Poultry Meat and Products
A recovering global economy helps spur continued growth in poultry demand and trade in 2000. Markets in Asia and Russia have strengthened considerably, but in several cases per-capita consumption levels are still below pre-crisis levels. Major poultry producing countries continue to expand operations, but at more moderate rates. Continued expansion in production and trade is forecast for 2001 as the market for inexpensive poultry meat remains strong.
Recovering economies in Asia, and stabilization of the Russian import situation contributed to another year of growth in poultry trade in 2000. Poultry consumption in the selected countries covered, is up by 3 percent in 2000. Demand in China is up, and other Asian countries, with the exception of Hong Kong and Japan, are also increasing poultry consumption. This demand is being met by both domestic production increases and increased imports as demand outpaces production growth. The commercial trade picture in Russia is bright, following 1999 when significant quantities of meat were imported under the food aid programs. Commercial imports of poultry have picked up significantly since April when it became clear how the government was handling ports of entry, and later when duty rates were unified.
The United States will continue to increase its production and exports to help fill global demand. However, Brazilian poultry production and exports are growing at a faster pace, as the devaluation of the "real" provides an advantage in the export marketplace. The European Union continues to lose ground as an exporter, as more of its production is consumed domestically. Thai exports appear to have stabilized, but with a shift to exporting more value-added products as domestic per capita consumption remains flat.
Mexico continues to expand its poultry production, but imports are expected to be up significantly in 2000 in part due to a shortfall caused by a disease outbreak, but also to a demand that continues to outpace production growth.
Major Poultry Producing Countries
Poultry production in the United States is forecast to slow its rate of expansion and grow by only 3 percent annually in 2000 and 2001 due to weak broiler returns and strong competition in export markets. While leg quarter prices strengthened substantially in the third quarter of 2000 mainly due to stronger exports, breast meat prices remain weak, and September hatchery data point to slowing production.
U.S. exports of broiler meat are making a strong come-back in 2000, estimated up almost 7 percent as purchases by both Russia/Baltics and China/Hong Kong surged. Exports to those areas were up 18 percent and 15 percent respectively for the first seven months of 2000 over the same period last year, due to improved economic growth and the continued demand for low-priced protein. Other Asian countries, particularly Korea, also increased purchases, and shipments to Mexico and Canada are also up 19 percent and 27 percent compared to last year.
In general, U.S. poultry exports will continue to face strong competition in the international marketplace from Brazilian product, although European and Thai poultry exports are expected to slow. But inexpensive feed grain prices and an efficient industry will help keep U.S. product priced competitively and exports are forecast to climb another one percent in 2001. While import growth is forecast to slow in Russia, China and other countries in Asia are expected to increase their imports of poultry and poultry products.
Egg production is expected to only grow by 2 percent in 2000 and slow even further in 2001 as product prices remain low. While table egg exports were up for the first part of 2000 to meet a shortfall in production in the EU, hatching egg exports were off and egg product exports remain relatively unchanged. Overall, egg exports are forecast down slightly in 2000, but are expected to rebound in 2001.
Poultry production in Brazil is forecast to continue to show substantial growth due to gains in productivity from improved breeding stock, new investments in broiler production in the center-west regions, and firm demand from the export market and to a lesser extent from the domestic market. Increased feed costs in the first half of 2000 slowed the production increases. Poultry producers are also facing difficulties with importing corn, due to concerns of receiving product that contains GMO corn. While a notice was issued in July that allows Bt corn to be imported for animal feed, but not for human consumption, producers are still wary on how this will all play out.
Broiler exports increased by 17 percent in quantity terms for the first half of 2000 due to the continuing competitive advantage of Brazilian product following the devaluation of the "real" in January 1999. Exports to the EU, Japan and Hong Kong were up the most, while exports to Saudi Arabia were down and trade with Russia was unchanged. Exports to Brazil's MERCOSUR partners were also up, but Argentina imposed a minimum import price for Brazilian broilers in July in an attempt to reduce imports. The two countries are still working on reaching a negotiated settlement.
Poultry exports are forecast to expand by another 10 percent in 2001 as Brazilian product will remain very price competitive. In addition, the Brazilian government has reported that China recently re-approved Brazilian poultry imports from states considered free of Newcastle disease. However, a poultry agreement between Canada and Brazil has not yet been implemented, as the two countries continue to negotiate the concessions Brazil will have to make to Canada after Brazils loss on a WTO challenge on airplane sales.
Thailand's broiler meat production is forecast up 9 percent in 2000 and an additional 3 percent in 2001, mainly to support growing domestic consumption. As the Thai economy recovers, chicken remains a popular item in the Thai diet based on its competitive price and ease of use in a variety of dishes.
The export picture for Thai product is basically unchanged as it faces strong competition with poultry exports from Brazil, China and the United States. The largest market for broiler meat from Thailand is Japan, with the EU as the other major destination. Thai processors continue to try to overcome the disadvantage in production cost by shifting to higher value-added products in their export line. Thailand remains opposed to opening up its market to broiler meat imports, even products for further-processing and re-exporting. High tariffs and import license fees have kept out product to date.
The EU remains the third largest producer of poultry (after the United States and China) and the third largest exporter, but production has been relatively flat in recent years, and net extra-EU exports have been declining as European product becomes less competitive on the world market. High labor costs, and increasing regulations tied to environmental and animal welfare concerns are expected to inhibit exports in the future.
However, poultry meat will continue to find favor among EU consumers, and producers are expected to increasingly target the domestic market for items such as organic or free-range product. In France, the Red Label program, which indicates free-range poultry production, has gained 15 percent of the broiler meat production in the country, and is expected to increase. The United Kingdom initiated a UK Chicken Assurance Scheme to provide some product differentiation and assure consumers that the entire supply chain for the chicken meets certain standards.
European Union exports continue to be focused on the Middle East and on whole bird exports. However, more processed product such as mechanically deboned meat (MDM) and poultry parts are also now finding their way into the export channels, as companies follow the U.S. model of selling the higher valued product at a premium price in the home market while exporting the less sought after parts such as legs, wings and offal. Poultry meat imports in the EU continue to be dominated by Brazil and Thailand, with some product also coming in from Poland.
Poultry production growth in China has been modest in recent years, around 2 percent, as low feed prices are offset by low product prices. Low prices are forcing many small scale poultry operations to close, but as the industry consolidates, production is expected to climb to meet the growing demand for low-priced protein.
China's economy grew by 8.2 percent (GDP) in the first half of 2000 which led to strengthened demand for poultry products. China remains a net importer of poultry on a volume basis, and a net exporter on a value basis. The United States is the major supplier of poultry to China, followed by Canada and the UK. Brazil, which was the second largest supplier to China, has shifted its focus to Japan and other Asian countries. Chinese direct imports of poultry products increased dramatically in 1999, and for the first time were roughly equal to the quantities being re-exported via Hong Kong. Chinas accession to the WTO will mean a lowering of the poultry import duty from 20 percent to 10 percent and a more transparent import regime which should also stimulate imports.
China's poultry exports are also up as it continues to target product to the Japanese market. China is also a significant exporter of live poultry to other Asian countries. Traders hope that Chinas accession to the WTO may allow it to begin exporting product to the EU, if the EU accepts Chinas quarantine system and China resolves its sanitary problems.
Major Poultry Markets
While meat production in Russia generally continues to decline, the poultry sector is the one area that could show growth in the near future. Russian poultry production continues to face problems with high feed prices, lack of modern infrastructure, and poor breeding practices and genetics. Almost half of the poultry production in the country continues to come from small-scale operations that are struggling the most. However, larger broiler operations are modernizing and beginning to see production efficiencies common to the industry elsewhere. Broiler production is expected to increase almost 9 percent in 2000, however only slight gains are forecast for 2001 as operations consolidate in the face of high feed grain prices.
While Russian poultry production is recovering slowly, commercial imports of poultry meat have strengthened due to higher prices domestically, an improved Russian economy, and a stabilization of the rules governing imports. After months of discussion, a regulation limiting the number of entry points for imported poultry was put into place in April. Combined with a lowering of the VAT in July and of the broiler import duty in August this greater transparency and stability in the market has contributed to higher import levels. The new regulations are expected to decrease the amount of product that is transshipped through the Baltic countries, but broiler imports overall are forecast up 12 percent in 2000 and an additional 6 percent in 2001 as imported product prices are extremely competitive with domestic prices.
Turkey imports are expect to decline as the unification of poultry tariffs raised duties on turkey from 15 percent to 25 percent while broiler duties fell from 30 percent to 25 percent.
Poultry meat production in Hong Kong is comprised mainly of live poultry imported from China and slaughtered locally. The poultry industry in Hong Kong continues to recover from the avian flu outbreak in 1997, and new chicken varieties are being developed for the local market.
However, the majority of the demand for poultry in Hong Kong is met by imports. With the recovery in economic conditions, consumption of broiler meat is expected to be up almost 5 percent in 2000, with a continued small increase in 2001.
Hong Kong remains the major transshipment point for product going on to mainland China. While renewed Russian demand for U.S. leg quarters reduced the volume of this product going through Hong Kong, shipments of feet and wings are up. Vibrant demand in mainland China for feet and wings has sparked an increase in re-exports for the first half of 2000. However, China introduced new inspection regulations in July on the imports of chicken feet. The State Administration of Inspection and Quarantine (CIQ) and the Ministry of Public Health (MOPH) are involved. CIQ inspects products at Customs and issue certificates to importers to allow product to enter the domestic market. MOPH later asks for all documents, including the CIQ certificate, and could reinspect product again at the wholesale and retail levels. While there was initial concern that this process would disrupt trade, current indications are that most trade is proceeding normally.
The eventual implementation of the U.S.-China Agricultural Cooperation Agreement could also reduce the role of Hong Kong as a transhipment point. This Agreement was signed in April, 1999 and has provisions for China to recognize the U.S. inspection system for meat and poultry. But the Chinese Government must change many of its entry and inspection procedures to comply with the agreement, and it is still in the process of being implemented.
Hong Kong remains the second largest import market for shell eggs and egg products. European eggs used to dominate the brown egg market in Hong Kong, but due to high prices this year, importers have substituted less expensive eggs from China and the United States.
Japan's poultry production is forecast to continue to decline, as soft retail demand and weak prices underscore the market. The slow economic recovery has not led to significant consumer purchase increases, and consumers are increasingly buying less-expensive parts, such as wings. Poultry meat imports are relatively unchanged, but with competitively priced products from China and Brazil taking a large share of the market. The Japanese market is increasingly moving towards more prepared chicken products, which favors imports from China and Thailand. Poultry meat imports are forecast down for 2001, as stock accumulation from this year is worked down.
The market for eggs and egg products reflects the same trends of falling production and stagnant import demand. However, import data for the first half of 2000 indicated an increase in egg product imports, mainly used for ice cream and chilled confection products.
The Indonesian poultry industry is staging a remarkable comeback after being severely shaken by the economic crisis which struck in the middle of 1997. Production is forecast to increase by 18 percent in 2000, and go up another 9 percent in 2001 but will still remain below the pre-crisis level. While many small farms were forced to close during the crisis, the remaining integrators are consolidating and moving forward. The recovery of the poultry industry has also affected the growth of the feed mill industry, and feed production is up near pre-crisis levels, but with capacity to double its output.
Poultry meat remains competitively priced and a substitute for beef and other meats. In addition, the growth of fast food outlets is supporting a strong demand for chicken products. This increased demand has created an opportunity for increased broiler imports which could double to 20,000 tons in 2000. The major supplier has been the United States, with Brazil and Australia also shipping some product. While official import barriers are few, there has been a noticeable increase in the inspection of poultry imports for Halal certification. Currently four Islamic Centers in the United States are recognized to certify halal product for shipment to Indonesia.
Poultry production increases were slowed in 2000 due to an outbreak of velogenic Newcastle disease in the spring, but according to the Mexican government the quarantine restrictions have been effective and farms have been repopulated. Broiler production is forecast to increase an additional 5 percent in 2001 as demand for chicken meat remains strong. Broiler imports increased significantly in 2000, in part to fill the shortfall caused by the disease outbreak. Import growth is expected to slow to 2.5 percent in 2001 as greater domestic production comes on line to meet demand.
Imports of mechanically deboned meat (MDM) remain strong as locally processed product is not sufficient to meet demand. Imports are forecast to continue to exceed the Tariff Rate Quota (TRQ) and are used in the domestic sausage and cold-cuts industry. The TRQ for all poultry for 2001 is just under 117,000 tons.
Mexico and the EU signed a free trade agreement, effective July 1, 2000. However, fresh poultry meat was not on the list of products negotiated. Mexico will have access to the EU for some hatching eggs and processed egg products. The EU gained better access to the Mexican market for day old chicks and laying hens.
Mexico remains the world's largest importer of turkey meat as demand remains high for both whole turkeys for holidays and thigh meat which is used to blend with pork to make cold cuts, franks and hams. Cooked hams made from blends of domestic pork and imported turkey thigh are substantially cheaper than pure pork cooked hams. Whole turkey imports are expected to increase slightly as imports from Chile now enter duty free and have no TRQ under the Mexico-Chile Free Trade Agreement. Most of the Mexican domestic product is marketed as whole turkeys during the Christmas season.
The egg market in Mexico has been faced with low prices in recent years due to continued over production.
Production increases are forecast to be modest in 2000 and 2001. Large domestic supplies and low prices are also expected to be a drag on imports. In addition, a Mexican regulation on table eggs, NOM-159, which requires that once fresh table eggs are refrigerated they must be kept refrigerated, has also checked imports since Mexico lacks a continuous cold chain through the retail level.
Shell egg imports are trending downward due to a combination of higher relative U.S. prices, domestic oversupplies at low prices, Mexican regulations on refrigeration, and a rigid auction system to allocate a portion of the TRQs. Thus, shell egg imports beyond the border region will remain almost nil for 2001. However, there is potentially greater demand for processed eggs, including liquid, frozen and dried products. Production of these products in Mexico is limited, and potential users include the hotel and restaurant industries as well as food processors.
For further information, contact Leanne Hogie (202) 720-1372.