Summary - Prospects for broad-based economic growth in 1997, supported by consumer preferences and competitive prices for poultry meat, are estimated to push up global consumption 6 percent in 1997. Increasingly, trade is serving as the catalyst to stronger consumption growth, doubling from approximately 6 percent of total consumption in 1992 to a forecast 12 percent in 1997
Poultry meat consumption for selected countries has jumped nearly 40 percent since 1992 as robust income growth in developing countries has strengthened overall meat consumption, forecast at 50.7 million tons in 1997. Poultry meat exports from selected countries are forecast at 5.8 million tons, up 10 percent from 1996, with broiler meat accounting for 85 percent of the total.
Uncertainty in the outlook for world trade in poultry meat is highlighted by the intense concentration of imports by two markets-- Russia and Hong Kong/China. These two markets, neither one a member of the World Trade Organization (WTO), demonstrated in 1996 their ability to shift prices and move markets through market access issues. Specifically, price swings for U.S. leg quarters occurred in March 1996 when the Russians banned imports of U.S. frozen poultry meat. More recently, U.S. poultry exports to China were temporarily suspended over sanitary concerns which were quickly resolved.
High and rising input prices for Russian poultry producers have led to the shut-down of over 40 of Russia's 124 broiler factories. Meanwhile, another 60 have slashed output by 70-75 percent. This has led to a continued decline in broiler production, forecast in 1997 at a meager 259,000 tons, down from 984,000 in 1990.
Since the onset of market reforms in 1991, Russian poultry producers have been caught in a cost-price squeeze as consumer prices have not risen as quickly as input prices. Imports of poultry meat, especially U.S. leg quarters, benefit from high production costs for broiler meat in Russia, estimated at $2.15-$2.50/kg, nearly double that of imported product. In addition, strengthening prices for beef and pork relative to poultry meat have allowed poultry meat to compete effectively as a lower priced protein source.
Demand for imported poultry meat has benefited from the shift in consumer buying patterns, with 1996 imports moving up 20 percent to over 1 million tons. Russian 1997 imports are forecast at 1.1 million tons in 1997, with broiler meat expected to reach 970,000. The real appreciation of the ruble in 1996 also had an impact on the price competitiveness of imported product, with prices, in dollar terms, actually declining from July 1996 to January 1997.
Despite declines in real incomes in 1996, poultry consumption increased to 1.8 million tons, with 1997 estimated to remain stable at that level. Total per capita consumption of red meats and poultry in Russia has declined from its peak of 80 kg/person in 1990 to a forecast 47 kg/person in 1997. Despite the 20-percent drop in poultry meat consumption from the peak levels in the late 1980's, its share of per capita meat consumption has actually increased. In 1996, per capita poultry meat consumption was 12.3 kg, supplying 26 percent of the total meat intake, up from 18 percent in the late 1980's.
Prospects for improvements in the production outlook in Russia are not optimistic despite proposed central and state and local government support for the industry. Productivity remains very low with average weight gains for birds reported at 15-20 grams per day, compared to a U.S. industry average of 40 grams.
In January 1997, the program for Poultry Farms Improvement proposed investments in the poultry industry from local and state budgets. Meanwhile, the Moscow city government announced an additional program of support. Foreign investment is also strengthening as exemplified by a proposal by the U.S. poultry industry to enter into a cooperative partnership project with the Russian industry. Under the plan, the U.S. industry will establish a partnership with an existing broiler production facility in Russia and develop it into a model for the rest of the Russian industry.
Most of the expected gains in poultry and broiler meat trade in 1997 are likely to be absorbed by Asia. By 1994 China surpassed the EU to become the second largest poultry producer in the world and its industry continues to grow, projected to reach 12.5 million tons in 1997. Yet, despite strong production gains, double-digit economic growth in the 1990's propelled demand for poultry meat beyond that of production.
Poultry meat imports by China in 1997, forecast at 900,000 tons, continue to satisfy an increasing share of the market as preferences and income shape demands for certain parts which are available cheaply in the world market. Consumer preferences in Hong Kong and China differ significantly given the large gap in living standards. While approximately 65 percent of Hong Kong's imports are redirected to China, most of the more expensive chicken parts such as mid-joints, wings, and legs stay in Hong Kong. The less expensive parts, such as offals, gizzards, low-priced mid-joints, and particularly feet and paws, are the best selling items in the Chinese market.
Less than a third of China's poultry meat imports are direct, with the rest transshipped through Hong Kong. The United States continues to be the largest poultry supplier to Hong Kong, capturing a 67-percent import share in 1996. Brazil is the second largest supplier, followed by China, Holland, and the UK, yet ranks far behind the United States with only a 7-percent share. In general, most Brazilian products are too high priced for this market with the notable exception of chicken paws.
Hong Kong's, and indirectly China's, average poultry prices moved up in 1996 with U.S. chicken paws in December 1996 cited at $1,000/ton, or 45 cents per pound, compared to $750 in 1995. Meanwhile, Brazilian chicken paws are quoted at $770. The Netherlands is attempting to gain entrance into the China market; however, exports of paws and feet are on hold pending a determination by the Dutch government that these specific chicken parts are fit for human consumption.
Concern abounds about the status of Hong Kong as a transshipment point into China when Hong Kong is assimilated into China on July 1 ,1997. According to Chinese law, Hong Kong's trade policy following the integration is to remain unchanged. As such, import regulations and Hong Kong's status as a free port which does not levy import tariffs on poultry products is expected to remain unchanged.
Recent disruptions in trade with China, with over 100 containers (2,300 tons) of poultry meat reportedly confiscated by the Chinese Government in early March, are due to confusion about import requirements. While the situation is worrisome to the U.S. industry as Hong Kong and China are the only buyers of U.S. chicken paws, the issue is likely to be quickly resolved. Traders are expected to soon resume moving poultry products into China through the various popular Southern ports. Poultry meat imports by Hong Kong and China are forecast to reach 870,000 tons and 900,000 tons respectively in 1997. The China import figures includes transshipments from Hong Kong.
The import outlook for Mexico remains optimistic for 1997, with total poultry meat imports forecast at 194,000 tons, 11 percent above 1996's level. As in previous years, the Mexican Government (GOM) is expected to allow imports to exceed the separate tariff rate quotas for 1997 imports which total nearly 102,000 tons. Early in January, the GOM issued certificates for 70,000 tons of duty-free mechanically deboned meat (MDM) and turkey thighs, substantially above the NAFTA tariff rate quota level because of strong demand for sausage and ham products.
The production figures for Mexican poultry have been significantly revised upward as the Secretariat of Agriculture and Rural Development moved to adopt the data series provided by the National Poultry Association of Mexico.
In Japan, lower broiler production in both 1996 and 1997 is expected to strengthen imports, with imports projected at 540,000 tons in 1997. Meanwhile, consumption is likely to stay stable as slightly lower food service sales, which account for almost 60 percent of the market, are offset by increases in household consumption.
A notable trend in the Japanese chicken market is growing sales of branded domestic chicken in the retail sector. Branded quality chickens now occupy 13 percent of the total poultry meat market and are increasing at over 10 percent each year. Branded promotions, focusing on higher class restaurants and the home cooking sector, emphasize the superior quality and taste of these meats over traditional broilers. Branded cuts are typically priced 10-15 percent higher than non-branded meats.
South Africa continues to be a growing market for U.S. broiler meat, importing 25,000 tons in 1996, up nearly two-thirds from 1995. The South African Poultry Association, however, in an attempt to protect its domestic industry has proposed to raise duties on chicken, and turkey. Presently there is a 27- percent tariff for chicken and turkeys may be imported duty-free. While the proposed duties of 64 percent are within the WTO bound rates, it is unlikely that the additional protection will significantly improve the competitive position of the South African industry in the global market.
Specific inefficiencies in the South African industry, citing a study conducted by the National Productivity Institute on behalf of the South African Poultry Association, include: high feed costs, poor disease control, poorly trained workforce, and high shipping and packing costs.
Despite technical production problems, poultry production in South Africa has increased nearly 50 percent since 1995. The present system of import tariffs was instituted two years ago in response to South Africa's WTO obligations, and the domestic industry presently operates in a free market environment. High input costs, particularly of feed, in 1996 are likely to have been the catalyst driving the request for increased domestic protection through higher tariffs.
Tension continues over the Philippines lack of implementation of its WTO minimum access commitments for poultry. Originally 22,000 tons were scheduled to be allowed to be imported prior to the end of 1996. Over the 18-month period since the inception of the WTO, however, the Philippines has imported less than 10 percent of its poultry commitments due to delays in issuing import licenses. In 1996, poultry meat imports by the Philippines totaled nearly 1,700 tons, two-thirds of which was turkey meat. Recently the Philippines government announced that 16,160 tons, the minimum access volume, would be allowed to be imported in 1997. However, to-date the government has not allocated the licenses which are required for imports.
The Philippines experienced an oversupply of broilers in 1996 due to increased output by large integrators and a less-than-expected increase in consumption. The consequential lower prices, compounded by high feed costs, led to huge financial losses by most of the integrators. This problem of oversupply is perhaps contributing to the reluctance of the Philippine government to adhere to its WTO obligations.
Poultry meat imports by Poland continue to be limited by a WTO-sanctioned TRQ. In early January, the Polish Government announced the 1997 import quota for poultry meat at 31,314 tons, calculated at 8.5 percent of the previous year's production. Any imports above that level are subject to the 60-percent over quota tariff rate. Poland, as revealed by U.S. export statistics, serves as a transhipment point to FSU countries with an estimated 20,000 tons transhipped in 1996. Similarly, Latvia's poultry meat imports in 1996 soared to 68,000 tons, propelling it into a significant transhipment point to Russia.
Kenya has liberalized its economy, opening up market opportunities for importing and further processing of chicken for both the local and export markets. Imports of live poultry and meats are now allowed subject to approval standards at the ports of entry. Imports of parental stock or any other live poultry imports are duty free, while meats, fresh, chilled or frozen, can be imported at 15-percent duty. In addition to production opportunities within Kenya, the Kenyan Government allows processing of various products for export or domestic consumption in special export processing zones or in the duty-free bonded warehouses.
The official government policy on poultry is to encourage local production. However, poultry production which remains a traditional subsistence activity has not kept up with urban demand, resulting in retail prices for chicken being nearly double those of beef. Poultry production in Kenya has actually declined over the past few years, with 1994 figures estimated at 13,900 tons. Production of commercial birds is limited largely to the urban areas where demand for poultry continues to grow. Production, however, remains constrained by expensive and low quality feeds, diseases, and lack of efficient production facilities.
Increased volatility of f.o.b Arkansas leg quarter prices, as well as high input costs, characterized 1996 for the U.S. broiler industry. Dropping from a peak of near 47 cents/pound in mid-October, prices plummeted in December 1996 to the low of 30 cents as Russian customs agents slowed sales by enforcing collection of customs duties.
Exports to Russia soared in November to over 100,000 tons, the largest monthly sales since February 1996 when buyers raced to move broiler meat into Russia prior to the government ban on imported U.S. frozen poultry meat. The ban was lifted after a few weeks. Increased enforcement of duty collections in December, however, dropped exports to 65,000, dragging down U.S. leg quarter prices to the lowest levels in three years. The slow pace of shipments has apparently extended into January and February. Some vessels are being detained in St. Petersburg as Russian customs agents stopped all off loading of poultry consignments in late February pending a thorough review of all documentation.
Poultry imports into Russia are officially subject to a minimum 30 percent tariff or 30 ECU/ 100 kilogram, in addition to a 10-percent value added tax. While rarely enforced, this translated into a minimum customs duty of approximately $469/ton on a $1,000/ton contract. However, a 7-percent appreciation of the US$ vis-a-vis the European currency (ECU) in early 1997 dropped the value of the tax slightly.
Over the past three years, the U.S. industry has benefited from strong export demand for U.S. leg quarters, particularly from Russia, which has strengthened leg quarter prices. Stronger prices have supported the 12-city wholesale bird price which averaged a record 61.2 cents/pound in 1996. Despite the recent 30 percent drop in leg quarter prices, whole bird and breast meat prices are averaging 5-10 percent higher than a year ago.
Despite prospects for increasing competitor exports of broiler meat in 1997, the United States remains the most competitive supplier of leg quarters. Export price quotes for Brazilian bone-in chicken legs, at the end of February, ranged between 63-70 cents/pound, significantly above the U.S. price for leg quarters of 34 cents/pound, and legs of 51 cents/pound. However, whole broilers in Brazil averaged 53-56 cents/pound, compared to the U.S. wholesale price range of 58-61 cents/pound for U.S. birds.
Higher leg and leg quarter prices in Brazil reveal local preferences for the darker meat, with white meat prices sold at a significant discount to U.S. product. Brazilian export prices for boneless skinless breast meat are currently quoted at around $1.20/pound, compared to U.S domestic wholesale prices of $1.75.
Supported by $2 billion of broiler meat exports, the value of U.S. poultry meat exports surged in 1996 to reach $2.5 billion. Dominated by export gains to the world's largest broiler meat importers, Russia and Hong Kong/China, U.S. broiler meat exports passed the 2 million ton mark.
Despite continued concerns about market access to Russia, exports of U.S. broiler meat to Russia increased 26 percent in 1996 to 853,000 tons, valued at $826 million. This singularly important market accounted for 43 percent of U.S. exports in 1996.
Meanwhile, exports to China/Hong Kong in 1996 reached 513,000 tons, up 6 percent over the year before with direct exports to China, at 76,201, nearly double that of 1995. Lower per unit export values for product going to the Hong Kong/China market ( $715/ton), compared to $968/ton to Russia, continues to reveal the differing composition of trade directed at these markets. The U. S. ability to provide a wide and diverse product range, from chicken paws and wings to China, to leg quarters destined for Russia, allow the United States to remain a dominant supplier to these two markets.
Broiler exports to the U.S.'s third largest market for broiler meat, Japan, fell slightly, but overall poultry exports to Japan edged up slightly, supported by stronger spent hen exports. While shipments in 1996 to many regions--the Caribbean, South and Central America, and Europe--fell, exports to our southern neighbor, Mexico, continued to strengthen. Stronger economic growth in 1996 boosted broiler meat exports to Mexico to nearly 100,000 tons, up 9 percent from 1995.
Other smaller markets showing strong growth in 1996 included Latvia and South Africa, which more than offset weaker demand from Middle Eastern countries. The absence of Export Enhancement Program (EEP) bonuses limited U.S. broiler meat exports to the Middle East, dropping exports 27 percent to 26,880 tons. The composition of U.S. broiler meat exports also changed as whole broiler exports dropped to 1 percent of total exports, down from 8 percent in 1991.
Mexico and Russia remained the top recipients of U.S. turkey exports in 1996, accounting for almost two-thirds of U.S. turkey exports of nearly 200,000 tons. Strong economic growth in Mexico stimulated a 28-percent rebound in turkey imports to 70,462 tons, valued at nearly $100 million. The pace of exports continued strong throughout the year with December exports nearly double those of December 1995.
Mid-year debate raged over whether Russia would replace Mexico as the world's major turkey import market. However, a slow down in the latter part of the year yielded Russian imports of 43,253 tons, 168 percent over 1995's level. Most of the imports to these major markets are turkey thighs and mechanically separated meat for use in sausage production.
The forces shaping the world economy--strong economic growth and liberalized trade associated with both the GATT agreement and unilateral policy reforms--support stronger growth in global agricultural trade through the turn of the century. Specifically, favorable economic growth prospects in developing countries resulting in higher demand for value-added food products portend a favorable outlook for the U.S. broiler industry in 1997 and beyond. This is reflected in the 1997 forecast for U.S. broiler meat exports of 2.2 million tons, with the 8- percent jump primarily reflecting stronger Asian demand.
The changing dietary preferences resulting from growing incomes in developed countries is expected to strenthen demand for meat products, particularly in Asia, through the turn of the century. Poultry, as a low priced protein source, stands to benefit from this increased demand with pork and beef facing limited acceptance in some societies.
Global demand for poultry meat imports is expected to trend upward at 4 percent per year to over 7 million tons by 2005, up from the 5.8 million tons forecast for 1997. While this is a significiant slowdown from the 15-percent annual growth rate witnessed in the early 1990's, the United States is well positioned as a low cost supplier of poultry meat to provide a variety of poultry meat products to growing markets. The United States is forecast to garner nearly two-thirds of the gains in total trade over the next decade, as trade prospects of the European Union and Thailand are limited by low productivity and/or high labor costs. Exports from the EU will additionally be constrained by their WTO export subsidy limitations which will decline to less than 300,000 tons by the year 2000.
U.S. exports of poultry meat are projected to expand to 3 million tons by 2000, increasing to 3.6 million tons by 2005. The value of U.S. exports, however, is likely to slow from the rapid rise of the past few years, reflecting increasing shipment of lower priced parts.
Despite WTO export subsidy limitations, EU poultry exports have increased since 1995, as the major exporting countries of European poultry meat, France and the Netherlands, increasingly diversify their markets. Both countries have enjoyed increasing demand for broilers from Russia over the past two years. In France in 1996, lower export restitutions led to a 3-percent decline in whole bird exports to the Middle East; however, exports to Russia are reported up 13 percent. The shift in export destinations for France should continue into 1997 with a 50-percent drop in export restitutions for Middle Eastern destinations to 160 ecu/ton ($182/ton) strengthening interest in moving product elsewhere.
France exports to Russia mostly frozen whole chickens and turkey parts. However, to avoid competing with low cost U.S. broiler leg quarters, French exporters have recently started to export fresh whole chickens to Russia. French exports of whole birds to the Middle East, however, continue to dominate their export patterns, accounting for more than half of all exports in 1995 and 1996.
Broiler meat exports from the Netherlands to non-EU destinations appear to have stabilized in 1996 at 185,000 tons, approximately 28 percent of total production. Strong poultry meat demand in the EU in the second half of 1996 limited availabilities of frozen product for export, as did the EU's decision to not grant export subsides for Russia and other FSU-states in the periods February-July and September-November 1996. Despite declining export restitutions, the 50-percent jump in third country exports from the Netherlands can be directly attributed to increased exports to Russia and Ukraine. These two markets accounted for nearly half of all Dutch broiler exports in 1996.
China continues to dominate the stage as the fastest-growing poultry meat exporter as well as the largest market for poultry products. From 1992, the total export volume of China's poultry meat has more than tripled, reaching about 550,000 tons in 1996, valued at $730 million.
The destination of this unprecedented export growth is mainly Asia, specifically Japan, as China moves into position as Japan's largest broiler-meat supplier. According to Chinese traders and supported by Japanese trade data, Chinaese exports of frozen chicken parts to Japan in 1996 increased to over 200,000 tons, accounting for 38 percent of Japan's total poultry imports. Fresh or chilled broiler meat accounted for 5 percent of China's total exports to Japan in 1996, up 16-fold since 1993. China's share of Japan's poultry market is expected to continue to expand in 1997, with fresh or chilled broiler meat maintaining steady growth.
Imports of broiler meat by Japan from Thailand declined by 20 percent in 1996 to 96,000 tons, with Brazil benefiting from the higher Thai prices by expanding its share of the market to 20 percent. Meanwhile, U.S. exports maintained a steady share of 25 percent, with bone-in leg cuts accounting for most of the sales.
In Thailand, slow demand from Japan reportedly dropped prices for boneless leg meat, the main item shipped to Japan, from about $1.29/pound in 1995 to $1.19 in 1996. Declining exports to Japan, however, have been somewhat offset by strong exports to the EU as bilateral ties with several members prompted a near doubling in export volume to nearly 24,000 tons. Despite gains in trade with the EU, as well as a jump in exports of further processed chicken meat from 23,000 to 28,000 tons in 1996, total exports in both 1996 and 1997 are forecast below the 1995 level.
Thai exports in 1997 are forecast to dip to 167,000 tons. However, the stagnant outlook for trade has not stopped expansion of their domestic industry. Expansion in restaurant franchises and consumer preferences is expected to strengthen prices for chicken meat, pushing up production in 1997 by a healthy 6 percent to a record 945,000 tons. Slow export opportunities have prompted several poultry processors for export to diversify sales into the domestic market.
Continuing a decade long trend of foreign investment in overseas--mainly Asian-- poultry industries, the Thais are building a large broiler complex in eastern Alabama. A consortium of Thai companies has chosen Barbour County, Alabama, as the site to build an $88 million broiler complex. The complex, estimated to process more than a million birds per week, will consist of nearly 600 broiler houses, 64 breeder houses, a hatchery, a feed mill, and two processing plants, one of which will be dedicated to producing product for export.
A slow down in broiler meat consumption in Brazil in 1996 as domestic broiler meat prices competed against low beef prices led to increased availability of broiler meat for export. Strong poultry demand from Europe as a result of the BSE-scare, as well as new commercial markets such as Russia and Iran, pushed exports up in 1996 to 567,000 tons, a phenomenal jump of 30 percent from 1995's depressed levels.
Meanwhile, constrained consumption prospects in 1997 are likely to push export prospects for Brazil even higher, to 610,000 tons. Current wholesale prices for frozen whole broilers at US$.50/pound are reported to exceed those of fresh broilers, portending weaker domestic demand in Brazil for broiler meat.
Whole bird exports to Brazil's traditional markets in the Middle East, such as Saudi Arabia which historically accounts for nearly 60 percent of Brazil's whole bird exports, continued to dominate the composition of trade. Whole bird exports in 1996 constituted 51 percent of total broiler meat exports, with Russia reportedly importing 14,000 tons. Strong demand from Iran led to shipments of nearly 9,000 tons of whole birds in 1996.
Strong European and Japanese demand for parts, however, pushed up the part component of overall trade to nearly 275,000 tons. Exported broiler meat parts, mainly breast meat to Europe, nearly doubled in 1996 to 57,000 tons, while bone-in leg exports to Japan soared nearly 25 percent, to 116,000 as Brazil took advantage of rising labor costs in Thailand to offer very competitive prices. Preferences for dark meat in Brazil have largely limited exporters from shipping leg quarters; however, increasingly, leg quarters are being exported, as well as chicken legs, sized and trimmed.
Broiler meat exports from Canada have risen 40-fold from virtually nothing in 1992 to a forecast 40,000 tons in 1997. This is despite a system of supply management which has precluded Canada from participating in the expanding world demand for chicken. In recent years, however, growing demand for chicken worldwide has provided an export outlet for Canadian chicken legs and backs that are in lower demand in Canada than breast meat and wings.
Beginning in March 1997, a new export policy will be implemented whereby domestic processors will be able to negotiate a volume and price for chicken for export with their respective provincial agency. It is estimated that this new export policy may allow an additional 8,000 tons for export, pushing up the export forecast for 1997 to 40,000 tons.
Meanwhile, U.S. access to the Canadian market is expected to increase as stronger Canadian consumption and exports prompt higher production, translating into larger import quotas. However, as the Canadian industry becomes more responsive to domestic market demand, overall imports are expected to fall as the closer cooperation between provincial chicken boards in Canada and processors in matching demand to supply is anticipated to lead to fewer supplementary import quotas for U.S. exporters of broiler meat.
Canadian broiler meat imports in 1997 are forecast at 65,000 tons, slightly below the 1996 level of 68,000 tons. The NAFTA-determined tariff-rate quota in 1996 was set at 52,125 tons; however, imports were registered at 68,000, almost 10 percent above quota as supplementary import permits were issued. The 1997 tariff rate quota will be approximately 54,000 tons based on 7.5 percent of the official 1996 Canadian production.