LIVESTOCK AND POULTRY
World Markets and Trade
Poultry Meat and Products
After a decade of unprecedented double-digit growth in world poultry meat trade, poultry meat export gains in 1998 are expected to slow to 7 percent. Lower feed prices have supported significant production increases in countries such as China, slowing demand for imports. Meanwhile, strong poultry meat availabilities from competitors in 1997 and 1998 are likely to limit gains in U.S. exports to single-digit levels.
Image: Slow Gains in world Poultry Meat Imports Expected in 1998
Lower feed prices in 1998 and consumption demands fueled by a relatively healthy global economy are expected to stimulate poultry meat production in countries around the world. Poultry meat production for selected countries in 1998 is forecast at 57 million tons, up 6 percent over 1997.
Moving into position as the world=s second largest poultry meat producer, China=s remains a pivotal component to the world poultry meat complex. China=s ability to expand poultry production will allow it to garner nearly half of the total increase forecast for 1998, or 2.5 million tons. Indeed, the longer term outlook for world trade hinges on China=s ability to expand production to meet its consumption requirements. Surpassing the United States in 1997 as the world'ss largest poultry meat consumer, China is forecast to account for nearly one-quarter of poultry meat consumption in selected countries in 1998, forecast at 55.2 million tons.
Growing at an impressive rate of 15 percent per year, poultry meat trade in the 1990's has benefitted from stronger consumption growth, with total exports estimated at 5.9 million tons in 1997. This growth is, however, gradually slowing with poultry meat exports from selected countries expected to increase only 6 percent in 1998, to 6.3 million tons. China=s continued ability to expand its own production will likely limit the growth in world trade of poultry meat in 1998.
While dominating the world export market, U.S. poultry meat exports in both 1997 and 1998 will be faced with increasing competition in both Asian and the Russian markets from Brazil, Thailand, the European Union and increasingly from China itself. U.S. exports in 1998 are poised to rise to 2.6 million tons, 3 percent over 1997.
Market Concentration the Norm in the World Poultry Meat Market
Both the import and the export side of the world poultry meat market continue to be characterized by market concentration. Imports are dominated by two major markets--Russia and the China/Hong Kong--accounting for approximately 65 percent of world imports. Meanwhile the export side of the equation is driven mainly by the United States, Brazil, the EU, and Hong Kong/China. Exports from these markets together constitute 90 percent of total world exports.
World poultry meat trade has experienced a rapid pace of growth over the decade of the 1990s, however, 85 percent of the gains in trade have been generated by the two largest markets for poultry meat--Russia and Hong Kong/China. A projected slow down in imports by these two countries in 1998 is likely to result in a healthy, but less than spectacular, 7 percent rise in poultry meat trade.
China: The World's Largest Poultry Meat Consumer
Despite slightly slower economic growth prospects in China, domestic consumption of poultry meat is expected to jump 12 percent to 14.5 million tons in 1998. This is despite a reduction in purchasing power by many civil servants, previously employed by state-owned enterprises. However, ample feed supplies in 1997 and continued strong export demand for Chinese products in Asian markets are prompting poultry producers in 1998 to expand meat production to 14 million tons, 12 percent over the 12.5 million anticipated for 1997.
While much of the growth in poultry production is stemming from expansion in the layer industry, broiler production is also expected to rise to 6.2 million tons, accounting for approximately 45 percent of domestic poultry production. Much of this output growth stems from expanded capacities of privately operated large facilities and joint ventures.
Expansion in domestic poultry meat output in China and lower prices have made it more difficult for broiler imports to compete against domestically-produced product. The slow pace of imports is evidenced by the 18 percent drop in U.S. broiler exports to Hong Kong and China from the previous year. Increased security controls in southern China as a result of the hand-over in July slowed the flow of product from Hong Kong into China. In addition, more experience among Chinese Customs officials is limiting the extent that product is undervalued for duty purposes. However, imports should pick up later in the year. The effective import duty, which until October 1, 1997 was officially 45 percent plus an additional 17 percent value-added tax, will become increasingly less of a constraint to imports as the duty is reduced to 20 percent.
Trade with China should additionally be stimulated by the one-year trial period during which specified quantities of meat (5,000 tons for poultry meat) will be permitted to be imported for sale in retail markets. Previously meat product imports into China were not allowed for sale in retail markets. This is a slow and cautious approach to opening access to the Chinese market; however, in the long term China is likely to be one of the major contributors to further gains in world poultry meat trade.
While the incentives to import have been eroded by increasing domestic production in China, imports in 1998 are expected to expand 10 percent to 1.1 million tons. Most of the imports in 1998 are likely to take place later in the year when feed supplies in China are increasingly limited by 1997's drought-reduced corn production.
Restrained Growth in Russian Imports to Slow Gains in World Trade
Image: Russian Import Demand Stable as Poultry Meat Production Bottoms Out
After nearly a decade of economic reforms in Russia, the economy is finally expected to turn the corner to real economic growth in 1997 and 1998. Higher purchasing power by consumers is expected to translate in continued gains in poultry meat consumption. Total poultry meat consumption is expected to reach 2 million tons, almost pre-reform levels with per capita consumption pushing up to over 13 kg.
The Russian poultry industry appears to have stabilized after nine years of economic reforms that raised production costs while squeezing real incomes of consumers. The consequential 60 percent decline in poultry meat production appears to have bottomed out in 1997 with production forecast to stabilize at 705,000 tons (290,000 tons of broiler meat).
This leveling off in poultry meat, and broiler, production in 1997 and 1998 is setting the stage for a slowdown in the growth of imported poultry meat. Poultry meat imports by Russia in 1997 are estimated at 1.2 million tons, increasing to 1.3 million tons by 1998. Meanwhile, with imports accounting for 65 percent of total consumption, imported product will continue to be under increased political and media scrutiny.
While prospects for improvements in the production outlook in Russia are not optimistic, there are examples of financially strong Russian or foreign companies which are increasing production. Nearly 40 of Russia's 124 broiler factories have stopped production, with another 60 operating in the 30-50 percent capacity range in 1996. However, foreign companies have invested in poultry plants in numerous oblasts and there are reports of Russian owned companies improving productivity through better management practices, as well as lower grain prices because of a better than normal grain harvest.
While imports are projected slightly higher in 1998, U.S. exports will be increasingly challenged by competitor attempts to target market niches not pursued by the U.S. industry. The French, in particular, are promoting exports of whole chickens or turkey parts to Russia. The availability of export restitutions for whole bird exports to Russia and the 20 percent appreciation of the US$ relative to the French franc has favored Russian imports of French product. Meanwhile, higher-value French products such as turkey rolls, turkey shishkabobs, and turkey livers are reportedly found on the shelves of supermarkets in Moscow
Meanwhile, margins for exporters of U.S. leg quarters to Russia in 1997 continue to be very tight as a result of the government's enforcement of customs collections. Poultry imports into Russia are officially subject to a minimum 30 percent tariff or 300 ECU/ton (approximately $335/ton), in addition to a 10-percent value added tax. Enforcement of this tariff beginning in November 1996 resulted in U.S. leg quarter prices dropping from 45 cents/pound to 30 cents, approximately the full value of the tariff.
Slow Down in Another Major Market
The foot and mouth disease (FDM) crisis in Taiwan initially raised expectations that Japan=s consumption of poultry meat might expand in 1997 as lower pork imports by Japan raised pork prices relative to those of poultry meat. However, Japan=s poultry meat consumption actually contracted slightly while imports are estimated to stay steady at 560,000 tons.
Japan's imports of U.S. frozen broiler meat, however, are forecast to fall 8 percent due to an over-supply of domestic leg meat, slow adjustments in frozen leg inventories, and price competitiveness of Chinese chilled leg meat. Both Thai and Chinese products cater to the fastest growing segment in the Japanese retail food market--ready-to-serve meals. Increasingly, processing for these dishes is done in plants overseas in various forms (i.e. portion sizing, flavorings, breading, and even pre-cooking). Sales of these products, which are imported under the prepared broiler meat category, are expected to expand in the future. Japan will continue to be a battlefield for market share as consumption stays relatively stable over the next few years.
Trade Policy Developments
The Philippines has moved to introduce new legislation which purports to improve access for poultry meat. Since the inception of the World Trade Organization (WTO) in July of 1995, the Philippines has delayed implementation of WTO-sanctioned tariff-rate quotas. The minimum access quota in 1998 for poultry meat is established at 16,701 tons; this compares to the less than 2,000 tons which were reportedly imported in 1996.
Egypt continues to take one step forward and one back in the process of opening access to its poultry market. After nine years of prohibiting the importation of frozen poultry meat, the Egyptian government in July 1997 rescinded the ban. However, the lifting of the ban only applies to whole birds; the ban is still effective for poultry meat parts and products. This proposal violates international trading rules as well as does the decision to impose a 80 percent tariff, combined with a minimum import reference price of $1,500 per ton.
Prior to the ban, Egypt was a major importer of frozen poultry meat from the United States, with imports valued at an average of $40 million over the 1980's. It is unclear whether the U.S. industry would be competitive in the Egyptian market when compared with Brazilian and French whole birds. However, a complete lifting of the ban would provide new opportunities for U.S. poultry suppliers to target niche segments of the market.
In a move to protect its domestic broiler industry, the South African government recently approved higher tariffs (2.2 rand/kg or $.20/pound) on frozen chicken parts. The new tariff level translates into effective ad-valorem tariff level of 50 percent for U.S. chicken leg quarters, up from the previously imposed tariffs of 27 percent. Tariffs on whole chickens will remain at 27 percent while imported turkey will be assessed no duties.
High poultry meat production costs in Romania and rising inflation led the government in May 1997 to announce a new set of import duties. Tariffs previously raised to 143 percent dropped to 60 percent, thus opening the door once again to a market that had imported up to 50,000 tons in the early 1990's. Romania's poultry meat imports in 1998 are forecast at 22,000 tons, up from 7,000 tons in 1996.
Meanwhile, high pork prices in Mexico have led the government to approve import certificates for 80,000 more tons of U.S. turkey meat in 1997. While the tariff rate quota (TRQ) for poultry meat is set in 1997 for 104,000 tons, total imports are expected to more than double that amount, 210,000 tons. Continued high pork prices in Mexico generated by higher consumer demand and increasing exports to Japan are expected to support a further strengthening in import demand for turkey products in 1998 to 218,000 tons. Most turkey product imports, specifically mechanically deboned meat (MDM) and turkey thigh meat are used for sausage and cold cut production, mainly "turkey ham."
Under NAFTA, duty free access to the Mexican poultry market is scheduled to grow at a 3 percent annual compound rate until the year 2003 when all imports will be duty free and the quota will be eliminated. The TRQ for 1998 is expected to reach 107,000 with specific products broken-out as follow: the largest for turkey parts and offal (31,500 tons), mechanically deboned meat (30, 400 tons) and other poultry parts and offals (28,200 tons). Strong demand continually results in total imports exceeding quota levels.
Adhering to WTO-obligations, Korea replaced its quota system for poultry meat on July 1, 1997 with a simple tariff. While tariffs of 30.5 percent may constrain trade, poultry meat imports are estimated to reach 58,000 tons, rising to 60,000 in 1998.
Traditional markets dealing in whole chickens still account for a large majority of poultry meat marketed in Korea. However, gradual changes in consumption patterns have supported the expansion in fast food outlets with Kentucky Fried Chicken the largest chicken-oriented fast food chain in Korea. China has been very aggressively pursuing this market with low-priced product enabling it to capture 18 percent of the market. In 1997 China focused on the whole bird, thigh, and breast market. Prices offered were very attractive; however, competitive U.S. prices for other parts (legs, wings, etc) could enable the United States to maintain a significant share of the total market.
Imports by Canada remain constrained by a system of WTO-sanctioned tariff rate quotas. Under NAFTA, the United States negotiated access to the Canadian chicken market based on 7.5 percent of the previous year's Canadian production level. On January 1, 1995, as part of its implementation of the WTO Agreement, Canada replaced import quotas with tariff rate quotas with high over-quota tariffs on poultry meat and eggs. The 1997 quota for chicken is set at 54,063 tons (carcass wt.). For turkey, access is determined at the WTO access level, i.e. six percent of 1986-1989 consumption level, or 4,915 tons.
The historical poultry meat import data for Canada, forecast at 137,000 tons in 1998, has been adjusted upward to include the strong pace of U.S. exports of fowl meat (spent hen, stewing hen) to Canada. Fowl meat was not part of Canadian import controls on poultry in the pre-NAFTA period and the U.S. has unrestricted access to the Canadian market. In fact, Canadian demand for U.S. fowl meat has increased in recent years reflecting deboning technology advances, increased utilization of fowl meat by Canadian poultry processor, and unrestricted access. In 1996, import of U.S. fowl meat reached 40,000 tons, a level exceeding Canadian production of fowl by 1.5 times.
|India: A Special
Poultry Meat Update
Per capita poultry meat consumption in India, home to nearly 950 million people, at less than 1 kg/person, is among the lowest in the world. This is despite the fact that until mid-1996, poultry was one of the fastest growing segments in Indias agricultural sector. Poultry meat production increased from 180,000 tons in 1980 to a estimated 590,000 tons in 1996. Despite Indias recent lifting of import restrictions on 150 consumer food items in 1997, imports of both poultry meat and eggs are effectively banned through import licensing. Official tariffs, however, are at a relatively reasonable 10 and 40 percent respectively.
While poultry meat output has expanded rapidly for the past decade, over the last 18 months higher feed prices, excessive production of commercial broiler chickens and slowing growth in consumption have reduced profits, forcing some operations to downsize or close. Annual growth rates for the industry have dropped from the 15-20 percent in 1994 and 1995 to a forecast growth of under five percent in 1997. About 60 percent of poultry meat (on 60,000 poultry farms) is produced under intensive production systems, using technology and inputs developed locally or imported. Meanwhile, around 100,000 farms scattered throughout rural areas practice more traditional production systems, with backyard flocks ranging from 25 to 250 birds.
Currently only 4 percent of domestic poultry meat is processed in modern plants while the balance is processed in small retail meat shops and households. A major share of the birds are marketed live or delivered live to the butcher shop to be slaughtered and sold as fresh whole dressed birds. Processing of broilers is severely constrained by lack of cold storage and distribution facilities.
Medium term prospects for the industry point to a rebound from recent industry doldrums and a return to positive growth over the next few years. Sustained economic growth (reported at 6.8 percent in 1997), and resulting increases in per capita income, are sure to strengthen consumer demand for poultry meat. Meanwhile, on-going trade discussions with the Indian government continue to focus on opening access to many imported products. At 40-45 cents per pound FOB (plus a 12 percent duty), U.S. chicken legs would be competitive in the Indian market where whole birds typically sell for 80 cents per lb. With non-tariff import restrictions likely to be lifted some time during the next five years, the Indian market could emerge as a trade opportunity for exporters. However, adequate feed availabilities and the ease of transferring modern poultry production technologies across borders will support significant gains in local production, while quality, marketing, and hygiene should also improve if the market is going to expand. Consequently, U.S. exporters will face challenges from local production, diffuse distribution networks, and poor infrastructure.
Note: Our thanks to the Office of Agricultural Affairs, New Delhi, for this special report.