Poultry Meat and Products: Constrained Demand Characterizes 1999
Heavy concentration in the world poultry market is problematic in 1998 with market disruptions in Russia and constrained demand in China--the world's largest poultry meat importers--dramatically reducing export prospects for poultry meat. Uncertain economic growth prospects are expected to constrain trade in 1999 with imports by selected countries expected to drop from 1998's depressed levels.
Uncertainties plague the outlook for the poultry meat sector in 1998 and 1999 as financial crises ripple across the globe, constraining consumption gains in many emerging markets and putting the brakes on trade in poultry meat.
Slowing from the 5 percent annual consumption gains experienced by the global poultry complex since the mid-1980's, consumption by selected countries in 1998 is estimated to increase to 51.8 million tons, up only 2 percent over 1997. This slowdown is fueled by slow consumption gains in developed regions as well as a steep drop in Russia and a relatively stagnant outlook for Asia.
Prospects for 1999 are slightly more optimistic with output and demand increasing 3 and 4 percent respectively. Most of the consumption growth, however, is expected in the United States, with growth in other selected countries up only 2 percent.
Poultry Markets Falter as Major Markets Constrain their Buying
A halt in Russia's imports and a more constrained outlook for economic growth in China are limiting trade opportunities in these two markets which have underpinned the strong growth in poultry trade since the early 1990's. Over this time period, China and Russia accounted for nearly 85 percent of the overall growth in trade. For the first time in over a decade which has witnessed double-digit trade growth, poultry meat exports are expected to fall.
The financial crisis in Russia has resulted in an unprecedented decline in overall imports by selected countries to 4.3 million tons, down 10 percent from the 1997 record level. The uncertainty in the Russia market and the slow consumption and trade gains likely in other markets is constraining export opportunities in 1999 with imports by selected countries expected to continue their slide to 4.3 million tons, down one percent from 1998.
Russia: An Uncertain Trade Outlook
The recent financial crisis in Russia, the largest poultry importer, has shaken the outlook for trade in poultry parts (see Russia article). Extreme currency fluctuations, difficulties in getting letters of credit and overall price uncertainties has stopped trade temporarily. The crisis and concern that the inflationary effect of the devaluation will reduce disposable incomes and overall poultry meat consumption has led to a downward revision of both poultry meat imports and consumption in 1998 and 1999.
Most imported poultry meat is consumed in urban centers in Russia where high food prices are likely to constrain overall consumption. Inflation-reduced disposable income, more than half of which is reportedly spent on food, is expected to limit consumer spending on meat, prompting a more than 20 percent drop in overall poultry meat consumption in 1998. This slide is expected to continue into 1999 when consumption is projected to drop down to 1.4 million tons, with per capita poultry meat consumption estimated at only 9kg, down from 12.8 kg in 1997.
Imports will bear the burden of declining consumption, with imports estimated at 850,000 tons in 1998, only two- thirds of 1997's level. While the outlook is uncertain, difficulties for importers in obtaining trade financing is likely to persist into 1999, prompting a continual decline in imports to a projected 700,000 tons, the lowest level since 1994.
The only good news on the Russian front is that despite the continued slump in Russian livestock output, poultry meat production in 1997 is reported to have stabilized with output expected to increase slightly in 1998 and 1999. Low grain prices in early 1998 and increased investment in the sector by banks, meat processors and poultry importers, foreign companies and regional governments is leading to increased inventories and enhanced production efficiencies. The present domestic price for leg quarters, at 31 rubles/kg, is only slightly above imported prices (27 rubles). As stocks of imported products decline, domestic prices are expected to become more competitive, supporting a slight expansion in the domestic industry.
For the first time in over a decade which witnessed a 67- percent slide in poultry production, the first quarter inventories in 1998 grew by 4 percent. Meanwhile, the industry reported increases in weight gains per day to 30-40 grams. The industry continues to be hampered, nevertheless, by obsolete technologies and management. According to the Russian Grain Union, 49 out of 124 poultry plants are completely idle, 60 percent are working at 25 percent capacity while only 24 are fully utilized. Government subsidies remain critical with only 10 plants operating without subsidies and only two of those 10 were profitable. Despite the Russian government's stated interest in supporting the development of the poultry sector, it is questionable whether the industry could ever recover to the production levels of the late 1980's.
Asian Markets--in particular China-Offer No Reprieve for Exporters
Newly implemented reforms to restructure state owned enterprises in China and pressure on consumers to pay more for previously-provided housing and education have resulted in considerable economic uncertainty as well as a reallocation of spending that has slowed consumer demand for poultry products. Slowing from the double-digit growth rates of the early 1990s, poultry meat consumption in 1998 and 1999 is estimated to increase only 5 percent, a modest increase for China.
Constrained demand and reported oversupplies of domestic production, which has led to lower prices, have limited the ability of imported product to compete in the Chinese market through mid-1998. Reports of higher prices over the past two months, however, as consumer's increased purchases to celebrate National Day, October 1, may imply some market opportunities for imported product in late-1998.
Despite the recent increase in prices, poultry meat imports in 1998, the majority of which are transshipped through Hong Kong, are now estimated to experience an unprecedented decline to 740,000 tons before rising only slightly in 1999. Many Chinese wholesalers have reported that importing frozen poultry is very difficult because the margins between domestic and imported products are so narrow. Import demand, as revealed by Hong Kong import statistics, continues to be concentrated in chicken paws and wings.
In addition, Chinese poultry meat exports to Japan-- its major market-are dropping in 1998. A depressed Japanese economy and weak currency has led to relatively stagnant demand for imported product. This combined with strong competition from more cheaply priced Thai broiler meat has damped demand for Chinese product. Historically, China has exported not only domestically produced product to Japan but also imported poultry meat that has been processed to Japanese specifications and re-packaged in smaller containers.
The U.S. share of Chinese poultry meat imports has decreased over the 1990's, from 80 percent to around 60 percent in 1997. While price may be the deciding factor in purchasing decisions by Chinese wholesalers, quality, specifications, and packaging are becoming increasingly important. This is supported by Hong Kong importers who indicated that if comparable products of similar quality are compared, U.S. products are generally more expensive than those from Brazil and the United Kingdom. They were particularly appreciative of the UK's packaged products, specifically the 10 kg packaged products. In 1997, U.S. poultry exports to Hong Kong increased only 5 percent while Brazilian and British poultry exports increased 37 percent and 29 percent respectively.
Despite the recent slowdown in trade, China promises to be an important and growing market for poultry meat in the future. An expanding middle class and relative low per capita consumption levels imply that consumption will continue to grow while domestic production is likely to be constrained by limited availability of grains and protein meals. Grain price policy reforms, implemented in April 1998, have led to a clampdown on private sales of grains. All buyers are now required to purchase feed inputs from grain bureaus at prices considerably higher than world prices. This implies a higher cost, less efficient poultry meat industry in the future.
Poultry Meat Consumption in Japan Mired by Sluggish Economy
Slow economic growth in Japan, lethargic poultry meat movement in the retail sector, and a continued shift from poultry to beef and fish by Japanese consumers will cause a 2-percent drop in 1998 poultry meat consumption. Declining output, however, will offset lower consumption with broiler meat imports unchanged at 495,000 tons in both 1998 and 1999.
The demand for imported broiler meat in the home meal replacement (HMR or already-prepared) sectors has been concentrated on bone-in and boneless frozen legs. Yakitori, fried chicken, Teriyaki and steamed chicken are typical HMR dishes. Both Thailand and the United States regained some broiler part market share that had been recently lost to rivals China and Brazil. Trade sources in Japan indicated that weak local prices of U.S. bone-in legs outweighed the weak Yen disadvantage, prompting large purchases of U.S. product in early 1998.
The HMR is one of the few expanding and profitable segments of Japan's food industry and has driven imports of prepared poultry products in recent years. Preliminary trade figures from Japan reveal that over the 1998 January-June period imports of prepared chicken products were up 22 percent from last year to 19,515 tons with the major suppliers being Thailand, China and the United States. U.S.-prepared poultry products, including turkey products, are particularly favored by some Western style fast food and home-delivery users.
Korea: Another Market in Turmoil
Economic and financial turmoil in Korea has reduced overall consumer spending on meats in 1998 with poultry meat per capita consumption estimated at 9.4 kg, down 13 percent from 1997. Chicken meat prices which jumped nearly 40 percent since last year are prompting this decline in consumption; however, some recovery is expected in 1999 as domestic production recovers slightly.
Korea replaced the previous quota system on July 1, 1997, with a simple tariff of 30.5 percent which is set to decline to 20 percent over the next 6 years. Increasing import prices as the value of the currency drops, however, combined with general lack of affordable capital for importers, is likely to drop poultry meat imports by 30 percent in 1998 to 29,000 tons.
U.S. market share in 1997 was eroded by higher shipments of Thai and Chinese product to this market as they exploited their ability to provide smaller birds and well-trimmed parts. These characteristics are highly sought by the Korean household where storage space is a premium. The December 1997 ban on Chinese product due to the Avian Influenza outbreak allowed Thailand to fill the gap in the customized product market.
Mexico: An Oasis in the Storm
South of the border in Mexico, a recovery in consumer purchasing power has strengthened both Mexican production prospects and imports. Favorable poultry meat prices relative to red meats in Mexico have prompted a near doubling of poultry meat output since the early 1990's. Growing at an annual rate of 8 percent during this period, Mexico is now the fifth largest poultry producer in the world with production, forecast at 1.8 million tons in 1999, now rivaling beef output.
Increased concentration of the Mexican poultry industry has contributed to Mexico's ability to continually expand production. At present, six leading companies account for nearly 50 percent of total broiler production with one of the leading poultry firms, Bachoco, planning to invest nearly $100 million in a new plant. The next two largest firms are Pilgrim's Pride--American owned-- and Trasgo/Tyson, a joint venture. Most Mexican-produced poultry meat is sold fresh with only 7 percent processed in pieces or cuts.
Despite strong growth in domestic output, poultry imports have experienced impressive rates of growth, increasing on average 16 percent annually since the early 1990's to reach a forecast 236,000 tons in 1999. U.S. exporters of broiler and turkey meat have been major beneficiaries of the Mexican government's decision to wave NAFTA TRQ's since 1994 to allow greater access to duty-free imports of broiler meat into the border areas. In addition, local meat processors which produce sausage and cold cuts find imported turkey meat thighs and mechanically deboned product a relatively inexpensive input.
|1999 NAFTA Tariff Rate-Quota for Mexico|
|Other Whole Poultry||15,070|
|Turkey Parts and Offals||32,460|
|Other Poultry Parts/Offal||28,982|
|Mechanically Deboned Meat (MDM)||31,300|
The NAFTA quota in 1999 is set at 110,130 tons, an amount which is scheduled to grow 3 percent a year until quotas are eliminated in 2003 and all imports will be duty free. Imports in 1999, however, are likely to exceed the TRQ's as the Mexican Department of Commerce (SECOFI) is likely to continue to release duty free import certificates of MDM and turkey thigh meat that exceed the quota.
Strong demand in Canada Prompts Higher Imports
Lower retail prices for chicken meat and a growing variety of chicken items on fast food menus are prompting chicken consumption in Canada to rival beef as the meat of preference among Canadian consumers.
Poultry meat imports, mainly from the United States have benefitted from this strong demand, jumping 12 percent in 1998 to an estimated 144,000 tons and expected to rise again in 1999. This is despite moves by the Canadian chicken industry to aggressively increase output in 1998. While the industry is under pressure to reduce the rate of expansion due to excessive stock buildup, the 1998 outlook is for a year-to-year output increase of more than 5 percent over 1997. Prospects for 1999 point to a further expansion of at least 3 percent above 1998, reflecting chicken's strengthening competitive position in the total Canadian meat diet.
The pace of Canadian broiler exports, which reached a record 56,469 tons in 1997, is slipping in 1998 and expected to remain stagnant in 1999 due to the slack demand from Asia as well as Russia. The growth in exports since the early 1990s reflects the industry's export policy whereby processors negotiate with farmers to voluntarily produce chicken for export (outside their normal quota allocations) at a lower price than domestically marketed chicken. According to trade sources in Ontario, processors pay, on average about C$0.16/kg less for export chicken than for chicken raised for the domestic market. Canada's largest markets in 1997 were Cuba, Hong Kong/China, and Russia.
While Canadian exports are expected to grow over the medium term, Canada will undoubtedly continue to be a net importer of poultry meat. Wide wholesale price differentials between U.S. and Canadian poultry meat and a system of WTO-sanctioned tariff rate quotas that establishes access for imports at 7.5 percent of the previous year's Canadian production level will prompt continued expansion of imports. In addition, since the implementation of the Free Trade Agreement (FTA) with Canada in 1989, Canadian imports of chicken from the United states have generally exceeded the access level due to supplementary imports. Rising consumer demand for chicken meat in Canada is likely to maintain these issuances of supplementary permits.
Trade Policy Developments
The vulnerability of poultry meat exporters who are highly dependent on developments in only a few markets is evident in 1998 as market closures and constrained economic growth take their toll on export opportunities. These considerable trade uncertainties over the past few years prompt questions about market access to other markets. The following section highlights trade policy developments in smaller markets around the world, access to many of which has been, or continue to be limited.
Taiwan Opens Market for Broiler Meat
In February 1998, Taiwan made a bilateral commitment to open a 10,000 ton annual quota for U.S. chicken meat, beginning in June 1998, as a prelude to Taiwan's accession to the World Trade Organization (WTO). Imports are expected to be mainly chicken legs as this product has the greatest value on the Taiwan market. As of mid-October, approximately nearly all of the 10,000 tons has been sold in auction. While broiler meat imports are assessed a 40 percent tariff, turkey imports are allowed with a 15 percent duty. Imports of whole turkeys are open to all suppliers but turkey parts are open only to the United States.
Broiler meat imports are expected to compete against domestically produced "imported-type" broilers which are similar to U.S. commercial broilers and constitute less than 50 percent of 1998 domestic production of 650,000 tons. The remainder of Taiwanese broiler production includes colored birds, native birds as well as crossbreeds.
Chicken meat and poultry offal are expected to be imported under tariff rate quotas (TRQs) once Taiwan accedes to the WTO. Poultry production over the next few years will be highly dependent on the speed and the degree of import liberalization for broiler meat after accession. Estimates of production cost/bird (only chick and feed costs) of $0.92 in 1997 imply that it would be difficult for the industry to be competitive with imported products.
Many Latin American Markets Allow Only Limited Access for Poultry Meat
Poultry meat consumption in Colombia is estimated at 731,000 tons in 1998, twice the level of a decade ago. The steady pace of consumption gains reflects a shift away from beef consumption, with poultry meat presently accounting for more than 40 percent of total meat consumption. More than half of the country's poultry meat is marketed in urban supermarkets while demand is steadily increasing for chicken products sold in fast food chains, such as in the more than 20 Kentucky Fried Chicken (KFC) outlets in Bogota.
Trade in poultry meat, which in 1997 totaled 30,000 tons, has not kept pace with domestic consumption. Despite the implementation of a market liberalization program in 1991, Colombia's market for imported poultry meat remains constrained by numerous barriers, ranging from a ban on non-Andean parts imports, except in certain ports, to pre-shipment inspection requirements. As of July 1998, the Colombian government introduced a new measure to limit imports. The domestic product absorption policy requires importers to demonstrate, in order to obtain an import license, that they have purchased a certain percentage of domestic product for every ton of imported product.
In Venezuela whole poultry meat and parts are included under an Andean Community agricultural price band system for imports with a base duty rate of 20 percent-whole birds are assessed 40 percent. However, the domestic industry continued to be protected since August 1993 by a total prohibition of poultry meat from the United States, apparently to protect the domestic industry from Avian Influenza (AI). This import prohibition was modified slightly in March 1997 to allow for the import of pathogenic free eggs and certain processed poultry products from "AI countries".
Imported poultry meat is moving into Honduras as it reduces its duty rates on poultry meat 10 percent/year over a 5 year period. Present duties for poultry parts have come down from 100 percent to 50 percent in 1999. Certain import requirements, however, such as certification that product is from areas free of Newcastle disease, Avian Influenza, laryngotracheitis, salmonella, continue to pose barriers to trade.
Guatemala operates a TRQ for poultry parts which is set at 7,000 tons in 1998 and will be maintained at that level until 2005 when it is scheduled to be phased out. The within quota tariff is 15 percent which jumps to 45 percent for out-of-quota imports.
Imports Restrictions still in force in Eastern Europe
The poultry meat industries in Eastern Europe, specifically Poland, Hungary, and Romania, are undergoing restructuring that has led to very different results. Restrictions on imported poultry meat are, however, a common element that the individual countries have put in place to support growth in their respective industries.
In Poland the poultry industry is witnessing a strong come back with consumption in 1998 expected to exceed the level of the late seventies when production was highly subsidized. A strict enforcement of a TRQ for imported poultry meat, a drop in red meat production in 1997, and lower poultry meat prices compared with red meats prompted at healthy 9-percent increase in poultry meat output in 1998. Most of this growth stems from gains in turkey meat production while broiler meat, most of which is produced on large intensive units, also posted strong increases. Since 1996 there has been a trend toward large, intensive farms accounting for a bigger share of total meat production.
While consumption is posting double-digit gains, growth in imports is constrained by a TRQ of 36,460 tons for 1998, based on 8.5 percent of Poland's previous year's production. Imports within the quota are assessed a 30 percent tariff, or not less than 0.3 ecu/kg (ecu=$1.20). Out of quota duties jump to 60 percent. Imports, outside the quota, are allowed through the various trade agreements with other Eastern European countries. There is a growing amount of poultry meat that is moving through Poland en route to Russia and the Ukraine. According to one major importer, out of ten containers moving from the United States to Poland, only one or two stay in Poland and the remainder are transhipped.
Suffering from a severe contraction of their poultry industry in 1997 and 1998 as the industry was privatized and state owned operation liquidated, Romania reported a sharp increase in poultry meat imports in 1997. Import duties in 1997 were lowered from 140.8 percent to the present 60 percent. As imported product moved into Romania, the custom authorities in August 1998 implemented a system of minimum/maximum prices on imported poultry to increase revenue and control under-invoicing of product.
Despite increasing imports, poultry meat consumption accounts for only 10 percent of total meat consumption. A continued erosion of the purchasing power as the Romanian currency follows a course of steady devaluation prevents most Romanians from increasing overall meat consumption. Per capita consumption of poultry meat is estimated at 7 kg in 1998, lower than 1997 and significantly lower than that of pork and beef which is often consumed on-farm.
Despite an effective privatization program in Bulgaria which has transferred most of the industry into private holdings, production in 1998 remains only half of the pre-reform level. Increased tariff levels in late 1997 have not suppressed demand for imported product as economic stability and a relatively inefficient industry prompt triple-digit increases in imports.
Tariff levels of nearly 50 percent constrain poultry meat imports by Hungary, a country that through a system of export subsidies ships nearly one-quarter of total poultry meat production to Europe and Russia. While production continues to expand since economic reform in the early 1990's, poultry output has yet to rebound to the levels witnessed in the late 1980's.
Other Markets to Keep on the Radar Screen
Egypt continues to block access to imports of poultry meat parts after taking initial steps in 1997 to lift a nine year import ban. Presently whole bird imports are allowed access but the imposition of an 80 percent tariff on a minimum reference price of $1,500/ton remains a major constraint to trade.
The South African government in 1997 assessed higher tariffs (2.2 rand/kg or $0.20/pound) on imported frozen chicken parts. This tariff level provides the domestic broiler industry with an effective rate of protection from U.S. leg quarters of around 50 percent. Despite higher tariffs and the depreciation of the rand in 1998, demand for imported product remains strong, with poultry meat imports estimated at 84,000 tons in 1998. The South African industry continues to struggle to break-even, constrained by high production costs and recent disease outbreaks.
Home to nearly one billion people, India's per capita consumption of less than 1 kg is among the lowest in the world. The poultry sector continues to be one of the fastest growing segments in India's agricultural sector and cultural eating preferences support strong demand for poultry meat in the future. India made tariff concessions on more than 150 consumer food items in 1997. However, imports of both poultry meat and eggs, which are assessed tariffs of 10 and 40 percent respectively, are effectively banned through a prohibitive system of import licensing.
For further information, contact Nancy Morgan (202)720-1372.