On the Street -- Ajinomoto in Thai Joint Venture

March 25/Asia Pacific Food and Drinks Insights -- Ajinomoto and compatriot processed meat producer Itoham Foods have unveiled plans for a new joint venture company in Thailand. Teaming up with Thai agricultural majors Betagro and Hoei Bussan, the joint venture will look to market processed meat products in Thailand as well as improving the raw ingredient procurement capabilities of the individual enterprises involved.

The joint venture company -- Itoham Betagro Foods -- represents the extension of an existing operational alliance between Ajinomoto and Itoham and the furthering of an existing poultry and pork procurement agreement between Ajinomoto and Betagro. The producers sought alliances during the early months of 2008, when rising operational costs were putting margins under intense pressure; Ajinomoto and Itoham had estimated that they could make a combined 4 billion yen  ($44.5 million) in savings to 2012. With the commodity bubble burst and food prices deflated, the initial motivation for these relationships may have passed. However, with consumer price sensitivity soaring, as the global economy enters recession, cost-effective supply chain management has remained at the top of the manufacturing agenda.

Both Ajinomoto and Itoham will benefit from an enlarged Thai footprint, while Betagro and Hoei Bussan should enjoy improved success with exports to the competitive Japanese market thanks to the expertise of their local partners. For Ajinomoto, however, the joint venture is part of a wider-reaching international growth plan as the company looks to combat the effects of over-dependency on a stagnant domestic market.

For the first nine months of fiscal 2009, ending December, Ajinomoto posted a net loss of 4.31 billion yen ($47.9 million). While high raw material costs for much of the period will have played a part, Ajinomoto has attributed the losses to weak domestic demand, and this performance has increased the urgency with which it must target higher growth international markets. Increased exports to neighbouring emerging markets will be a short-term priority for Ajinomoto. Ultimately, however, it is seeking international mergers and acquisitions opportunities, hoping to take advantage of the current strength of the yen, which makes international assets relatively affordable, in order to secure a sustainable growth platform.  

From the March 30, 2009, Prepared Foods E-dition