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LIVESTOCK AND POULTRY
World Markets and Trade
October 1997
The Global Meat Complex: Trends and Implications
Rising incomes and changing dietary preferences in developing countries since the late 1980's have set the stage for steady increases in meat consumption and trade. With its favorable resource base and modern livestock and poultry industries, the United States is well situated to take advantage of this growth in demand, moving into position as the world’s largest meat exporter.
[Note: This article refers to the 13 specific countries shown in the total meat summary table.. Trends in the industry are evaluated over the 1988-1997 period to ensure consistent country coverage.]
Strong global economic growth over the past decade has generated increased demand for meat products, leading to corresponding gains in output. This overall growth in meat production is increasingly concentrated in three major regions: the United States, the European Union (EU) and China. Over the past decade, the bulk of this growth has been concentrated in China which now accounts for nearly 40 percent of meat production.
This growing demand for meat products has also led to a doubling of meat trade since 1988. As with production, trade is concentrated with the United States and the EU will supply over half of global import requirements in 1997. On the import side of the trade equation, concentration is also evidenced with Japan and Russia accounting for half of global meat imports in 1997.
The purpose of this article is to briefly describe some of the important changes affecting the structure of global meat production and trade and identify factors underlying these changes.
Meat Production Becomes More Concentrated
Image 1: Pork Dominates World Meat Output...Poultry Meat Supports Overall Gains
Meat production in the 13 selected countries which in general account for nearly 85 percent of world output has been rising annually at a 4 percent rate of growth. Since 1988, output has moved from 121 million tons to a forecast 174 million in 1998. Three countries--the United States, the EU and China--account for nearly 76 percent of production in 1997, up from 68 percent in 1988. The composition of production is also changing with poultry and pork accounting for 93 percent of the 53 million ton gain in total meat production.
Increased geographical concentration of the world meat industries occurs as a result of producers’ need for adequate, low cost feed and forage availability, industry concentration to achieve economies of scale, and a certain amount of land mass to accommodate environmental constraints. More integrated operations for both poultry meat and pork, combined with more efficient feed conversion ratios, have undoubtedly contributed to significant production increases for both. Meanwhile, the ease of adapting modern poultry production technologies and the shorter production cycle for poultry meat made possible the near doubling in poultry output since the late 1980's, from 26 million tons to a forecast 50 million in 1998.
Market liberalization in China, beginning in the late 1980's, combined with growing incomes, has served as a catalyst to increasing meat production. Meat production in China, increasing 10 percent per year, has grown faster than anywhere else in the world, tripling since 1988 to a projected 67 million tons in 1997. This has resulted in China producing more than 50 percent of the world’s pork. Although pork dominates the meat complex in China, accounting for 68 percent of total production, this share has been steadily eroded over time, dropping from 82 percent in 1988, as the Chinese poultry industry has modernized production practices. Poultry meat presently accounts for 21 percent of total meat production, up from 12 percent in the late 1980's.
In China, the meat industry has been a major area of foreign investment since economic reforms were launched. Official Chinese statistics indicate that about 1,000 joint ventures or solely foreign funded meat processing enterprises have been set up around the country. Many of these ventures have not yet reached full capacity with the result that further rapid changes in meat production are possible.
Image 2: China Accounts for the Bulk of World Meat Production in 1997
During the 1990's, benefiting from its favorable natural resource base, growing international demand for meat products, and a large domestic market, the United States jockeyed into position as the second largest meat producer. Surpassing the EU in 1994, the United States presently accounts for 20 percent of production, while the EU's share is 19 percent, a decline from 25 percent in the late 1980's.
U.S. meat production has been increasing 3 percent per year. Strong international demand for U.S. poultry products and relative prices that encourage poultry consumption in the United States and other countries have led to the composition of this output growth heavily skewed in favor of poultry meat. Poultry output now accounts for nearly 45 percent of U.S. meat production, up from 33 percent in 1988.
Meat Trade Grows Rapidly but Composition Shifts
Growing global demand has led to a doubling of world meat trade since 1988. Exports, growing at a healthy 7 percent annual rate, are expected to total 12.5 million tons in 1997, up from 6.8 million in 1988. Meat, in general, remains a thinly traded commodity with exports accounting for only 7 percent of total production, up only slightly from the late 1980's. The high degree of perishability of meat products has traditionally constrained trade. This has been compounded by the lack of adequate marketing infrastructure (port facilities, cold storage, etc) in many emerging markets.
Image 3: Poultry Meat Drives Gains in World Meat Imports
The composition of meat exports has dramatically shifted with poultry meat the clear winner during the past decade. Increasing from a lower base, poultry meat has been growing at 17 percent per year while pork has maintained a more sedate 4 percent growth. Beef exports, which dominated trade in 1988, have grown more slowly due in part to relative prices which favor consumption of other meats. In addition, lower availability of subsidized beef exports from the EU and Eastern Europe have limited imports by lower-income markets. The composition of beef trade has also shifted with higher valued beef shipments from the U.S. to Japan compensating for the radical decline in the movement of the cheaper cuts into Russia which was the largest beef importer in the late 1980's.
The relative importance of trade to the different meats has changed as well with nearly 11 percent of total beef and poultry traded in international markets, compared to 3 percent for pork. Thin trading of pork, measured as a share of production, has been tied to the dominant role played by China which trades limited amount of pork. While beef’s share of production has remained relatively stable since the late 1980's, the importance of international poultry meat trade has expanded from four percent in 1988 to nearly 11 percent in 1997, demonstrating the industry’s ability to respond to rapidly growing demand for poultry meat products.
Two Import Markets Dominate Trade...
While concentration characterizes the import market for meat products, growing demand from many regions of the world is stimulating growth in trade. Japan and Russia, however, continue to dominate the global meat market, accounting for more than half of trade in 1997. Japan, by a slim margin, maintains the position as the world's largest meat importer; however, Russia, whose imports have ebbed and flowed over the course of economic reform, is challenging Japan for its number one position.
Image 4: Declining Russian Meat Production...Leads to a Surge in Imported Product
The catalyst underpinning the dramatic increase in meat trade is Russia where economic reforms resulted in sharply higher costs of production for meat producers, and led to a nearly 60 percent decline in domestic production. Competitively priced poultry meat, particularly broiler leg quarters from the United States, largely filled the gap. Per capita meat consumption in Russia dropped from 78 kg to 47 in 1997; however, poultry meat as a share of that total increased from 19 to 28 percent. Consequently, per capita poultry meat consumption in Russia in 1997 at 13 kg is only slightly lower than the 15 kg reported in 1988. Nearly 60 percent of that consumption of poultry meat is imported. In general, imports of meat as a share of domestic consumption have risen from 15 percent in the late 1980's to 32 percent in 1997.
Increased access to the Japanese meat market, facilitated by the 1988 Beef-Citrus agreement and WTO-negotiated access for pork, virtually doubled Japan's imports of meat products. Consequently, Japan's share of imports jumped from 21 percent in 1988 to 30 percent in 1993. Higher imports and declining meat production have forced Japan’s domestic market to be increasingly reliant on imported beef and pork products. Indeed, imports as a share of total meat consumption have risen from 26 percent in 1988 to a projected 45 percent in 1998.
...Concentration Also Characterizes the Export Market
Meat trade is dominated by two major exporters--the United States and the European Union. Australia, and Brazil, and surprisingly, China also play significant roles. These five countries account for approximately 85 percent of exports in 1997, up from 76 percent in 1988. The United States and the EU are the major suppliers, however, exporting more than 50 percent of the total.
Image 5: The United States Became a Net Meat Exporter in 1992
The U.S. livestock and poultry sector, benefiting from an abundant resource base, adequate feed grain availability, a large domestic market, and a well developed infrastructure and marketing network has increasingly profited from growing international demand for meat products. Meat exports as a share of domestic production have increased from 3 percent in 1988 to 11 percent in 1997. Vertical integration and advanced technology have vastly improved production efficiencies, especially in the broiler industry. This has allowed the industry to hold down costs and produce a variety of products at declining real prices.
Product diversification and a world market that prefers different broiler meat parts than U.S. consumers has allowed the United States to be extremely competitive in the export market. Pork and beef exports have benefited from negotiated reductions in trade barriers, particularly in East Asia. In addition, U.S. production of high-quality grain fed beef has allowed it to exploit growing international demand for quality beef cuts.
The above advantages have allowed the growth in U.S. meat exports to significantly exceed that of world trade in general. In fact, nearly two-thirds of the gains in trade since 1988 has been garnered by U.S. meat. While the growth in meat trade for the 13 selected countries averaged 8 percent annually since the late 1980's, U.S. exports have increased 20 percent annually. U.S. poultry meat exports have grown at a 24 percent annual rate, compared to 9 percent for beef/veal and 20 percent gains for pork.
Image 6: U.S. Moves into Position as the World's Largest Meat Exporter
In fact, the strong growth in U.S. poultry exports over the past few years enabled the United States to surpass the EU in 1994 to become the world’s largest meat exporter. Meat exports by the U.S. in 1997 are estimated at nearly 4 million tons, with poultry meat accounting for nearly two thirds of the total.
The United States also remains a significant importer of meat products, specifically manufacturing-grade beef. U.S. meat imports, mainly beef, have remained relatively stable since the late 1980's due to the combined effects of the U.S. Meat Import Law, flat demand for beef among U.S. consumers, and low U.S. beef prices. The U.S.’s share of the import market, however, has dropped significantly over the same time period, sliding from 27 percent of global imports to 15 percent in 1997. Indeed, a strong export market has induced a dramatic shift in the U.S. trade balance for meats. Growing exports of poultry meat propelled the United States from a net meat import position to a net export situation in 1992.
Significant policy reforms in the EU, combined with international trading rules that effectively cap export subsidies have constrained the expansion of EU meat exports. Beef and pork exports in particular have stagnated over the decade. Poultry exports, despite beliefs that the EU poultry sector would be uncompetitive without subsidies, have continued to expand. Despite poultry meat export gains, the EU has increasingly become less competitive in the world meat market, with exports declining from 30 percent of trade for the selected countries in the late 1980's to 20 percent currently. It is unlikely, given the higher production costs in the EU and caps on subsidized exports, that the EU will significantly expand meat exports in the future.
Strong exports of poultry meat from Brazil, supported by some beef shipments, have allowed that country to rival Australia as the third largest meat exporter. Competitive marketing by China in nearby Asian markets has led to 13 percent annual gains in Chinese meat exports since economic liberalization in the late 1980's. Meat exports by China in 1997, despite its large production base, are estimated at only 800,000 tons, or 7 percent of total trade. These meat shipments consist mainly of broiler meat destined for the high priced Japanese market, as well as pork products going to Russia.
Image 7: Summary Indicator of Changes in the World Meat Complex
Outlook for Meat Trade
The generally favorable world economic outlook for the upcoming decade, especially the prospects for stronger income gains in emerging markets, is expected to spur further growth in meat demand and trade.
World meat consumption is likely to grow faster than the 4 percent growth witnessed over the past decade, buoyed by increasing demand from many emerging economies in Asia. Economic disruptions in many of these countries due to currency devaluations are likely to be resolved over the next few years.
The prospects for expanding meat trade are favorable as the trend towards industry concentration continues and as changing dietary preferences in developing countries sustains growing demand for meat products. Another impetus for trade is likely to originate from already negotiated reductions in trade barriers, primarily in East Asia. However, trade gains are not expected to match the robust 7 percent growth witnessed over the past decade, rather they are likely to slow to a more sedate 5 percent annual rate of gain.
The shift in the composition of meat trade favoring poultry meat is likely to continue in the future, supported by lower poultry meat prices relative to other meat. Lower relative poultry meat prices stem not only from poultry’s low production costs compared with most other meats but also from the growth in low priced poultry parts, particularly dark meat. This allows exporters like the United States, where white meat sells at a premium in the domestic market, to ship parts at prices lower than those of a whole bird.
Much of the outlook for the world meat complex hinges on developments in China. Nearly three quarters of the gains in global meat consumption since 1988 has been driven by market reforms in China. The Chinese have been avidly increasing their consumption of meat since the late 1980's and most of their increased demand has been met by growing production of both pork and poultry meat.
The ability of China and other emerging markets to increase production to satisfy growing consumer demands for meat products will dictate the pace of growth for world trade. As trade barriers are negotiated down, a country’s competitive position in the world meat complex hinges on its supply of raw materials, particularly grain and protein materials, as well as technical efficiencies and environmental pressures.
The ability to quickly expand modern poultry production facilities, and incorporate improved genetics, imply that the growth in poultry production and consumption will exceed those of beef and pork. However, environmental concerns, limited feed grain availability, and land limitations may limit production expansion in those areas unable to resolve these constraints.
Continued strong demand from Asian markets, such as Japan and South Korea, stemming from on-going market liberalization, will boost import demand for both pork and beef. The United States will be the major beneficiary of stronger demand for quality grain fed beef. Income gains in China and Mexico will serve as a major catalyst to maintaining strong demand for imported poultry meat. Resolution of trade restrictions in the form of health and sanitary regulations not based on sound science would also provide additional impetus to poultry trade.
Overall exports of meat and meat products are likely to reach nearly 17 million tons by 2005 with poultry meat expected to account for nearly two-thirds of the gains. The United States as one of the most efficient, low-cost producers and exporters of meat products is likely to benefit from increased trade facilitated by constrained production potential in other countries.
Image 8: Growth in World Meat Trade Likely to Continue Strong in the Next Century
Data table: Total Meat Summary (HTML format)
Data table: Total Meat Summary (Envoy format)
For more information, contact Nancy Morgan at 202-720-1372.
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