CPF’s overseas business to offset local slump

Thailand’s largest food processor Charoen Pokphand Foods Plc (CPF) still intends to execute its original investment plan. The plans were under scrutiny as CPF executives earlier this year cautioned that it may have to cut back on investments because of a weak outlook. However, expansion of foreign operations would lift sales overseas at a time when the economy is poor at home, explains Adirek Sripratak, president and CEO of CPF.
Foreign investments amount to a total of €52 million this year to expand overseas operations in Russia, India, Turkey, Malaysia, the Philippines and Laos.
Of this amount €10.5 million is intended to go to a chicken processing factory in Turkey. €10.5 million is also dedicated to a livestock feed mill factory and hatchery farm in Tamil Nadu and Pune in India, €21 million will be invested in Russia and the remainder in Malaysia, the Philippines and Laos.
“The current situation of the global economic crisis may impact the food industry by declining demand, but it should be of modest impact. Things we should focus on are a cautious expansion policy, with emphasis on cost effectiveness, and also efficient in both production and financial planning. Expansion of overseas countries is the ongoing strategy that CPF engages continuously. After thoroughly considering each country for appropriateness and growth opportunity, the company goes in with business expertise and know-how,” Adirek states in regards to CPF’s plans.

Local expansions
On the local front, Adirek said the company planned to invest about €42 million this year, mainly to improve efficiency and lower production costs of existing plants.
Encouraged by strong operating results in the first three months of this year and recovering purchasing orders, CPF has resumed its investment mode and is optimistic that sales will increase by as much as 10% with profit exceeding the €65 million it earned last year, with a larger contribution from its overseas units.

Russian expansion
In May, CPF officially launched its feed mill and integrated pig business in Lukhovitsy County, Moscow, run by CPF (Overseas) Co, with a registered capital of €204.3 million (900 million roubles). The new feed mill in Russia is one of the most advanced among feed mills of CPF and the biggest in Russia. The company’s feed mill mainly produces feed for pigs, chicken and cattle and has an annual capacity of approximately 240,000 tonnes. Also, food safety standards and quality is at an international level and a traceability system is applied in every step of production.
According to Adirek, apart from the feed mill, the company plans to invest €71.5 million over the next five years in animal feed and farming businesses in Russia. CPF plans to produce one million pigs per year by 2014.
Under the first phase of the plan, two farms are now under construction, the first being a breeder operation with capacity of 2,400 sows, and the second a pig farm with a capacity of 18,000 pigs.
Russian demand for pork is currently 2.75 million tonnes per year while local animal production capacity is only 2 million tonnes. Therefore CPF has an opportunity to develop a business that will substitute for imports and create demand for its feed products as well.
“The investment offers good opportunity for the company to capture the lucrative domestic swine market in Russia; to produce the products at lower cost to substitute imports. Also, it is good for the company to expand CPF’s investment based on its strength in the food industry, Adirek said.
After Russia, the company would look to invest in Ukraine and Eastern Europe.

Established overseas businesses
CPF has already invested in eight countries, outside Thailand. The revenue contribution of these overseas operations is about 15% of CPF’s total consolidated sales in 2008. These countries are Turkey, India, Malaysia, Laos, Philippines, England, China, and the latest one, Russia.
CPF invested in Turkey through its subsidiary, CP Standard Gida Sanayi ve Ticeret. Its main businesses include manufacture and distribution of animal feed, chicken meat and meat processing, with focus on local market consumption. “The business plan is to move forward into food business, and looking for export opportunities,” Adirek said.
In India, aquaculture and livestock business are in focus. “We are currently having businesses in Madras and in Visakhapatnam, Andhra Pradesh, mainly in aquaculture. We invested in India through our subsidiary, CP (India) Private Limited. We foresee a bright future to expand both in livestock and aquaculture businesses in this country, especially in terms of animal feed.”
Aquaculture is the main venture in Malaysia. There are three subsidiaries of CPF in this field namely Star Feeds, Asia Aquaculture, and Calibre Nature. The main objectives are to manufacture and distribute aquatic feed, operate aquatic farming and processing in Malaysia for local use and export. Also in Asia, in the Philippines CPF expanded its aquaculture business through shrimp farming by investing in a shrimp hatchery through CPF Philippines Corporation.
Closer to home in neighbouring Lao People’s Democratic Republic (Laos) CPF is active through its subsidiary CP Laos in manufacturing and distributing animal feed and in animal farming.
CPF has a foothold in the European Union through a chilled product plant in England. The main objective for this investment is to produce chilled food products for supply in the European Union.