Structural changes in market organization and performance of the Thai animal feed industry

Thailand's animal feed exhibited an oligopolistic tendency based on high seller concentration, difficulty of entry for small producers, and high degree of product differentiation. However, the degree of oligopolistic power tended to decline through time with the market structure changing from tight to partial oligopolies. The Lorenz-Gini approach showed that the industry had 78 percent inequality in production distribution in 1995. In the same year, the Herfindahl index was as low as 0.18 with only 5.6 firms having equal sizes in the industry. Analysis of the seller concentration showed that the production share of the largest firms decreased through time. High capital requirements, existing scale economies, and product differentiation posed as barriers to entry in the industry particularly for small firms. The average capital requirement was 69.1 million bahts in 1993. Scale economies exists with the cost of large scale firms being significantly lower than that of small firms. Products were differentiated in terms of packaging, branding, size, and services. The industry is characterized by barometric price leadership since the largest firms set the product price while the small firms were price takers. Producer prices increased whenever the cost of feed ingredients increased. The relatively low integration index of 28 to 31 percent implies that firms still buy some ingredient inputs from other companies. However, the degree of backward integration as a whole had increased through time. The industry exhibited some degree of productive inefficiency as evidenced by turnover rate being lower than 100 percent. On the whole, productive efficiency for the industry improved with turnover rate increasing from 41 percent in 1981 to 75 percent in 1995. The largest firm, 2 largest, and 4 largest firms had higher turnover rate than small-scale firms. Technology innovation and R and D investment contributed to the progress of animal breeding and therefore in labor productivity and feed population level. Labor productivity of large-scale firms was highest followed by medium and small-scale firms. Labor productivity in the industry was found to have increased over time. Profit rates of large-scale firms and medium-scale firms were higher than the market interest rate of loanable funds which is an indicator of the normal level of profit rate. The relatively high profit rate of large firm suggest the presence of some forms of market imperfections in the industry