Egg and Egg Products
Egg consumption gains in developed countries and China-- the world's largest egg market-- are slowing in 1998 and 1999. The United States is the largest exporter; however, it faces increased competition from Europe and emerging competitors in markets, such as China and India.
Growing at a more sedate pace than the 4 percent gains witnessed since the mid-1980's, egg consumption in selected countries is expected to slow in 1998 and 1999 to a 2 percent annual increase. While a slow-down in egg consumption by developed countries contributes to this constrained outlook, economic uncertainties in China dominate the outlook. China presently accounts for over 50 percent of consumption by selected countries.
Asia, which constitutes nearly two-thirds of imports by selected countries-4.7 billion in 1998-encountered concerns about health aspects of eggs in 1998. Consequently, imports by selected countries are poised to witness a 8 percent decline in 1998 before recovering to nearly 5 billion eggs in 1999.
China's Market in Flux
Declining egg availability in China is limiting consumption in 1998 prompting a rise in egg prices in late 1998. Overproduction in 1997 and egg prices that fell below the cost of production resulted in higher chicken slaughter and lower hen placements going into 1998. Consequently, both the production and consumption outlook for China's egg market have slowed from the 11-percent annual growth since the mid-1980's with consumption in 1998 estimated up only 3 percent to 337 billion pieces.
Sparked by higher prices, Chinese egg production is expected to recover slightly in 1999, increasing to 359 billion pieces. Exports, which are declining in 1998, are also expected to strengthen in 1999, to 1 billion pieces as consumption in Hong Kong recovers from the Asian flu crisis which gripped their market in late 1997 and early 1998. Strong demand from Hong Kong has propelled China into the position as the world's third largest egg exporter.
Constrained Demand from the World's Largest Egg Importers-Hong Kong and Japan
Accounting for more than 60 percent of imports by selected countries, Japan and Hong Kong dictate the pace of global egg trade. Stagnant economic growth and health concerns have prompted, in both countries, a drop in egg consumption in 1998, resulting in reduced demand for imports.
A salmonella scare early in 1998 in Japan, combined with sluggish economic growth, reduced table egg consumption. Due to an abundant supply of inexpensive domestic eggs and weak demand from confectionary and bakery users this year, egg imports, which consist mainly of processed products, are plummeting 11 percent in 1998. Lethargic demand is expected to slide into 1999 as consumer demand for eggs and products mirrors economic growth forecasts.
Demand for U.S. products, particularly egg yolks (powder and frozen liquid) and powdered whole egg is forecast to decline in both 1998 and 1999 due to decreased use in confections and desserts.
Suffering from a similar economic downturn, Hong Kong egg markets remain lackluster in 1998 as tourism wanes and local consumers restrict their consumption of meals away from home. Egg consumption is expected to drop 9 percent in 1998 as the "chicken flu" crisis translated into an overall concern about the healthiness of eggs.
Consumption and imports are expected to strengthen in 1999 with demand for Chinese table eggs expanding as China maintains it's competitive advantage based on geographic proximity. The 1996 removal of China's export quota on eggs to Hong Kong and an emphasis on quality and packaging have steadily increased China's presence in the Hong Kong egg market. China's exports to Hong Kong increased 41 percent in 1997, propelling its market share from 22 percent in 1995 to 44 percent.
U.S. Exports Slide
The United States continues to be the largest shipper of egg and egg products to world markets, supplying nearly 40 percent of imports by selected countries in 1997. However, downward pressure is being placed on the outlook for U.S. egg exports, not only by slowing demand for U.S. egg products in Japan but also increasing competition in the table egg market.
U.S. egg exports in 1998 are estimated to drop to 2.7 billion pieces, the third consecutive drop since 1996 when exports reached a record 3 billion pieces. The U.S. presence in the international table egg market is being steadily eroded by strong competition in Hong Kong from China and increased shipments to Middle Eastern markets by India and the EU.
Demand for U.S. product from north of the border, however, is stemming from increasing Canadian consumption of processed egg products. This, combined with a relatively stable egg production outlook for Canada, is prompting a healthy 5 and 7 percent increase in Canadian imports for 1998 and 1999, respectively. Virtually all Canadian shell egg and egg product imports are from the United States with U.S. access determined by NAFTA formulas based on percentages of the previous year's production.
EU Exports Remain Surprisingly Robust
Despite declining WTO limits on export subsidies, EU exports to third countries rebounded in 1997 and are expected to remain strong in 1998 and 1999. An oversupply of eggs in most EU countries dropped prices in mid-1997 and 1998. Constrained demand from other EU countries in the aftermath of the 1996 BSE crisis, combined with increases in EU restitutions for eggs, are fueling a surge in exports.
Authorized restitution levels for eggs are moving progressively downward to 109,700 tons in 1998/99, as restitution levels edge upward to $0.13/dozen. The Netherlands is the EU's leading exporter, exporting nearly 80 percent of production and accounting for nearly 63 percent of EU exports to third countries.
Increasingly in 1997 and 1998, the EU is being aggressive in its use of export restitutions for eggs, increasing them for eggs destined for Middle Eastern markets three times over a three month period in early 1998 (from $.09.dozen in January 1998 to $0.14/dozen ). In September the EU lowered the restitution to $0.13/dozen but the levels continue to be high. Low egg prices in Europe in 1998, combined with aggressive use of subsidies, are allowing the Dutch, in particular, to make major inroads into Middle Eastern markets.
While some of the strong Dutch presence in the Middle East and in Hong Kong can be attributed to higher restitutions, the nearly 40-percent decline in Dutch egg prices through mid-1998 is due to an oversupply of eggs in Dutch markets. Increasing EU restitution in a context of declining prices is reflective of EU policy which uses export subsidies as a tool to maintain a stable domestic market for agricultural products.
While EU egg exports remain high at the present time, the WTO-limit on subsidized exports and an industry in Europe which is under severe environmental and animal welfare pressures will likely constrain the EU's ability to compete in the longer term.
Exports Increase from Middle Eastern and Asian Competitors
U.S. and EU egg exports are experiencing increasing competition in the Middle East from regional competitors such as Turkey, Thailand and India. Turkish egg exports have been growing steadily over the past few years, with shipments in 1998 estimated at 600 million pieces. These exports, which are destined mainly to FSU republics, are supported through export subsidies of approximately $0.7 per 1000 eggs, limited to 10 percent of export volume and value. The subsidy is in the form of a tax deduction rather than cash payment.
While India does not provide subsidies for egg exports, its proximity to Middle Eastern markets has prompted a surge in shipments since 1997 when approximately 250 million pieces were shipped. Gains in production, combined with growing demand in the Middle East, are expected to boost exports in 1998 and 1999 to 350 and 400 million pieces respectively.
In Thailand, export prices for eggs have become more competitive due to the sharp devaluation of the baht. As large suppliers cooperate to export surpluses, Thai egg exports are expected to surge in 1998 to 150 million pieces, but dropping to 100 million pieces in 1999 as prices strengthen domestically.