Abstract

Initially, import demand for both uncooked and cooked poultry declined substantially, due to consumers’ fear of contracting avian influenza by eating poultry meat. Consumer fears adversely affected poultry consumption in many countries, leading to lower domestic prices, decreased production, and lower poultry meat exports. These reductions proved to be short-lived, as prices, consumption, production, and exports returned to preoutbreak levels in a relatively short time. As consumers gained confidence that poultry was safe if properly handled and cooked, world demand for cooked poultry increased. The cooked poultry share of total cooked and uncooked global exports nearly doubled from 2004 to 2006. In 2006, the world poultry industry was again under pressure due to HPAI H5N1 outbreaks, this time in Europe. By the end of the year, however, world poultry meat output had reached a new high, although, for some European countries, it was slightly below the 2005 level.

Introduction

The outbreak of highly pathogenic H5N1 avian influenza (HPAI H5N1) in East and Southeast Asia in November 2003 had a worldwide impact on poultry production, consumption, domestic prices, export prices, and trade patterns in both HPAI-infected and uninfected countries around the world. The impact worsened as the virus spread westward to many countries in Asia, Central Europe, the Middle East, Africa, and Western Europe. In infected countries, millions of chickens died or were culled, prices plunged, and demand for poultry meat dropped substantially. In response, domestic production and exports declined. In uninfected countries, poultry exports were adversely affected due to temporarily falling demand for poultry meat.

Based upon risk concerns, many governments banned poultry imports from HPAI H5N1-infected countries to minimize the risks to uninfected flocks and to human populations. The import bans caused a 23-percent decline in global uncooked and cooked poultry meat exports from fourth-quarter 2003 to firstquarter 2004 (the first quarter following initial HPAI outbreaks).1 However, as more information became available, consumers’ fears subsided somewhat upon learning that poultry is safe if properly handled and cooked over 165 degrees Fahrenheit (OIE, October 2005; Swayne, 2006). Global cooked poultry exports rebounded and rose 3.2 percent in 2004 and another 42 percent in 2005. Global uncooked poultry exports declined 6.9 percent in 2004 but rose 10 percent in 2005. In 2006, cooked poultry exports rose 13 percent, while uncooked poultry exports declined 1 percent from 2005.

The major objective of this report is to analyze the impact of HPAI on global poultry meat trade following the 2003 outbreaks that started in East and Southeast Asia. The market analysis summarizes the growing demand for cooked poultry products, with attention to the growing challenge to uncooked poultry markets and competition among major suppliers in world markets. The report briefly discusses the spread of the HPAI virus and analyzes its impact on global export markets for poultry meats (uncooked and cooked), major exporters, world production, consumption, and domestic and export prices, as well as its implications for the United States.

Avian Influenza Primer

Avian influenza is caused by a virus common in wild birds and contagious to other birds, including chickens, turkeys, ducks, geese, quail, ostrich, guinea fowl, and pheasants. Influenza viruses have two main surface antigens: haemagglutinin (H) and nearaminidase (N). There are many H and N subtypes, but the highly pathogenic avian influenza types are caused by viruses that carry H5 or H7, and, rarely, H9. The current major poultry epidemic in Asia, the Middle East, Africa, and Europe is caused mostly by the H5N1 virus (United Nations, FAO, FAOAIDE News, July 2007). Avian influenza viruses are classified by pathotype as highly pathogenic (HPAI) or low pathogenic (LPAI). In the case of HPAI, mortalities occur within hours of initial infection and up to 2 days with up to a 100 percent mortality rate. Eggs laid after infection frequently have no shells, and if hens recover from the disease, they usually do not lay eggs afterward. In LPAI cases, mortality in chickens ranges from 3 percent in caged layers to 15 percent in broilers. Egg production per hen can drop by 45 percent, but returns to normal after 2-4 weeks. Domestic poultry infection with the H5N1 virus is more likely to occur in areas where wild waterfowl congregate and domestic poultry are not in birdproof sheds. Certain species of wild ducks can carry influenza viruses without exhibiting any clinical signs of disease. Viral transmission can occur from contaminated water and wild bird droppings, as well as from direct contact with wild birds by farmed poultry. Therefore, good farm-management practices focus on preventing close wildlife contact with humans and poultry by improving biosecurity practices in commercial farms (European Commission, EU, Food Safety, November 2006; United Nations, FAO, Animal Health Special Report, October 2006; OIE avian influenza update, October 2006).

Conclusions and Implications

The virulent HPAI H5N1 virus spread across much of Asia starting in late 2003, then spread to Russia and Central Europe, the Middle East, Africa, and Western Europe. It had severe impacts on the global poultry industry, even in those countries not infected with the virus.

Consumer fears adversely affected poultry consumption, leading to lower domestic prices, decreased production, lower feed industry sales downstream, and to lower global poultry meat exports. Initially, major importers banned cooked and uncooked poultry meat shipped from HPAI H5N1- infected countries. Later, those countries allowed only poultry meat imports subjected to heat treatments that killed the virus, acknowledging that the main risks to humans arise when humans have prolonged direct contact with infected birds or their products.

The impact of the HPAI was perhaps more direct and severe in East and Southeast Asia, Central Europe, the Middle East, and Africa, where the virulent virus caused the death or culling of several million birds. These regions’ high casualty rates were due to the large proportion of poultry raised in small, backyard, unprotected flocks in rural areas. In Western Europe, most commercial production is in temperature-controlled enclosures. Yet, a considerable number of outdoor and free-range operations also exist in Western Europe, motivated by consumers’ willingness to pay higher prices for birds raised in these environments. Western Europe’s free-range operations resemble the backyard operations of Asia, the Middle East, and Africa in their exposure to wild birds, and if it were not for growers’ alertness and governments’ extreme cautiousness, larger losses would have occurred in the European Union. For example, Germany imposed a ban on outdoor poultry production in October 2005, even before the first case was found on the German Baltic island of Ruegen in February 2006. France imposed a similar ban in February 2006, affecting many growers who previously were motivated by the extra bonus for poultry grown with the “raised outdoors” label “Poulet de Bresse.”

Analysis of the HPAI impact on global markets of poultry meats indicates that trade went through two stages due to the virus outbreaks. The first stage was a decline in import demand for both uncooked and cooked poultry meats, due to consumers’ fear of contracting avian influenza by eating poultry meat. This was, however, a short-lived phenomenon that temporarily reduced consumption, prices, and production.

After bans on fresh and frozen uncooked poultry exports in early 2004, Thailand and China rapidly increased production of cooked poultry, taking advantage of comparatively low labor costs. Brazil also realized gains from cooked poultry exports from 2004 until the EU imposition of quotas and high tariffs on cooked chicken and turkey in November 2006. The market was lucrative, adding substantial revenue through sales of value-added products, partially replacing uncooked poultry sales.

Thus, the second stage of the impact of HPAI H5N1 outbreaks affected poultry producers in uninfected countries by opening new trade opportunities in global poultry markets. Export opportunities for uncooked poultry arose in countries that had banned imports from their traditional suppliers. For example, Japan, the world’s second largest importer, was able to switch its uncooked poultry imports from traditional suppliers, such as Thailand and China, to the United States and Brazil.

HPAI H5N1 effects increased cooked poultry exports as a share of total poultry global exports in response to consumer demand for safe poultry meat. Cooked poultry exports provided a cushion for the poultry industry in late 2005, when the uncooked poultry export market declined substantially. The cooked poultry market proved to be a stabilizing factor for the world poultry market. Without the rise in cooked poultry exports, the global market could have experienced greater losses, particularly during the first half of 2006.

Observations of the effects of HPAI H5N1 on the poultry industry around the world suggest some implications for U.S. poultry in particular:

• The U.S. Department of Agriculture (USDA) maintains trade restrictions on the importation of poultry and poultry products originating from countries and/or regions where the HPAI H5N1 strain has been detected in commercial or traditionally raised flocks. USDA regulations require that import permits accompany properly sanitized poultry products, such as raw feathers. Additionally, USDA has increased its monitoring for illegally smuggled poultry and poultry products through an anti-smuggling program in coordination with the U.S. Department of Homeland Security’s Customs and Border Protection office.
  
  
• HPAI H5N1 infections in commercial poultry production in the United States may be less likely than in some other countries because most U.S. commercial production is in temperature-controlled enclosures that protect flocks from contact with wild birds. U.S. producers can take additional precautions to further reduce the likelihood of wild-bird contact, through association or droppings, with their poultry flocks.
  
  
• When HPAI H5NI outbreaks have occurred, domestic production generally declines sharply and then returns to pre-outbreak levels in less than a year, depending on the extent and scope of the outbreak, the time required to contain it, and the time required to recover uncooked poultry meat exports. Recovering or expanding export markets (for example, expanding markets for cooked meats) would help support prices, encouraging domestic producers to rebuild flocks.
  
  
• Demand for U.S. poultry has increased following infections in competing exporters, offering opportunities for rising U.S. exports. There is a lucrative global market for cooked poultry in particular, which is priced much higher than uncooked poultry.

The experiences of other countries affected by outbreaks often follow a pattern of initial declines in poultry consumption as consumers fear contagion, followed by recovering consumption after a few months as consumers gain confidence (USDA GAIN Reports, 2004-2006). The time lag occurs because consumers are often unaware of many relevant facts about HPAI H5N1 virus and food safety in the initial stages of an outbreak. However, media coverage and consumer education have allayed consumers’ fears and enticed them to revive poultry meat consumption (USDA, GAIN Report, 2006).

Further Reading

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October 2007