Strategic Analysis: Support Policies for Thailand's Dairy Sector

While dairy consumption in Thailand is experiencing steady growth often estimated at around 5% annually the country is working to modernize a domestic production sector that remains highly fragmented and largely composed of smallholder farms. In a landscape reshaped by trade liberalization that took full effect in 2025, alongside the persistence of the historic "School Milk" program and intensifying climate constraints, Thai authorities are deploying a suite of policies aimed at stabilizing the sector and bolstering its resilience.

From this perspective, the challenge extends far beyond production metrics alone. The state must strike a delicate balance between food security, stable rural incomes, and international competitiveness in an increasingly saturated market, all while accounting for the evolving market strategies of private sector players.

The "School Milk Program": A pillar of Stabilization

As the sector's primary historic lever, the School Milk Program was launched in 1992 to combat childhood malnutrition. Today, it absorbs approximately 30% of the nation's raw milk production.

From a public policy standpoint, this mechanism plays a vital role by guaranteeing stable market outlets for farmers and acting as a buffer against the volatility of international markets, particularly for milk powder.

However, this heavy reliance on government procurement naturally introduces certain limitations. By securing a massive share of demand, the program can inadvertently dull incentives for competitive adaptation and artificially sustain low-productivity farms. In the long run, the key challenge will be evolving this program so that it continues to support farmers while actively encouraging them to adapt to market realities.

The 2025 Trade Liberalization and Its Impact on the Dairy Sector

The full implementation of free trade agreements with Australia and New Zealand in 2025 marked a major turning point for the Thai dairy industry. The removal of tariff barriers has exposed the domestic sector to heightened international competition. This pressure is no longer confined to processed dairy products destined for industrial use; imported UHT (Ultra-high-temperature processing) milk, cheeses, and value-added dairy products are steadily gaining ground in modern retail channels.

In response to this new reality, the government introduced the Quality-Based Payment Program (QBPP). This mechanism represents a fundamental shift in strategy: moving away from subsidizing raw production volume to encouraging qualitative improvements in milk supply.

This strategic pivot reflects a clear ambition to reposition the sector. Nevertheless, its success hinges on the ability of small-scale farms to meet these stricter new criteria. Within a highly fragmented agricultural landscape, there is a distinct risk that these programs will primarily benefit better-structured, larger operations, thereby widening the gap within the industry.

Innovation and Climate Adaptation: Targeted but Fragmented Support

Operating within a highly challenging tropical climate, state backing is increasingly tied to incentives for technological investment. Institutions like the Dairy Farming Promotion Organisation (DPO) and the Board of Investment (BOI) are promoting the adoption of equipment designed to mitigate the effects of heat stress on livestock.

Pilot projects notably led by agribusiness giant CPF (Charoen Pokphand Foods PCL) are testing various solutions, ranging from upgraded ventilation systems and animal-cooling mechanisms to the digitization of herd monitoring. These initiatives are supported by tax incentives, such as import duty exemptions on specialized equipment.

However, despite a gradual rollout, these measures remain relatively targeted. In a sector dominated by smallholders with tight financial margins, access to these innovations remains highly unequal. Consequently, the challenge goes beyond simple technology adoption; it lies in building a framework for a more inclusive roll-out of these solutions across the entire value chain.

A Sector Balanced Between Public Support and Structural Overhaul

Despite the scope of current policy measures, the Thai dairy sector remains caught in an unfinished transformation process. High farmer debt, small farm sizes, and persistent climate pressures continue to cap productivity gains, while simultaneously highlighting significant areas for improvement.

Current policies are designed to shepherd a gradual upskilling of farms to meet rising domestic consumption, which currently stands at around 18 kg per capita per year, with an official target of reaching 30 kg by 2030.

Within this framework, reshaping the core production structure will be a decisive factor. Driving better organization across the sector specifically through farm consolidation or strengthened cooperative networks would amplify the impact of the quality and innovation policies already underway.

Conclusion: A Value Chain in Transition

Since 2025, the Thai dairy sector has operated in a significantly more competitive arena. While public policies have successfully anchored the industry and initiated its modernization, their long-term efficacy now rests squarely on the capacity of individual farms to adapt.

The main challenge is still the transformation of the production sector, which is essential to ensure the future competitiveness of the industry. For European players, this transition also opens up opportunities: whether it's climate adaptation technologies, dairy processing solutions, or support for moving upmarket, the Thai industry is looking for partners who can help it through this transformation. At STPI, we closely monitor these developments and support European companies looking to seize these opportunities. Get in touch with us to talk about it.

Publication date: June 2026

Dairy