Value Chain Analysis for Thai Home Textiles Silk Sub-sector EU-Thailand Small Projects Facility “The Case of Thai Home Textiles: Building Export Competence of a SME Dominated Value Chain” A project co-financed by the European Union On behalf of Institute for Science and Technology Research and Development Chiang Mai University November 2007 Table of Contents 1. Introduction 6 1.1 Background & Rationale of the Project 6 1.2 Project Approach 6 2. Basic Sub-sector Features 8 2.1 Background of the Development of the Silk sector in Thailand 8 2.2 Government policies for the Silk Sub-sector 10 2.3 General Issues - Silk 12 2.4 Features of Silk 17 2.5 General Issues - Home Textiles 26 2.6 Features of Home Textiles 28 3. Market Analysis 32 3.1 World Production & Trade 32 3.2 Demand & EU Market 35 3.3 Thailand’s Export Market 42 3.4 Future Trend 48 4. Industry Structure 51 4.1 Silkworm Egg Suppliers 52 4.2 Rearers 55 4.3 Reelers 59 4.4 Yarn & Fabric Traders 60 4.5 Dyers 60 4.6 Weavers 61 4.7 Printers 62 4.8 Home Textile Producers 62 4.9 Trading Agencies / Exporters 64 4.10 Traders / Domestic Wholesalers 64 4.11 Local Retail Outlets 65 Table ofTable Contents 4.12 Supplying Industry 66 2 5. Related Institutions & Efforts 68 5.1 Institutions 68 5.2 Private Organizations 75 5.3 Government Initiatives taken to promote the Silk Sub-sector 78 6. Value Chain Analysis 80 7. Competitive Advantages & Sector Strategies 84 7.1 General Review in Thailand 84 7.2 Competitive Analysis 91 7.3 Summary of Competitors 94 7.4 Competitive Strategy 99 8. Constraints & Opportunities 102 8.1 Rearers 102 8.2 Pre-processors 106 8.3 Home Textile Producers 108 8.4 Trading Agencies / Exporters 109 8.5 Sector-wide Issues 111 9. Sub-sector Constraints / Opportunity Analysis 117 10. Intervention Design 120 10.1 Introduction & Background 120 10.2 Provision of & Satisfaction with existing Services 121 ofTable Contents 10.3 Initial Scope & Ideas for Intervention 127 11. Annexes 138 11.1 List of Interviews 138 11.2 Key Benchmarks of Thai Home Textile vis-à-vis Competitors 139 11.3 Thai Silk Exports in 2006 classified by HS. Code 145 11.4 Term Description 150 11.5 Basic Introduction - TLS 8001-2003 151 11.6 Advantages & Disadvantages of Contract Farming 154 11.7 List of Home Textile Testing 155 11.8 Sources 156 3 CBI Centre for the Promotion of Imports from Developing countries CDD Community Development Department CDSC Craft Design Service Centre CIF Cost, Insurance and Freight CMU Chiang Mai University CTS Chul Thai Silk Company Limited Customs Department of Customs DEP Department of Export Promotion DIP Department of Industrial Promotion DOA Department of Agriculture DOAE Department of Agricultural Extension DSS Department of Science Service EC European Community EFTA European Fair Trade Association EU European Union EU-HT EU-Thailand Home-Textiles Project EUR EURO FAO Food and Agriculture Organisation FAOSTAT FAO Statistical Database FBA Faculty of Business Administration FDI Foreign Direct Investment FGM Fai Gaem Mai FLO Fair Trade Labelling Organisation FMC The Netherlands Development Finance Company FOB Free-on-Board FTA Free Trade Agreement GAP Good Agricultural Practices GDP Gross Domestic Product GMO Genetically Modified Organism Ha Hectare HS Harmonised Standards IBEF India Brand Equity Foundation IFAT International Federation for Alternative Trade IP Intellectual Property IPC Industrial Promotion Centre ISO International Standard Organisation IST Institute for Science and Technology, Research and Development JICA Japan International Cooperation Agency KENAN Kenan Institute Asia Abbreviations Abbreviations Kg Kilogram KPI Key Performance Indicators 4 MIL Million MM Millimetre MOAC Ministry of Agriculture and Co-operatives MOC Ministry of Commerce MOST Ministry of Science and Technology MRL Maximum Residue Level MTEC National Metal and Materials Technology Centre NEED Northeastern Economic Development NESDB National Economic and Social Development Board NEWS Network of European World Shops NGO Non-Governmental Organisation NSO National Statistics Office NSTDA National Science and Technology Development Agency OAE Office of Agricultural Economics OBM Original Brand Manufacturing ODM Original Design Manufacturing OEM Original Equipment Manufacturing OIE Office of Industrial Economics OTOP One Tambon One Product PR Public Relations QSIS The Queen Sirikit Institute of Sericulture R&D Research and Development SGS Societé General de Surveillance SME Small and Medium sized Enterprises TCDC Thailand Creative and Design Center TFIA Council of Textile and Fashion Industries of Australia Limited THTI Thailand Textile Institute Abbreviations TTC Textile Testing Centre UAE United Arab Emirates UK United Kingdom UNCTAD United Nations Conference on Trade and Development US United States USDA United States Department of Agriculture VC Value Chain WB World Bank WTO World Trade Organisation 5 1. Introduction 1.1 Background & Rationale of the Project This project was commissioned in order to: • provide an updated overview of the actual situation of the Thai home textiles* sector and its competitiveness; • develop an insight into Thai home textiles and accessories sub-sectors, the main players (farmers, processing SMEs and exporters), and a breakdown of generated value; • identify untapped opportunities and constraints along the supply chain; • collect and analyse valid baseline data; • develop intervention ideas for public and commercial service solutions; and • mobilize the concerned stakeholders for cooperation with the project and for the validation of findings. The study will be the basis for proposing interventions designed to overcome the identified gaps and implementing those interventions decided upon jointly with stakeholders. 1.2 Project Approach The study comprised two key steps: 1. Information gathering and analysis 2. Validation workshop and report finalisation * This study covers home textiles: Introduction • Household textiles include blankets, bedspreads, towels, etc. • Furnishing textiles include curtains, decorative items, etc. 6 • Accessory textiles include scarves, napkins, etc. Step 1 (15 March 2007 – 23 April 2007) The analysis of the silk home textiles value chain was conducted based on a combination of: • reviewing primary and secondary material; • conducting Bangkok-based meetings, interviews and discussions with industry stakeholders, representatives of public agencies and institutes, yarn/fabric producers, home textiles producers, traders/exporters, and other key informants; • performing site-based interviews in the Northeastern provinces with chain actors (rearers, reelers, yarn dyers, handloom weavers, home textile producers, traders/exporters), local authorities and representatives of the academic sector. Beside Bangkok, the majority of interviews were conducted in Khon Kaen, Nakorn Ratchasrima, Chaiyaphum, Roi Et, Buriram and Surin, which are the main production areas of silk home textiles (see Annex 11.1 for a full list of interviews). Step 2 (24 April 2007 – 15 June 2007) The main results of the value chain analysis were presented to stakeholders from Bangkok, Nakorn Ratchasrima, Khon Kaen, Chaiyaphum, Roi Et, Buriram and Surin to: • validate the main findings of the sector map, the value chain analysis on national and local trends; • develop a sub-sector strategy together with the stakeholders; Introduction • assess opportunities and constraints as a basis for the development of intervention opportunities. Additional validation was sought from domestic and international stakeholders. Resulting from these two steps; strategies, draft interventions and recommendations have been developed and are presented in this report. Key term descriptions used in the context of this report; niche markets, organic and fair trade, are provided in Annex 11.5. 7 2. Basic Sub-sector Features 2.1 Background of the Development of the Silk Sub-sector in Thailand Sericulture* or silk production has been practiced in Thailand for several centuries. In 1861 King Rama V made the first attempt at promoting sericulture in Thailand by establishing a trial production facility near to the city of Bangkok. The Royal Thai Government hired a Japanese expert to promote education and research on all aspects of sericulture. The work of the trial station was supported by several sericulture schools in the Northeastern region, which has a strong tradition in sericulture. As a result of these activities, sericulture became well established as an occupation for many farming households. Photo 1: Mural in Thai House Unfortunately by the early decades of the twentieth century, interest in supporting sericulture had faded. As a result, both production levels and quality standards declined, even though many sericulture farmers continued to produce silk for their private use. In 1932, the Royal Thai Government tried to revive the industry by constructing a reeling factory but it was not successful because farmers lacked the proper technical knowledge and the good quality silkworm varieties that would have been necessary to deliver reliable quantities of good quality cocoons. Another industry recovery attempt was made in 1941 by the Department of Agriculture and Fisheries, but again with little success. Basic Sub-sector Features Basic Sub-sector Features * Sericulture is the rearing of silkworms for the production of raw silk. 8 Rapid changes began to occur during the 1950s and 1960s, a retired secret service agent named Jim Thompson, who had permanently settled in Thailand, began working with