sound reputation in the global arena for the production of high quality food products. It is well-known that major pet food manufacturers in Thailand develop pet food with consistently high standards synonymous with human food grades.
The big players in Thailand’s agriculture industry, such as the Betagro Group and Charoen Pokphand Foods, have been effective in gaining strong footholds in the pet food industry, cashing in on higher profit margins than those enjoy by the animal feed industry.
Thailand seems to be enjoying a sweet spot in the pet food industry’s value chain as the country remains one of the world’s top tuna exporters – a primary cat food ingredient. Ease of access to fresh tuna sources in Thailand have encouraged existing industry 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 like Mars Petcare and Nestle Purina Petcare to set up production hubs in Thailand to cater to 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 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 number of 58.1 million cats and 27.4 million dogs in 2016. According to the National Bureau of Statistics of China, the nation's domestic pet food production grew to 1 million tons from 700,000 tons in 2015 to meet ever-increasing demand. Growth in production is expected to increase further as more companies are looking to expand their production capacity with new manufacturing plants and technology.
Although China’s food reputation is still clouded by frequent scandals over chemical contamination, it has not slowed down the country’s massive growth in production nor affected it’s highly competitive position as a major global exporter.
Thailand may hold a seeming advantage as a country with a reputation for high quality food production standards, but its seafood industry continues to face tough 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 towards engaging sustainable sources for 100% of their supply.
Despite the supply challenges and competition, Thailand can strengthen demand through diversifying its export channels to more neighboring countries in the ASEAN region, due to proximity advantages. Thailand is already exporting to neighboring countries such as Malaysia, Indonesia, the Philippines, and Vietnam, and although export values are still conservative, it has 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 it remains a world leader in farm products, comprising over 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 as a strong and reliable food exporter through the set-up of innovation centers 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 step ahead of competition through innovations. It may also be one of the long-term solutions to solving the problem of declining farm product prices.