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Selling Poultry in China
No Longer Chicken Feed
by Nancy Morgan
China is second only to Russia as a market for U.S. poultry meat exporters, and with a population almost 10 times as large, promises great returns in the future. From 1992 to 1996, U.S. poultry meat exports to China (including Hong Kong) more than tripled, reaching nearly 600,000 tons.
To illustrate the value impact: U.S. poultry exports scratched up $480 million of a total $3.6 billion agricultural export tab in 1996, second only to cotton in U.S. exports to the China/Hong Kong market.
Two distinct quirks characterize this Chinese market: The majority of imports to China go through Hong Kong, a phenomenon likely to continue with unification; and China not only imports but also exports poultry and poultry meat.
With its lower labor and transportation costs, those Chinese exports have challenged the market shares of Thailand, Brazil and the United States in the lucrative Japanese market. Trade policies that allow the import of poultry meat products for further processing and re-export at reduced tariff levels further feather China=s export nest.
Prospects for increased poultry meat production in China are good, and this domestic market will probably be the chief competition for future U.S. exports.
Outlook on the Sunny Side
Imports of poultry meat parts by China in 1997 are forecast at 900,000 tons. In 1996, the United States pecked off a 67-percent import share of 750,000 tons. Brazil was a distant second with a 7-percent share, followed by the Netherlands and the United Kingdom.
China's strong economic growth coupled with its huge population are expected to sustain long-term demand for poultry meat. This demand now consists of less expensive parts, such as offal, gizzards, low-priced mid-joints and particularly feet and paws.
As in other developing countries, growing incomes and changing preferences will inevitably prompt stronger demand for processed chicken products.
Currently only 20 percent of China's meat consumption is poultry, compared to 30 percent in many developed countries and 38 percent in the United States.
The predicted increase in a preference for poultry will further accelerate the growth in demand for chicken meat, supporting growth in the domestic and import markets. And the increasing privatization of the Chinese wholesale market will allow producers and importers to meet this need.
Fast-Food Sector Propels Growth
The rapid growth of the fast-food sector and the development of a food processing industry will egg on the steady increase in poultry consumption, which has been rising 14 percent annually over the past decade.
Kentucky Fried Chicken (KFC) recently opened its 150th Chinese outlet. Additionally, McDonald's, Pizza Hut and the Hong Kong chain of Fairwood are prolific in South China.
Imported ingredients are grabbing hold as local restaurants meet the needs of newly affluent customers. Cantonese-style restaurants often serve imported U.S. chicken wings and paws.
And South China's vast numbers of home cooks may meet up with more U.S. poultry in the days ahead. During the past four years, the supermarket has made an impressive debut in South China. Consisting first of local chains, and now joined by foreign hypermarkets, these large stores offer incentive and opportunity for increased market liberalization and freer access to trade.
Marketing Those Chicken Paws
China's diverse population, spread over a large land mass, guarantees a broad range of cuisine preferences. However, U.S. exporters tend to cater to the South China population because most U.S. product enters into China via Hong Kong.
The success of the Hong Kong marketplace influenced South China, leading to economic growth, a strong emphasis on market-oriented reforms by local authorities and exceptional entrepreneurial drive.
Notably, up to half of the imports entering South China do so via Hong Kong. In the past, these products were traditionally re-exported by importers/wholesalers to other areas of China. Foreign companies were not allowed in this process, as these trading companies or wholesale operations were usually owned by or affiliated with government entities.
Domestic producers have a further edge; they may sell directly to retailers, bypassing wholesalers. Thus, imported poultry meat has to be cheaper initially to compete with domestic product.
Poultry Prices Competitive
Shoppers in China are still finding poultry meat generally cheaper than alternative meats. Given the population=s preferences for wings and dark meat, these parts command higher prices within the industry.
Hong Kong's (and indirectly China's) average poultry prices moved up in 1996 with U.S. chicken paws in December 1996 cited as $1,000 per ton, compared to $750 in 1995.
Most Brazilian products are too expensive for this market with chicken paws the exception, quoted at $770 in 1996.
The Netherlands is attempting to gain entrance into the China market, pending a determination by the Dutch government that these specific chicken parts are fit for human consumption.
Families still prefer traditional Chinese breeds (yellow, black-skinned and silky) for home cooking. The demand for these breeds normally used for at-home meals has driven up their price to $2 per kilogram.
Chicken Parts Often Repackaged
Since September 1996, Chinese law requires that all food products must have Chinese labels clearly stating the type of food, brand name, trademark, manufacturer's name and address, country of origin, ingredients, date of production and sell-by date.
Frozen chicken parts are shipped and sold in 20-kilogram corrugated containers or 1-kilogram frozen cut chicken packages. Once in China, both are loaded on non-refrigerated trucks. The smaller packages go directly to large retail stores, while large packages are defrosted for sale in smaller retail stores or local wet markets, which leaves the consumer unaware of origin.
As the market liberalizes, U.S. exporters will need to sell a branded product to be competitive. Already in wholesale and retail markets, domestic product is sold in well-packaged, branded form.
Sweet and Sour Tariff Trends
Excluding gizzards, poultry meat is subject to a 45-percent import duty plus an additional 17-percent value-added tax (VAT). Gizzards invoke a 55-percent tariff. However, if a product is detained for further processing and then re-export, duty-free entrance is allowed.
U.S. products are held in high regard. But the stiff import duties make competition tough for all but low-priced products such as paws and wings. Sporadic crackdowns on imports by the Chinese government increase the uncertainty and risks for traders.
China's accession to the World Trade Organization would mean that U.S. exporters could look forward to lower tariffs for poultry meat imports. An ensuing transparent import regime would provide for more price stability and less risks for both exporter and importer.
The author is an agricultural economist in FAS Dairy, Livestock and Poultry Division. Tel. (202) 720-1372; Fax (202)720-0617. E-mail: morgan@fas.usda.gov
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