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Cablegate: U.S. Agrobusiness Firm Hinges Northern Thailand Investment

VZCZCXRO5549
PP RUEHDT RUEHHM
DE RUEHCHI #0155/01 2670639
ZNR UUUUU ZZH
P 240639Z SEP 07
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0563
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHCN/AMCONSUL CHENGDU PRIORITY 0064
RUEHSA/AMEMBASSY PRETORIA PRIORITY 0001
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 0001
RUEHBR/AMEMBASSY BRASILIA PRIORITY 0001
RUEHPE/AMEMBASSY LIMA PRIORITY 0001
RUEHRC/USDA FAS WASHDC
RUEHCHI/AMCONSUL CHIANG MAI 0614

UNCLAS SECTION 01 OF 02 CHIANG MAI 000155

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EAGR TBIO TH XC SF XM
SUBJECT: U.S. AGROBUSINESS FIRM HINGES NORTHERN THAILAND INVESTMENT
PLANS ON GMO APPROVAL

REF: BANGKOK 4513

CHIANG MAI 00000155 001.2 OF 002


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Summary
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1. The U.S. agrobusiness firm Monsanto finds northern Thailand
an advantageous location for low-cost production of hybrid corn
seeds for domestic and export markets. Monsanto is poised to
make significant new investment here if the Thai Government
lifts its moratorium on biotech crop field trials - an outcome
for which Monsanto is vigorously lobbying. Without such a move,
Monsanto fears Thailand could lose its competitive edge in corn
seed production to regional rivals that are moving more quickly
toward genetically modified (GMO) crop production. End Summary.

---------------------------
Indochina Intersection
---------------------------

2. CG recently traveled to Phitsanulok (pop. 84,000), the
capital of Thailand's lower northern province of the same name.
The city sits astride Southeast Asia's two major international
land routes: the East-West Danang-Rangoon corridor, and the
North-South corridor linking southern China's Yunnan province to
Bangkok and onward to Singapore. Civic and business leaders
seek to exploit this strategic location by marketing Phitsanulok
as the "Indochina Intersection." The centerpiece of their plan
is to attract investment for building a distribution/logistics
center in the next five to ten years, local Chamber of Commerce
officials told us.

--------------------------------------------- --------------
-------
U.S. Firm Builds Network of Small Thai Corn Farmers
--------------------------------------------- --------------
-------

3. One investor that has already taken advantage of
Phitsanulok's location - in this case, its proximity both to
Thailand's northern corn belt and to Bangkok, only 230 miles
away - is the U.S. agrobusiness/biotechnology firm Monsanto.
Monsanto Seeds (Thailand) Limited develops and produces hybrid
corn seeds for both domestic and international markets. Its
state-of-the-art research center in Phitsanulok develops
high-yield maize hybrids that are resistant to drought,
herbicide, and insecticide.

4. Located near the heart of the northern corn belt, Monsanto
distributes its hybrid corn seeds to a network of 6,000 to 8,000
small farmers, who then grow them in large quantities that
Monsanto buys back for sale in Thailand and abroad. According
to Phitsanulok plant director Luis Silva, in the last three
years Monsanto has paid out USD 17 million to its network of
growers, and anticipates paying another 8 to 10 million in 2008.
The bulk of the growers are small farmers with land holdings
for four acres or less in the northern provinces of Chiang Mai,
Lampang, Phrae, and Uttaradit.

-----------------------
Phitsanulok to Peru
-----------------------

5. Domestically, Monsanto has formed a joint venture with
Thailand's CP (Charoen Pokaphan) Corporation, Silva said.
Together they hold nearly two-thirds of the domestic seed corn
market (Monsanto at 37% plus CP at 28%). Hybrid corn seeds
processed by Monsanto in Phitsanulok are also exported abroad to
countries in South and Southeast Asia. In addition, CG saw huge
stacks of seeds labeled for export to Peru. Silva noted that
Monsanto can export seed corn to Peru more cheaply from Thailand
than from its plants in Argentina and Brazil. This is because
Thai production costs are so low, due to: the efficiency of
Thai growers; northern Thailand's ideal climate for corn; and
the country's excellent transportation infrastructure for
getting product from northern Thai growers to Phitsanulok for
processing, then onward to Bangkok and nearby ports.

--------------------------------------------- ----------
Cautious Toward China Due to IPR Concerns
--------------------------------------------- ----------

6. Monsanto does not export hybrid corn seed to China, Silva
told us, due to concerns about weaknesses in Chinese IPR
protection. Monsanto is interested in cracking the China
market, however, and is negotiating with Chinese officials for
greater product copyright protection. In the meantime, Monsanto

CHIANG MAI 00000155 002.2 OF 002


has established a joint venture in southern China that is
developing its own hybrid seed corn (instead of producing - and
then potentially copying -- Monsanto-developed strains).

--------------------------------------------- -------
Investment Plans Hinge on GMO Approval
--------------------------------------------- -------

7. For Monsanto, the big money - and thus potential big
investment - hinges on whether the Royal Thai Government (RTG)
lifts its moratorium on biotech crop field trials (Reftel).
According to Silva, Monsanto envisions Thailand as its regional
base for corn seed export, if and when the RTG permits
production of genetically modified organisms (GMO). Should the
RTG take this step, Monsanto is poised immediately to invest USD
10 million to expand significantly the production capacity of
its Phitsanulok plant. This figure would boost the plant's
capital asset value by over 80%, and is more than triple the
amount of new capital investment made by Monsanto in Phitsanulok
in the last three years.

8. Northern Thailand's strong competitive advantage in corn
seed production is the reason for Monsanto's focus on the GMO
issue here, Silva said. The region's climate, transport
infrastructure, and efficient farmers make it better suited for
large-scale production than other Southeast Asian countries
where Monsanto produced corn seed; i.e., the Philippines,
Vietnam, and Indonesia. Although the Philippines currently
permits biotech crops, Monsanto has found it cheaper to sell GMO
corn seeds from its facilities in South Africa and Argentina,
because of poor quality control among its Filipino growers.
This would not be the case if biotech production could begin in
Thailand. Monsanto believes it could export GMO corn seeds from
Thailand to markets as far away (and as lucrative) as the U.S.,
Brazil, and Argentina.

9. Monsanto's Bangkok office has been lobbying the RTG
vigorously to lift its moratorium on biotech crops field trials,
Silva said. In the absence of such a move, Monsanto believes
Thailand could lose its competitive edge in corn seed production
to regional rivals that are moving more quickly toward GMO
production, such as China, Indonesia, and Vietnam. Silva
expressed cautious optimism that the civilian government
expected to take office after elections planned for this
December might lift the moratorium. He claimed many RTG
officials recognize the advantages of GMO crops, which require
less insecticide, fertilizer, and water, and are capable of
speedier development into improved strains. They also
reportedly share Monsanto's view that environmental NGOs are
exaggerating fears that GMO crops will "contaminate" traditional
crops.

--------------------------------------------
Recruiting Challenges in "The Phits"
--------------------------------------------

10. Monsanto's Phitsanulok plant has 100 full-time
manufacturing employees, and surges to as high as 350 workers
during peak production. The plant's research and development
facility employs about another 40 full-time workers. All
employees are Thai except for Silva, a Brazilian. Silva told us
that, although it was not difficult to find good Thai employees,
filling the top professional slots was a challenge because the
country's best and brightest prefer to live and work in Bangkok
over Phitsanulok, despite incentive pay offers from Monsanto.
To strengthen local recruitment, Monsanto has launched an
internship program with engineering and agriculture students at
Phitsanulok's Naresuan University. This year Monsanto has six
such interns working four-month stints.

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Comment
-----------

11. Monsanto is comfortably established in Phitsanulok and
should continue to do well in sales of hybrid corn seeds within
the Thai and regional Southeast Asian markets. But for Thailand
to become a significant player with worldwide reach and staying
power in the global corn seed market - and Monsanto is bullish
on this potential -- the RTG will have to move forward and
permit GMO production.
MORROW

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