LIVESTOCK AND POULTRY
World Markets and Trade
Poultry Meat and Products
A decade of double digit growth in world poultry meat trade has come to a halt. Abundant supplies of poultry meat in the major producing regions and a very constrained trade outlook characterize the world poultry market in 1998. Despite low prices for U.S. poultry meat, strong availabilities of competitor supplies and the high value of the U.S. dollar are expected to limit the growth in U.S. exports to less than 2 percent in 1998.
Poultry industries in the major producing regions of the world face constrained economic growth in many emerging economies in 1998, translating into slower prospects for trade. Poultry meat consumption for selected countries in 1998 is forecast at 53 million tons, up 4 percent from 1997 but these gains are matched by strong output gains in major markets.
The major poultry meat exporters will likely bear the brunt of slowing demand in many markets as strong production gains in many countries translates into less than a one percent gain in imports by selected countries. This is in sharp contrast with the impressive 15 percent annual growth in world trade since the late 1980's and reveals the vulnerability of exports that are highly dependent on developments in only a few markets. Poultry meat exports by the major suppliers are projected to expand to 5.8 million tons, with only Thailand expected to increase exports significantly.
The U.S. industry continues to dominate the global poultry meat market, supplying 43 percent of selected country import requirements. Constrained demand, however, and strong export availabilities from traditional competitors in 1998 will increasingly limit U.S. export gains. U.S. poultry meat exports are likely to increase less than 2 percent in 1998, reaching 2.6 million tons. U.S. turkey exports are expected to move up 2 percent, while the gains for broiler meat exports are less.
Heavy Market Concentration Weighs on Poultry Trade Outlook
Market concentration in world poultry trade reveals itself as problematic in 1998, particularly in the context of slowing demand in the two markets that account for more than half of world imports--Russia and China/Hong Kong. While poultry meat trade has experienced double-digit gains over the decade of the 1990's, 85 percent of the gain has been generated by the two aforementioned markets. Other important markets for poultry meat--Japan, Canada, and Mexico--account in aggregate for only 20 percent of world imports.
A relatively stagnant outlook for poultry trade, combined with more than adequate supplies of competing meat, are expected to result in constrained chicken prices and margins in all the major producing countries. The U.S. industry, despite lower feed prices, is eying with trepidation a slowing in international demand for broiler meat and a sharp decline in U.S. pork prices. U.S. broiler output in 1998 will reach 12.8 million tons, 4 percent over the 1997 level.
Outlook for U.S. Poultry Meat and Product Exports Lackluster in 1998
Despite an expected 5 percent decline in the both U.S. broiler and turkey meat prices in 1998, U.S. exports are projected at 2.6 million tons, up only 2 percent from 1998. This is significantly less than the double digit gains experienced over the 1990's and down from the 10 percent gain in exports in 1997. U.S. exports of broiler meat are forecast at nearly 2.2 million tons in 1998, up only marginally from 1997. Despite expectations for declining production in 1998, the U.S. turkey industry is projected to move 277,000 tons of meat in 1998, up 2 percent above 1997.
The total value of U.S. poultry meat exports in 1997 registered at $2.4 billion, an unprecedented 2 percent decline from 1996. While the total volume of trade increased, lower per unit export prices for leg quarters pulled down the overall value (see price development section).
The 5-percent gain in export volume for broiler meat was supported mainly by a nearly 10 percent increase in exports to Russia, a market which absorbed 44 percent of total exports. Actual U.S. exports to Russia more than likely exceeded the direct shipments of 933,000 tons, as some of the nearly 137,000 tons shipped to the Baltic countries was probably transshipped to other FSU countries.
In late 1996, U.S. leg quarter prices reached record high levels. Stringent enforcement of customs collections by the Russian government at that time prompted a dramatic decline in U.S. prices. Consequently, this important market contributed to the 11-percent decline in export prices, pressuring U.S. broiler prices downward and contributing to lower industry margins.
Constrained Asian demand for poultry meat, specifically broiler parts, put a damper on U.S. exports in 1997, a situation that is likely to extend into 1998. Shipments of U.S. broiler meat to Japan took a nose dive, dropping almost 20 percent to 92,000 tons, as U.S. product encountered strong competition from Thailand and China. This was aggravated by a market already characterized by economic slowdown and limited consumer demand. In Hong Kong/China, the advent of the "avian flu" in late 1997 aggravated an already slow market, resulting in a nearly 10-percent drop in exports to a market that had shown steady gains since the early 1990's.
U.S. turkey exports in 1997, however, held their own with shipments soaring nearly 38 percent over 1996's record. Strong demand from Asian markets, specifically Hong Kong, more than compensated for the 14-percent decline in exports to Russia. Moving south across the border, one third of U.S. turkey meat exports went to Mexico. Soaring demand in Mexico pushed shipments to that market up more than 25 percent, maintaining Mexico's position as the largest importer of U.S. turkey meat.
Russia Still the Largest Market--But Trade Slowing
Despite increased investment in the Russian poultry sector by both Russian and foreign interests, production prospects for 1998 continue to erode. A reduction in financial support by the federal government, the scarcity and high cost of quality mixed feeds, and high energy costs are expected to cause poultry meat output to continue its decade-long slide to 600,000 tons in 1998, with broiler meat estimated at only 260,000 tons.
A decade of economic reforms in Russia that have raised production costs while reducing real incomes of consumers has resulted in a 67-percent decline in poultry meat output since the late 1980's. Reflecting the dilemma facing Russia producers, the 30 poultry plants in the Moscow oblast which produced 15 percent of Russia's flock are operating at one-third capacity while 3 plants have closed.
Dropping Russia poultry production and competitively priced imported chicken leg quarters underpin the movement of imported product into Russia. This is particularly true for the United States which exported 933,000 tons of broiler meat to Russia in 1997. Per capita consumption of poultry meat in Russia has trended up to reach 12.4 kg in 1997, supported by the price of leg quarters in Moscow which averages 11-12,000 rubles ($1.18-$2.00/kg) compared to 16,000 rubles for red meat products.
While the United States dominates the import market for poultry meat in Russia, supplying over 80 percent of imports, U.S. product is being increasingly challenged by the EU, particularly France and the Netherlands. Russian imports of EU product, broiler wings and legs from the Netherlands and turkey parts and unsubsidized mechanically deboned turkey meat from France jumped over 60 percent in 1997 from the 1996 level.
Competition in the Russian market will continue to be acute in 1998 fueled by the continuing availability of EU export restitutions for chicken meat. Presently, current restitution levels for whole chickens to Russia average $144/ton while restitutions for chicken quarters are lower at $94/ton. U.S. turkey exporters to Russia might have an advantage in 1998 as the EU eliminated the turkey restitution for Russia in late 1997.
U.S. turkey exports to Russia in 1997 declined nearly 14 percent as France successfully identified niches in the Russia market for higher value turkey products, as well as shipped a higher volume of turkey parts under restitution. French exports of mechanically deboned turkey meat (MDM) to Russia are very competitively priced at $.30/pound; but exports are hampered by extremely high logistical costs--transporting poultry meat by truck to Russia is more expensive than shipping product to Saudi Arabia. Consequently, the French are increasingly selling product FOB, transferring the shipping costs and other risks on to the Russian importer.
Despite declining restitutions, the EU is expected to be very aggressive in targeting the Russian poultry market in 1998 as the strong U.S. dollar favors French chicken and turkey exports. The strong market for MDM has prompted French poultry processors to increase capacity in 1998 with Doux, a major French company, planning to open a new deboning plant in Brittany.
Too Many Chickens in China
After a decade of double-digit poultry meat consumption gains in China, the outlook for 1998 is for more constrained growth. Total poultry meat consumption in 1998 is estimated at nearly 13 million tons, up 8 percent above 1997's level. Per capita consumption is expected to reach 10.6 kg, more than double the 1993 level of 5 kg, with poultry consumption constituting nearly 21 percent of total meat consumption, up from 12 percent in the late 1980's.
Relatively low grain prices in 1997 (corn in February 1998 was quoted at $144/ton) and unrealized expectations of continued strong international demand for Chinese exports led to a serious oversupply situation in 1997. Supported by an anticipated 4 percent jump in broiler output to 6 million tons, poultry meat production in China in 1998 is expected to increase to 12.5 million tons. This continued expansion in domestic broiler meat output in China, combined with lower prices, have limited the competitiveness of imported product since early 1997.
Poultry meat prices in China dropped to the lowest level in four years; the average price for live broilers in 1997 sold in wet market is around $.57/pound, broiler meat averages $.65/pound. Despite lower prices, consumers have restrained their buying of poultry meat, diversifying their consumption patterns to include a wider variety of seafood and fresh produce. Economic uncertainty about potential layoffs in the state-owned enterprises may be contributing to the slower consumption gains.
For the first time in a decade, Chinese poultry meat imports in 1998, estimated at 850,000 tons, are projected down. In October 1997, the tariff on frozen poultry parts was reduced from 45 to 20 percent. The effect on imports was limited, however, with traders stating that it was more cost effective to move product through "transportation companies" operating near the Guangdong border. The current cost for moving product through these companies (around $180/ton) is still less than paying the 20-percent tariff.
Southern China (Guangdong) ports are still the primary entry points for imported poultry and this will continue in 1998. Trade is additionally restricted by new regulations requiring that importers of U.S. product apply for quarantine inspection certificates from the CAPQ headquarters in Beijing, as well as submit additional import documentation.
The United States continues to be the major supplier of imported poultry meat to China, with nearly all of the product transshipped via Hong Kong into the economically vibrant region of southern China. Over 65 percent of the nearly 400,000 tons of U.S. poultry meat shipped to Hong Kong in 1997 is estimated to have moved across the border, and only 70,000 tons directly shipped to China. While U.S. product is competitively priced, imported wholesale prices ranging from $1,200 for jumbo paws and chicken drumsticks to $1,300 for wings have perhaps limited penetration in a market where retail prices for the same product range between $1,300-$2,000/ton.
Despite the considerable uncertainty in the short term outlook for China, evidenced by the slowdown in demand for imported poultry meat, China with a population almost 10 times as large as Russia promises great returns for the future. In 1997, this market absorbed nearly 15 percent of all U.S. broiler meat exports, with chicken paws, previously used for rendering by the U.S. industry, constituting nearly half of the value of exports to this market. In fact, in 1997 nearly one fifth of all U.S. chickens lost their feet to this market, with importers paying nearly $800/ton ($.36/pound) in Hong Kong for a product that the U.S. industry previously rendered for $.02/pound.
South of the Border: Mexico Looks Good
Favorable poultry meat production prospects in Mexico are induced by moderate feed prices, a stable peso exchange rate and continued economic recovery. These same factors, combined with strong growth in the processing industry in Mexico, are supporting imports, expected to increase 4 percent in 1998 to 213,000 tons.
The poultry industry in Mexico is dominated by several big producers, which account for more than 50 percent of production. The share of production by large producers has been increasing as a result of business failure among small firms induced by the economic crisis in 1995. According to industry sources, the industry's concentration process is expected to continue in the medium term.
Poultry meat continued to make inroads into total meat consumption, supported by increasing prices of red meats relative to poultry as well as improvements in consumer purchasing power. Stronger economic growth prospects, projected at 5 percent in 1998, combined with declining inflation will underpin a projected 6 percent gain in domestic poultry meat consumption in Mexico in 1998.
While Mexico continues to be a whole bird market, with parts comprising only 4 percent of total consumption, most whole birds are now purchased already dressed. Live chickens bought for subsequent slaughter have declined to only 42 percent of the total market. This evolution in consumption patterns sets the stage for stronger demand for imported product in the future.
A strong movement of mechanically deboned meat (MDM) across the border into Mexico prompts the total import forecast to exceed the TRQ level, as in past years. In 1998, duty free access to the Mexican market is established at 106,924 tons. This amount is scheduled to grow 3 percent a year until quotas are eliminated in 2003 and all imports will be duty free.
It is likely that import certificates for about 85,000 tons of MDM and turkey thigh meat from the United States for the first half of 1998 will be approved; this already exceeds the original NAFTA allocation for those products of 61,900 tons.
1998 NAFTA TRQ for Poultry Meat
Other Whole Poultry
Turkey Parts and Offal
Other Poultry Parts
The Mexican pork industry has been less adamant about restricting access to U.S. turkey exports that compete with pork products in the processing industry. Recently, however, pork producers have expressed an interest in requesting that the government initiate an anti-dumping investigation against imports of U.S. MDM and turkey thighs. The Mexican meat processing industry is highly reliant on imported U.S. product because the Mexican turkey industry consists of only two major producers who have difficulties competing against U.S. product due to lack of economies of scale and limited integration.
Competition Acute in World Poultry Markets
Brazil's Exports to Drop
Large Brazilian poultry processors intensified their production of high-valued products and managed to have positive margins in 1997, despite complaints about the higher costs of feed, mainly corn. However, as eight new plants came on line and old plants were upgraded, overproduction resulted and many of the small-and medium-sized producers of whole broilers were unable to pass on increased input costs to their consumers. Indications of lower production were revealed in the output of day-old chicks in January 1997, down 3 percent from the same month last year.
Low prices for Brazilian product, reported at $.45/pound for whole birds, generated demand on international markets and allowed Brazilian broiler exports in 1997 to jump 14 percent and set an all-time record of 649,000 tons. Exports to most markets were up with the exception of Japan and Hong Kong which account for most of Brazil's broiler part exports. According to some exporters, Brazilian broiler exports to Asia became less competitive due to the devaluation of Asian currencies. It is estimated that Thailand reduced its export prices to Japan by $200/ton, a drop in price that the Chinese were able to match but not the Brazilian exporters.
Despite stated optimism by Brazilian exporters about market opportunities in 1998, broiler exports are forecast to drop to 620,000 tons. Strong competition in international markets, particularly in Asia, and a constrained domestic demand outlook as a weak Brazilian economy limits consumer purchasing power, are expected to limit production gains in Brazil to 2 percent in 1998, to 4.5 million tons.
The EU Continues to Move Poultry Meat
While the EU limit on subsidized exports continues to decline in 1998 to 395,000 tons, the EU is expected to expand shipments of poultry meat, led by the strong pace of French turkey exports. Stimulated by hefty international demand for turkey parts, EU poultry meat exports, estimated at 990,000 tons in 1998, are expected to more than double the WTO-sanctioned subsidized export commitment.
Efficient marketing strategies that emphasize the selling of premium cuts in the high priced domestic EU market while reserving available subsidies for uncompetitive parts and products on the world market have allowed the EU to continually expand exports. The French are totally dependent on the availability of export refunds for their exports of whole birds to the Middle East, a destination for the majority of French broiler meat exports. The Dutch rely only partially on export restitutions to support movement of the lower value parts.
Export restitutions have continued to decline in the EU, with restitutions levels for parts dropping in half since mid-1995, currently averaging $94/ton. Restitutions for whole chickens, at $302/ton for non-Russian destinations, remain significantly higher, reflecting stronger lobbing power by some of the major French companies. However, in January 1998, application for export licences were lagging behind permitted WTO authorized levels, prompting the EU Commission to increase export refunds for whole chickens to the Middle East for the fourth time in four months.
Relatively low EU feed grain prices, strong demand for chicken meat in Russia, and the strengthening of the U.S. dollar can all be identified as key factors allowing the EU to maintain exports in the context of reduced export subsidies for poultry meat. In the latest estimates, while the EU is expected to fully use its quantity ceiling for subsidized exports, only 65 percent of its possible budget ceiling will be utilized.
Thai and Chinese Product Competitive in Asian Markets
Japan is the Asian battlefield for
market share in poultry meat. While demand for poultry meat is
relatively stagnant in Japan, the devaluation of the Thai currency in July 1997 has prompted a surge in demand for low-priced, high quality Thai product. Even the Chinese who have made inroads into this market due to their low prices and geographical proximity are feeling the pinch (see Economic Upheaval in Asian Poultry Markets.)
Trade Policy Developments
Taiwan and the United States have worked out a "pre-accession agreement" to open Taiwan's markets to 10,000 tons of U.S. chicken at a tariff rate of 40 percent. The agreement, which will be effective June 1 when import certificates become available, will allow chicken and other meat imports into a market that previously had a ban on chicken meat imports.
Upon accession to the World Trade Organization, Taiwan will establish a tariff rate quota for chicken meat of 19,163 tons at a tariff rate of 25 percent. This quota applies to imports from any country. By 2004, the allowable quota will increase to 45,990 tons. By 2005, chicken trade will be unrestricted and the tariff will drop to 20 percent. Over-quota tariffs will range from $1200-$1930/ton. Turkey, sausage, and hot dog imports are already allowed by Taiwan.
The strong growth in Canada's poultry meat exports in recent years, forecast at 87,000 tons in 1998 (50,000 tons of broiler meat), has been fueled by an export policy which allows processors to negotiate a volume and price for additional chicken for export with their respective provincial marketing board. The impetus for the policy is rooted in the growing demand for further processed chicken items (mostly food service nuggets, patties, and retail breast meat) sourced from white meat. One-third of Canadian chicken meat exports in 1997 went to Cuba, while China, Russia, and Hong Kong accounted for nearly 50 percent of the remainder. The United States imported nearly 2,500 tons of chicken products from Canada.
The Chicken Farmers of Canada are scheduled to implement a new national production allocation system for chicken by April, 1998. The new complex system of chicken production allocation groups the provinces into Eastern, Central and Western regions and puts limits on regional production increases. Production in 1998 is forecast to increase nearly 5 percent to 790,000 tons. Ontario and Quebec which account for two-thirds of Canada's chicken production make up the Central region. The national allocation production cap has been set at 6.5 percent while the western provinces have successfully lobbied for increased production to a maximum of 8 percent above the previous year's production allocation.
Chile's imports of frozen, uncooked poultry meat are negligible due to phytosanitary regulations enforcing strict testing for salmonella. In mid-1997, the government issued a new regulation permitting imports of cooked poultry meat. As a result, imports of high-value, prepared poultry products, such as chicken wings, may gain a foothold in the market.
Since 1990 per capita poultry meat consumption in Chile has surpassed both pork and beef consumption. Growing 160 percent in the past six years, per capita consumption has jumped from 9 kilos per capita to 23 kilos, the highest in Latin America. Previously beef was the meat of choice; now, however, upper income consumers prefer chicken because of its more uniform quality while lower income consumers chose it because of its lower price.
Let's Not Forget the Long Term Outlook
While pessimism pervades the short term trade outlook for poultry meat, the longer term outlook is considerably more favorable. Global poultry meat consumption and trade is projected to continue to grow, albeit at a slower pace than that evidenced since the 1980's. The low cost of poultry meat relative to other meat, coupled with rising disposable incomes in many emerging markets, are expected to support overall consumption and trade gains.
Lower prices in 1998 and increased competition in the world poultry market, are expected to allow overseas consumers to increasingly specify their preferences for different types of chicken and turkey cuts. The U.S. industry, as the world's largest and most sophisticated producer of poultry meat, is well-positioned to respond to consumer demands for quality and conveniently packaged/ processed products. Global trade in poultry meat is projected to expand to over 9 million tons by 2007, with much of the impetus for trade originating from emerging markets interested in procuring relatively low-priced poultry parts. Exports of further processed products are expected to grow, especially to more mature markets, but remain a relatively small percentage of total trade.