Charoen Pokphand: Thailand's Largest Agribusiness Conglomerate

Case Code: BSTR109 Case Length: 18 Pages Period: 1921 - 2004 Pub Date: 2004 Teaching Note: Not Available

Price: Rs.500 Organization: Charoen Pokphand Group Industry: Agriculture Countries : Thailand Themes: Business Environment

Abstract Case Intro 1 Case Intro 2 Excerpts

"I was prepared to use any means to ensure our survival. It felt bad, but I always believed we would get it back tomorrow."

- Dhanin Chearavanont, Chairman and CEO, Charoen Pokphand Group (CP), commenting on the group's problems during the 1997 Asian economic crisis.

"Over the next five years, we plan to concentrate on becoming the world's number one animal-feed producer. And we will not hesitate to step into any other businesses, such as retail, where we can become number one."

- Thanakorn Seribuki, Senior Executive Vice President, Chia Tai Group (CP's investment arm in China), in June 2003.

Chicken Flu - A new Ailment for the Corporate World

In late January 2004, the government of Thailand confirmed the outbreak of avian flu in the country. Thailand had earlier denied that this disease was affecting poultry in the country, attributing the death of thousands of chicken in the country from late 2003 onwards, to cholera. However, after three humans were affected by the H5N1 virus (a fatal strain of the flu), the government had to admit the presence of avian flu strains in the country. The avian flu epidemic affected the economies of countries like Thailand severely. Millions of birds had to be killed to prevent the disease from spreading (poultry farmers were compensated for this). Poultry export revenues fell drastically as countries such as Singapore, Japan and the European Union (EU) banned chicken imports from the flu-affected countries. The tourism industries in these countries also experienced a decline in revenues. Thailand, being the world's fourth-largest poultry exporter (its chicken export business was worth $1.2 billion in 2003), was one of the worst affected nations. The epidemic also hurt its booming tourism business - one of the country's major forex earners. The spread of the flu to 31 out of 76 provinces in Thailand devastated the country's poultry industry.

Share prices of the companies in the industry plummeted on the Thai stock exchange. Charoen Pokphand Group (CP), the largest producer of chicken in Asia, was one of the worst-hit companies in Thailand. Its share price plummeted by 10% to 3.60 baht4 after the government confirmed the presence of the flu in the country. CP also faced allegations that it had supported the government to cover up the news of the epidemic's outbreak, to protect the country's highly profitable poultry export business. CP denied the allegations, stating that it had instead been on the alert about the flu from November 2003 itself. Dhanin Chearavanont (Dhanin), the chairman and CEO of CP, stated that the company had taken measures to deal with the crisis when thousands of birds died in the country in November 2003. Though the company was not aware that the fatal H5N1 virus was at work, it had nevertheless decided to isolate its poultry firms. According to a Bangkok Post report, an unnamed executive at CP said that the company had promptly warned the concerned authorities of a possible outbreak. CP also announced that no birds on its farms had become sick. The group attributed this to its precautionary measures and its modern chicken farms, which were located far from the reach of wild birds that carried the virus.

Dr. Hans Wagner, a senior regional officer (Bangkok) of U.N.'s Food and Agriculture Organization, supported CP's claim that their farms were safe. He added that enclosed factory farms such as the ones CP had, were the safest means to prevent the spread of such viruses. CP also launched advertisement campaigns (on television, radio and newspapers), to ensure people of the safety of its food products and regain consumer trust. It reportedly spent over 22.2 million baht on these campaigns. Meanwhile, the disease spread to many more provinces in Thailand. The financial crisis associated with the epidemic worsened when the EU and Japan extended their ban on chicken imports from Thailand. After these developments, CP could no longer remain unscathed by the crisis - it had to forecast a 6% decline in chicken sales. Even as things seemed to be worsening, many analysts, investors and company sources, expressed confidence that CP would tide over the crisis eventually. Given the company's a record of emerging more successful and powerful from several earlier crises (including the major economic crisis of 1997), there was a definite possibility of it remerging with greater strength this time around too.

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