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LIVESTOCK AND POULTRY
World Markets and Trade
October 1997
Poultry Meat and Products: U.S. and Competitor Exports
Expected slower gains in world poultry meat import demand in 1997 and 1998, combined with a 10 percent increase in competitor exports in 1998 will weigh on U.S. export prospects. U.S. exports in 1998 are forecast up only 3 percent, down from the double digit gains since the early 1990s.
Lower U.S. feed prices going into 1998 are expected to lead to improved net returns for the U.S. poultry meat industry, stimulating a 6 percent increase in production to 15.9 million tons.. Despite this optimistic outlook in 1998 which is driven by a 7 percent production gain for U.S. broiler production, lower broiler meat export growth is expected as overall gains in world import demand slow and competitors increase their export availability's. This more constrained export outlook is already reflected in January through August 1997 U.S. exports which are up only 3 percent over last year.
Strong gains in broiler production in China and Brazil, as a result of lower feed prices, are likely to increase their export availability. In Thailand the devaluation of the baht will lower their export prices, enhancing their competitiveness, particularly in the very price sensitive Japanese market. Meanwhile, competition will continue to be acute from Europe where increases in non-subsidized exports have laid to rest the argument about their ability to compete without export restitutions. Even exports from non-traditional suppliers are adding up with Argentina, Canada, and Saudi Arabia moving into the trading arena.
1998 U.S. Poultry Meat Exports to Experience Slowest Gain Since 1989
Following many years of double digit export growth, U.S. poultry meat exports in 1997 are estimated at 2.5 million tons, 8 percent above 1996. While export growth to Russia, other FSU countries, and Mexico has shown strong gains in the first eight months of 1997, the overall increase has been moderated by falling sales, specifically broiler meat, to many Asian markets.
This constrained growth is expected to continue into 1998 when U.S. poultry meat exports will confront slowing demand from the world's traditionally largest import markets--Russia and Hong Kong/China. This slowdown will be compounded by continued strong competition in most markets from China, Brazil, the EU, and Thailand. U.S. exports in 1998 are forecast at 2.6 million tons, a modest increase of only 3 percent.
1997 U.S. Broiler Meat Exports Sluggish ....
Image: Gains for U.S. Poultry Meat Exports To Slow in 1998
U.S. exports of broiler meat in 1997 are estimated at 2.1 million tons, 5 percent over 1996. Lower prices, however, may actually result in the total value of broiler meat exports lower than the $2 billion reaped in 1996. This is the first time in a decade that U.S. exports are set to experience gains of less than double digits. This slow growth is expected to extend into 1998 as the pace of exports to the U.S's major markets--Hong Kong/China and Russia lag. Meanwhile, FOB export prices for broiler meat to Russia in August were approximately $716/ton ($.32/pound), nearly 27 percent below last year's level. These lower prices, resulting in razor thin margins, are a direct result of Russian enforcement of collection duties.
The overall pace of U.S. broiler meat exports has been constrained to 2.5 percent growth in the first eight months of 1997 as shipments to the Hong Kong/China market are down 15 percent from last year's levels. Early year concerns about Hong Kong's accession to China and the impact on cross border shipments obviously contributed to part of the slow down. Strong production gains in China, however, have increasingly put downward pressure on Chinese prices, making it more difficult for imported product to compete against locally produced product.
Meanwhile, in other Asian markets, U.S. shipments have fallen with exports to Japan down more than 20 percent due to increasing competition with domestically produced product in Japan, as well as increased shipments from China. In some markets, such as Hong Kong, strong turkey meat imports appears to be substituting for the drop in broiler meat imports.
...While U.S. Turkey Exports Booming
Growing international demand in 1997 for turkey parts is more than compensating, however, for the slow growth in U.S. broiler meat exports. The fast pace of turkey product movement to Asian markets over the first eight months of the year, specifically Hong Kong (up over 450 percent in the first eight months of 1997), Singapore, and Japan is fueling the overall 53 percent gains in U.S. turkey exports. Total U.S. turkey meat exports in 1997 are estimated at 243,000 tons, 22 percent over 1996.
Some of the gains in U.S. turkey exports are directly related to the higher prices of pork in certain Asian markets as a result of the FMD outbreak in Taiwan. Turkey meat as a substitute for pork as an input into the meat processing industry becomes more attractive as pork prices increase. In the case of the United States. turkey exports have been concentrated in the lower valued products, such as ground turkey meat and mechanically deboned meat (MDM). These are likely used in combination with other meats for sausage production.
U.S. turkey exports to Russia, the second largest market for U.S. turkey exports in 1996, have dropped 25 percent in the first eight months of 1997, perhaps due to increased competition from French product which is exported with restitutions. However, shipments to Mexico continue unabated as Mexican meat packers respond to price differentials between pork and poultry meat which increasingly favor U.S. poultry meat as a processing input.
Competition for International Poultry Meat Markets Acute and Growing in 1997 and 1998
The United States continues to dominate the world market for poultry meat exports, with a forecast 2.5 million tons in 1997 estimated to constitute 49 percent of world trade. However, increasing export competition is expected in 1998 stemming from increased export availability in traditional competitors, such as Brazil, the EU, Thailand as well China. In addition, relatively new entrants to the poultry meat trading arena, Argentina and Canada, are expanding their exports to the growing markets in Asia.
Image: The United States Faces Increased Export Competition in World Broiler Markets
Booming Brazilian Exports Set to Continue in 1998
Increased export availability of broiler meat are expected in Brazil in both 1997 and 1998 as lower feed costs, economic stabilization, and a favorable export outlook fuel gains in output. Production is expected to jump 7 percent in 1997 as favorable grain harvests are holding input costs below a year earlier. The current cost of production is estimated at US$.29/pound of live weight, representing a drop of nearly 8 percent compared to the same period last year.
Image: Strong Demand for Whole Chickens Continues to Dominate the 1997 Outlook for Brazilian Exports
Strong demand from international markets, combined with very competitive prices, is underpinning the 15 percent estimated growth in Brazilian broiler meat exports in 1997. Most of this growth is expected to come from higher shipments of whole broilers (up 25 percent), including record shipments to Russia and new sales to Iran. Exports of broiler parts are also estimated to grow by 15 percent, despite lower demand from Japan and strong sales of broiler parts at home. Although Brazil exports poultry to over 35 markets, sales are concentrated in a few, such as Saudi Arabia for whole broilers (52 percent) and Japan for broiler parts (42 percent).
Exports in 1998 are expected to continue to increase to a forecast 720,000 tons, although the rate of growth is likely to slow due to the continued overvaluation of the Brazilian currency, the Real. However, despite sluggish domestic prices for broiler meat, output is likely to experience a healthy 5 percent increase in 1998 as investments in new plants and modernization of plant facilities continue in the Center-West region of the country. Nearly half of Brazil's poultry production is centered in the South with about 75 percent of the industry vertically integrated. Much of the newer investment coming on line is located in the Center West region, closer to the oilseed producing areas.
The Brazilian industry, benefiting from the lowest production costs in the world, is likely in the long term to continue to expand both production and exports. It is enhancing its competitive position in global markets due to industry integration and consolidation that has allowed the industry to produce products at declining real prices, including a wide range of new products to meet changing consumer preferences.
Despite Declining Export Restitutions, EU Expands Poultry Meat Exports
Defying previous assumptions that European poultry meat exports are not competitive without export restitutions, the EU continues to expand shipments in 1997 within a context of declining subsidy levels. Led by a strong pace of French exports, EU poultry meat exports, estimated at 941,000 tons in 1997, are expected to more than double the WTO-sanctioned export commitments of 395,000 tons (including 20,000 tons rolled over from the previous year).
Both French and Dutch poultry meat exporting companies have managed in many cases to expand exports to third countries, specifically to Russia, without export restitutions. Relatively high domestic prices in Europe for higher value products have allowed European companies to export chicken wings, legs, and lower-priced turkey parts without subsidies.
Meanwhile, strong lobbying power by some of the major French companies has prevented whole chicken meat restitutions from being lowered the same as chicken part restitutions. While export restitutions for parts have dropped in half since mid-1995, restitution levels for whole chickens, at $270/ton, remains significantly higher than for chicken cuts which are averaging $142/ton. Further disadvantaging part exports is that only 67,000 tons of the 395,000 tons available for restitutions are authorized for chicken parts, a decline of nearly 10 percent from last year. Of this 67,000 tons only 40,000 tons are available for export to Russia and only during the winter months when demand is strongest.
The Middle East is the major destination for French poultry exports, accounting for 80 percent of total exports. Most of the shipments to this region in 1996 consisted of whole birds. Market diversification by the French industry, however, has led to movement of French poultry products to Russia in 1997 rising 20 percent above last year's levels. The French exporters attempt to avoid direct competition with U.S. poultry by targeting niche markets, such as whole poultry or turkey parts. A variety of French further processed poultry meat products is found in the shelves of Russia stores, including turkey rolls and shish kabobs, chicken dinners and long-life dinners for the microwave.
Currency Devaluation Makes Thai Exports More Competitive
The nearly 50 percent devaluation of the Thai currency (the Baht) has raised major questions about the outlook for the Thai poultry complex over the next few years. The immediate impact, especially with production already set to jump 10 percent in 1997 to 920,000 tons, will be to increase the competitiveness of Thai product, especially in the very price sensitive Japanese market. Exports of broiler meat in 1997 are forecast up nearly 9 percent to 180,000 tons. This is a turnaround for the Thai industry after higher labor costs in previous years led to sluggish export movement.
Thailand had been increasingly edged out of the Japanese market over the past few years by competitively-priced Chinese exports of deboned leg products. Thai import prices averaged 28 percent above the Chinese prices in the first half of 1997; however, a significant devaluation is likely to halt the erosion of the Thai share of the Japan market. With Japan accounting for nearly three-quarter of Thai exports, exports are set to continue to expand in 1998 to 190,000 tons.
Significant increases in imported feedstuff prices, however, many constrain the ability of the Thai industry to expand production in 1998. The devaluation is compounded by El Niņo induced production problems for corn, leading to a jump in corn prices by 10 percent over the past few months. Meanwhile, a strong dependence on imported soybean meal and high international prices have sent meal price soaring nearly 23 percent.
Considerable uncertainty surrounds the production outlook for Thailand in 1998 as well as the devaluation's effect on consumer's real incomes and consumption prospects. Inflationary, pressures on incomes could reduce the prospects for higher poultry meat consumption from the 6 percent growth anticipated for 1998. This would result in increased export availability beyond forecast levels.
China Continues To Make Inroads into Other Asian Markets
China's rapidly growing poultry meat industry and close proximity to other quickly growing Asian markets has prompted a 4-fold increase in poultry meat exports since the early 1990's. Nearly half of China's exports, forecast at 550,000 tons in 1997, are destined for Japan, where Chinese exporters cater to the growing retail food market, especially for ready-to-serve meals.
Increased Japanese imports of Chinese chilled leg meat, up 65 percent in the first half of the year, partially explains the 30 drop in imports of U.S. frozen bone-in-legs, of which a portion is locally deboned and sold for table meat. According to trades sources, delivery of Chinese leg meat takes less than a week from the slaughtering facility in China to the final selling point in Japan.
Meanwhile, China continues to actively promote exports of white meat, with reports of imports as far away as South Africa. The EU ban on Chinese poultry meat imports, imposed late 1996, is still in force and has led to increased competition for this market, with inroads made by both the Thais and the Brazilians. Meanwhile, the U.S. presence in this market is curtailed by the EU ban on U.S. poultry meat imports, in effect since April 1997. This impasse is due to differences over respective approaches to poultry inspection, specifically on the issue of antimicrobial treatments, including chlorine.
Non-Traditional Exporters Jump on the Export Bandwagon
Both Canada and Argentina are increasing their exports of broiler meat, Canada in response to the differential prices for dark and white meat in their own domestic market and Argentina in response to Russia's interest in importing whole chickens.
Broiler meat exports from Canada are set to rise again in 1998 as Cuba, China, Hong Kong and Russia provide important market outlets for dark chicken meat not preferred in Canada. Exports have been supported through a new export policy, run by provincial boards and overseen by the Chicken Farmers of Canada (KFC). This program allows processors to negotiate with individual farmers on volume and price for export chicken.
Meanwhile, in Argentina, exports are forecast at 20,000 tons, up from virtually nothing in previous years. The largest local processors optimistically look at expanding shipments to Russia which recently made its first purchase (4,000 tons) of whole birds from Argentina. The local industry together with the promotional help of the government is looking towards Russia, Saudi Arabia, the EU, Japan and the Caribbean basin as potential markets. Meanwhile, chicken paws still account for the largest share of the country's total exports.
Outlook for Poultry Meat Trade
The overall medium term outlook for poultry meat is optimistic with poultry meat consumption expected to expand as overall demand for meat products strengthens in tandem with rising per capita incomes, especially in developing markets. Lower production costs for poultry meat relative to most other meats will allow poultry to compete effectively for an increasing share of total meat consumption. However, the 1998 poultry meat outlook for trade sets the stage for slower gains than experienced over the past decade. Global trade is projected to slow to a 4 percent annual growth, down from the 15 percent gains experienced over the past decade.
The slower gains in trade, as projected for 1997 and 1998, and increased product diversification and competition, will increasingly allow overseas consumers to shop more selectively for relatively low-priced chicken and turkey parts. The U.S. industry, while well positioned to respond to growing consumer's demand for quality and conveniently packaged/processed products, will face more competition on the world market to provide increasingly sophisticated overseas clients with product that they want. Given the U.S. industry's demonstrated ability to supply a variety of poultry meat products to growing markets, U.S. poultry meat exports are projected to expand to 3 million tons by 2000, increasing to 3.6 million tons by 2005.
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