Value Chain Analysis for Thai Home Textiles Silk Sub-sector · 2. Basic Sub-sector Features 8 2.1 Background of the Development of the Silk sector in Thailand 8 2.2 Government policies

Value Chain Analysis for Thai Home Textiles

Silk Sub-sector

On behalf of Institute for Science and Technology

Research and Development Chiang Mai University

November 2007

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

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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

4.12 Supplying Industry 66

Table of Contents

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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

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

Abb

revi

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CBI Centre for the Promotion of Imports from Developing countries

CDD Community Development Department

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

Kg Kilogram

KPI Key Performance Indicators

CDSC Craft Design Service Centre

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Abbreviations

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

TFIA Council of Textile and Fashion Industries of Australia Limited

THTI Thailand Textile Institute

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

MM Millimetre

MIL Million

TCDC Thailand Creative and Design Center

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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: • Household textiles include blankets, bedspreads, towels, etc. • Furnishing textiles include curtains, decorative items, etc. • Accessory textiles include scarves, napkins, etc.

Introduction 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;

• 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.

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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.

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.

* Sericulture is the rearing of silkworms for the production of raw silk.

Photo 1: Mural in Thai House

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ub-sector Features 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 local silk producers. He identified key designs, imposed strict quality control and began marketing Thai silk to the tourist and export markets. He established large-scale production facilities using fly-shuttle handlooms and high-quality white warp yarn in setting his looms. Since then a number of other private companies have committed themselves to promoting and developing Thailand’s silk industry, a n d s e v e r a l g o v e r n m e n t departments, provide sericulture farmers with support in the form of technical training, improved variet ies of mulberry and s i l kworms , and improved equipment such as reeling machines (NEED, 2006).

As high-end silk exports grew, the Department of Agricultural Extension began a breeding program to reduce dependence on imports of exotic white silk. They succeeded in producing a hybrid silkworm by crossing the native yellow silkworm with exotic white varieties from Japan. The resulting yellow hybrids roughly doubled yarn yields per cocoon while at the same time retaining the knobbly texture for which Thai silk is known.

At present about 200,000 village households produce silk in various forms. Most of these villages are in the Northeast of Thailand. They mainly rear native yellow silkworms, reel yarn by hand, and then weave their yarn on traditional handlooms. Traditionally women predominantly, but not exclusively, carry out sericulture. However, men and women share the work fairly equally when sericulture is practiced on a commercial basis as the main source of income for the household.

Photo 2: Shuttle on Handloom

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2.2. Government Policies for the Silk Sub-sector

The Ministry of Agriculture and Cooperatives (MOAC) has formulated its five-year strategy plan for 2005 - 2009. There are four strategic issues for silk handcrafted development, which are discussed below.

Strategy 1: Local silk yarn promotion

For local silk production the MOAC will emphasize the following:

• Promote sericulture as an occupation for farmers, particularly in the Northeast where there is a strong tradition of sericulture and where there are limited alternatives for income generation.

• Preserve and protect the Thai silk handcrafted sector as a national asset.

• Encourage an increase of production of silk yarn so that domestic demand can be met with less dependence on imports.

Strategy 2: Improving standard of silk yarns and silk products

For product improvement the MOAC will emphasize the following:

• Increase productive efficiency by providing good varieties of mulberry, silkworm and transferring technology to producer groups.

• Reduce cost of production by developing proper knowledge and good management.

• Conduct research work by developing high-yield (mulberry, silkworm), modern technologies for Thai silk product, reeling and weaving equipment suiting local conditions.

• Strengthen farmer groups who have special knowledge for production.

• Develop production models for niche market products.

• Establish a basic standard system for local Thai silk yarn.

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ub-sector Features Strategy 3: Diversity of silk products development

To ensue diversity of silk product development, the MOAC will prioritize the following:

• Develop diversity of silk products in terms of products, patterns, and packaging.

• Improve production technologies as well as modern, flexible design methods, so producers can respond quickly to changes in fashion and consumers’ needs.

• Establish both short term as well as long term product R&D for all supply chain and marketing of silk handcraft sectors, in response to future market developments.

• Promote and protect local wisdom by establishing property rights in terms of brands, licenses, provincial and geographic characteristics, etc.

Strategy 4: Promote and strengthen Thai silk handcrafted sector

To ensure the promotion and strength of the sector the MOAC will emphasize the following:

• Join road shows and exhibitions in the country as well as internationally to introduce and distribute unique Thai silk products to these markets.

• Develop recognized brands for unique Thai silk products to reinforce consumer confidence.

• Promote Thai silk products as both natural and environmentally friendly products.

• Improve the efficiency of logistic systems of each respective silk handcraft sector supply chain.

• Collaborate and setup silk cluster networks both inside the country as well as regionally with neighboring countries.

Given the potential of the sector, these strategies alone will not help to improve the silk sub-sector. However, the collective contribution of expertise and financial support will contribute to further growth of this sub-sector and realize the actual potentials.

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2.3 General Issues – Silk

In Thailand, silk generates total revenues of approximately 22.94 million EUR, providing a 0.39% share of the country’s textile export in 2006 (THTI, 2007). It ranks third among yarn and fabric export revenue earners (far behind cotton and man-made yarns and fabrics). Most of Thailand’s silk is destined for the domestic market (approximately 70%). The rest goes to export markets and consist of intermediate products: silk fabrics and yarns (64% of exports), garments and accessories (24%) and home textiles (12%). (Customs, 2007). Thailand relies heavily on imported raw silk to meet demands from the textile industry due to limited domestic supplies. Most of its raw silk has to be imported from China and Vietnam, with annual imports amounting to more than 18.6 million EUR (OAE, 2006).

Figure 1: Thailand’s Exports of Silk and Silk products (Source: OAE, 2007)

The exports of Silk and Silk products from Thailand fluctuate and compared to 2001, export volumes decreased from 813 tons to 698 tons in 2006., the value of these silk exports, during these same years, reduced from 25.30 million EUR to 22.94 million EUR.

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ub-sector Features Due to Thailand’s climate, silk production is a year-round activity. The main production areas of silk yarn in Thailand are in the Northeast (97.5%) (QSIS, 2007). This is remarkable, as the Northeastern region of Thailand has been regarded as a disadvantaged area with poor resources and an under-developed industrial sector. The region suffers from relatively harsh climatic conditions, which often result in floods and droughts.

When comparing the Northeast to other regions in Thailand there is less opportuni ty to expand sericulture in these other regions due to a number of environmental constraints and alternative economic opportunities. In most of the South, because of the prevailing tropical climatic and environmental features, high rainfall and very high humidity conditions restrict the adoption of sericulture, and therefore the potential for year-round sericulture is low. In the East, the climatic conditions are characterized also by high humidity, however there are more appropriate cultivation models such as horticultural crop production. In the West, the developing industrial zones provide convenient and s u b s t a n t i a l e m p l o y m e n t opportunities for the surrounding rural areas, and the prospects for rural enterprise development such as sericulture, is less attractive and not significant. In the North, there are also more attractive income generating activities for small farmers such as wood carving for handicrafts, using forest products. Other alternatives in the North include horticultural production of vegetables, because of the favorable climatic conditions.

Considering that much of the silk produced in Thailand is intended for household and craft activities, it is difficult to evaluate the actual figures given over the silk production. In addition, variations between statistics from different sources are even more pronounced. Notwithstanding these variations, the Queen Sirikit Institute of Sericulture, which is considered the most reliable source of information, reports statistics of silk in Thailand as follows;

Photo 3: Delicate Patterns in Silk

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Production Area

Mulberry Planted Area (ha)

Number of Cocoon Holdings

Cocoon Production (ton)

Number of Silk Yarn Holdings

Production of Silk Yarn (ton)

Northeast 20,752 5,310 1,535 126,984 1,080

North 2,457 1,254 697 985 19

West 1,130 612 402 139 4

Other 543 240 112 1,360 5

Total 24,882 7,416 2,746 129,468 1,108

Table 1: Features of Silk Production Areas in Thailand in 2006 (Source: QSIS, 2007)

Figure 2: Features (in %) of Silk Production Areas in Thailand in 2006(Source: QSIS, 2007)

Figure 2 compares each of the major silk production areas in Thailand according to five key dimensions. From the table and the figure it can be concluded that the features are mainly concentrated in the Northeast. [Northeast share in of the overall Thailand market: Mulberry planted area (83.4%), number of cocoon holdings (71.6%), cocoon production (55.9%), number of silk yarn holdings (98.1%) and silk yarn production (97.5%)].

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ub-sector Features Even though production of silk is recorded in 48 provinces across the country, sericultural farming is highly concentrated in a few provinces in the Northeastern region of Thailand. The map in Figure 3 shows the spatial distribution of silk yarn production. All 19 provinces in the Northeast produce silk to some extent, but the main provinces producing silk yarn are Sisaket, Buriram and Mahasarakham.

The number of farm households involved in sericulture is relatively small. Moreover, the number of sericultural households has declined dramatically over the past decade. This decline has been considerably more pronounced than the overall decline of agricultural employment in Thailand. The number of sericultural farmers in the Thailand was estimated at around 200,000 in 2005, down from over 300,000 in the early 1990s.

Figure 3: Silk Yarn Production in the Northeastern Region in 2005

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Figure 4: Comparison of Silk Yarn Production Methods, 2001-2004 (Source: DOAE, 2006)

Figure 4 shows the production in tons for each year for each respective production method. According to the Department of Agricultural Extension (DOAE), Thailand produces about 1,480 tons of silk yarn per year. In Thailand, there are two main production methods used to manufacture Silk yarn; hand reeled (which comprises about 77% of the market) and machine reeled (about 23%) (DOAE, 2005).

Hand reeled yarn volume is rather stable as it increased only marginally from 1,100 tons in 2001 to 1 ,150 tons in 2004. Machine reeled yarn volume decreased moderately from 410 tons in 2001 to 330 tons in 2004. Overall, the production volumes and shares have been quite stable with marginal increases or decreases year by year.

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ub-sector Features 2.4 Features of Silk

Silk - the most beautiful of all textile fibres, is acclaimed as being the queen of textiles (World Bank, 2005). It comes from the cocoons of silkworms and requires a great deal of handling and processing, which makes it one of the most expensive fibres also. Man has reared silkworms for a very long time. They were first domesticated in China around 4,000 years ago, and the silk

threads they produce to make their cocoons formed the basis of a very profitable trade between East and West along the Silk Route*. Silk production is concentrated in Asia, including South and Southeast Asia. This macro-region produces more than 90% of the global silk production.

Chemically speaking, silk is made of proteins secreted in a fluid state by a silkworm. These silkworms feed on selected food plants and spin cocoons as a protective shell for their next life cycle stage. The life cycle of a silkworm spans about 50 days. It starts with an egg stage of about 10 days followed by a larval (silkworm) stage of about 25 to 30 days to end with a pupa stage of about 10 days. Man intervenes in this life cycle at the pupa stage in order to obtain the silk from the protective cocoon surrounding the pupa.

Silks fall into two main types; the Mulberry and the non-Mulberry silks. This classification is based on the preferred food material the silkworms are reared on. Almost all the varieties of Mulberry silk are derived from the domesticated silkworm Bombyx mori. The non-Mulberry silks, often called “Wild Silks”, are derived from silkworms, which initially were not domesticated. These non-Mulberry silks generally come in natural colours: cream, beige, brown and gold. They are both user-friendly and healthy owing to their porous texture and thermal properties.

* The ancient trade route linking China and the Roman Empire.

Photo 4: Silk Fabric

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Figure 5: The Life Cycle of Mulberry Silkworms (Bombyx mori)

Photo 5: Mulberry Silkmoth (Bombyx mori)

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ub-sector Features Mulberry Silk

Mulberry silk is the most important type and contributes to as much as 95% of world’s silk production. All Mulberry silkworm varieties reared at present belong to the species Bombyx mori and all are reared on Mulberry leaves. All varieties produce cocoons with a continuous silk filament, which therefore can be industrially reeled. The varieties are mainly differentiated according to the number of generations produced annually under natural conditions. Also hybrid Mulberry silkworms of various kinds have been developed.

Non-Mulberry Silks

Eri Silks

Eri silkworms have two varieties. A wild variety, Philosamia cynthia, and a domesticated variety, Philosamia ricini, which can be reared on variety of food plants. Eri silkworms prefer Castor leaves and when reared on these leaves they will yield large size cocoons, rich in silk content. Also Tapioca leaves can be used to rear Eri silkworms although the produced cocoons will be somewhat smaller and less rich in silk content. An Eri silkworm spins an open-mouthed cocoon with discontinuous and not uniform filaments. Because of this an Eri silk cocoon can only be spun and not reeled. As an Eri cocoon is open-mouthed there is no need to kill the pupa inside the cocoon as the moth can be allowed to emerge through the open-mouth without damaging the cocoon. Because of this, Eri silk can be called a “peace” or “vegetarian” silk. Eri silk is a fine silk which is almost as white in colour as mulberry silk. It has the look of wool mixed with cotton but the feel and softness of silk.

Photo 6 & 7: Eri Silkmoth (Philosamia ricini) & Eri Silk Cushions

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Muga Silks

The semi-domesticated variety of Muga silkworm, Antheraea assama, feeds mainly on the leaves of Machilus bombycine and Litsae polyantha. Muga silkworms produce a strong, golden yellow silk, which is renowned for its glossy fine texture, durability and natural golden amber glow. Reputed to be a costly fabric, Muga silk looks like spun gold. Muga silk is naturally stain-resistant and is never bleached or dyed. It is naturally organic and untouched by chemicals, but it is also not a “peace” or “vegetarian” silk because also Muga silkworm pupae are killed inside their cocoons.

Tasar Silks

Tasar silkworms have several varieties: some wild and three main domesticated varieties. The three domesticated varieties are; Antheraea mylitta, feeding mainly on the leaves of trees of Terminalia species, A. pernyi, a Chinese Tasar silkworm variety feeding mainly on the leaves of Oak trees (Querus species) and A. yamamai, a Japanese Tasar silkworm variety also feeding mainly on the leaves of Oak trees. Processing Tasar silkworm cocoons is basically done the same way as processing Mulberry cocoons. Therefore Tasar silk is not a “peace” or “vegetarian” silk as it is necessary that the Tasar silkworm pupae are killed inside their cocoons before they emerge as adult moth.

Photo 8 & 9: Tasar Silkmoth (Antheraea mylitta) & Tasar Silkyarn

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ub-sector Features

Apart from the different varieties of domesticated Non-Mulberry silkworms there are also some wild silk varieties. Aside from differences in colours and textures, these wild silks all differ in one major aspect from the domesticated varieties: the cocoons that are gathered in the wild have usually already been damaged by the emerging moth prior to gathering. Consequentially, the single filament that made up the cocoon has been torn into many pieces with much shorter lengths. To avoid this damage, pupae of domesticated silkworms are killed inside their cocoons before adult moths emerge, thus allowing the whole cocoon to be unravelled as one continuous filament. This allows a much stronger cloth to be woven from the silk of domesticated silkworms. Wild silks also tend to be more difficult to dye than the silk from domesticated silkworms.

After Mulberry silk cocoons are gathered and sorted they are stifled with the aim to kill the pupae inside their cocoons without interfering with the structure of the cocoons. This stifling can be done with hot wet steam or hot dry air. After stifling, the cocoons are dried for storage. Before reeling, stored cocoons are boiled in water to dissolve the gummy substance that holds the filament in place. During reeling a cocoon is immerged in hot water to loosen the filament in the outer layer first. As one filament is very fine, the filaments of five to eight cocoons are reeled together to get raw silk yarn. After twisting, de-gumming and eventually dyeing, this raw silk yarn is woven into fabrics.

Silk is made up of protein fibres, which are triangular and so reflect light like prisms. These protein fibres are spun in layers to give silk its characteristic pearly sheen and sensuous feel. The protein in silk is very close in makeup to human skin, which is why it feels so beautiful to touch - "Nature’s second skin". It absorbs and transpires moisture far more than synthetic fibres. In winter, silk provides thermal protection against the cold and in summer the transpiration and evaporation of moisture through the silk makes it feel cool against the skin. Table 2 gives a summary of the properties of silk fabrics.

Photo 10 & 11: Muga Silkmoth (Antheraea assama) & Muga Silkyarn

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Property Definition Benefits & Use

Abrasion resistance

Ability of fabric to withstand the rubbing inherent in everyday use.

Durability, resistance to splitting

Absorbency The amount of moisture a dry fibre will absorb from the air.

Comfort, warmth, water repellence, wrinkle resistance

Draping Ability to hang delicately More appealing to the eye than other materials

Durability Ability to withstand wear and decay

Seemingly delicate but very strong. Used for suture material

Dyability The fibres’ receptivity to colouration by dyes

Able to attach to and hold colour better than any other fabric

Elasticity The ability of the fabric to stretch over its length without breaking

Able to stretch up to 20 percent and mould itself over any shape. Used for silk stockings.

Flame resistance

Burns slowly in an open flame and is self-extinguishing once flame is removed.

Excellent fabric for wall coverings and upholstery

Electrical Insulation

Does not conduct electricity

Used to insulate electric wires

Lustre The light reflected from the surface.

Prism-shaped fibre makes silk very lustrous.

Mildew/mould resistance

Mould is a white or grayish coating formed by fungi.

Resistance to mildew, moulds and rots that attack other fibres, unless left in damp conditions for long periods.

Resilience Ability to resume an original shape after being stretched

Tends to hang out and have good shape retention.

Size reduction

Ability to bundle or fold into a small size

Can carry in a small space. Silk maps were hidden in clothing during the war.

Strength Ability to resist stress Strong, but slightly weaker when wet. Tougher than cotton or fine wools.

Weight Silk is one of the lightest natural fibers.

Preferred for dresses in Asia (saree, kimono) and jockey riding jackets.

Warmth Silk feels warm on the skin. Used to line snow jackets

Table 2: Properties of Silk Fabric

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ub-sector Features Mulberry silk production is both very labour and land intensive. One silkworm produces very little usable silk. It takes approximately 650 cocoons and 100 labour hours to produce sufficient silk fabric to make one scarf. One mature mulberry tree will produce enough foliage for 100 silkworms. Silk is environmentally friendly. The environmental impact of silk processing is relatively minor in its initial stages when compared to cotton or wool.

Figure 6: Yields in the transforming process of producing Silk Fabrics

Currently the silk production in Thailand is almost 100% mulberry silk. Three major varieties of mulberry silkworm are used in the Thai silk sub-sector; polyvoltine (producing multiple generations in a year), poly-bivoltine hybrids, and bivoltine (producing 2 generations in a year). The main technical characteristics of the 3 types of Mulberry silkworms are summarized below.

Native varieties (polyvoltine, yellow cocoon)

Polyvoltine silkworms are varieties that farmers have traditionally produced, based on egg stocks that they maintain themselves. Native silkworms produce small, yellow cocoons. The filament length of these cocoons is about 250-300 meters, which can only be reeled by hand.

Thai hybrids (poly-bivoltine, yellow cocoon)

Thai hybrid varieties are bred from native polyvoltine (Poly) and foreign bivoltine (Bi) parents. They produce yellow cocoons of intermediate size that are usually reeled by the farmers but can also be reeled in factories. Thai hybrids are mostly Poly x Bi, but can also refer to other breeding variations (Poly x Poly, Bi x Bi, Bi x Poly or (Poly x Bi) x Bi). Poly-bivoltine varieties produce cocoons with a filament length of about 600-800 meters, which are mainly reeled by hand but which can be reeled by machine.

Foreign hybrids (bivoltine, white cocoon)

Foreign hybrid varieties are bred from foreign bivoltine parents. They produce large cocoons, which are suitable for factory reeling. Bivoltine cocoons are usually white, with exception of some of the newer breeds. Bivoltine varieties produce cocoons with a filament length ranging from 600 to 1500 meters, which are reeled mainly by machine.

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Silk yarn can be categorized according to its weaving use. For weaving two major types of yarn can be distinguished; warp yarn and weft yarn. Warp yarn represents the yarn lying lengthwise in a weaving loom. This type of yarn needs to be of uniform thickness with some flexibility. Weft is the yarn used crosswise in the weaving process.

The Department of Agriculture (2004) defines Thai silk yarn into three grades as follows:

1. First grade silk yarn (locally known as “Mai Noi”) is the silk yarn resulting from reeling the filament from the inner layer of a cocoon after all the floss and the filament of the outer layer have been removed. It is a fine yarn, recognized as having the best quality and it is usually used as warp yarn because of its fine and smooth texture.

2. Second grade silk yarn (“Mai Loei”) is the silk yarn resulting from a reeling process, which combines, after removing the floss, the filament from the outer layer and the filament of the inner layer of a cocoon. The resulting silk yarn is not as fine as first grade silk yarn. This silk yarn can be used for weft only.

3. Third grade silk yarn (“Mai Leub”) is the silk yarn resulting from reeling the filament of the outer layer of a cocoon after all the floss is taken. The resulting silk yarn is coarser than second grade silk yarn. Similar to second grade silk yarn, this silk yarn can also be used for weft only.

Photo 12: Silk Yarns

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ub-sector Features Mulberry

Mulberry (Moraceae morus) is a deciduous perennial plant with, in Thailand, a life cycle of 5-10 years depending on how well the tree is cared for. Mulberry is globally cultivated in more than 50 countries, mainly in temperate, subtropical as well as tropical climates around the world. The plant is able to adapt to varying soil and climatic conditions and can grow in poor soils, in arid regions, from sea level to as high as 4,000 metres above sea level. Depending on the cultivation, the tree can be grown as a tall tree, middling tree or a bush. The plant provides all needed nutrients for a silkworm. The quality of the mulberry leaves fed to silkworms is reflected in the quality of the produced silk; so it is vitally important to produce good quality leaves. The quality of the leaves is a direct result of prudent agronomic management aspects in the cultivation of mulberry. A complete agronomic package of variety selection, planting techniques, nutrient management, water application, pest and disease control measures, and harvesting techniques ensures high yield and good quality mulberry leaves. There are at least 24 species and 100 varieties that vary in habitat, yield and nutrient content; but less than 20 varieties are commercially significant globally.

Mulberry cultivation is indispensable to Mulberry silkworm rearing. Mulberry trees are cultivated to provide leaves, which are fed to the silkworms in special rearing rooms. From the day a silkworm hatches to the time it stops feeding, a silkworm gains in weight about 10,000 times. During this time it eats some 22g of leaves and converts more than 70% of its intake of nitrogenous material into silk.

Harvesting Mulberry leaves is usually done by hand-picking leaves or chopping branches using hand tools or machines. In Thailand, the leaf picking starts about 10 weeks after bottom pruning with the next pickings at 7 to 8 week intervals, achieving 6 to 7 harvests in a year. The tree is then pruned to near ground level again. Picking leaves can be either with or without the leaf stalk (or petiole). Mulberry is a multiple purpose tree. Apart from its leaves being a good fodder for silkworms or livestock, it produces a fine wood, its branches can be used in basketry and its fruits are edible and can be used to make wine.

Photo 13: Feeding Silkworms

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2.5 General Issues – Home Textiles

The textile sector has historically made a significant contribution to Thailand’s export revenue earnings. According to the National Economic and Social Development Board, the manufacturing sector accounted in 2006 for about 77.8% of total export earnings. Textiles accounted in 2006 for about 6.8% of total export earnings, increasing by 10.7% from 2003 to 2006. Being a labour intensive sub-sector, it also helped in generating a high employment rate in Thailand’s manufacturing sector (NESDB, 2007).

Home textiles generate total export earnings of approximately EUR 220.6 million, contributing 3.6% to Thailand’s total textile export earnings in 2006 thus providing a 0.31% share in the country’s manufacturing exports (DEP, 2007).

Figure 7: Thailand’s Exports of Home Textiles (Source: DEP, 2007)

The power loom sector dominates the production of fabric in the country, accounting for more than 90% of the total fabric production. The massive growth and utilisation of power looms has replaced handlooms at a rapid pace.

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ub-sector Features

Northeastern home textiles are made mainly from local handloom woven fabrics. The major raw material used in this sub-sector is silk. It is estimated that the sub-sector consists of approximately 300, home textile producing, SMEs (groups, companies and cooperatives). The entire silk sub-sector employs about 100,000 people region wide, including a considerable number of support people (rearers, reelers, bleaching and dyeing specialists, input suppliers, weavers etc.).

Product-wise, the handloom weavers in the Northeast can be basically categorized into two groups; those who weave high value-added luxury silk fabrics with unique traditional designs, and those who weave low value-added standardized silk fabrics. The high value-added luxury silk fabrics account roughly for a quarter of all handloom fabrics and have their niche markets where neither mills nor power looms can compete.

Photo 14: Handloom Weaving

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2.6 Features of Home Textiles

Textile products can be categorized according to their use; those, which are, used as raw material for further processing (e.g. yarn and fabrics), those for final usage by industry as a semi-finished or pre-product or (e.g. technical textiles), and those which serve as end product to the consumers (apparel* and home textiles). The markets for these products differ in terms of duration of product life cycles, expectations regarding chemical product safety and technical performance.

Few companies in Thailand have a fully integrated end-to-end production process where all the processes from yarn production to top-finishing of dyed fabrics happen in one company. Often only a single processing step is carried out.

The home textile sector in the Northeast is comprised of a dispersed and fragmented group of establishments that produce and/or process textile related products (cocoon, yarn, fabrics) for further processing into home textile products. Textile establishments transform cocoons into yarn, dye yarn, make fabric and finish these materials at various production stages. The home textiles chain is thus long and complex whilst the sector encompasses, in its broadest sense, the production of yarn, fabrics and finished home textile products.

* Formal Clothing

Photo 15: Shuttles for Silk Weaving

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ub-sector Features The people of Northeastern Thailand, with their diverse cultural backgrounds and varieties of natural resources, have a rich heritage of craft skills. Handicraft is therefore considered to be one of the most important and widely adopted off-farm occupations of most people living in the countryside. As part of its cultural heritage, Northeastern Thailand has a variety of traditional fabrics (textures and patterns) and products, produced by handloom weaving. Handloom textiles are characterized by natural fibres, traditional skills and eco-friendliness giving products a different appeal from industrially woven items.

Handloom weaving is an important activity in the rural economy of Northeastern Thailand. One source of Thai home textiles is handloom production of fabrics and sometimes even of finished home accessories. The production is labour-intensive and is done by local artisans, whose expertise and skills have been handed down from one generation to the next, creating a distinctive local identity and product authenticity.

Photo 16: Woman Weaving Silk

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Home textile producers fall basically into two groups;

1. Professional producers who earn their living from product sales,

2. Part time producers who produce handmade items alongside another occupation (farming, cattle-breeding, housekeeping).

Producers in the first group are open to new developments, education and training and have a high level of interest in seeing and learning modern techniques and design improvements.

Producers in the second group are mainly women. Home textile production is a source of additional income for them. Securing jobs in the home textile sector for the people in remote areas has an important economic impact as well as important social and cultural significance. A majority of producers work from their own home, thereby controlling their time and output and, in many cases, allowing them considerable input into on-going family life.

Photo 17, 18 & 19: Silk Thai Home Textiles

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ub-sector Features Demand for Northeastern home textiles (mainly curtains, bedspreads, serviettes and pillowcases) now comes from a niche market consisting of the upper middle class. Customers are willing to pay relatively high prices for hand-woven items. The craftsmanship and prowess of Northeastern home textiles has strengthened the image of the sector and made it possible to carve a niche, not only in the Thai market but in foreign markets as well. The Northeastern home textiles sector is quite versatile as most units are small and have the flexibility to respond quickly to dynamic market situations.

In summary, basic characteristics of the Northeastern home textiles sector are as follows:

1. It is quite diversified in nature, both in terms of products as well as production methods. The region is known for specific products that are unique in design and style. There are independent weavers, organized weavers in co-operatives or informal groups and weavers working under master weavers.

2. There is a great flexibility in processes, products and geographical shifts. Making changes in production processes and innovation in products are fairly easily achieved. Unlike land resources that tie individuals to a given place, weavers are limited only by their skill thus being able to shift from one production base to another.

3. It is largely home-based, with labour inputs from family members. Being home-based makes it decentralized. In each stage of the production process, whether it is pre-loom processing, weaving or finishing – every member of the household has a clear role to play. In many ways, it is similar to an agricultural household that engages in the self-exploitation of labour in order to remain at a subsistence level.

Basic materials vary in the different market segments. Certain types feature more predominantly in the mid to high-ends of the market (e.g. silk and cotton) others feature more in the low end (e.g. chemical fibre). In Northeastern Thailand, silk is the most popular material overall.

At this moment, it is difficult to trace the various inputs into the Thai home textile chain. Most producers and exporters do not have any means to find out where inputs (e.g. silk yarn) for their products came from and under what ecological or social conditions products were produced.

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3. Market Analysis

3.1 World Production & Trade

Silk represents a tiny percentage of the global textile fiber market. Globally, cotton accounts for 40% of the world fiber consumption, wool accounts for a mere 2.5%, and silk accounts for a tiny 0.2% (WTO, 2006). Yet, the actual trading value of silk and silk products is much more significant than this volume would suggest. Silk is a premium priced agricultural commodity; the unit price of raw silk is roughly twenty times that of raw cotton (FAOSTAT, 2007).

World production of raw silk stood at 135 thousand tons in 2004, a 20% increase relative to 1995, when production stood at 113 thousand tons. The global production of raw silk from 1995 to 2004 is shown in Figure 8.

Figure 8: Global Production of Raw Silk in tons (Source: FAOSTAT, 2007)

China is by far the world’s biggest raw silk producer, with a 70% share of the world production in 2004, followed by India, Vietnam, Turkmenistan, Brazil and Thailand respectively (FAOSTAT, 2007). In terms of exports, China also tops the list (90%). India and Vietnam currently export only a small percentage of their overall production.

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Figure 9: World Raw Silk Production in 2004 (Source FAOSTAT, 2007)

Figure 10: World Raw Silk Imports and Exports in 2005 in million EUR(Source FAOSTAT, 2007)

World Raw Silk Imports World Raw Silk Exports

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s Four major textile producers – India, Italy, Japan and Korea import raw silk for their textile industries (FAO, 2007). India is the largest importer, accounting for 32% of world raw silk imports, followed by Italy (22%), Japan (14%) and Korea (9%) respectively. Thailand is the sixth largest raw silk producer with about 1% of the world production and is ranked seventh in term of raw silk imports (about 3% of the world imports). Thailand, being one of the world’s leading textile producers, is dependent on imported raw silk to meet the demands from the textile industry due to limited domestic supplies. Compared to other global players in the raw silk sub-sector, Thailand exports only a small quantity of raw silk, which is declining over recent years due to its high price and a lack of lustre.

It appears difficult to predict global consumption trends of silk. This is because silk products tend to share the characteristics of luxury products, which are not very sensitive to price changes. In the long run, demand is affected by factors such as fashion trends, promotion, and changing attitudes of the public toward natural fibres and textile products. Promotion of silk and natural fibre can have a major effect on demand and attitudes of consumers. In the late 1980s, some silk promotion activities in Europe were conducted by the European Commission, but at present, virtually no global silk promotion activities are in place (NEED, 2006).

Current estimates for all types of home textiles suggest that the world’s global home textiles sector can be valued at approximately 95 billion EUR with the US and EU together accounting for more than 60 billion EUR. With projected increases in the US market of 5% and the EU market of 9 to 10%, they together stand for about 70% of the world’s total home textiles imports. According to a survey by TFIA, the value of the global trade in home textiles is projected to increase from about EUR 18 billion in 2005 to more than EUR 25 billion in 2010. Annual demands for home textiles have been increasing over the last 10 years at an average growth rate of 6%. It is not possible to separate out handloom and/or handcraft products trade trends from the overall trade trends because of the way in which the trade data is captured. The trends therefore only give an indication of the overall dynamics within the world home textiles market as a whole.

There are, for the Northeastern home textiles sector, only a few published sources of baseline data across the value chain. Acquiring data is further complicated by the fact that a large part of Northeastern home textiles trade occurs informally and the fact that the sector is not disaggregated into official sector statistics for employment and revenue or customs and export statistics, which are aligned with the Harmonised Standards (HS) coding system. This system does not record handcrafted/handloom items separately from other manufactured items.

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nalysis 3.2 Demand & EU Market

Consumer expenditures in the EU for household and furnishing textiles decreased from 0.52% in 2001 to 0.46% in 2005 whereas in the same period the expenditure grew in sectors like health, housing/energy, transport/communication and leisure/education activities. (CBI, 2006) There is a tendency that household expenditures increase in times of growth in income and household consumption, but decrease in periods when growth in income and household consumption is low or negative.

Developments in the import of household and furnishing textiles vary strongly between EU countries. These differences depend on several factors like size and structure of domestic production of household and furnishing textiles and the possibilities and volume of re-exports. EU countries can, according to a CBI Market Survey, be classified, by developments in value of imports during 2003-2005 as shown in Figure 11:

Figure 11: Developments in Imports of Household & Furnishing Textiles in EU Countries, 2003-2005 (Source: CBI, 2006)

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Product type’s position in household and furnishing textiles supplied to the EU by developing countries in 2005 is illustrated in Figure 12:

Figure 12: Import Volume & Value of Selected Product Types (Source: CBI, 2006)

A price analysis reveals that table linen, curtains and other furnishing textiles fetched higher prices than bedspreads and bath/kitchen linen. Consequently, these products had stable prices in the period 2001-2005. Both premium prices and the higher and stable demands of these products suggest that emphasis should be given to produce and export table linen, curtains and other furnishing textiles products.

In terms of suppliers, the role of developing countries increased strongly, from a share of 50% in 2001 to share of 58% in 2005. At the same time the imports from developing countries rose by 20% and intra-EU trade by 24%, whereas imports from countries outside the EU (excluding developing countries) fell dramatically by 62%. (CBI, 2006).

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Figure 13: Household & Furnishing Textiles Suppliers to the EU in 2005, share in % of value in million EUR (Source: CBI, 2006)

Figure 14: Leading Household & Furnishing Textiles Suppliers from Developing Countries in 2005, share in % of value in million EUR (Source: CBI, 2006)

The competition in the EU market is now increasing fiercely as many suppliers are supplying more or less similar products and shipping these in large volumes. China is the biggest supplier from developing countries, with a 27.6% share of the total import value from developing countries to the EU market. Turkey, India and Pakistan are next biggest with 25.9, 17.2 and 15.5% respectively, followed by Bangladesh, Egypt, Tunisia, Brazil, and Indonesia with much smaller shares. (CBI, 2006).

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s In the highly competitive retail market, EU retailers push their suppliers to provide their products at consistently lower cost. Many of the large “value” or discount retailers make their profit from selling large volumes rather than high mark-ups on individual items. On the other side the very high end of the market (which is a much smaller but more lucrative) is more concerned about quality and branding than price. In between these two extremes is a range of variations, which Thai producers/exporters will need to explore to find the best potential opportunities.

Table 3: Features of EU retail market segments (Source: CBI, 2006)

Product Criteria

Store Choices Brand Names

Fashion Criteria

Price Criteria

High Price Luxury Segment Market Share 5-10%

Exclusive luxury high quality material (designer-) brand name goods with image effect

Exclusive retail stores, designer stores, special departments in department stores, special mail order companies

Donna Karen, Nicole Farhi, Georgio Armani, Joop!

Fashionable colors, changes every season, special designs and exclusive artworks

Price less important

Upper middle Price Segment Market Share 15-20%

Brand name goods, high quality materials, fashionable collections, broad rage in design

Independent shops, shop in shops, manufacturer’s direct stores, Department stores

Zucchi, Bassetti, Van Dijck, Vossen, Freyte

Many colors available, exclusive designs but with fewer colors than luxury segment

Acceptance of price for fashionable collections and consumer brands

Middle to high Price Segment Market Share 20-25%

Good quality, trend following or classical assortment, brand name goods

Independent shops, Department stores, mail-order interior department stores

Cinderella Irisette, Habitat

Standard colors and each season fashionable colors, common designs

Price threshold must be observed

Low to middle Price Segment Market Share 45-40%

Basic quality, limited range of colors and designs, fashionable

Interior department stores, variety stores, value retailers

Price labels like Ikea, Marks & Spencer, Hema

Standard collections with less variations per season, limited number of designs

Price important

Low or very low price segment 15-20%

Basic/low quality, special sales/offers, inexpensive products

Variety stores, discounters, super- and hypermarkets, streetmarkets

No brands Standard products without special fashion requirement

Special (low) prices, price is decisive

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nalysis High-risk, low-volume, service-intensive products require different margins than low-risk, high-volume standard products. It is impossible to draw up a schedule of actual margins for each and every product/market combination. Even within the same type of combination, different importers employ different margins, due to variations in economic conditions. A typical commission rate paid to an agent is 10% of sales, though this can be as low as 8% for volume business and much higher for exclusive deals.

It is generally more attractive for an exporter to operate in the medium and high market segments. Margins vary greatly with types of products as well as with retail channels. The average textiles retailer marks up goods by 80 to 110% of the buying price. Selected goods are retailed even with prices up to 140% higher than the buying prices. In grocery stores, small textile articles have a gross margin of 20-30% of the retail selling price. This margin figure is highly attractive compared with typical profit margins on food and other grocery items.

Reliable statistics are difficult to find in order to verifying the current market situation of handloom products. Due to the limitations of the EU harmonized code which put both hand woven and power woven products under the same category, categorizing these products into handloom and power loom textile products is difficult, if not impossible. The analysis of the EU market by IBEF revealed that for the year 2005, the estimated volume of handloom home textile imported into the EU is 108 thousand tons valued at approximately EUR 982 million. This is based on the findings that the share of the handloom products out of the total household and furnishing textiles imported into EU in year 2005 was approximately 16%.

Figure 15: Value share of Home Textiles imports to the EU in 2005 (Source: IBEF, 2007)

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The EU market for handloom home textiles is quite fragmented. There is hardly any shop selling just handloom home textiles, but many outlets that sell both home textiles and home decorations in general, of which handloom home textiles form a part. Neither have a dominant market share in handloom home textiles. There are thousands of small importers, wholesalers and retailers.

Elements of fashion are: colour, design, exclusivity and life style. The present consumer in the EU wants to be seen as an individual with his/her own life style. Household and furnishing textiles have also an individualising function, especially in the fashion and design segments (higher price ranges). In these segments consumer demands have become more specific. Character, ideas and attitude to life will be emphasised by the ambience that consumers give to their home interiors. Just like other fashion items such as clothing, a home interior serves as a means to express personality. Personalisation should become a vitally important characteristic of new offerings, as this will be the strongest stimulus for new purchases. The home textiles sector is decreasingly dependent on the need to replace, being far more focused on pure choice.

The trend towards looking for higher quality and more expensive products has increased in recent years, but an even more important trend is the price-conscious consumer who is looking for fashionable trends as well as good quality materials. Value for money is still the most important purchasing criterion for most consumers.

Demand for ethnic, handcrafted products is particularly strong in the growing home textiles sector. According to retailers in the EU, European consumers appreciate one-of-a-kind items, which can personalize the decoration of their homes. Handmade home textiles, which combine quality construction with a handmade, rustic appearance, fit well into the more modest, back-to-basics style for the home, which is now popular in Europe. Ethnic designs which are incorporated in traditional Thai textiles and handicrafts also have a market in the EU. These authentic products often display geometric patterns and simple designs, which complement abstract and modern decors. At the same time, they appeal to consumers who value traditional cultures, ethnic art and natural materials, such as natural dyes.

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Health considerations continue to play a large role in the choice of home textile products. Instead of considering a home textile product to be a mere consumer good, EU buyers are now regarding products to be a sensible investment for maintenance of their health. Producers who can provide high-quality information and products for every type of buyer have good sales potential for their products. Hypoallergenic, hygienic, bacteria-preventing

materials also rate as important factors when purchasing home textile products, as are care instructions and wash-ability. Consumers are becoming more conscious with respect to green act iv i t ies , non- tox ic and e n v i r o n m e n t a l l y f r i e n d l y consumer goods with an increasing knowledge of mater ials, care and the environmental impact and social requirements. Silk's natural hypoallergenic qualities have come to be increasingly appreciated across the modern world. Silk bedding is a great blessing to all allergy sufferers, who may be prone to asthma, blocked sinuses, or other hay fever like symptoms. Many people are allergic to dust, or house mites, and, unlike many bedding materials (particularly down, feathers and wool), Silk will not accommodate these mites.

According to latest information, the EU is very cautious in formulating regulations to restrict the use of AZO dyes. The EC

first restricted the use of AZO dyes in 1994 as part of its action on public health, and to combat cancer. AZO dyed textiles that may come into close contact with the body will be banned. The group of products with potential dangers for skin/AZO dye contact includes clothes, footwear, handbags, bedding, etc.

Photo 20: Silk Dyeing

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3.3 Thailand Export’s Market

The textile industry has for a long time been an important industry in Thailand in terms of its value added, employment, and export contribution. Domestically, its importance to the economy comes both from forward as well as backward linkages to related industries including garments, weaving, and reeling industries. Furthermore, Thailand has internationally been one of the leading exporters of textile products in the world.

Although policy makers highlighted the importance of textiles and entitled the textile sector as one of the five priority sector for national growth, local textile production, in fact, is stagnating at relatively high levels. Market shares and competitiveness are gradually eroding since the end of nineties, mainly due to lower cost supplies from China, India, etc. Overall, most Thai home textile exports are commodity products subject to intense foreign competition and low prices.

Figure 16: Product Type’s Shares of Home Textiles Exports from Thailand in 2006 in value in million EUR (Source: DEP, 2007)

In 2006, there were 4 home textiles product types; carpets (35%), bedspreads and bed linen (31%, bath and kitchen linen (23%) and blankets (10%) holding the majority share of the export market.

The main export markets for Thai home textiles are the US, Japan, the EU, Australia, the UAE and China.

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nalysis Table 4: Thai Home Textile Exports, 2003-2006 (Source: DEP, 2007)

2003 2004 2005 2006

Total Thai Home Textile Exports

Value (Mil EUR) 143.47 179.78 190.78 220.60

Export to the United States Value (Mil EUR) 67.20 83.03 84.32 95.01

% share of total value 46.8% 46.2% 44.2% 43.1%

Export to Japan Value (Mil EUR) 26.42 38.21 29.11 36.43


Export to the EU Value (Mil EUR) 7.40 9.05 9.93 11.07


Export to Australia Value (Mil EUR) 2.30 4.33 5.88 7.89


Export to the United Arab Emirates

Value (Mil EUR) 3.22 4.70 5.21 6.92


Export to China Value (Mil EUR) 0.96 1.93 3.88 6.80


Export to Other Countries Value (Mil EUR) 35.98 38.52 52.46 56.48 % share of total value 25.1% 21.4% 27.5% 25.6%

The US accounts for the largest percentage (43.1% in 2006) of the total value, followed by Japan (16.5%) with the EU accounting for the third largest percentage (5%). With the total value of the US market for home textiles increasing yearly by 5 to 7%, the US continues to rely on a significant import volume to meet local demand. This means that there is still huge potential to penetrate the US market. Also the EU (mainly the UK, Germany and Sweden) is fairly important market for Thai home textiles as it accounts for about 5% of the total value of home textile exported from Thailand with the value increasing yearly by 10 to 15%.

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Figure 17: Thai Home Textile Revenues based on Export Markets (Source: DEP, 2007)

In 2005, silk waste, silk yarn and silk fabric exported from Thailand represented 350.83 and 9,784.18 and 14,030.27 thousand EUR, respectively. Over the same period, cocoon, silk waste, silk yarn and silk fabric imported to Thailand represented 186.43, 1,753.00 and 11,533.20 and 5,149.77 thousand EUR, respectively. For silk yarn in particular, the simultaneous import and export of yarn is partly due to the difference in yarn quality. Thailand is producing and exporting yarn mainly for weft use and importing warp-suitable yarn. While silk yarn has the largest share in import and export value, it is silk fabric that has more than two times the value per ton compared with silk yarn.

Table 5: Import and Export of Silk in Thailand (Source: THTI, 2006)

Rearing Reeling Weaving

Year 2005 Cocoon Silk Waste Silk Yarn Silk Fabric

Export Values (EUR thousand) 0 359.83 9,784.18 14,030.27

Export Volumes (tons) 0 98.40 413.00 220.00

Value per ton (EUR thousand) 0 3.57 23.69 63.77

Import Values (EUR thousand) 186.43 1,753.00 11,533.20 5,149.77

Import Volumes (tons) 34.00 576.00 579.00 97.00

Value per ton (EUR thousand) 5.48 3.04 19.92 53.09

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Main export markets for Thai silk are the EU, Korea, the US, and Japan.

Table 6: Thai Silk Exports (Source: THTI, 2007)

2003 2004 2005 2006

Total Thai Silk Exports

Value (Mil EUR) 18.24 21.91 24.16 22.94

Export to the EU

Value (Mil EUR) 5.25 5.10 5.75 5.84


Export to Korea

Value (Mil EUR) 1.33 3.66 6.82 4.59


Export to the United States

Value (Mil EUR) 4.87 5.18 5.23 4.58


Export to Japan

Value (Mil EUR) 3.87 4.85 3.00 3.55


Export to Other Countries

Value (Mil EUR) 2.92 3.12 3.36 4.38


The EU (mainly Germany and the UK) accounted for the largest percentage (25.4% in 2006) of the total value of silk exported from Thailand. Korea and the US accounted both for 20% of the value, followed by Japan with 15.5%. Thailand’s silk export to the EU was 5.84 million EUR in 2006, an increase of 11% compared to 2003.

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Figure 18: Thai Silk Export Revenues based on Export Markets (Source: THTI, 2007)

Figure 19: Product Type’s Shares of Silk Exports from Thailand in 2006 in value in million EUR (Source: Customs, 2007)

In 2 0 0 6 , there were three product types of silk sharing the export market; intermediate products (e.g. silk yarns, silk fabrics) (6 3 .7 %), garment and accessories (23 .8%), and home textiles (12 .5%). More Detailed information according to HS Code is given in Annex 11.3. Customs reported in 2007 that for the year 2006, silk home textiles had an approximate 1.3% share in the total exports of Thai home textiles.

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Figure 20: Percent Share of Silk Home Textile Exports in 2006 in million EUR (Source: Customs, 2007)

As mentioned before, it is difficult to find reliable statistics to verify the percentage of Northeastern home textiles that are exported to the EU. Several informants of this study estimate that only a very small percentage of Northeastern home textiles are sold to EU markets as Northeastern home textiles haven’t been marketed broadly in EU countries.

Photo 21: Selling Silk on “Cotton & Silk Exhibition”

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3.4 Future Trend

Germany, the UK, France, Italy and Spain will continue to be primary import markets, accounting for 75% of the household and furnishing textiles consumption in the EU (CBI, 2006). However, the Netherlands, Belgium, Sweden and Austria may emerge as more important players as future import markets.

Forecasts regarding the consumption of home textiles predict an annual growth of 2% for the period 2005-2009. Consumer expenditure in EU countries is also expected to grow slowly further in 2007 and beyond, caused by:

• Changes in demographic factors in most EU countries including an increasing average age, growing number of one and two person-households and the movement to becoming more multi-ethnic societies.

• A continuing interest in more fashionable home textiles, especially of younger age groups and encouraged by foreign multinationals in several EU countries.

• As domestic housing increases in line with population growth, there will be an increased demand for home textiles.

• Consumers in several new EU member states will become more aspiring in purchasing behaviour as prosperity increases and foreign investment in the country grows.

• There is a stable and high demand for natural fibres.

• Increased attention of consumers for fashionable products, encouraged by home magazines and television programmes for interiors.

• The arrival of foreign companies, like Ikea, Zara Home, Ka International etc., with modern retailing styles dedicated to home furnishings incl. home textiles, has had a huge impact on several underdeveloped markets in the EU.

All these factors will lead to new demands and new consumer behaviour.

The outlook is distinctly brighter in Eastern Europe, where needs justify substantial investments in all areas including home textiles. Other factors are recovery of and/or further growth in the economic situation, despite limitations such as rising unemployment and low consumer confidence, as well as fashion developments. Negative developments are based on intensive price competition on trade level and economic developments such as unemployment.

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nalysis EU home textile retailers are increasing their level of vertical integration in this sector and often have their own designers to give their collections a more unique outlook. This not only includes retail products that can be purchased from suppliers, but also now involves greater interaction with suppliers by helping them to design products to better match consumer demand. Although the retailer will not manage the production, there is a greater level of involvement in design development.

The decline of domestic manufacturing in EU countries has led to a more internationally oriented trade in home textiles. The keen competition on the home textiles market will steadily increase and this leads to further possibilities for exporters in low-cost countries. However, exporting home textiles to EU countries requires in-depth understanding of many aspects of the markets. In EU marketing, a ‘product to market matching’ process is being readily adopted and, at the entry level, this is of critical importance. For example when a producer wants to enter the EU market with a product there must be a good understanding on how to match the new product to meet the needs of the market.

A successful Thai home textile exporter, Pasaya, notes that there is a plethora of trade shows available to the exporter who wants to attend one. These range from very large shows, encompassing a wide variety of products from countries around the world, to small shows focusing on a narrow line of products from a limited set of locations. There are pros and cons to different kinds of shows. Exporters should carefully analyse these pros and cons relative to the specific product and situation involved. For example, at a big show, exporters can get high exposure, but might get lost or loose visibility among the host of other products. At a more specialized show, exporters might be more noticeable, but there will not be as many people to notice their products. If exporters have a well-defined target market and can only supply small quantities, then a small, focused show may be best. The quality of display, the activities of those tending the exhibit, and the location, lighting, and so on, are all important to the success of participation in a trade show. Producers can ask the retailers with whom they are already in contact to suggest which are the most appropriate trade and fashion shows that can provide high exposure and improve the contact with new potential clients and other retailers.

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s Surveys reveal that the European public is becoming increasingly discerning about their choice of goods and are becoming more willing to pay a higher price for a product reflecting the criteria they believe to be important. Examples include; fair trade products, product stories and production environment (compare an “industrial” sweater with one produced from Alpaca fibres of Alpacas raised in the Andes) and products with adapted ethnic knitting patterns. Overall the consumers in most categorises have however become very price sensitive. Handloom producers therefore need to be more creative and focus on serving niche markets.

The segment of organically grown and ecologically sound products represents an especially interesting niche in the home textile sector. This segment offers good growth rates (over 5% in 2005). It should be noted however, that fashion plays an increasingly important role in this segment. High value-added raw materials that draw from strengths in engineering and design skills can give the industry tremendous opportunities to compete worldwide including in EU markets.

The dominance of mass-produced goods within the marketplace has created significant opportunity for handcrafted merchandise in many categories, including home textiles, as consumers look for interesting new products to consume. However, this opportunity is one filled with challenges for the handcrafters.

Photo 22: Handcrafted Silk Table Set

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4. Industry Structure

The Northeastern home textiles sector is not at all well integrated and the silk sector is relatively complex. Some farmers raise silkworms and sell cocoons for processing in factories; some raise silkworms, reel the cocoons and sell silk yarn, either to other villagers or to weaving factories; some villagers buy yarn and concentrate on dyeing and weaving; and some complete the whole process from planting and maintaining their mulberry plots for silkworm rearing up to selling dyed woven fabrics and products.

Figure 21: Sector Map of the Northeastern Home Textiles: Silk sub-sector (Sources: QSIS, DEP, 2007 and Stakeholder interviews and Analysis by the Survey Team, 2007)

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4.1 Silkworm Egg Suppliers The silkworm variety is the primary determinant of the characteristics of the entire silk value chain. Currently the silk production in Thailand is almost 100% mulberry silk from three major Mulberry silkworm varieties; polyvoltine, poly-bivoltine, and bivoltine. Detailed information is given below.

4.1.1 Native Mulberry silkworm varieties (polyvoltine, yellow cocoons) The polyvoltine Mulberry silkworms varieties are varieties that farmers traditionally produce, based on egg stocks that they maintain themselves. These native silkworms produce small, yellow cocoons. The silk filament length of a cocoon is about 250-300 metres. Most small producers reel cocoons by hand and get a maximum of only 200 grams of silk yarn per day.

Small rearers usually breed their own silkworm eggs from their own selected silk moths. Most rearers do not have access to formal breeding stocks from extension services but there is some informal trade in breeding cocoons between rearers. As a consequence, disease transmission is relatively high because of the use of non-certified stock. Silkworm eggs are often infected with diseases such as Pebrine and Flacherie. Most native polyvoltine silkworm varieties are, however, more tolerant to diseases and produce more silk than poly-bivoltine and bivoltine varieties under comparable high disease exposure levels.

4.1.2 Thai Mulberry silkworm hybrids (poly-bivoltine, yellow cocoons) Thai Mulberry silkworm hybrid varieties are bred from native polyvoltine (poly) and foreign bivoltine (Bi) parents. They produce yellow cocoons of intermediate size that are usually hand reeled by the rearers although they can also be reeled in factories. These varieties are mostly Poly x Bi, but it can also means Poly x Poly, Bi x Bi, Bi x Poly, (Poly x Bi) x Bi. Poly-bivoltine varieties produce about 600-800 metres of silk filament per cocoon.

Poly-bivoltine Mulberry silkworm varieties were developed for commercial release in the early 1980s and extended to rearers in Thailand. The Dok Bua variety was produced by the Department of Agriculture and proved popular with some rearers; producing 50% more cocoons than polyvoltine varieties when an additional investment in equipment is made. These new varieties have some of the qualities of polyvoltine silkworms; being easy to rear, more resistant to diseases and giving a better yield than the polyvoltine varieties. Currently, QSIS and a few private companies such as Jim Thompson and JT Silk are the main suppliers of improved (poly-bivoltine) silkworm varieties.

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4.1.3 Foreign Mulberry silkworm hybrids (bivoltine, white cocoons) Foreign Mulberry silkworm hybrid varieties are bred from foreign bivoltine parents. They produce large cocoons, which are suitable for factory reeling. Bivoltine cocoons are usually white, with the exception of some of the newer breeds. Bivoltine varieties produce cocoons with a silk filament length ranging from 600 to 1500 meters.

The major risk of bivoltine production is disease, and rearers must be intensively trained on rearing technologies and hygiene requirements. The silk filament is strong enough to be reeled by powered reeling machines and can produce a high quality silk yarn for both weft and warp. At present, there is only one company which dominates the supply of bivoltine silk namely; Chul Thai Silk Co., Ltd.

Photo 23: Yellow Silkworm Cocoons

Photo 24: White Silkworm Cocoons

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Silk Variety Advantages Disadvantages

1. Native varieties (Polyvoltine)

• Farmers can breed silkworm eggs by themselves.

• Very low cost

• Tolerant to diseases

• Lower yield

• Cause of disease infestation

2. Thai Hybrids (Poly-bivoltine)

Silkworm eggs

• QSIS – free of charge (occasionally)

• QSIS – sell at low price but having limited supply

Extension services

• QSIS – occasionally provide free input to farmers (rearing houses, chemicals, silkworm eggs, mulberry seedlings, etc.)

• QSIS – provide advice on certified and recommended parent breeds

• Susceptible to diseases

• Not suitable for rearers with unhygienic conditions

• Unreliable quality

• Inconsistent supplies

• Free input from QSIS (silkworm eggs, chemicals, etc.) might discourage rearers to develop themselves.

3. Foreign Hybrids (Bivoltine)

• High yield

• Disease free eggs

• Can be hatched at any time

• Quick return/high income

• Susceptible to diseases

• High prices

• High investment

• High input costs

• Rearers must be intensively trained prior to handling silkworm eggs

Table 7: Advantages & Disadvantages of the different Silk Varieties in Thailand (Sources: QSIS, NEED, 2006 and Stakeholder interviews & Analysis by the Survey Team, 2007)

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4.2 Rearers Rearers are engaged in hatching silkworm eggs and rearing silkworms until they spin their cocoons. They are responsible for retaining the quality of cocoons by giving proper nutrition and care in the early silkworm stages. Most rearers also have their own small mulberry plantations to grow fodder for their silkworms. Rearers link to silkworm egg suppliers for obtaining silkworm eggs and they also link to reelers by supplying them with cocoons for further reeling processes.

Silkworm rearing can be divided into two main types; rearing for home handicraft use and rearing for industrial use. The two types use different varieties of silkworms. At the farm level, there is however a certain degree of substitutability between silkworm types. This means that the value chains for native varieties, Thai-hybrids and Foreign hybrids are not completely separated. Farmers who rear silkworms for home-use usually undertake this as a secondary activity, while their main occupation could be growing rice or field crops, rearing livestock, or working as hired labour. Cocoons are generally reeled by hand when polyvoltine varieties are reared. When poly-bivoltine varieties are reared the cocoons can either be reeled by hand or by machine or even can be sold to a reeling factory. Farmers who rear bivoltine varieties are usually contracted directly by reeling factories and are therefore often not engaged in producing yarn. A list of advantages and disadvantages of contract farming is given in Annex 11.6.

One of the primary inputs in silk production is the mulberry leaf, used to feed silkworms. The mulberry planted area in Thailand is estimated at over 24,000 hectares, of which 20,000 hectares (83%) are in the Northeast. Mulberry production in the Northeast is mainly concentrated in the provinces of Mahasarakham (22.4%), Khon Kaen (14.7%), Surin (11.4%), Chaiyaphum (9.1%) and Buriram (9.0%) respectively.

Local mulberry varieties have been almost completely replaced by improved mulberry varieties in the major sericultural provinces of the Northeast. Improved mulberry varieties are more productive, as they can yield 18-22 tons of leaves per hectare. The majority of the small farming sector relies on natural rainfall to support the cultivation of mulberry, as irrigation and water availability remains a major constraint for the Northeastern region. Improvements in cultivation techniques have occurred over time as farmers gain experience and also benefit from improved extension services provided both by government extension services as well as technical assistance projects from various international organisations such as the EU, JICA, Kenan, etc.

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Jim Thompson has set up a network of contract farmers to which they will supply poly-bivoltine silkworm eggs, rearing room fumigation services and finally they will purchase back the cocoons. Drying facilities have been constructed in Khon Kaen and Nakorn Ratchasrima provinces. Contracts are made with farmers in a limited number of villages surrounding the drying centres. In order to participate in the network, a farmer has to have a rearing room separate from his house and a minimum of 0.3 hectare of mulberry.

To become a contract farmer of Chul Thai Silk Co., Ltd. (CTS), a farmer has to commit himself plus two other family members to work in the silk production on a full time basis and he must plant at lease 2 hectares of mulberry. In order to guarantee a reasonable return for the family labour and to repay the production loans, a rearer must achieve an average yield of 25 kg. of cocoons per eggsheet which has about 20,000 silkworm eggs. CTS is closely involved in the selection of farmers, who are screened for creditworthiness by commercial banks. Technicians from CTS will survey the proposed land area of every farmer who wants to join the scheme. These technicians concentrate on confirming the suitability of available land, soil physical structure and drainage. Farmers are also sent for training at the CTS Training Centre. During the first two years of production, CTS technicians supervise fumigation on the farm. This process is essential to ensure success. The farmers are provided with second instar worms, which are transported in air-conditioned vehicles. All outputs of cocoons must be sold to the company. If they are discovered selling cocoons to any other company they are immediately excluded from future participation in the scheme. When the farmers deliver their cocoon they meet with officials of the company to discuss problems. On delivery of cocoons, a farmer receives 10% of the value in cash. The remainder is paid through a bank account from which the loan repayment is subtracted.

Photo 25: Silkmoth on Cocoon with Eggs

Industry Structure

Reeling factories usually set cocoon prices based on quality (percentage of defective cocoons, shell ratio and yield per box). Generally the price is around 2.2 EUR per kg. but this varies depending on the cocoon quality. Jim Thompson, for example, has set the price for Grade A cocoons at 3 EUR per kg. in 2007.

Many (approximately 93,000) households in the Northeast are polyvoltine farmers, who generally apply traditional practices and use their own breeding moths or exchange moths with other farmers in the village. Substantially fewer but more commercial oriented farmers in the Northeast and the rest of Thailand produce poly-bivoltine varieties of silkworms (about 20,000 households). This is due to the limited supplies of breeding stock, the improved technology needed for rearing and the reduced disease resistance. There are approximately 7,000 farmers involved in production of bivoltine silkworms and almost 100% of them are contract farmers. Cocoons are sold to the company for further machine reeling at a guaranteed price based on quality.

Conservative estimates value the yearly net income of traditional practice rearers at 1,600 Baht per farm (about 36 EUR), Poly-bivoltine and bivoltine farmers report a yearly net income of 30,000 Baht (about 682 EUR) and 115,200 Baht (about 2.618 EUR) per farm respectively. In rural areas, sericulture is income generating for poor farmers who do not have much land and little capital for investments. It also provides jobs for women and older people in the villages, whilst at the same time it reduces migration of rural people to big cities.

Photo 26: Mulberry Field

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Table 8: Characteristics of traditional and commercial rearers (Sources: QSIS, NEED, 2006 and Stakeholder interviews and Analysis by the Survey Team, 2007)

Items/Type of Rearers Traditional Rearers

Commercial Rearers

Small Scale Commercial Scale

1. Silkworm variety Polyvoltine

(Native variety)

Poly-bivoltine

(Thai hybrid)

Bivoltine

(Foreign hybrid)

- Size of rearing house Empty space

under the house

6 x 8 m2

8 x 16 m2

3. Cocoon production

4. Raw silk production (kg./year) 2 33.9 960 (cocoon)

5. Price of cocoons (EUR/kg.) 1.82 2.16 2.73

6. Price of raw silk (EUR/kg.) 18.18 20.45 -

7. Total income (EUR) 36.36 681.82 2,618.18

8. Income per unit area (EUR/ha/year) 454.55 1,420.45 1,636.36

2. Farm size Small farmer Small farmer Medium farmer

- Size of mulberry plot 0.08 Ha/farm 0.48 ha/farm 1.6 ha/farm

- Rearing (crop/year) 4 8 8

- No. of silkworm egg (box/crop) 0.5 2 4

- Cocoon yield (kg./box) 12 18 30

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4.3 Reelers Reelers buy cocoons from rearers and reel raw silk from these cocoons. The quantity and the quality of raw silk largely depend on the amount and the quality of cocoons and the used reeling technology. There are two types of yarn produced in Thailand; hand reeled and machine reeled. These two technologies correspond with the variety of cocoons to be reeled. Polyvoltine varieties can only be hand reeled as the filament is not strong enough to be reeled by powered reeling machines. When hand reeling, a reeler will put a handful (about 20) cocoons at a time into a pot of boiling water. The filaments of these cocoons are gathered together and by pulling the gathered filaments the filaments will unwind from their cocoons and form a single multi-strand thread. Most hand reelers still pull the thread by hand, but simple hand-powered and motor-driven reeling machines are increasingly used as a way to speed up the process and produce a more even yarn.

In the Northeast, there are more than 100,000 hand reelers and approximately 10 reeling factories, with one large reeling factory from CTS located in Petchaboon province.

Basic hand reelers usually produce around 200 gram of yarn per day. Reelers using a simple hand-powered wooden reeling machine can produce up to 500-1,000 gram of yarn per day depending on size of the reeling machine. The silk yarn produced by hand reelers is typically uneven. As polyvoltine cocoons can only be reeled by hand it is difficult to standardize the production as reelers have different capabilities and levels of skill for the reeling process.

Photo 27: Hand Reeling

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Factory reeling with large motor powered machines is almost exclusively done with bivoltine cocoons purchased from contract farmers. This reeling takes place on a commercial scale, producing both weft as well as warp yarn. Most of the yarn produced in Thailand is weft yarn as it is hand reeled yarn with variable thickness. As a consequence, warp yarn needs to be imported, mainly from China and Vietnam, and is often smuggled. 4.4 Yarn & Fabric Traders There are more than 200 traders in the Northeast getting silk yarn supplies from polyvoltine and poly-bivoltine reelers and bivoltine reeling factories. Yarn traders at the village level sell mainly polyvoltine yarn. They sell to individual households and dyers inside their village or in nearby villages as well as that they trade with community, district and provincial level weaving factories. District and provincial level traders normally sell yarn under contract (both formal and semi-formal) to weaving factories within their province or from different provinces. More than 200 traders in the Northeast obtain silk fabrics from weavers. These silk fabrics are further supplied to home textile producers.

Besides yarns and fabrics, other raw materials or inputs such as dyes and accessories related to dyeing, weaving and home textile production are also provided by the yarn and fabric traders. Powerful traders usually establish long-term relationships with their suppliers. They also provide delivery services to far-away customers and offer credit for long-term customers.

4.5 Dyers There are more than 200 dyers in the Northeast who are responsible for dyeing the yarn. Silk colouring involves operations such as de-gumming, bleaching and dyeing. Non-processed yarns are derived from three sources: hand reelers, reeling factories (machine reelers) and yarn traders. Natural dyes generally come from fruits, leaves, roots, etc. which are available locally. Chemical dyes are also applied in the dyeing process due to the scarcity of natural dyes and their drawbacks in terms of colour fading, limited colour palette, etc. Chemical dyes can be obtained from yarn traders or local input suppliers. After the process of yarn dyeing is completed, dyed yarns will be distributed to weavers to be used in the weaving process.

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4.6 Weavers Silk weaving is done on handlooms as well as power looms. There are 5 different types of weavers involved in the weaving process in the Northeast; handloom weavers, power loom weavers, handloom weavers with yarn dyeing facilities, handloom weavers with yarn dyeing and printing facilities and power loom weavers with yarn dyeing and printing facilities. The first two types obtain dyed yarns from dyers while the last three types receive non-processed yarns from traders or directly from reeling factories (mainly CTS).

Generally most yarn producers tend to specialize in one of the three different varieties of silkworms. As a result, only a small number of producers produce both weft and warp yarns. Consequently weavers often have to purchase warp yarn from reeling factories or yarn traders. As a result, most of the fabrics produced by the traditional sector are a mix of yarn from local (polyvoltine or poly-bivoltine) and foreign (bivoltine) silkworm varieties. The few that are producing 100% Thai silk fabrics (without bivoltine yarn) are primarily small-scale weavers.

Hand weaving is a labour intensive operation with a fabric length of 28 meters requiring up to 20 days to weave. The differentiation of designs, patterns and colour schemes is highly dependent on indigenous knowledge and skills that have been transferred from generation to generation in each region. Silk fabrics will be supplied to home textile producers as intermediate products to produce home textiles or decoration items or supplied to printers in case the weavers have no printing facilities.

Photo 28: Silk woven on Handloom and Shuttles

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4.7 Printers Printing is a method of colouring fabrics. Small-scale weavers generally do not have a printing capability because of the high investment costs. If fabrics need to be printed they will be sent to printing factories. There are more than 30 fabric-printing factories in the Northeast. They charge for printing according to pattern and number of yards. Printed silk fabrics will then be distributed to home textile producers for sewing and finishing.

4.8 Home Textile Producers There are more than 300 home textile producers in the northeast who undertake sewing and finishing in two different ways. One type of home textile producer controls most of the supply processes starting with silkworm raising, yarn making, yarn dyeing, hand weaving, until the final production of

home textile products such as scarves, placemats, bed covers, pillow cases, etc. The specific designs and colours, as well as weaving techniques reflect the cultures of different rural communities. The second type of producer is producing home textiles from materials acquired in the market. These materials include fabrics from handloom weavers, fabrics from weaving factories and fabrics from fabric traders. As stated previously, home textile producers require proper professional design input to cope with changing fashion trends. In order able to adapt quickly to changing demand, a continuous development of designs is required. Additionally, a strong link with markets is needed to understand customer demands and preferences.

Photo 29: Silk Cushions

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Figure 22: The process steps from silkworm rearing to home textile products

Although producers may have direct links with consumers in the chain, there are many layers of middlemen/traders that clutter the supply chain. Forward and backward linkages are weak and information is not freely shared among the participants in the chain. Most producers do not get market information and are thus unaware of the requirements of exporters regarding size and quality. This is because most of their products are traded through informal contract buyers, wholesalers, and wholesaler-retailers. The producer’s situation is further aggravated by a lack of implementation of product grades and standards that leave the producers with minimal control over the price of their products.

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4.9 Trading Agencies/Exporters Trading agencies/ exporters source home textile products directly from local home textile producers and supply these products to foreign buyers in different countries such as the US, Japan, the EU, etc. There are more than 200 trading agencies/exporters in Thailand but only one large exporter (Jim Thompson, officially known as The Thai Silk Co., Ltd.) is dominating the market with a market share of over 50%. Jim Thompson is a successful case of vertical integration in silk production. The company is supplying silkworm eggs, producing its own yarn, purchasing yarn from smallholders for processing, weaving, designing and printing its fabrics, tailoring these fabrics in its factories and is marketing its products through retail shops named Jim Thompson in many countries around the world.

Due to the differences between countries, all chain actors need to understand each specific market and associated customer requirements. Trading agencies/exporters usually have a well-diversified textile product portfolio and their exports are also not limited to silk products and home textiles.

4.10 Traders / Domestic Wholesalers There are more than 300 traders/domestic wholesalers who service local retail outlets as well as traders/domestic wholesalers in other regions. These markets receive fair to good quality products from home textile producers with prices that are similar to those offered to trading agencies/exporters. Traders/domestic wholesalers link producers to local retail outlets, provide market access for producers, supply finished products to domestic chain retail outlets and act as an information broker between the two. The relationship between producer, trader and retailer is normally long-term and informal, often with no written contracts. Business dealings are done based on trust. Traders/domestic wholesalers buy home textile products from their producers and pack these products according to orders from local retailers.

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4.11 Local Retail Outlets There are several local retail outlets such as street vendors and formal retail traders who receive home textile products directly from home textile producers or from traders/domestic wholesalers. Tourists and local people are the main customers for street vendors. For the formal retail traders, there are several fairs and exhibitions, organized by the government, both at provincial as well as national level. National trade fairs which are very well known include the OTOP and the Made in Thailand Trade Fair. The Department of Export Promotion and the Community Development Department are organizing the OTOP fairs 2 to 3 times per year. Provincial trade fairs include annual fairs organized at each province.

Weak penetration, along with limited distribution channels characterize the domestic market sector. In particular the high levels of counterfeit and imitation silk being sold at all levels erodes consumer confidence in the authenticity and value of Thai Silk. There is a potential opportunity to capture more profits from niche target groups within the domestic market such as high-end hotels, resorts and housing projects.

Photo 30: Silk Scarves on Chiang Mai Night Bazaar

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4.12 Supplying Industry

Pre-production Stage

• Cocoon production is labour intensive. Rearers reported that labour needs are the most costly input, ranging from 52% of the total costs for rearing polyvoltine varieties to 31% for bivoltine varieties. Apart from labour cost, other variable costs are small for rearing polyvoltine varieties but these variable costs become more significant when rearing poly-bivoltine and bivoltine varieties. The total cost of mulberry production, for all silkworm varieties, accounts for approximately 30% of total production costs.

• For poly-bivoltine and bivoltine silkworms, rearers need to get new silkworm eggs every time they start a new rearing process. Apart from the contract farmers of a few companies, the poly-bivoltine silkworm is almost exclusively supplied by QSIS. Poly-bivoltine farmers have a greater risk than the polyvoltine farmers in terms of susceptibility to diseases and dependency on the QSIS for the supply of silkworm eggs. They may be in trouble if the QSIS cannot provide enough silkworm eggs for all farmers that demand them. Currently, there is only one company (CTS) that dominates the supply of bivoltine silkworm.

• The rearing of silkworms requires specific environmental conditions, particularly proper temperature, humidity and hygiene control. Currently polyvoltine variety rearers are experiencing low cocoon outputs due to poor management techniques and low hygiene standards and control.

• According to sub-sector sources it takes about 20 grams of synthetic dyestuffs to dye 1 kg. textile fabrics to a medium shade colour. To obtain the same with natural dyes about 1 kg of dried leaves are needed, i.e. equivalent to 5-10 kg. of freshly picked leaves. This means that natural dyes are not a viable commercial alternative and they should primarily be used for niche products only.

• Acid dyes are the most commonly used chemical dyes for dyeing silk. Acid dyes are used both commercially as well as by studio dyers to dye protein/animal fibres such as silk, wool, mohair, angora, alpaca but also some nylons and other synthetics. Acid dyes require the use of an acid such as vinegar, acetic acid or sulphuric acid to set the colour. There is only one European company (Dystar Thai Co., Ltd.) that supplies chemical dyes for silk in Thailand. Other supplies in the market are mainly imported from China and Japan. Chemical dyes can be obtained from yarn/fabric traders or local input suppliers.

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Production Stage

• Washing is normally applied to natural dyed fabrics to remove excess colour and to soften the texture. This washing will help to remove excess colour but it is not an effective way to stop colour bleeding.

• EU legislation restricts the use of arylamines (from AZO dyes) in textile products marketed in the EU as arylamines pose a potential cancer risk. This legislation is applicable to all textile products that may come into direct and prolonged contact with human skin. Testing for AZO dyes is, at the moment, often not required for Thai home textile products exported to the EU but might be needed in the future.

Post-production & Exporting Stage

• At this moment, there is no specific certification required for the export of home textiles besides an AZO dye safe declaration although flame retardant certification (often required in public exposure areas of hospitality venues) and colour fastness testing are sometimes required by EU importers. Certification schemes (e.g. for organic textiles) have not significantly impacted Northeastern home textiles but there is a great potential to implement such certification schemes successfully. Certifications that comply internationally will in the future increasingly be required, accepted and applied, particular by industrial buyers. (See Annex 11.7 for a full list of available home textile tests from THTI)

• There are two kinds of requirements regarding labelling in the EU: mandatory and voluntary. The mandatory requirement for all EU countries is the fibre content and composition of the textiles used. Optional labelling consists of care labelling, washing instructions, origin marking and other labelling such as size, brand or product name and other consumer information.

• Retailers and customers in the silk trade are often connected through postal services and air transportation links, including international airfreight forwarders like DHL, TNT and UPS. Depending on the export destination, volume and time required and the relationship with an airfreight carrier, outbound transportation costs ranges from 5-10% of the total costs.

• There is no official quality standard (e.g. colour fastness, shrinkage by washing, water absorption, etc.) for home textiles in the EU. Despite EU harmonisation, which enables free trade between the EU member states, individual markets have different requirements regarding quality, type of fabric, standards, sizes, colours, etc. Accurate information is best obtained from national importers. Most importers work with certain minimum requirements. In this respect, they have often formulated and stipulated minimum quality requirements for materials and make.

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5. Related Institutions & Efforts

Silk production in Thailand has a prosperous history. Considering its rich glory in the past, many institutions and private companies are present or engaged in the Northeastern Region, and might play a role as potential partners.

5.1 Institutions

The table on the following pages lists the names and the major functions of the prominent institutions that are presently involved in the Thai silk sub-sector.

5.1.1 Queen Sirikit Institute of Sericulture (www.qthaisilk.com)

The Institute, under the Ministry of Agriculture and Cooperatives, aims to be the core organisation to respond to the overall processes of Thai sericulture sector. The Institute has been established since October, 2005 by combining Sericulture Institute, Department of Agriculture and Sericulture Sub-division, Department of Agricultural Extension. The main function of the Institute is to provide technical support to farmers in raw silk production, processing and marketing of silk handcrafted products. The Institute’s strategies are to increase the production of domestic yarn to support silk handcrafted sector and to promote high quality silk yarn at community level.

The Institute comprises 5 regional offices and 21 provincial centres. These collectively provide core functions to support and promote silk production in the country particularly at the farmer’s level. The major responsibilities in term of sericultural promotion are described as follows:

• Produce Native and Thai-hybrid varieties silkworm eggs and mulberry cuttings/saplings to serve farmers in the neighbouring areas.

• Transfer sericultural technologies to field officers and farmers.

• Conduct research and development in order to promote sericulture development in Thailand.

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Efforts

Name Type Major Functions

1 Queen Sirikit Institute of Sericulture including 5 regional offices and 21 provincial Queen Sirikit Sericultural Centres

Government • promote and support silk production, processing and marketing of silk handcrafted products

• produce and distribute silkworm eggs

• provide mulberry cuttings/saplings

• transfer sericultural technologies to officers and farmers

• conduct research and development in order to promote sericulture development

2 Department of Cooperatives Promotion

Government • promote and support farmers to form cooperatives groups

3 Department of Industrial Promotion

Government • promote SMEs in terms of providing knowledge on SME operation, commercial silk processing techniques, financial linkage, etc

4 Department of Export Promotion

Government • promote and provide advice on export procedures

• develop the overseas silk market

• provide information about international markets for silk, import-export statistics

5 Community Development Department

Government • promote and support villagers to operate community business by developing knowledge from local wisdom

6 Thailand Textile Institute

Government • cooperate with other organisations to provide required technical support and suitable standard certifications to textile factories.

• provide industry news and information exchange among members and the institute’s foreign counterparts.

Table 9: Institutions involved in the Thai silk sub-sector

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7 Textile Testing Centre, Thailand Textile Institute

Government • act as a one-stop centre that offers textile material tests, quality assurance, research for product innovations & developments, consultation, special training workshops, etc.

8 Thai Silk Association

Association • promote the production and trade of silk through cooperation with relevant government agencies

• Enhance competitive status by strengthening member organisations’ competencies

9 National Metal and Materials Technology Centre

Government • Promote, support, perform as well as coordinate research development and engineering including technology transfer

• develop technological infrastructure and human resource capabilities in related fields

• coordinate and facilitate strategic collaboration and linkages between research units, educational institutions, industrial sectors and related international institutions.

Table 9: Institutions involved in the Thai silk sub-sector (Continuation)

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Sericulture

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5.1.2 Department of Cooperatives Promotion (www.cpd.go.th)

The main function of the Department of Cooperatives Promotion is to promote and support farmers to form cooperative groups to develop their businesses. The department also helps strengthen the cooperative system, improve the Cooperative’s learning process in order to increase business management, capacity, efficiency of the operation, and encourage upgrading the business linkages to international levels.

5.1.3 Department of Industrial Promotion (www.dip.go.th)

The Department of Industrial Promotion has promoted SMEs in terms of providing knowledge on SME operation, commercial silk processing techniques, financial linkage, consultancy service for new SMEs, etc.

5.1.4 Department of Export Promotion (www.depthai.go.th)

The Department of Export Promotion is responsible to promote and provide advice on export procedures, international market information on silk and import-export statistics.

5.1.5 Community Development Department (www.cdd.go.th)

The Community Development Department is the main department in Ministry of Interior and is responsible for silk handcrafted products. Its main duties are to promote and support villagers to operate community businesses by developing knowledge from local wisdom to increase their incomes.

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5.1.6 Thailand Textile Institute (www.thaitextile.org)

The Thailand Textile Institute was established by virtue of a cabinet resolution of 15th October 1996, at the initiative of all textile associations in Thailand, endorsed by the Ministry of Industry. All parties involved shared the goal of forming an autonomous organisation to focus on the development of the potential of the Thai Textile Industry for Thailand’s sustained competitiveness in the global textile market. The three missions of Thailand Textile Institute are: • to brainstorm ideas among the public and private sectors to formulate a

five-year national textile industry development master plan and amend this plan to suit evolving circumstances,

• to coordinate within the private sector and between the public and private

sectors to align Thailand’s textile industry development with the master plan, and

• to follow the assigned directives under the master plan for an operational

continuity and efficiency.

The objectives of the institute are to upgrade the entire textile industry to enable Thailand to become a quality textile manufacturing country in line with the market rather than a low-cost one, and to equip the Thai textile industry with the readiness to enter a value-adding age under the same free-trade system as in developed countries

5.1.7 Textile Testing Centre (www.thaitextile.org/ttc-lab)

The Textile Testing Centre (TTC) is a division of Thailand Textile Institute. It is an independent textile-testing laboratory determined to serving the manufacturers and exporters of textiles and garments in Thailand. Established in 1999 with the government support from the Textile Industry Division under the supervision of Ministry of Industry, The TTC is equipped with the testing facilities and equipment. The laboratory is a one-stop centre that offers a full cycle of services, ranging from textile material tests, quality assurance, research for product innovation and developments, consultation, special training workshops, etc.

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5.1.8 Thai Silk Association (www.thaitextile.org/TSA)

The Thai Silk Association has been established by a group of leading silk producers since October 2005 when Thai silk began to be recognised as a significant sub-sector, both local and aboard. The objectives of the association are to promote the production and trade of silk through such joint undertakings as cooperation with relevant government agencies, exchange of knowledge and technical information among members, and maintenance of standards and improvement of quality.

5.1.9 National Metal & Materials Technology Centre (www.mtec.or.th)

The National Metal and Materials Technology Centre (MTEC) is operating as one of the technology centres under the National Science and Technology Development Agency (NSTDA), The Ministry of Science and Technology (MOST). MTEC was founded as a special type of government organisation, which supports materials science and technology research and development, including manufacturing and design for both public and private companies and institutions. The objectives of MTEC are to promote, support and perform as well as coordinate research, development and engineering including technology transfer to the industrial sector, to develop technological infrastructure and human resource development in related fields and to coordinate and facilitate strategic collaboration and linkage between various research units, educational institutions, industrial sector and related international institutions.

Under the NSTDA policy to push forward and increase the potential of the country’s science and technology in response to the economic and social situation and needs of the country, MTEC adjusted its operational strategy towards a program-based and integrative operation among the existing national centres under NSTDA, so as to be in line with the development of the major clusters, namely;

• Food and Agro Industry

• Medical and Public Health Industry

• Automotive and Transportation Industry

• Software, Microchips and Electronics Industry

• Energy and Environmental Industry

• Textile and Chemical Industry

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5.2 Private Organisations

Two Leading Companies in the Thai Silk Sub-sector

Although there is no official data to show the level of concentration in the silk reeling commercial sector, it is widely perceived that there are two leading companies. Both companies have the main production in the Northeast and are estimated to represent over 90% of commercial reeling sector in Thailand (NEED, 2006). Notably, they employ almost all of the silk contract farmers in the Northeast.

Table 10: Private Organisations involved in the Thai silk sub-sector


1. Chul Thai Silk Co., Ltd.

Private company

• supply silkworm eggs to the company’s contract farmers

• produce and supply of bivoltine silk yarn

• provide a sericulture training (mulberry and cocoons production) for the company’s contract farmers

2. The Thai Silk Co., Ltd. (Jim Thompson)

Private company

• supply silkworm eggs to the company’s contract farmers

• process (de-gumming and dyeing) yarn purchased from smallholders, weaving, fabric designs and printing, and tailoring in its factories

• market products through specialized silk retail stores owned by the company under the brand name of Jim Thompson

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There is an important difference between the two companies. Chul Thai Silk Co., Ltd., which is part of the Chul Group, specializes in yarn production, while associate companies of the group specialize in the supporting activities for yarn production (silkworm eggs production, training for farmers, de-gumming and dyeing). In contrast, Thai Silk Company is a more vertically integrated business, that combines production activities from contract farming to specialized silk retail stores; this company has established a successful brand, Jim Thompson, which has been successfully used to market a wide assortment of silk products (fabrics, garments, and home textiles) on the domestic and international market. A concise description of the two businesses is presented below.

5.2.1 Chul Thai Silk Co., Ltd. (www.chulthai.com)

Chul Thai Silk Co., Ltd. (CTS) is the largest Thai company in the Bivoltine silk yarn sector and other silk related businesses. CTS only produces and supplies Bivoltine yarn. The company was first established as family business in 1936. During that period, the company was known as “The Chul Cunvong Farm” and was the largest tangerine farm in the country. In 1967, the tangerine trees were affected by a serious virus disease, which disrupted the production. The company then turned to the silk business. In 1968, Chul Thai Silk Co., Ltd. was founded. The development of the company was facilitated by the national policies in place at the time, which encouraged domestic silk yarn reeling as a substitute for yarn imports. During the establishment of the Chul-Thai Agro Industries Co., Ltd, CTS also created a joint venture with two Japanese companies. During the first 15 years the company experienced continuous difficulties but eventually was able to find suitable technology and development began to take place.

In 1987, the Dutch Government through the Netherlands Development Finance Company (FMC) donated a grant for the amount of 8 million Baht (approximately 180,000 EUR) to CTS. This finance support was aimed at establishing a non-profit organisation called Chul Thai Silk Foundation, which became a Sericulture Training Centre for farmers. To date, the company estimates that over 7,000 farmers have been trained by the foundation. The courses cover both mulberry and silk cocoon production and the farmers trained by the foundation become Chul Thai Silk contract farmers. Estimates provided by the company indicate that its contract farmers earn a combined income of over 7 million EUR annually.

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At present Chul Group has grown to include 5 companies and one foundation that are deeply rooted in the silk business, and cover all aspects of the sub-sector from silkworm egg production to silk yarn reeling. To ensure diversity, one company within the group remains outside the silk business and is involved in growing citrus fruits and fish products. It is estimated that the company employs about 2,200 people directly, in silk yarn reeling and related activities, and contracts around 6,000 farmers for cocoon production. In 2005, Chul Thai Silk’s yarn represented about 75% of the domestic production of bivoltine varieties. Its silk yarns are sold in both domestic and export markets. Chul Inter-Silk Co., Ltd manages the export markets.

5.2.2 The Thai Silk Co., Ltd. (Jim Thompson) (www.jim-thompson.com)

James Harrison Wilson Thompson, a US born citizen, established the Thai Silk Co., Ltd. in 1948. It is undisputed that Jim Thompson made a major contribution to the Thai silk sub-sector, introducing distinctive quality, colours and designs, and establishing a reputation for Thai silk in the international markets. Major awards with which Jim Thompson was honoured are evidence of the relevance and appreciation of his work. In 1962, in recognition of this contribution to Thailand, the Royal Thai Government awarded Jim Thompson The Order of the White Elephant.

The business grew over the million-dollar mark in the 1960s and had a further rapid expansion in the 1980s. According to the data provided by the company, in 1967 (the year in which Jim Thompson disappeared under mysterious circumstances), the company’s turnover was approximately 1.3 million EUR. The annual turnover expanded by 60% in a 5 year period in the mid 1980’s as the company responded to the renewed popularity of silk in international markets and growth in the domestic economy accompanied by a dramatic increase in the local tourist market. Currently the company ownership comprises 51% Thai nationals with the remaining 49% owned by foreigners.

The company is a successful case of vertical integration in silk production. It supplies silkworm eggs, purchases yarn from smallholders for processing (de-gumming and dyeing), and undertakes weaving, fabric designs and printing and tailoring in its factories. All products are marketed through specialized silk retail stores owned by the company under the brand name of Jim Thompson. The main retail store is located in Bangkok where products are sold principally to tourists. There are many competitors now, but Jim Thompson’s name remains synonymous with Thai silk. His Thai house still stands and is now a museum run by the Jim Thompson Foundation that is popular among international tourists.

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5.3 Government Initiatives Taken to Promote the Silk Sub-sector

Beside the main function of government organisations mentioned above, the Thai Government has undertaken a number of initiatives to support and strengthening of Thai silk sub-sector, these include:

• Encourage domestic consumption

The wearing of Thai fabrics, especially silk, has become increasingly popular, particularly by the government's encouragement of cabinet ministers to set the trend. However, buying silk is still limited to the well-off, middle-aged and older women who place importance on elegant clothes and social status. Civil servants were asked to support the government's policy on a voluntary basis by wearing Thai fabric on Fridays but many junior officials prefer modern fabrics that are lower in price and easier to clean.

• OTOP project

OTOP stands for “One Tambon One Product”. The government initiative launched in 2001 to identify and promote unique products made by a particular sub-district as a means of expanding the country’s domestic and international trade as well as improving incomes of villagers.

The OTOP logo created by the Department of Export Promotion is a symbol of excellence. It is awarded to those handcrafted items, including silk, produced in village communities that reach the standards set by the OTOP National Committee and have good potential for export. The Ministry of Commerce plays an important role in marketing the unique OTOP products by introducing the very best to local and international markets, besides providing advice to local communities on design, packaging and quality control.

• Queen bestows quality emblem for Thai silk

Ministry of Agriculture and Cooperatives will use a peacock emblem bestowed by Her Majesty the Queen to authenticate Thai silk and protect the reputation of the fine silk products from imitation ones. The quality of Thai silk had not previously been certified officially. This lack of standardisation had made it hard to identify and maintain quality. The peacock emblem is guarantee of quality, and assists in making Thai silk more competitive globally whilst protecting silk farmers from exploitation.

The oval peacock emblem uses four colours indicating specific silk types and production process: gold (premium, traditional methods), silver (classic Thai, specific silkworm breeds), blue (Thai silk, allows chemical dyes) and green (blends with other fabrics).

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Efforts Figure 24: Peacock Emblems used for different Thai silk qualities

Gold Peacock for "Royal Thai Silk" – uses native Thai silkworm breeds, hand-made production. The term refers to the type of Thai silk that is hand-woven vertically and horizontally, using indigenous hand spun on traditional handlooms. Either natural or chemical dyes can be used, but the latter must be environmentally friendly. The silk must be produced by Thailand exclusively.

Silver Peacock for "Classic Thai Silk" – uses developed silkworm breeds, hand-made production. This refers to the style of Thai silk that is hand-woven vertically and horizontally using either indigenous or adaptive hand spun methods on traditional handlooms. Either natural or chemical dyes can be used, but again, the latter must be environmentally friendly. The silk must be produced in Thailand exclusively.

Blue Peacock for "Thai Silk" – uses pure silk threads, with no specific production method. Only pure silk yarn is used in this kind of silk, which is woven vertically and horizontally on any kind of loom. Either natural or chemical dye can be used. The silk must be produced in Thailand.

Green Peacock for "Thai Silk Blend" – is silk blended with other fabrics, no specific production method. For this kind of silk, pure silk yarn is the main component, supplemented by other fibres as a secondary raw material. Any kind of loom can be used but details of fibre components must be clearly identified. Either natural or chemical dye can be used. The silk must be produced in Thailand.

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The value chain splits for products going to export and domestic market. Consequently, two value added tables were prepared as follows:

Table 11: Generated Value in the Export Silk Home Textiles Chain (Source: Stakeholder interviews and Analysis by the Survey Team, 2007)

Chain Actors Cost Sales Value Added

Value Added along the chain (%)

Include Retailer

Exclude Retailer

Rearers 43 56 13 0.43% 1.56%

Reelers and Dyers 56 84 28 0.93% 3.39%

Handloom Weavers 84 319 235 7.84% 28.46%

Home Textile Producers 319 526 207 6.92% 25.10%

Exporters (FOB) 526 868 342 11.43% 41.49%

Foreign Retailers 868 3038 2170 72.45% -

Remarks: 1. Value addition is calculated based on one square metre of high-end silk fabric 2. Value addition is calculated for a simple silk home textile supply chain 3. Value addition is not necessarily representative for all home textile products value chains 4. Value added for rearers is approximately 30% 5. Value added for reelers and dyers is approximately 50% 6. Value added for handloom weavers is approximately 380% 7. Value added for home textile producers is approximately 65% 8. Value added for exporters is approximately 65% 9. Value added for foreign retailers is approximately 350% 10. Value addition at each stage can be improved by design, style, tactic, expertise, brand e.g. a

special design table linen will sell for EUR 200 against the same quality with simple design selling at EUR 50 11. Rearers are highly depend on amount and effective use of labour (paid or family) and chemical inputs and the impact on yield.

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Expressed in a pie chart, rearers, reelers and dyers add less than 5% per square metre of the value for silk home textiles, while handloom weavers, home textile producers and exporters contribute 28%, 25% and 41% respectively (excluding foreign retailers). Foreign retailers were not integrated in order to more clearly show how much of the value each of the domestic actors is retaining. Taking into account that home textile producers and exporters are in many cases different branches of the same companies, this group controls a majority portion of 67% of the value added.

Figure 25: Percent Value Added in the Export Silk Home Textiles Chain (Source: Stakeholder interviews and Analysis by the Survey Team, 2007)

Photo 31: Silk Fabric Shop

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Table 12: Generated Value in the Domestic Silk Home Textiles Chain (Source: Stakeholder interviews and Analysis by the Survey Team, 2007)

Chain Actors Cost Sales Value Added

Value Added along the chain (%)

Rearers 43 56 13 2.23%

Reelers and Dyers 56 73 17 2.90%

Handloom Weavers 73 204 131 22.74%

Home Textile Producers 204 265 61 10.60%

Wholesalers 265 344 79 13.78%

Retailers 344 619 275 47.75%

Remarks: 1. Value addition is calculated based on one square metre of silk fabric 2. Value addition is calculated for a simple silk home textile supply chain 3. Value addition is not necessarily representative for all home textile products value chains 4. Value added for rearers is approximately 30% 5. Value added for reelers and dyers is approximately 30% 6. Value added for handloom weavers is approximately 280% 7. Value added for home textile producers is approximately 30% 8. Value added for wholesalers is approximately 30% 9. Value added for retailers is approximately 80% 10. Value addition at each stage can be improved by design, style, tactic, expertise, brand etc. 11. Rearers are highly depend on amount and effective use of labour (paid or family) and chemical inputs and the impact on yield.

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The following actors control the following shares of the value generated in the chain from production to retail consumption:

Compared to export silk home textiles, producers of domestic silk home textiles control a smaller portion (11% of the value added. Retailers control a majority portion of 48% of the value added. Wholesalers and retailers make up more than 60% of the value added in the domestic market.

Figure 26: Percent Value Added in the Domestic Silk Home Textiles Chain (Source: Stakeholder interviews and Analysis by the Survey Team, 2007)

Photo 32: Silk Bolts in Jim Thompson Shop, Bangkok

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7. Competitive Advantages & Sector Strategy

7.1 General Review in Thailand

There are low barriers to entry in the sector for a number of reasons. Home textile production does not require high investment, the bargaining power of buyers depends on consumer preferences. Silk home textile products from different regions are unique. The threat of substitution, therefore, does not come from other product type but mainly from other production areas.

New chemical fibres are more refined and similar in terms of look and feel as that of silk and are easier to care for. Therefore, consumers of silk products may switch to substitutes which look alike but where cost is lower.

Due to the high level of competition in domestic markets and also the low switching cost for substitute products, buyers have power to dictate prices. This is partially due to an increase in domestic production along with steady demand. In general, buyers are able to source home textile products that provide good quality and design at the lowest prices.

The supply industry, including yarns, fabrics and other accessories, has moderately high bargaining power. This is because the majority of home textile producers in Northeastern Thailand are small-scale producers who invariably buy local available inputs in order to produce home textile products. Hence, the increasing input costs force producers to use greater amounts of capital. Producers have expressed their concerns regarding rising production costs against the downward trend in the market price of home textiles. As producers need inputs and buy them in small amounts, suppliers have strong power. If producers adopt collective purchasing initiatives, their bargaining power would increase however has not yet been systematically capitalized.

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To compare the productivity and efficiency of handlooms and power looms, similar fabric is assumed to be produced on the two types of looms. The type of yarn used is 100% silk and the weft and warp yarns are dyed. Yarn dyeing, sizing and warping costs are similar for the two types of technology. For power looms, the labour costs for one weaver and one fitter, are typically distributed equally across four power looms. In handlooms labour cost involves only one weaver. The simple analysis of cost and efficiency reveals that the commercial operation of handloom weaving is viable only if the producer is able to effectively market product as a distinct product, differently to industrial textiles (power loom weaving) and charge a premium on the average market price.

Power Loom & Handloom

The productivity of handlooms is nevertheless the lowest in comparison with other weaving technologies. The productivity factor has played an instrumental role in the shift of fabric production from handlooms to power looms. On average, a handloom produces 1 - 2 metres of fabric in one day (8-hour shift) and one weaver is required to operate a loom. In terms of square metres, the production is around 2 – 3 square metres per day (8-hour shift). The production of fabric on power looms is more than 5 times that of a handloom and instead of one weaver handling one machine, one weaver can manage four power looms.

Photo 33: Power Loom

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s Polyvoltine and Poly-bivoltine and Bivoltine Silk Yarn

In Thailand, the polyvoltine yarns are not competitive internationally, particularly against imported Chinese and Vietnamese yarns. The World Bank (2006) noted that labour costs, which represent the majority in total costs; need to be reduced by 56% before making polyvoltine yarn internationally competitive. Given the fact that small reductions in wage returns to rearers result in significant numbers of them leaving the sub-sector, it is unlikely that such reductions in costs would be ultimately beneficial to the sustainability of the sub-sector.

Photo 34: Machine Winding of Pirogues

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Like the polyvoltine yarns, the poly-bivoltine and bivoltine yarns are not internationally competitive against imports of Chinese and Vietnamese silk yarn. Labour costs also form the majority of the costs along the chain, but the composition of labour cost varies between the different chains; for example, in the bivoltine yarn production chain, the major labour cost is for reeling, while in the poly-bivoltine chain, the major labour cost is for cocoon production. The World Bank (2006) indicated that labour costs would have to reduce by 66 and 62% respectively in order for the production to become competitive internationally. Like the case of the polyvoltine chain, reduction in wages for the poly-bivoltine and bivoltine production would have negative implications for the sustainability of the two yarns.

The implication of the competitiveness study for the poly-bivoltine and bivoltine production are similar to that for the polyvoltine varieties; it is unlikely that substantial changes is underlying cost structure would achieve competitiveness against imported Chinese and Vietnamese yarns. As a result, rather than trying to reduce the prices of Thai silk yarns to compete against imports, it may be better for Thailand to increase quality and capture the high value segment of the market.

Possibilities for niche marketing do exist but it is essential for Thai products to be well differentiated, correctly labelled and well branded.

The question then remains as to what the polyvoltine production can do to improve competitiveness. Increasing yield and improving production systems are important areas to investigate in this regard. Also, a change in production from polyvoltine to poly-bivoltine would go someway to achieving this goal. However, changing the Thai silk sub-sector from polyvoltine to poly-bivoltine production runs the risk of losing the characteristics, which make the sub-sector what it is. Polyvoltine yarns are used to make high quality fabrics appealing to the segment of the market that values traditional hand woven silk above mass-produced silk fabric. Rather than trying to compete on price (a losing strategy which involves a race to the bottom with a corresponding loss in quality), the producers of Thai polyvoltine yarns should perhaps accept that they cannot compete on price against mass-produced silk yarn and should aim for high valued niche markets trading on the appeal of hand woven traditional silk products.

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Table 13: Issues to be addressed in the Thai Home Textiles Sub-sector(Source: Stakeholder interviews and Analysis by the Survey Team, 2007)

Sector

• Increased understanding of foreign markets

• Improved ability to develop informed long-term planning and foreign market access strategy

• Focused understanding of future research needs

• Improved understanding of future development needs

Producers

• Increased understanding of foreign markets and market needs

• Increased ability to access foreign markets

Inputs/Materials Supply

• The unreliable supply of raw materials is a major hurdle to accepting orders (especially large orders) as delivery dates cannot be guaranteed; producers may develop a bad name in the industry as being unreliable in part due to these issues.

Sales/Pricing

• Many producers struggle to find the optimal pricing for their products, which is further exacerbated by them not understanding the value of their products in international markets.

Product Identification

• To date, much of the identification of products for exports has been ad hoc on the basis of interest from individual buyers.

• There are inadequate feedback mechanisms/channels to encourage constructive criticism and feedback to local producers to develop products and produce them in accordance with export market requirements and preferences.

• Producers would like continually updated research (seasonally) relating to specific high opportunity products.

Market Identification

• While some market information may be held by trading agents/trading houses, this has tended to focus on their specific client base, and is primarily used for internal purposes rather than being widely available to industry members.

• Support structures hold some market information, but this is not necessarily in an easily digestible format currently, and is not always up-to-date.

• Insufficient capacity is currently available to coherently provide support to the majority of the sector in identifying the most appropriate product-market combinations.

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Table 13: Issues to be addressed in the Thai Home Textiles Sub-sector(Continuation) (Source: Stakeholder interviews and Analysis by the Survey Team, 2007)

Marketing

• In general, producers have a lack of business and marketing skills

• Producers are often so caught up in the cycle of “produce and sell” that they do not have time to conduct marketing research

• Very few producers are able to produce their own promotional material

• Producers who do on an individual basis, or have attempted to, market their products in foreign markets have found it to be very expensive (e.g. cost associated of producing and shipping samples). However, some producers feel that direct experience is still the best way to understand the market and be exposed to it.

• Producers have little or no marketing experience and quickly lose interest after unsuccessful marketing attempts.

• Many within the industry do not have the capital to fund marketing initiatives.

• Texture of the product is key to the purchasing decision, and is therefore being able to “touch and feel” the product is a vital part of marketing.

Design Application, Trends Analysis and other R&D

• Market research and product development is very limited.

• No forum for feedback, which is required to drive product development.

• Lack of information on trends for both existing and emerging producers.

• Lack of exposure to international design and fashion trends.

• A move toward producing high volumes can result in a lack of creativity and innovative product development as the commercial focus becomes the priority and producers focus on meeting immediate orders.

• There are high quality designs and stylist talent in Thailand, but this is not always matched successfully with appropriate producers.

• Often the approach to style design has been over-simplified, focussing on “ethnic” design, rather than finding a fresh, differentiated style that may or may not have an essentially “Thai” feel.

• Greater resources need to be put towards exposure to and interpretation of international trends

Production

• Orders are not regular and it is therefore unsustainable to maintain fully-fledged production lines, resulting in significant contract (non permanent) employment.

• Many producers are unaware of the quality requirements in particular export markets.

• Many emerging producers are unsure of their own ability to deliver large volumes as a result of various production related issues and are therefore reluctant to commit to supplying very large orders.

Industry Marketing

• Lack of dedicated and coordinated effort or a campaign to market the local industry both nationally and internationally.

• Local producers are not branded and their products are not distinguishable from others in the Thai market.

• No coordinated effort to establish a single representative to promote/ market a number of producers and their products to minimize cost, whilst sharing exposure and feedback.

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Table 13: Issues to be addressed in the Thai Home Textiles Sub-sector(Continuation) (Source: Stakeholder interviews and Analysis by the Survey Team, 2007)

Export-Specific Support

• Product is not the problem; rather local producers fall short in their organisation of production capacity necessary to guarantee the volumes and quality demanded by international buyers.

• Producers view exporting as an extremely intensive process with many different results and therefore don’t explore export market opportunities.

Exporters

• Buyers in the sector tend to rely on touch and feel to make their purchasing decision, with texture and 3-dimensional look being important purchasing criteria.

• Reliability and consistency of production is acknowledged as a hurdle to successful exporting, in terms of volume, quality and on-time delivery.

• In some cases, there may be significant difficulties in ramping up the volume of production, particularly given cash flow constraints, unpredictable orders, and the ongoing obligations to a workforce that may develop if expansion is required to meet an order. In the past, this has resulted in some cases of producers turning down potential export orders. Some producers have partly addressed this through collaborative production and/or training people and setting them up in “outsourced” enterprises that do not result in obligations to salaried workers.

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trategies 7.2 Competitive Analysis

The Northeastern home textile sector does not have a clear strategic direction or marketing strategy. Despite the existence of various exporters, they are fragmented, with self-interest and short-term profit maximization as a prevailing behaviour. Well performing silk enterprises, such as Jim Thompson, are self reliant with no desire to undertake collaboration outside their own spheres. Clear public policy is also lacking. In terms of marketing (and branding) in particular, the Northeastern home textile sector is still weak. Awareness of international (including EU) trends and issues, particularly beyond the medium-sized exporters, is limited.

Worldwide supplies of handloom products are ample; buyers have a number of choices to select from. Suppliers will have to distinguish themselves and/or create new markets in order to stay competitive. Thailand is a mid-level challenger to the industry leaders such as China and India in that they have significant share in EU markets. Thailand however, is still following in terms of production systems, market intelligence, quality control, product design and innovation.

Low to Mid-end Segment

Products from China dominate the low-end segment. The South Asian countries, such as India dominate the ‘low to mid’ segment of the market. The extremely low cost of manufacturing in these countries (due to low labour and materials costs) makes it difficult for producers from other countries to compete with them on price. The availability of high quality, domestically produced textiles in these countries has ensured a constant supply at minimal cost.

The price competitive, low-end segment of the market is a difficult one for Thai exporters to compete in due to the high costs of shipping, combined with Thailand’s production costs. This makes it difficult for Thai exporters to be price competitive.

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s High-end Segment

Italy and France dominate the high-end segment of the market. Branding is a key component of the high-end products, as it promotes exclusivity. Both Italy and France have successfully branded their products.

Italy has been traditionally the largest producer, as well as importer and exporter of silk products in Europe. Italy produces 91% of all the silk products produced in Europe and is well known for highly developed skills in silk processing (finishing, dyeing and printing silk fabrics). Processing of silk is highly clustered in a single industrial district, around the city of Como – located close to Milan – covering almost 80% of silk production and processing in Italy. In Como, the annual production totals 3,200 tons of the silk products, (materials for clothing, upholstery, decorating fabrics, scarves, ties and shawls). This production for silk products generates export value of about 1 billion EUR per year.

France is another country with a considerable silk processing industry. As is the case in Italy, the industry in France is geographically concentrated and is located around the city of Lyon. This industrial district is producing silk fabrics of the highest quality for domestic consumption and for export. Traditionally, more than 70% of the silk fabrics in the French market have been used for apparel. France exports top quality silk fabrics to the US market, with unit prices reaching 20 EUR per square meter.

Opportunities exist in each of the segments. The middle segment is by far the largest, with the largest number of shops and fastest moving collections. Both the high and the low segment are more difficult to enter: the high segment because of the focus on European brands and products, and very high demands on design, materials, workmanship, quality control and packaging.

Photo 35: Silk Cloth

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trategies As mentioned before, the price trends in the EU market indicate that most Thai home textile producers are unlikely to be able to compete in the low end of the market. Thai exporters therefore need to position themselves in the medium to high end of the market in order to be able to compete and make exporting worthwhile. Generally, medium to high end market requirements include:

• Quality of materials

• Quality of workmanship

• Reliability of supply

• Excellent design application

• Branding – much of the high-end market for home textiles in the mainstream retailers is depending on brand names and designer labels, or acceptance as a supplier of own brand/private label goods.

Goodwill and consistency are essential for survival in this sector. The competition faced within this sector must be conducive to innovation and creativity with regard to silk products. So, product design, development and constant improvement become even more important as these are the parameters that determine the market demand, facilitate the brand image and generate higher profit margin.

The market for home textiles – Silk sub-sector has weathered competition from lower cost countries. Countries well known as exporters of silk home textiles to EU markets include China, India and Vietnam. All of them seem to be the main competitors of Thai home textiles.

Photo 36: Silk Fabric

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7.3 Summary of Competitors

China

China held a leading market share in the EU market for home textile products (16% of the world exports to the EU) with export revenues of about 982 million EUR in 2005. China is also the world’s largest producer and exporter of home textiles. China has invested in more spinning and weaving

equipment than any other country during the last 5 years. Moreover, China’s huge supply of inexpensive labour and skilled sewing machinists, coupled with access to indigenous raw materials, has enabled the Chinese home textile industry to remain highly price competitive and attract foreign direct investment (FDI) in facilities and technologies. The industry also is considered to have efficient management and the technical know-how to produce virtually any home textile article.

China, an industrialized country focused on specialist mass production, is classified as a large scale and high quality factory producer. Minimal local cultural/ethnic products are exported from China. The prevailing orientation towards copying, counterfeiting and licensing weakens the development of creativity and massive flows of foreign investments have become a substitute for domestic entrepreneurships. There are however signs that China is under pressure and is not necessarily sustainable.

The development of China’s home textile export industry will be a key issue affecting world trade in home textiles in the coming decade. Total imports of home textiles from China to EU markets increased strongly; from about 10% in 2003 to about 16% in 2005: an increase of about 60 to 70%. All quotas in the textile sector were eliminated as of 1 January 2005. However, due to certain developments during the first month of 2005 regarding EU imports from China led to a new agreement, in which a limitation was placed on the growth of Chinese textile exports to EU until 2008 (CBI, 2006). This agreement between the EU and China covers several product groups of home textiles, like bed, table, bathroom and kitchen linen. This quota between China and EU has created opportunities for other developing countries.

Trade data reveals that China’s share of the EU market has increased markedly in products for which quota restrictions have already been removed. Several retailers indicated that they have shifted sourcing of their home textile products to China from such countries as India, Philippines, Thailand, and Malaysia.

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Besides large turnover and exports in home textiles, China has not identified itself with the production or branding of any famous home textile brands in the global market. This is due to the lack of fine designers in the home textiles field and less aggressive approach by many domestic textile manufacturers especially compared with other overseas regions. But, still China is trying to increase its market share worldwide in the home textiles segment. The Chinese domestic home textiles industry has been undergoing great changes. Additionally, manufacturers are also attempting to set up close co-operative relationships with textile institutes to develop more capable and specialized designers.

With the changing production pattern over time, China has emerged as the world's largest producer (90%) and exporter of raw silk, accounting for 90% share of global exports. China was the birthplace of the production of raw silk and silk weaving. The fibre produced was so treasured that it became a measure of currency and reward. The imperial courts in China even established factories to weave silk fabrics for ceremonial use and for gifts to foreign powers.

China’s silk trade is being challenged by its foreign counterparts including India, Vietnam and Thailand. The stylish silk fabrics of Thailand and India, and the low-priced raw silk of Vietnam also pose a great threat to China’s silk trade. The lack of well developed silk brands and poor promotion of Chinese silk products has also hampered the sector’s exports. Sometimes, China-made silk products are made from raw domestic silks and packaged as part of Italian brands, which are then sold at international prices. This scenario has done little to help raise the profile of China’s silk products.

India

India produces and exports an impressive range of home textile products and has a wide range of product capabilities, production capacity, quality management and product development skills. India held about 10% share in the EU market with export revenues

of about 614 million EUR in 2005. Indian home textile handcrafts are in demand globally, with home textile exports expected to increase from about 1 billion EUR in 2006 to about 4 billion EUR by 2010.

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In many respects, the workmanship and level of education of the Indian craftsmen is higher in the Indian industry in comparison to their counterparts in China. Indian producers should leverage this apparent gap to the greatest extent. Indian companies can better recognized the requirements of the buyers and can strategize correspondingly. India is regarded as a major alternative source of supply to China for fabrics and textiles. Retailers and suppliers acknowledge that India can remain competitive because of its large, relatively low-cost labour force, a large domestic supply of fabrics, and the sector’s ability to manufacture a wide range of home textile products. EU retailers described Indian firms as innovative, particularly in design functions. Poor infrastructure was cited as a concern, but not as a factor that will necessarily influence investment and sourcing decisions.

Indian traders are shifting to higher-valued products in comparison with Chinese competitors. Indian products are more focused towards innovation and quality. Visible efforts in quality improvement, innovations through R&D programmes, and other value-added features bring a whole new dimension to Indian products. In turn this resulted in higher profits as compared to other regional producers. A combination of factors such as low cost of production, skilled manpower, increasing absorption of world class technology is improving the acceptability of the Indian silk home textile products in the EU markets.

Compared with Thailand, there are several favourable factors that make India one of the most threatening competitors for Thailand in the international market. Beside factors mentioned above, particularly for European markets, the country is a threat due to a good relationship with EU markets especially the UK. Nevertheless, Thailand’s inbound transportation is better than India’s.

India is the world leader in raw silk imports, holding a 33% market share. India has become the largest importer of raw silk, despite the fact that it is now the second largest producer (13%) of raw silk after China (70%). In India local demand greatly exceeds supply, which limits export growth potential. India has the unique distinction of being the only country in the world producing all the commercially known varieties of silk - Mulberry, Tasar, Eri, and Muga. Growing demand for traditional silk fabrics and exports of handloom products drives raw silk demand in India.

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Vietnam

Several informants for this study expressed concern about Vietnam’s entry into the marketplace. Reliable statistics are difficult to find in order to verify the current production situation. The availability of domestic raw silk in Vietnam has been an important factor in the development of its silk home textile sector: it is

the world’s third-largest producer of raw silk (9%) after China and India. Vietnam provides a more limited range of home textile products than India, but is considered a competitive supplier of silk home textile products in EU markets. In 2005, Vietnam held about approximately 1% share in the EU market with export revenues of about 60 million EUR in 2005.

Vietnam is in a competitive position to capture the market because of its cost advantage and tradition. Vietnam has emerged as a major player in the world silk market over the last decade and is expected to continue to steadily increase and be a potential threat to countries like China, India and to some extent to Thailand. Vietnam would be able to compete in terms of volume and price in EU markets. However, Vietnam will have to pay serious attention to quality control issues that have been a problem in the past.

A summary of main competitive advantages is given on the next page in Table 14.

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Table 14: Competitive advantages of Thailand versus key Competitors (Source: Resource people interviews and review of CBI and THTI data by the Survey Team, 2007)

Key Competitor Thai Advantages Competitor Advantages

China Smoother inbound logistics

EU may want to diversify suppliers

Growing handicraft trade trend

EU-China textile quota

Higher volume

Cheaper prices

Big market share

Availability of cheap labour

Interested investors

Higher technology

India Smoother inbound logistics Higher volume

Cheaper prices

Big market share

Availability of cheap labour

Relations with the UK market

Design expertise

Higher technology

Vietnam Smoother logistics

Better standards

Higher volume

Cheaper prices

More consistent labour supply

Initial benchmarks and a full explanation of the scoring system of silk home textiles for Thailand and other key competitors are provided in Annex 11.2.

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trategies 7.4 Competitive Strategy

As mentioned before, Northeastern home textile producers and exporters, not including the big players, i.e. Jim Thompson, Shinawatra, Anita, Silk Avenue do not have a clear, shared vision or strategy for the sector.

The major challenges to the silk sector in Northeastern Thailand are how:

• to improve its position in the world handloom silk trade,

• increase returns to stakeholders along the marketing chain,

• lower costs,

• improve productivity, and

• increase value added.

Part of the challenge is to recognize that innovation and governance along the value chain are key elements of any strategy aimed at maintaining and ultimately increasing the profitability of the silk sub-sector. It is not just a matter of trying to reduce costs and increase productivity, but rather to increase the returns to the products being sold.

Creating a sustainable competitive advantage would come from efficient and sustainable production systems, the combination of value chain linkages, better supply chain management, accompanied by a focus on niche products, improved design and marketing. Based on the analysis of secondary information, (conducting interviews and holding discussions), the following competitive strategies for the Northeastern home textiles were identified.

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up loyalty amongst its (current and future potential) consumer base by re-enforcing its reputation for handmade items; social and cultural heritage; environmentally friendly products; unique and distinctive characteristics of design, technique and presentation; consistent and premium quality while at the same time selling at reasonable prices.

• The sector will need to upgrade its adherence to standards and quality (e.g. design) in order to build a solid reputation.

• Improving production systems could increase yields, reduce supply input and ensure consistent supplies.

• Market development is also important. Possible market development includes non-mulberry silk, fair trade, organic and natural dyed niche market.

Table 15: Northeastern Silk home textiles: Industry Strategies & Interventions, Importance of Strategic Targets (Sources: Stakeholder interviews & Analysis by Survey Team, 2007 and Validation workshop, 2007)

Very Relevant Product Innovation / Upgrading

• Research trends & opportunities

• Incubate new products

• Enable design innovation

Relevant Quality Improvement

• Improve quality of raw material

• Improve weaving technique

• Increase productivity

• Define quality standard along the value chain

Medium-term relevant Cost Reduction

• Improve production efficiencies

• Appropriate technology solutions

• Improve cost-efficiency of logistics

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trategies Based on the findings of this study, the Northeastern home textiles sector should focus on the following issues to increase its exports to EU markets.

• Research, development and the incubation of product upgrades/innovations such as non-mulberry silk home textiles, natural dyed home textiles, organic home textiles and fair trade home textiles for EU niche markets. Focus on enabling design innovation and developing the market by timely response to changing c u s t o m e r p r e f e r e n c e s a n d requirements through more direct marketing and a proactive export development approach.

• Focus on expanding EU markets, upgrading quality and improving marketing and linkages. Potential opportunities are addressed through the following interventions: improved productivity, defining quality standards throughout the chain, improving quality of raw materials, improving weaving techniques, and improving eco-efficiency along the value chain (energy-saving, waste avoidance and reduction and efficient wastewater treatment models).

• Target cost reduction through process improvements. Related interventions are needed to address cost-effective farming, improved production technologies (equipment, tools and device development) and logistics.

Thailand will only be able to expand market shares and challenge the EU markets if product innovation and quality upgrading are successfully merged in highly competitive value oriented pricing strategies.

Photo 37: Handloom

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8. Constraints & Opportunities

8.1 Rearers

8.1.1 Specific Constraints

Rearers face different constraints depending on the variety of silkworm they produce.

Polyvoltine Varieties

• Low cocoon yield

Polyvoltine varieties have a low yield in terms of the number and size of cocoons as well as the length of silk filament. Rearing conditions are often rather dirty as rearing areas may be located next to livestock shelters or being used also for general storage without any concern about cleanliness. Native silkworm varieties can survive these conditions, but will give low cocoon and filament yields.

Poly-bivoltine Varieties

• Dependency

Besides the contract farmers of a few private companies, poly-bivoltine rearers are dependent on the QSIS as the sole egg supplier. The need to procure silkworm eggs from the QSIS means that they are vulnerable to supply shocks if the QSIS cannot provide enough silkworm eggs for all the rearers that demand them.

• Variability in quality of the poly-bivoltine silkworm eggs

During the field interviews a common compliant was the variability in quality of the poly-bivoltine eggs obtained from the QSIS. It is unclear whether this is caused by poor breeding protocols within QSIS or by poor management of rearers (resulting in increased susceptibility to disease).

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Bivoltine Varieties

• Dependency

Almost all bivoltine rearers are contract farmers. Bivoltine rearers are dependent on the contracting company as the sole buyer of their products. The company dominating contract arrangements in the Northeast is Chul Thai Silk Co., Ltd.

8.1.2 Common Constraints

Apart from specific constrains all rearers face also several common constrains.

Mulberry shortage

A common complaint amongst interviewed rearers was the difficulty of obtaining enough mulberry leaves to feed their silkworms. The shortage of mulberry leaves represents one of the main constraints of sericulture. Rearing size is limited by the availability of mulberry leaves. Silkworms are often under fed because the rearers raise too many silkworms compared to the quantity of available mulberry leaves. The main reasons for this shortage of mulberry leaves is die to limited land availability, the land tenure system as well as the climate.

Mulberry disease

Root-rot is the most common disease that affects Mulberry in Thailand. It is one of the major problems faced by rearers as the spread of mulberry root-rot is gradually wiping out large stands of mulberry. The disease spreads very easily and contaminates the soil. The DOA, DOAE and QSIS are trying to overcome this problem through a special mulberry-breeding program but so far there has no certified root-rot resistant mulberry variety been developed. There appear to be however two varieties with some level of resistance; an improved variety called Buriram 60 and a local variety call Khun Pai.

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Poor management technique and low hygiene control

Polyvoltine variety rearers are normally small farmers with limited mulberry areas who produce their own silkworm eggs and reel their own yarn for their own looms. Most of these farmers consider sericulture as a sideline activity and therefore are not too interested in improving their productivity if it means a substantial change in their activity schedule. Native mulberry varieties are usually grown by these farmers, which are low yielding and grown on infertile soils. Most farmers raise silkworms in or under their dwelling places, using bamboo trays covered in old clothes or loose material to keep flies from infecting the silkworms. This absence of an appropriate rearing house leads to a decrease in quantity and quality of cocoons as well as a decrease in the price of cocoons. Both the mulberry production as well as silkworm rearing will suffer from these poor management techniques and low hygiene controls as it will lead to an increase in silkworm diseases such as grassery and pebrine and mulberry diseases such as root-rot.

Limited scale of production and therefore limited cost competitiveness

Most of the rearers are geographically scattered, operate on a small scale and have cash flow problems. Since the rearers generally lack entrepreneurial capabilities, they are not eager to invest more in production technologies or in expansion of their production capacity. There is no formalized group of rearers and it seems difficult to form groups. As a result, rearers have low negotiation power vis-à-vis reelers.

Informal agreements between rearers and reelers

Agreements between rearers and reelers are informal, partly due to the absence of formalized groups. There are risks related to such informal agreements because both parties only have verbal commitments. Rearers may receive unfair prices; reelers may receive inconsistent supplies.

Limited knowledge

Often rearers have limited understanding of the importance of good rearing practices such as disease control and rearing techniques for cocoon yield and quality. There is an apparent lack of information and dissemination of production technologies.

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Opportunities in this segment are as follows:

• Establish effective networks (co-operatives, clubs or associations) and develop new business models to overcome issues of small actors with low negotiation power vis-à-vis reelers.

• Increase mulberry production, using improved varieties and appropriate weeding and pruning practices.

• Improve soil health and nutrient m a n a g e m e n t f o r m u l b e r r y plantations.

• Improve farming practices to improve yields.

• Upgrade rearing facilities to industry standards in order safeguard against disease and quality degradation.

• Promote new silkworm varieties.

• Develop affordable and acceptable organic fertilizers made from local inputs and develop extension services for proper application and use of these fertilizers based on soil requirements for mulberry cultivation.

• Consolidate material purchasing and thereby reduce costs.

• Apply written contracts to ensure consistent supplies and fair prices.

• Apply improved methods in the rearing process.

• Introduce the concept of clustering and networking.

• Provide training on rearing technologies/techniques and hygiene control.

Photo 38: Cocoonage in Construction

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8.2 Pre-processors

8.2.1 Reelers

Inconsistency of supply

Silkworms and mulberry leaf quality depends largely on natural conditions such as weather and rainfall. If there is natural disaster such as a flood, yields will be very low affecting market supply and also impacting reelers. Lack of planning as well as inconsistent labour supplies during periods that coincide with the time of rice growing/harvesting can also cause inconsistent supplies. Throughout a typical year there are limitations at all levels in the capacity to effectively plan and manage supplies in this sector.

Inconsistency of quality

Yarn produced from polyvoltine, poly-bivoltine and bivoltine varieties of silkworm cocoons have different characteristics, different uses and therefore different constraints. The yarn produced from polyvoltine silkworm cocoons can only be hand-reeled and is therefore restricted to traditional reeling practices at the village level. The vast number of hand-reelers with different levels of competency will result in hand-reeled yarns, which have variations in thickness, uniformity and quality. This results in yarn that cannot be used by modern weaving factories for the production of consistent quality silk fabrics.

8.2.2 Dyers

Inconsistency of natural dyestuff

For natural dyestuffs, the continuity of supply needs to be addressed. The production and collection of natural dyestuff is usually seasonal and the quality of the colorant will vary through the season as well as with the age of the material. Also natural dyes from species grown in different geographic locations can lead to different dye results. The problem with natural dyes is solved technically in terms of fastness and consistency, but it needs a high level of discipline of dyers to comply with international standards. A remaining problem is the application of mordants (to enhance colour fastness), which are not normally accepted in textile certification schemes.

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No wastewater treatment scheme

The existing dyeing process is not well structured or organized and wastewater flows freely through the neighbourhoods of processing units, polluting water and soil. Only a few medium-sized dyeing stations could afford to have wastewater treatment plants or to recycle their wastewater in the production process. Small or home-based dyers cannot afford these investments.

8.2.3 Weavers

Absence of development & design

As mentioned previously, there is a high diversity of weaving techniques and fabric patterns. But not all Thai styles and patterns appeal to international customers. There is a tendency to produce too much product with too much variation in fabric patterns that cannot be sold, leading to large product stocks. The product mix is not properly managed; products with mis-matched designs are difficult to sell in the export market and will lower the productivity, particularly with input/output ratios.

Opportunities at this segment are as follows:

• Formalize agreements and planning to increase supply consistency; establish contingency plans for weather interruptions.

• Provide training on production planning methods to ensure consistent supplies.

• Adopt new technologies and continuous improvements in silk processing and production.

• Develop and transfer wastewater treatment technologies.

• Develop design competence with the help of buyers.

• Develop cooperative ventures with rotational production to ensure consistent labour and product supplies.

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8.3 Home Textile Producers

Imitation or duplication of designs

In general, handicraft designs are simple and easy to copy. Designs have very weak intellectual property protection, leading to extensive copying by competitors. The limited number of updated or new product designs increases the level of competition between producers and reduce the margins and the bargaining power of producers towards customers.

Inconsistency of quality & supply

This issue that affects producers the most as that they often face difficulties to produce consistent supplies and sufficient qualities to meet demand. Although many producers are overloaded with orders, most of them cannot predict or control their production capacity.


• Develop a more systematic production planning approach.

• Develop design skills and knowledge about colours, style trends, etc.

• Move from the Original Equipment Manufacturers (OEM*) business model into the Original Design Manufacturers (ODM**) or Original Brand Manufacturers (OBM***) business model.

• Improve product diversification and management.

* OEM is a business model, which focuses on the manufacturing process rather than on

design or branding.

** ODM is a business model, which focuses on design rather than on branding or manufacturing.

***OBM is a business model, which focuses on branding rather than on design or manufacturing.

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8.4 Trading Agencies/Exporters

Informal agreements between home textile producers and exporters

Agreements between producers and exporters are often not respected partly due to the absence of penalties or regulatory controls. There are risks related to such kinds of agreements because producers may receive unfair prices or cannot sell their products whilst exporters may receive inconsistent supplies.

Limited knowledge

Access to market information, communication skills and bargaining power of exporters are low because most entrepreneurs are SMEs and often lack language skills and international trade knowledge. Consequently, they have to rely on brokers, trading companies and other third parties. Exporters are expected to continuingly bring products to the market faster, at the right price, and in synchronise with market demand to be successful in the current global marketplace.

Dependency on few markets

An estimated 80% of home textile products exports from Northeastern Thailand went in 2006 to Japan. Dependency on this market alone is risky and could have negative consequences should this market shrink and/or prefer sourcing from other countries. Notably Thai home textile products do not have a large consumer base. The smaller exporters have less export potential because they have fewer opportunities to participate in international trade fairs and other buyer-seller meetings.

High Colour & Colourfastness

Colour and colourfastness is major issue to almost all the customers buying silk products. Silk buyers often complained about colour fading after washing. Most informants told that Thai silk products have high quality colours and colourfastness levels. For imported silk products, the opposite picture is generally found; a number of informants claimed that the imported silk products had lower quality colours and less colourfastness.

Lack of direct contacts to foreign buyers/Lack of distribution channels

There are only a few established distribution channels; resulting in exporters having little or no access to foreign buyers. In the past, there was little interest from exporters to develop their own channels, due to poor economies of scale and limited market knowledge.

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Absence of skilled salespeople

Absence of skilled salespeople leads to inadequate dissemination of information regarding local producers to foreign buyers resulting in lower sales volume.

High freight costs to EU countries

Thai exporters are looking to expand to EU markets but one of the biggest obstacles is the high cost of transportation. Airfreight costs ranges from 2.8-3.5 EUR of the CIF cost per kg. Sea freight costs ranges from 0.3-1.2 EUR of the CIF cost per kg. This will increase the price for importers and decrease Thai price competitiveness.

Currency fluctuation

Thai exporters experienced difficulties in obtaining export orders not only due to the market or quality of products but also because of the transaction and fluctuating exchange rate risks. The profit margin of exporters can be seriously affected by currency fluctuations. This is a common risk with international business.


• Explore additional markets and market segments.

• Diversify markets.

• Establish direct linkages with foreign buyers and develop stable trading relationships with those buyers.

• Develop sophisticated advance planning, forecasting, pricing, promotions and merchandizing tools to be better able to face the risk of demand fluctuations.

• Create a streamlined mechanism for re-ordering and follow up of trade show contacts.

• Co-ordinate and collaborate with transportation and logistics enterprises.

• Capitalize on the potential of growing EU markets.

• Develop and transfer appropriate dyeing technologies.

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8.5 Sector Wide Issues

Yarn supply shortage

There is a shortage of silk yarn particularly polyvoltine silk yarn. Weavers in Northeastern Thailand are forced to buy unprocessed silk yarn from Vietnam and China, which still have abundant sources. Due to the limited domestic supplies, Thailand is highly dependent on imported raw silk yarn to meet growing domestic and export home textile demands.

The need for daily yarn supply is paramount. This is particularly vital for the supply of silk yarn that is sometimes inadequate due to poor quality. Because of the lack of formal agreements and planning between rearers and producers along with the inadequacy of mulberry leaves, there are supply shortages. Exporters that cannot meet demands from foreign buyers suffer from low creditability. Also exporters cannot commit to additional markets.

Lack of market-oriented product development

Notably home textiles is yet another market in which design capacity and expertise are of great importance, especially in the case of the more up-market items such as “co-ordinated” product lines for the bedroom and bathroom. Absence of market information has reduced the competitiveness and bargaining power of producers forcing them to be price takers.

Very few home textile producers and exporters appreciate the importance of product design and development. Designers work principally with colours, shadows, illusions, shapes, proportions, feelings, moods, and trends. Exporters need to understand how buyers in foreign markets look at a product so they can adopt suitable product development strategies. This has an effect on the blend of fibres, to the yarn counts, fabric design, finishing and composition of collections.

Limited to access skilled designers/design centres

Inability to access skilled designers/design centres leads to production and promotion of the unattractive or more conventionally designed silk home textile products, resulting in fewer responses from EU buyers/markets.

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Lack of proper quality assurance and control system

Home textile production is very labour intensive. Almost everything is done by hand from planting, picking, rearing, reeling, dyeing, weaving and making home textile products. There is often no reliable and consistent labour force other than family members for the demanding production schedule (i.e. to meet export lead times). Sector stakeholders note that Thai producers will not work during any local ceremony or important holiday times such as the Songkran water festival. Exporters also note that this glitch in supply can sometimes be a serious problem with foreign buyers. Due to the high level of competition it is important to maintain consistency of supply. Thus, lack of proper management and control in fact affects the entire value chain.

Exporting home textile products to the EU is a particularly risky business because of the levels of compliance required for the products to enter the market. The quality and hence competitiveness of Thai home textile products is seriously compromised by lack of proper quality assurance and control systems among players in the home textiles sector. There is no monitoring system in place for all actors in the chain. Rough handling of products along the manufacturing and delivery process can also result damage. For example, absence of quality control system at all level of silk production leads to production of inferior quality (in terms of denier in yarn, fabric colour and finishing etc.) of silk products resulting in decreasing demand for Thai silk products in the global market.

Inability to handle aggressive scale-up

Lack of an effective business model for producers and exporters coupled with poor supply chain integration is making it difficult to meet production lead-times and is hindering fulfilment of export orders. Traditionally, production-planning decisions, especially scheduling, is resolved through intuition, experience, and judgment.

Traditional producers and craft designers play a very important part within the sector and need to be nurtured and supported. Most of the people in the area are artists without business acumen. By choice, and sometimes force of circumstance, they will only ever be in the “business” of producing low-volume high-value items, which does not allow for job creation.

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No formalised coordination among stakeholders

Lack of coordination among the mulberry growers, rearers, reelers, dyers, weavers, traders, home textile producers and exporters leads to unplanned production and supply of inappropriate product (in terms of colourfastness, colour contrast, pattern, design, etc.) and inadequate quantities of supply, resulting in increasingly growing mismatch between the demand and supply.

Lack of market intelligence

Access to market information in Thailand is generally poor and the home textiles sector is not an exception. Most companies in the industry do not possess the resources to conduct market research for studying the nature and culture of EU markets, undertake competitive analyses and review regulatory requirements, as well as identify opportunities. Thai exporters have so far focused mainly on trade missions and trade fairs but this should be expanded to include market intelligence for individual countries. While resistance to change is a problem in the whole home textiles sector, the home textile producers are particularly reluctant to break from their traditions. This is due partly to their unfamiliarity to communicate with end-customers and an unrealistic perception of clients’ demand for authentic and environmentally friendly products. The opportunities for the home textiles sector in the export market are not fully exploited and should be further expanded and capitalized. However the capacity and knowledge required for entering the EU markets is limited.

Domestic production should better aligned to meet the required market standards. These standards are not, however, widely known by all the players in the value chain, and this has prevented producers and market suppliers from taking all necessary precautions to ensure that their products are up to the EU standard required.

Absence of additional skilled labour

As in other local production sectors, there is a lack of additional skilled labour, both, seasonal (e.g. during rice harvest) and in general (younger labourers prefer working in urban environments in industrial sectors) subsequently local knowledge and skills tends to disappear.

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Chemical residue

Traditionally, home textile products used toxic chemicals in the manufacturing and dyeing processes. Notably, home textile products with AZO dye and/or other banned chemical can be harmful. Although, EU markets have banned many highly toxic, high residue dyes, they are still being used in Thailand.

Photo 39: Dyed Eri Silk Cocoons using Natural Dye Stuff (Workshop on Eri Silk)

Smuggling yarn

Smuggling silk yarn not only causes sizable losses in selling prices, but also adversely affects the volume of local yarn trade. Several survey informants advised that significant volume of silk yarns are smuggled into Thailand and is sold at relatively low price at the moment. The smuggling of Vietnamese and Chinese silk yarn has resulted in a reduction in local yarn production. The existing border controls are weak and it is believed by informants that informal imports are sizable even though clear estimates are lacking. Weavers use the imported yarn because it is cheaper and it is relatively difficult to distinguish from Thai yarn. The price of informal imports in 2007 was around 6 EUR per kg. lower than the domestic price. The cost of silk yarn for weft (150-200 denier) at the village level is around 18-19 EUR per kg. and in order to make a profit, producers have to sell at 21-22 EUR per kg. while the imported yarn is only 14-16 EUR per kg. As a result, the domestic silk yarn buyers can reduce the buying price of the local yarn to buy at the same price as that of smuggled yarn.

Constraints &

Opportunities

Stringent environmental requirement

The home textiles sector used to be regarded as a polluting sector mainly because of the use of dyes that were discarded with wastewater. In the future, more stringent requirements in terms of emissions to air, soil and water will be imposed. Finished products have to comply with high environmental and health standards that are mandated both by EU legislation and consumer demand.

The relationship between environmental standards and competitiveness is complicated. Some analysts consider compliance with environmental requirements as an additional burden, which increase production costs and harms the competitiveness of firms and sectors, particularly those engaged in international trade. Others consider environmental standards a mechanism for improving production efficiency and reducing adverse impacts on the environment where the costs of environmental degradation are paid by society as a whole.

Freelance and contract work predominates

Given the inherent nature of the sector, much of the work is freelance, contract or p i e c e b a s e d ; m o s t enterprises contract is up to 100% of capacity when needed; while this is both a strength (allows for flexibility and opportunism) and a weakness (hampers stability and development), it is not necessarily something to change but to work with.

Photo 40: Dyeing Eri Silk using Natural Dye Stuff (Workshop on Eri Silk)

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• Apply written agreements to facilitate consistent supplies

• Provide training on production planning to ensure sufficient supplies

• Explore labour-saving or labour-efficiency enhancing techniques

• Develop niche markets

• Examine what factors are critical to EU markets and address them in order to increase market share (i.e. product development); capture the high-end EU market portion

• Integration of international designers and design trends

• Link existing design resources including people and events

• Meet customer demand for handcrafted, unique and Asian-inspired products

• Faster flow of market information and ability to respond quickly to market conditions

• Availability of market assessment tools for identifying newer and niche markets

• Make available market information and advisory services in marketing techniques

• PR in EU to create awareness on Thai home textiles

• Ensure effective prevention of silk yarn transport to tackle the smuggling of yarn. This will require concerted action at international level.

• Formalize linkages to increase negotiation and coordination among stakeholders

• Provide a central point for market information (requirements, trends, etc.)

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onstraints / Opportunity A

nalysis 9. Sub-sector Constraints/Opportunities Analysis

The study team used the following matrix to categorize the constraints on the basis of the variable factors.

Figure 27: Matrix to Categorize the Constraints

Variable 1: Constraints are selected by the survey team that significantly affect the home textiles sub-sector in the Northeast and likely show an impact within 6 months after the constraint has been worked out.

Variable 2: The weighted averages of the impact/consequences on the following factors that are considered to be most important indicators to targeted entry to EU based niche markets. • Increased number and volume of transactions with EU trade

intermediaries • Increased number of Thai SMEs, which can cope with

minimum EU quantity/quality requirements • Higher percentage of product is of export quality

Increased number and volume of transactions with EU trade intermediaries was given the highest priority (50%) as best matching with the study’s objective. Equal weight (25%) was given to increased number of Thai SMEs, which can cope with minimum EU quantity/quality requirements, and higher percentage of products of export quality.

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The identified constraints were assessed on the basis of all the factors mentioned above. In the table below, each of the constraints was rated according to the degree of their impact on the given factors. The rating was done on the basis of the outcome with key informants, available secondary information and the impression and experience gathered during the field survey by the study team. The last column of the table, illustrates the probability for the programme to address constraints directly or through service providers.

Table 16: Constraints Prioritising Matrix

Based on the output of the exercises, the following selection matrix was developed by the study team. The constraints were plotted on the basis of their rating against the variable set. To simplify the process of plotting the constraints in the matrix, the serial number of each of the constraints has been used. The matrix has nine quadrants to classify the constraints.

Constraints A B C

Total Program Intervention Possibilities

50%

25%

25%

1 Variability in quality of poly-bivoltine silkworm eggs 6 6 7 6.25 Partly 2 Mulberry shortage 6 6 6 6.00 Partly 3 Mulberry disease 6 6 6 6.00 Partly 4 Poor management technique & low hygiene control 6 7 7 6.50 Yes 5 Freelance & contract work predominates 6 6 6 6.00 Partly 6 Inconsistency of quality & supply 8 7 7 4.50 Partly 7 No wastewater treatment scheme 6 7 6 6.25 Yes 8 Imitation or duplication of designs 5 5 6 5.25 Partly 9 Dependency on few markets 5 5 6 5.25 Partly 10 High color and colorfastness 7 7 7 7.00 Partly 11 Absence of skilled sales persons 7 6 6 6.50 Partly 12 High freight costs to EU countries 6 6 6 6.00 Partly 13 Yarn supply shortage 7 7 7 7.00 Partly

14 Lack of market oriented product development 10 9 9 9.50 Yes 15 Limited access to skilled designers/design centers 9 9 9 9.00 Yes 16 Lack of proper quality assurance & control system 9 9 9 9.00 Yes 17 Inability to handle aggressive scale-up 6 6 6 6.00 Partly 18 No formalized coordination among stakeholders 9 8 9 8.75 Yes 19 Lack of market intelligence 9 9 9 9.00 Yes 20 Absence of additional skilled labour 6 6 6 6.00 Partly 21 Chemical residue 6 6 8 6.50 Partly 22 Smuggling yarn 6 6 6 6.00 Partly

23 Stringent environmental requirement 7 7 7 7.00 Partly

Sub-sector C

onstraints / Opportunity A

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The following constraints match with the programme’s objective and may also create a moderate impact on the targeted entry to EU based niche markets.

• Lack of coordination among the stakeholders leads to a decrease in productivity and supply of inappropriate product (in terms of colourfastness, colour contrast, pattern, design, etc.) resulting in an increasingly growing mismatch between demand and supply.

• Insufficient knowledge on market development and proper know-how required for expanding the EU market leads to an inability to access new markets for business expansion and growth resulting in a huge loss in income potential. The possibilities for Northeastern home textiles are then limited and should be expanded.

• Absence of market-oriented product development and limited to access skilled designers/design centres (This has resulted in absence of contemporary designing capability) of pre-processors and home textile producers has lead to production of stereotyped products. This in turn results in a gradual decline in the demand of products both in domestic and global market.

• Lack of proper quality assurance and control system leads to an inability to produce the required silk products also resulting in decline in demand for Thai silk home textiles.

Figure 28: Constraints Selection Matrix

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10. Intervention Design

10.1 Introduction & Background

The crucial themes to focus in the Northeastern home textiles are as follows:

• Strengthening linkages between stakeholders

• Continuous market development

• Product upgrading and differentiation

• Quality control throughout the value chain

Strengthening Linkages between Stakeholders

The existing linkages between stakeholders along the value chain need to be strengthened and new linkages developed. If there is no coordination along the chain it is difficult for fine silk products to be produced, transformed or processed, marketed and then ultimately sold. Feedback between consumers and producers (and all stakeholders along the chain) is vital for both sales of existing product (matching supplies with demands both spatially as well as temporally) as well as the development of new products to cater for changes in demands. It is clear that any intervention in the marketing system is ultimately unsustainable unless there is a strengthening of the linkages between stakeholders. A lack of linkages between non-adjacent levels of the chain perpetuates a situation where there are multiple middlemen handling the silk product from farm gate to consumers, with the attendant increase in losses and financial inefficiencies from multiple handling, packaging, storage and transportation. Also, a lack of trust between stakeholders has a dampening effect on transactions, particularly in an environment where there are no enforceable contracts.

Developing Markets

The reliance on a few main markets leaves the home textile sector vulnerable and is limiting expansion of the sector. Producers and exporters would like to access more markets but lack the skills/knowledge in this area. The limited existing services for EU markets need to be expanded whilst exploring the development of innovative new models. In addition, there is a potential opportunity to capture more profits with niche target groups such as non-mulberry silk home textiles and natural dyed home textiles. Marketing and promotion of Thai products and correct branding will improve the sector standing and increase its market share in the EU market.

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Product Upgrading & Differentiating

Poorly differentiated product, especially compared to the handloom products from other countries, that result in high selling prices due to high production costs are likely to be replaced by competing supplies in the market. Good design and product innovation can help differentiate products, establish consumer loyalty and trust and, in many cases, allow products to command a premium price. Design is the biggest element of value addition, but cannot originate in a vacuum. Exporting products with poor or inadequate designs can seriously jeopardize an otherwise successful marketing campaign. Lack of sufficient understanding of physiognomy, body sizes, life styles, activities and climatic conditions result in incomplete design appreciation. Upgrading, designing and branding to differentiate Thai products can help protect against this situation. Services need to be expanded and innovative products explored according to identified trends and target markets.

Improving Quality Control throughout the value chain

As detailed in the previous section, the quality and hence competitiveness of Northeastern home textiles is seriously compromised by lack of proper quality assurance and control system among players in the home textiles sector. There is no monitoring system in place for all actors in the chain, noting that their knowledge of quality assurance is low. There are no sector standards for quality control and no training on proper procedures. This situation results in supply and quality inconsistency. Some exporters are not satisfied with this situation and, understandably, want to see improvement.

10.2 Provision of & Satisfaction with Existing Services

The provision of and satisfaction with existing services were explored with stakeholders in interviews, discussions and at the validation workshop on 24th April 2007. The tables on the next pages contains a summary of the findings.

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Table 17: Existing Services - Access, Awareness and Satisfaction of Stakeholders (Sources: Stakeholder interviews and Analysis by the Survey Team, 2007 and Validation workshop, 2007)

Service Provider(s) Aware-ness / Access

Satisfaction Cost Coverage

Initial Ideas for Improvement

Pre-processors (Rearers, Reeler & Dyers)

Inputs & Farming System Advice

DOAE, DOA, QSIS, a few companies

50% 50% (farmers request more know-how, labour-saving techniques)

Commercial, some subsidized extension training / service

A documented traceability system to track the registered product must be in place. Record keeping is vital. It is important to note that chemical used must comply with EU MRL regulation

Supply of Silkworm eggs

Internal, QSIS, a few companies

100% 60% (more reliable, could improve quality and higher yield)

Commercial, some subsidized extension training /service

Document to show origin and/or guarantee is important.

Irrigation Internal, numerous private providers

100% 80% (could improve efficiency and effectiveness)

Commercial Suitable irrigation systems could improve efficiency and effectiveness.

Testing, Inspection, Certifi-cation

Internal, foreign consulting agencies i.e. SGS, Textile Testing Centre, DSS

20% 50% (not thorough coverage)

Commercial Certification is the key tool to provide credibility, transparency, and integrity of quality assurance systems for high-end/niche markets. Consumer health and safety are very important throughout the textile chain, from farming to processing to the end market. For this reason, the need for good quality management takes on increasing importance.

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Table 17: Existing Services - Access, Awareness and Satisfaction of Stakeholders (Continuation) (Sources: Stakeholder interviews and Analysis by the Survey Team, 2007 and Validation workshop, 2007)




Handloom Weavers

Provision of labour

Internal 100% 70% (need more consistent and reliable labour force)

Commercial Appropriate labour practice is a very important determinant of consistency and high quality supply, which is essential for maintaining customers.



20% 40% (cost could be lower and more thorough coverage)

Commercial Certification is the key tool to provide credibility, transparency, and integrity of quality assurance systems for high-end/niche markets.

Consumer health and safety are very important throughout the textile chain, from farming to processing to the end market. Hence good quality management takes on increasing importance.

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Home Textile Producers

Packaging Internal, several companies

100% 70% (made to order; could improve efficiency & effectiveness)

Commercial Care must be given to the packaging of products if one intends to export to EU countries. Products must be protected against the elements, changes of temperature and rough handling.



20% 40% (cost could be lower and more thorough coverage)

Commercial Certification is the key tool to provide credibility, transparency, and integrity of quality assurance systems for high-end/niche markets. Consumer health and safety are very important throughout the textile chain, from farming to processing to the end market. For this reason, the need for good quality management takes on increasing importance.

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Exporters

Air Freight Several companies

100% 70% (cost could be lower)

Commercial Exporters should position themselves as reliable suppliers who can commit to delivery times. The logistic concepts aim at having the right goods at the right time, in the right volumes at the right place and all that at a minimum of costs. Due to its great importance, delays are not tolerated.

Sea Freight

Several companies

100% 80% (cost could be lower)

Commercial See above

Marketing to Importers

Internal, DEP

100% 40% (supporting function; basically rely on their own competitive-ness)

Commercial, some subsidized

Europe is a continent and not one market, but a patchwork of markets with different characteristics. For that reason a selection of target countries has to be made for marketing purposes. The general approach is to choose a limited number of countries: and classify them as primary and secondary targets.

Packaging Internal, several companies

100% 80% (could improve efficiency & effectiveness)

Commercial Besides the basics of transport and handling durability, exporters are advised to follow specific requirements and guidelines concerning packaging, like information concerning the order and numbers printed on the boxes.

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Pre-processor (Rearers, Reelers & Dyers)

The primary and major dissatisfaction of pre-processors is low selling prices. Pre-processors note that the selling prices have remained the same for years while at the same time production costs (mainly labour and mulberry cost) have increased. As a result, pre-processors have extremely low profit margins and may in fact suffer losses. The labour-intensive nature of silk production leaves labour as a key price driver. In a price competitive environment, labour saving techniques can be critical. Satisfaction is rated at 50%.

Rearers would like higher quality silkworm eggs as well as reliable, alternative silkworm egg sources. The satisfaction rate is ranked at 60% due to limited availability. The development of varieties that are well adapted to Thai conditions and superior in output is also desired.

The satisfaction rate for irrigation is ranked at 80%. The high costs and inefficiency of irrigation systems could be improved with better technology and improved knowledge of proper irrigation installation and systems management.

For the time being, testing for chemical residues is not required in order to ensure purchase by exporters. Satisfaction is rated at 50 percent to reflect the need for more thorough coverage in testing services.

Handloom Weavers

Handloom weavers note that there is still a limited supply of skilled labour to respond to increasing labour demands for production. There is no reliable and consistent labour force other than family members. The satisfaction rate for provision of labour is ranked at 70%.

Testing for chemical residues is sometimes required in order to ensure exporters will purchase finished products. Satisfaction is ranked at 40% to reflect the need for more thorough coverage in testing services and the desire for lower costs of testing services.

Home Textile Producers

The satisfaction rate for packaging is ranked at 70%. The high costs and made-to-order nature of current packaging could be improved with more suppliers and greater innovation and/or buying schemes.

Intervention Design

In general, packaging could be more efficient and effective, particularly in regard to improved protection during handling and in selecting optimal sizes to ensure efficient loading into transportation containers. The use of more attractive packaging could help capture more of the value from importers and retailers. Testing for chemical residues is sometimes required in order to ensure exporters will purchase finished products that are safer for end users or meet MRL requirements. Satisfaction is ranked at 40% to reflect the need for more thorough coverage in testing services and the desire for lower costs of testing services.

Exporters

A complaint from exporters is the high cost of transportation, particularly airfreight cost. Airfreight alone can cost from 5-10% of the CIF cost; exporters would like to see this percentage decreased. Current satisfaction of airfreight and sea freight is 70% and 80% respectively.

Marketing to importers relies heavily on competitiveness alone but specific marketing campaigns or promotions to link with sellers are scarce. The Department of Export Promotion does play a supporting role. Satisfaction is rated at 40% because exporters would like to expand markets and could use assistance in marketing skills.

Packaging

The satisfaction rate for packaging is ranked at 80%. In general, packaging could be more efficient and effective. Again, more attractive and effective packaging could capture a larger percentage of the value added.

10.3 Initial Scope & Ideas for Intervention

The study indicates the limited scope for intervention in the sector particularly in terms of immediate intervention to enhance export opportunities to EU markets. However, the opportunity of intervention to enhance domestic operations with an intention to increase future potential clearly exists.

Intervention is needed to strengthen the entire value chain and the following areas have been identified as critical success factors for the development of a sustainable home textiles sector in the Northeastern region and its transformation from a supply driven focus into a demand led sector.

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Production EU Market

Services and Distribution

Enabling Environment

Input

Design EU Market

Demand

Figure 29: Critical Success Factors for developing a sustainable home textiles sector

EU Market Demand

Design

Implementation of product design and quality development strategies such as:

• Local design and innovation skills development

• Access to trend information and market intelligence on design and product development

• Protection and documentation of heritage and cultural resources from which valuable design inspiration can be gleaned

Input

• Enable widespread and efficient access to cost effective raw materials

• Co-ordinated research and development – leading to availability of new materials, new technologies and new applications

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Intervention Design

Production

Co-ordination and collaboration of:

• Capacity building and skills development programmes across the value chain

• Access to high standard production facilities

• Enterprise development support programmes to encourage: - Business development - Business sustainability - Self-sufficiency

• Development of tools and technologies to enhance production capacity and improve efficiency in particular

- Access to appropriate technology - Training in production-line and efficient production process

• Production finance support

EU Market

Co-ordination and collaboration between:

• Market research processes in order to: - Inform market needs - Identify market opportunities - Position Thai products appropriately

• Strategy in the sector, in order to: - Exploit EU market opportunities

Marketing & promotional effort to:

• Mobilize the emergence of a single recognisable “Made in Northeastern Thailand” brand, which strongly supports individual enterprise identity.

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Services & Distribution

Co-ordination and collaboration between:

• Support services to enable the “right product to the right market at the right time”

• Accreditation systems – to ensure quality products and recognized branding

• Organic and fair trade practices (production, retailing and distribution) – to build awareness and understanding, to establish a quality infrastructure and to ensure sector agreement, exploitative practises should be eliminated through the introduction of alternate methods and less exploitative business practices.

• Market intelligence collection which is efficient and has timely feedback mechanisms

Enabling Environment

Co-ordination and alignment of:

• Research and information gathering – to inform strategic decision making

• Operational and support services – to improve efficiencies

• Market information & access – to create and service demand for Northeastern home textiles

Photo 41: Raw Silk & Natural Dye Stuff

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Table 18: Intervention Ideas

In consequence, 4 draft ideas were identified that can be implemented with inthe scope and guidelines of the EU-Thailand Home-Textiles project and which aim to make a clear impact in EU export opportunities. However, this is a range of draft ideas based on the actual analysis of opportunities and constraints. In order to remain flexible and not be constrained by continuous changes within the sub-sector, ideas are still generic. In selecting feasible interventions and shaping these ideas for implementation, it is recommended that the EU-Thailand Home Textiles project surveys further details on specific markets, services, etc. and organises core group, meetings with representatives of value chain actors to develop the intervention designs and discuss in detail the contributions and activities of potential partners.

Ideas for interventions came primarily from the constraints in the sub-sector as depicted in the map as follows on the next page:

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Figure 30: Constraints in the Sub-sector

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Intervention Design

Intervention 1 Facilitate market entry to EU niche markets

Intervention 2 Improve quality supplies for home textile processing SMEs

Intervention 3 Develop and implement improved reeling technology

Intervention 4 Develop traceability schemes and certifications

IV 1

IV 2

IV 3

IV 4

Detailed descriptions of each intervention will be given on the following pages.

Photo 42: Workshop on Processing of Eri Silk

Photo 43: Workshop on Processing of Eri Silk, here De-gumming

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IV 1: Facilitate market entry to EU niche markets

Expected impact

• Home textile producers - Improved market information - Access to proper markets

• Pre-processors & Home textile producing SMEs - Increased production volumes - Increased revenue and value added

Service solution Facilitate exporters and producing SMEs to exhibit at specialized trade fairs and follow-up with post fair feedback

Coordinator EU-HT

Partners • FGM • Home textile poducing SMEs • Home textile exporters

Funding of intervention

EU-HT, FGM, contributions by producing SMEs and exporters

Clients Home textile producing SMEs, exporters

Role of EU-HT

FGM

• Initiates pilot activity • Builds capacity of producing SMEs and exporters to

be able to gain benefits from niche markets in post project period

Measures • Raise awareness of producing SMEs and exporters • Prepare for trade fair • Facilitate participation in and exhibition at trade fair • Facilitate negotiations at sales point • Facilitate post fair feedback • Carry out baseline and interim impact measurements

and conclude findings

Duration of engagement

8 months

Exit strategy • Producing SMEs and exporters intensify and scale-up engagement in niche markets and related exhibitions

• DEP integrate information on niche market into their exhibition promotion policy

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IV 2: Improve quality supplies for home textile producing SMEs

Expected impact

• Home textile producing SMEs - Reduction of cost and fluctuations in price - Improved consistency of supplies (volume, quality) - Reduction of material shortages and off grade

supplies - Improved productivity of producing SMEs

• Pre-processors & input suppliers - Increased production volumes (dyestuff, yarn,

intermediate products) - Increased revenue and value added (dyestuff, yarn,

intermediate products)

Service solution Information service on quality sourcing of dyestuff, natural fibres and intermediate products

Coordinator EU-HT

Partners • FGM • TTC/THTI


FGM, EU-HT, contributions by suppliers and producing SMEs

Clients Pre-processors, input suppliers, home textile producing SMEs

Role of EU-HT FGM

• Initiates pilot activity • Implements and operates pilot/service in post project

period

Measures • Select interested producing SMEs and define specific need (max. 3 set-ups)

• Select interested pre-processors/suppliers and define deliverables (max. 3 groups)

• Match-making and agreements between pre-processors/suppliers and producing SMEs

• Check feasibility of the service & develop business model

• Control and monitoring of deliverables • Assess clients’ awareness, change of practice and

impact


6 months

Exit strategy • Piloting service with FGM provides service in post- project period

• Alternative providers are assessed for scaling-up

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IV 3: Develop and implement improved reeling technology

Expected impact

• Home textile producing SMEs - Reduction of cost and fluctuations in price - Improved quality and consistency of silk yarn

(volume, quality) • Pre-processors

- Improved reeling efficiency and reliability - Increased production capacity - Increased productivity and business performance

Service solution Reeling technology development together with stakeholders through contract research

Coordinator EU-HT

Partners • FGM • Research units • Pre-processors • Home textile producing SMEs


FGM, EU-HT, contributions by pre-processors and producing SMEs

Clients Pre-processors, home textile producing SMEs

Role of EU-HT FGM

• Initiates pilot activity • Stimulates and manages the reeling technology

development scheme

Measures • Transfer lesson learned from the project to new R&D projects

• Develop, test, and disseminate appropriate technology to pre-processors

• Check feasibility • Stimulate demand and link-up with technology

providers • Assures that solution is of shared benefit among

partners / chain actors


12 months

Exit strategy • FGM provide information for reeling technology development

• Partners contribute in cash or kind to the development

• Tools, equipment and training are delivered by selected service providers

Intervention Design

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IV 4: Develop traceability schemes and product certifications

Expected impact

• Home textile producing SMEs - Improved communication with customers through

traceability schemes and certification of products - Improved consistency of supplies (volume, quality) - Reduction of material shortage & off grade supplies - Improved productivity of producing SMEs - Increased revenue & value added (finished products)

• Pre-processors & input suppliers - Increased production volumes and quality (dyestuff,

yarn, intermediate products) - Increased revenue & value added (dyestuff, yarn,

intermediate products) Service solution Manage quality supplies and customer satisfaction

through traceability schemes and product certification Coordinator EU-HT Partners • FGM

• IVN • THTI


FGM, EU-HT, contribution by producing/exporting SMEs

Clients Home textile producing SMEs Role of EU-HT FGM

• Initiates pilot activity • Cooperates with accreditation and certification bodies • Assures capacity development of pre-processors and

producing SMEs • Links the testing services

Measures • Survey and select appropriate certification and traceability schemes

• Stimulate demand driven traceability schemes and product certifications

• Develop capacity of related pre-processors and manufacturing SMEs


18 months

Exit strategy • FGM has screened buyers with appropriate orders in place and develops b2b relationships

• THTI, Abs, CBs and decentralized bodies back-up application of traceability schemes and product certification

• Increased number of SMEs invest in certification and traceability

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11. Annexes

11.1 List of Interviews

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Respondents Organisations/Companies

1 K. Phongsuda Nilbanjong Department of Industrial Promotion 2 K. Umaporn Chansirichoke Industry Promotion Centre 1 3 K. Nuntana Tangwinit Kenan Institute Asia

4 K. Suwadee Salmon K. Stephen Salmon K. Siladda Tabpinthong

The ThaiCraft Association ThaiCraft Fair Trade Co., Ltd.

5 K. Kwanruthai Puengthamsakda Asia Dyestuff Industries Ltd.

6 K. Nuengruthai Saesangseerueng K. Ladawan Silppothakul Department of Science Service

7 K. Kamolluck Panthasane Thanapaisal R.O.P. 8 K. Akkarin Double Star Industry Co., Ltd. 9 K. Pilan Dhammongkol Thanapaisal R.O.P.

10 K. Chanpen Taagamnerd Sankangpla group 11 K. Jiraporn Tulyanond Export Promotion Centre 12 K. Apisith Promyannont Promcharoen Intertrade Co., Ltd. 13 K. Sakchira Wiengkao Baisri Creation Co., Ltd. 14 K. Sumate Phunkaew Classic Model Co., Ltd. 15 K. Nataya Boonvanno Doi Tung Development Project

16 K. Virat Thandaechanurat K. Peeraporn Palapleevalya K. Kanyanuch Sinsuwannakul

Thailand Textile Institute Textile Testing Centre

17 K. Surachai Jinarakpong Magic & Mars Logistics Co., Ltd. 18 Dr. Siribenja Khowadhana Silk Avenue Co., Ltd. 19 K. Peerapan Weerapong Queen Sirikit Institute of Sericulture

20 K. Tidarat Tiyajamorn SilkNet 21 K. Sangduen Aomthaisong Pha Toomthong, Ban Na Pho 22 K. Prakong Pasatiti Na-Pho Folk Hand-Craft Centre 23 K. Jaranya Wongprom Praepan Group 24 K. Sangwarn Teemui Ban Reng Khai Foundation 25 K. Amnuay Khusiricharoenphanit Amnuay Silk, UBIC New Entrepreneur 26 K. Pongpeera Queen Sirikit Sericulture Centre, Surin

27 K. Pareuhat Tamcharoen K. Surachot Tamcharoen

Ban Na-Tang, Natural Dyed Colour Centre & Weavers

28 K. Lakkana Bayer Thai Co., Ltd. 29 K. Ratta Dystar Thai Co., Ltd. 30 K. Poonsub Tulapun HomeNet

Annexes

11.2 Key Benchmarks of Thai Home Textiles Vis-à-vis Competitors

Benchmarks: General Sub-sector Features of Thai and Chinese Silk Home Textiles

Source: Own analysis based on interviews carried out with sub-sector stakeholders and resource persons in March- May 2007

Benchmarks Scores 1

(Poor) 2

(Fair) 3

(Good) 1. Production

1.1 Rawsilk production (% or world production)

1.2 Mulberry yield (tons per ha per year)(vary widely by variety)

1.3 Mulberry planted area (ha)

1.4 Renditta (Productivity of reeling cocoons to rawsilk yarns) (kg of reeling cocoons/ kg of rawsilk)

1.5 Length of cocoon filament (meter per cocoon

1.6 Hourly compensation rate (inlc. wages & fringe benefits) for skilled labour

2. Supplies / Logistics

2.1 Distance to EU Retailers’ shelf

a) Air (hours)

b) Ship (days)

2.2 Transportation costs per kg to EU countries (EUR)

a) Airfreight

b) Seafreight

3. Market Features

3.1 EU Market Share (%)

3.2 Competitive regional category by CBI

Thailand China

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Benchmarks: General Sub-sector Features of Thai and Indian Silk Home Textiles


Benchmarks Scores 1

(Poor) 2

(Fair) 3










a) Air (hours)

b) Ship (days)


a) Airfreight

b) Seafreight

3. Market Features



Thailand India

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Benchmarks: General Sub-sector Features of Thai and Vietnamese Silk Home Textiles


Benchmarks Scores 1

(Poor) 2

(Fair) 3










a) Air (hours)

b) Ship (days)


a) Airfreight

b) Seafreight

3. Market Features



Thailand Vietnam

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Key for Scores

Benchmarks 1 (Poor) 2 (Fair) 3 (Good)

1. Production

1.1 Raw silk production (% of world production)

Less than 10 10-20 More than 20

1.2 Mulberry yield (tones per ha per year) (vary widely by variety)

Less than 15 15-30 More than 30

1.3 Mulberry planted area (ha) Less than 100,000

100,000-500,000

More than 500,000

1.4 Renditta (productivity of reeling cocoons to raw silk yarns) (kg. of reeling cocoons/ kg. of raw silk)

More than 9 7-9 Less than 7

1.5 Length of cocoon filament (length in meter per cocoon)

Less than 500

500-800 More than 800

1.6 Hourly compensation rate (includes wages and fringe benefits) for skilled labour

More than 2 1-2 Less than 1

2. Supplies/Logistics

2.1 Distance to EU Retailer’s shelf a) Air (hours) More than 60

hours 40-60 hours Less than 40

hours b) Ship (days) More than 25

days 15-25 days Less than 15

days

2.2 Transportation costs per kg. to EU countries (EUR)

a) Air freight More than 3 2-3 Less than 2

b) Sea freight More than 0.3 0.2-0.3 Less than

0.2

3. Market Features

3.1 EU market share (%) Less than 10 10-15 More than 15

3.2 Competitive regional categories by CBI Low cost Medium cost High cost

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Benchmarks China India Vietnam Thailand

1. Production

1.1 Raw silk production (% of world production) 71.13 11.33 9.15 1.14

1.2 Mulberry yield (tones per ha per year) (vary widely by variety) 15-22 35-65 34-63 37.5-67.5

1.3 Mulberry planted area (ha) 626,000 280,000 250,000 35,000

1.4 Renditta (productivity of reeling cocoons to raw silk yarns) (kg. of reeling cocoons/ kg. of raw silk)

5.55-6/1 8.77/1 7.5/1 10/1

1.5 Length of cocoon filament (length in meter per cocoon)

700-1,300

(Hybrid)

800-1,000

(Multi-voltine)

700-1,000

(Hybrid)

400 (Native)

1.6 Hourly compensation rate (includes wages and fringe benefits) for skilled labour

3 3 3 2

2. Supplies/Logistics

2.1 Distance to EU Retailer’s shelf

a) Air (hours) 1 2 2 2

b) Ship (days) 1 1 1 1

2.2 Transportation costs per kg. to EU countries (EUR)

a) Air freight 1 2 2 2

b) Sea freight 1 1 1 1

3. Market Features

3.1 EU market share (%) 3 2 1 1

3.2 Competitive regional categories by CBI 1 1 1 1

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11.3 Thai Silk Exports in 2006 Classified by HS. Code

HS. Code

Export Value (EUR million)

Main Export Markets

5001: Silkworm cocoons suitable for reeling 0.03 UK (100%)

5002: Raw silk 0.60 Japan (90.93%), China (9.07%)

5003: Silk waste, incl. silk yarn waste, etc. 0.39 Japan (67.53%), Italy (26.54%),

China (5.84%)

5004: Silk yarn, not spun from waste 0.03 Spain (54.45%), India (29.14%),

Japan (6.94%)

5005: Yarn spun from silk waste, not put up from retail sale 9.14 Korea (65.65%), Japan (20.81%),

Switzerland (9.77%)

5006: Silk yarn / yarn spun from silk waste, put up for retail sale 0.22 Lao (53.04%), Papua New Guinea

(24.92%), Singapore (6.36%)

5007: Woven fabrics of silk or of silk waste 12.53 USA (40.40%), UK (20.12%),

Spain (5.08%)

Source: Costums 2007

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The key to success in this context is to understand what the market wants, or may want, and ensuring to produce what the market wants. Critical to this is the use of information. Producers need to understand what they can produce as well as that the customer wants. Producers need to identify and understand all of the steps between production and purchase of a product, to ensure that products can meet customers’ needs at a competitive price. Although niche markets are price inelastic, it is still an important consideration in any exporting decision.

Mass products for mass markets usually rely on economies of scale and cost efficiencies, and compete largely on the basis of price. Consumers of interest in niche markets are those who want specialized, differentiated products. Price is not the most important consideration to these consumers. These niche markets provide potentially profitable opportunities for small producers.

11.4 Term Description

Descriptions of key terms as used in the context of this report are given below.

Niche Markets

Niche markets are specialized export markets for a particular product or service. Niche markets, where primary demand is for differentiation or uniqueness, are understood as an opportunity for home textile exporters to exploit a particular economy.

Niche products can be defined as items whose primary value lies in differentiation and their particular suitability for a relatively small number of purchasers. Typically niche products are perceived by purchasers as high value and differentiated, and are priced accordingly.

Niche markets are often contrasted with mass markets. Niche products have a special differentiated appeal to a limited numbers of purchasers. Mass products have a broad appeal to the undifferentiated mass of consumers.

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Figure 11.4: Comparison of Mass and Niche Markets

Organic

The USDA defines organic as “An ecological production management system that promotes and enhances biodiversity, biological cycles and soil biological activity. It is based on minimal use of inputs and on management practices that restore, maintain and enhance ecological harmony.” When choosing organic products, it is important to know if the product was made from “Certified Organic” base materials and any potentially harmful finishing processes used to produce the final end product.

These standards cover the production, processing, producing, packaging, labelling, exportation, importation, and distribution. The key criteria are:

• Land is free of chemicals for a specific number of years • All inputs have to meet basic requirement on toxicity and biodegradable • All production and handling steps must be well documented to allow an

effective inspection of the activities • Environmental policy required in producing sites • Maintain physical separation of organic and non-organic certified

products • Dual system of quality assurance consisting of on-side inspection and

residue testing

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Fair Trade

Fair trade is a trading partnership based on dialogue, transparency and respect that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers. The fair trade is a movement promoted by non-governmental organisations from all over the world, which are engaged in the commercialisation of the products, which come from the Third World. It aims at changing the unfair commercial transactions between the developed and developing countries. This movement is promoted by important organisations such as the International Federation for Alternative Trade (IFAT), the European Fair Trade Association (EFTA), the Fair Trade Labelling Organisation (FLO), the Network of European World Shops (NEWS), etc.

Key - and unique - aspects of Fair trade are:

• There is a focus on disadvantaged smallholders at the bottom of supply chains.

• Producers receive a fair and stable price, which covers the costs of sustainable production and a Fair trade premium for investment in social development projects.

• It helps producer groups organise themselves democratically to protect their rights.

• It empowers producer groups through provision of information on markets and supply chains.

• It uses the FAIRTRADE Mark as a tool to build a social consumer movement pushing for change in global trading.

• Fair trade is being widely recognized as a key tool for sustainable development and poverty eradication. Fair trade also plays a crucial role in raising awareness among European consumers about global injustice and about the social responsibility of private and public actors.

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11.5 Basic Introduction – TLS 8001-2003

The Council on Economic Priorities Accreditation Agency has driven the development of Social Accountability 8000 (SA8000) a system that defines a set of auditable standards and an independent auditing process for the protection of workers’ rights. Based on conventions of the International Labour Organization and related international human rights instruments - including the Universal Declaration of Human Rights and the UN Convention on the Rights of the Child -- SA 8000 is a common standard for companies seeking to guarantee the basic rights of workers and is the first auditable social standard. SA8000 provides a framework for the independent verification of the ethical production of all goods, made in companies of any size, anywhere in the world. It will provide a major opportunity for companies to demonstrate their commitment to best practice in the ethical manufacture and supply of the goods they sell. TLS 8001 is drafted under the above standards and the provisions of the Constitution of Royal Thai Kingdom, the Labour Law, Labour welfare, Labour relations and Occupational safety, health and environment.

Brief overview : Child Labour: No workers under the age of 15; the company shall not expose young workers (age over 15 and under 18 years) to situations in or outside of the workplace that are hazardous, unsafe, or unhealthy. Forced Labour: No forced labour, including prison or debt bondage labour; no lodging of deposits or identity papers by employers or outside recruiters. Health and Safety: Provide a safe and healthy work environment; take steps to prevent injuries; regular health and safety worker training; system to detect threats to health and safety; access to bathrooms and potable water. Freedom of Association and Right to Collective Bargaining: Respect the right to form/join trade unions and bargain collectively; where law prohibits these freedoms, facilitate parallel means of association and bargaining. Discrimination: No discrimination based on race, caste, origin, religion, disability, gender, sexual orientation, union or political affiliation, or age. Discipline: No corporal punishment, mental or physical coercion, verbal abuse or sexual harassment. Working Hours: Comply with the applicable law but, in any event, no more than 48 hours per week with at least one day off for every seven-day period; voluntary overtime paid at a premium rate and not to exceed the hours as specified in Labour Protection Law. Compensation: Wages paid for a standard work week must meet the legal and industry standards and be sufficient to meet the basic need of workers and their families; no disciplinary deductions.

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11.6 Advantages & Disadvantages of Contract Farming

Farmers

Advantages • Inputs and production services are often supplied by the sponsor • This is usually done on credit through advances from the sponsor • Contract farming often introduces new technology and also

enables farmers to learn new skills • Farmers’ price risk is often reduced as many contracts specify

prices in advance

• Contract farming can open up new markets which would otherwise be unavailable to small farmers

Disadvantages • Particularly when growing new crops, farmer face the risk of both market failure and production problems

• Inefficient management or marketing problems can mean that quotas are manipulated so that all contracted production is purchased

• Sponsoring companies may be unreliable or exploit a monopoly position

• The staff of sponsoring organisations may be corrupt, particularly in the allocation of quotas

Enterprises (Sponsor)

Advantages • Contract farming with small farmers is more politically accepted than, for example, production on estates

• Working with small farmers overcomes land constraints • Production is more reliable when open-market purchases and the

sponsoring company faces less risk by not being responsible for production

• More consistent quality can be obtained than if purchases were made on the open market

Disadvantages • Contracted farmers may face land constraints due to a lack of security of tenure, thus jeopardizing sustainable long-term operations

• Social and cultural constraints may affect farmers’ ability to produce to managers’ specifications

• Poor management and lack of consultation with farmers may lead to farmer discontent

• Farmers may sell outside the contract (extra-contractual marketing) thereby reducing processing factory throughput

• Farmers may divert inputs supplied on credit to other purposes, thereby reducing yields

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11.7 List of Home Textile Testing

Textile Testing Costs

Item Testing List Unit Price

1 Azo Dyestuffs Natural/Synthetic Fiber 3,000.00 Polyester Blend 5,000.00

2 PH Value 400.00

3 Formaldehyde Content 1,350.00

4 Heavy Metal Pb 600.00 Cd 600.00

Cr 600.00 Cr(VI) 800.00

Co 600.00

Dimensional Stability to washing (1 wash) 450.00

Appearance after laundering (when perform with item 5) 220.00 Color Fastness to Chlorine Bleach (Spot Test) 300.00

Color Fastness to Dry Cleaning 400.00 Color Fastness to Hot Pressing 370.00

Color Fastness to perspiration 390.00 Color Fastness to Washing 320.00

Care Label Recommendation 350.00 Fiber Composition (2 Components) 600.00

Threads per Unit Length 310.00 Total 13,660.00 Vat 7% 956.20 Grand Total Price 14,616.20

Remarks: The Price is including Polyester yarn Lead time of testing process is 5-7 work days The sample size for testing is need 4 m

Soi Trimit, Rama 4 Road, Phrakanong, Klong-toey, Bangkok 10110 Thailand Tel: (66-2) 7135492, Fax: (66 2) 712 1592-3 www.thaitextile.org email: [email protected]

Annexes

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“Summary of Thailand Competitiveness Matrix”, Office of the National Economic and Social Development Board, 2004 “Textiles and Clothing”, EU-India Joint Initiative for Enhancing Trade and Investment, 2002 “Textile and Clothing Industry”, Office of Industrial Economic, 2004 “Textile Structures for Technical Textiles”, Bulletin of the Chemists and Technologists of Macedonia, Ss Cyril and Methodius University, 2004 “Thailand Economic Monitor”, World Bank Thailand Office, 2006 “Thailand’s Fashion Industry”, Thailand board of Investment, 2004 “Thai Silk”, Department of Agriculture Extension, 2002 “Thai Textile Indications”, Thailand Textile Institute, 2005 “The China Threat to World Textile and apparel Trade”, National Council of Textile Organizations (NCTO), 2004 “The Competitiveness of Subcontracting in the Textile and Clothing Industry in the European Union”, Commission of the European Communities, 1996 “The EU Eco-label and Health”, Danish Ministry of the Environment, 2006 “The European Eco-Label”, The Flower, 2006 “The Foundation” Ban Reng Khai Website, 2007 http://www.banrengkhai.com/pages/foundation.html “The Home/Furnishing Textile Industry in 2003-2004”, Pitti Immagine Gasa, Area Centro Studi of Sistema Moda Italia, 2004 “The Importance of Public Investment for Reducing Poverty in Middle-Income Countries: The Case of Thailand”, Fan, Shenggen, Somchai Jitsuchon and Nuntaporn Methakunnavut, International Food and Research Institute, 2004 “The Investment Potential of Silk Industry of the Republic of Uzbekistan”, Uzbek Silk Association, 2005 “The Future of Thailand’s Textile and Garment Industry”, Chalumpon Lotharukpong, International Chamber of Commerce, 2003

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Websites:

www.cbi.nl

www.customs.go.th

www.depthai.go.th

www.dip.go.th

www.doae.go.th

www.doa.go.th

www.fao.org Agriculture Statistical Database (FAOSTAT)

www.ibef.org

www.industry.go.th

www.qsilk.net

www.thaitextile.org

www.usda.gov

www.wto.org

www.salamaithai.com

www.thaitextile.org/TSA/

www.qthaisilk.com

www.jimthompson.com

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Acknow

ledgements

157

Acknowledgements

Publisher Institute for Science and Technology Research and Development (IST) Chiang Mai University

The study was produced by contributors

from IST, Chiang Mai University, namely:

Assoc. Dr. Chesada Kasemset Dr. Astrid Faust Mrs. Nittaya Mahachaiwong Mr. Wim Bloemen Mr. Surachai Leewattananukul Ms. Siripun Charleanchaimonkon Ms. Usakorn Wattanakool Mrs. Duangtar Novacek Ms. Nipasak Kongngam Mr. Amnuay Wattanakornsiri Ms. Piyachat Kriwanit Mr. Rattapon Panjaruang Ms. Nanthana Kongkamin Ms. Juthamas Suparatwarakul Ms. Phakwilai Sahunaru Ms. Ketsuda Karakan

and from FBA, Chiang Mai University, namely:

Asst. Prof. Dr. Chirawan Chaisuwan Ms. Traci Morachnick

Photography Ms. Kotchakorn Moonta Mr. Worn Donchai Mr. Nakorn Sarawana

Funding The project was co-financed by the European Union

Proofreading Mr. Chris Catto-Smith

Layout Ms. Petra Erbe

Print Blue Print Design

Add

ress

Address

Institute for Science and Technology Research and Development (IST) Chiang Mai University 239 Huay-kaew Road, Tambon Suthep, Amphoe Muang, Chiang Mai 50200, THAILAND

or

P.O. Box 111, Chiang Mai University, Chiang Mai 50200, THAILAND

Tel.: +66 53 892224, 942476 Fax.: +66 53942476 E-mail: [email protected] [email protected] Website: www.thaihometextile.net

158

On behalf of

Institute for Science and Technology Research and Development (IST) & Faculty of Business Administration (FBA), Chiang Mai University

Disclaimer

This document has been produced with financial assistance of the European Commission.

The views expressed herein are those of the Institute for Science and Technology Research and Development, Chiang Mai University, and can therefore in no way be taken to reflect the official opinion of the European Commission.

Documents

Value Chain Analysis for Thai Home Textiles Silk Sub-sector · 2. Basic Sub-sector Features 8 2.1 Background of the Development of the Silk sector in Thailand 8 2.2 Government policies