Highlights

In 2011, production of broiler meat is forecast to grow by eight per cent to 1.38 million metric tons (MMT) from 1.28MMT in 2010. Although production could potentially increase in tandem with the increase in capacity (15 to 20 per cent), trade sources believe that this would not likely happen as most producers are large integrated facilities that are able to adjust production once a market glut looks imminent. Anticipated growth in demand from domestic consumption and exports will not absorb the increase in meat production, leading to increased carryover stocks of broiler meat at the end of 2011.

Summary

In 2011 production of broiler meat is forecast to grow by eight per cent to 1.38MMT from 1.28MMT in 2010. This increase in production is a result of an aggressive expansion in production capacity by 15 to 20 per cent in poultry farms during 2010 and early 2011, as strong demand and slow growth in broiler production in 2008-2009 resulted in favourable returns that in turn fueled this rapid expansion. Although production could potentially increase in tandem with the increase in capacity, trade sources believe that this in unlikely to happen as most producers are large integrated facilities that are able to reduce production once a market glut looks imminent.

Anticipated growth in demand from domestic consumption and exports will not absorb the increase in production, leading to carry-over of broiler meat stocks at the end of 2011 of 72,000 metric tons, which would more than double the estimated 32,000 metric tons of 2010.

In 2011, domestic consumption should grow by five per cent as it remains the most popular and affordable meat, as population increase, growth in GDP (projected growth of 6.5 to 7.5 per cent), and an anticipation of softened prices due to an over-supply in broiler production.

In 2011, Thailand’s broiler meat exports should grow by seven per cent which most of the growth will take place in Asian markets including Japan, ASEAN countries, Hong Kong and South Korea.

Thailand’s request to the EU to increase the prevailing quota of 160,000 metric tons for cooked chicken meat products and to lift a ban on uncooked chicken meat is still pending. Any out-of-quota exports are subject to high tariffs. Growth in this market will be negligible, as the only price-competitive products are those that contain 57 per cent or less poultry which are not under a quota system and face a relatively benign tariff of 10.9 per cent.

Production

Production trend

In 2011, production of broiler meat is forecast to grow by eight per cent to 1.38MMT from 1.28MMT in 2010. This increase in production is a result of an aggressive expansion in production capacity by 15 to 20 per cent in poultry farms during 2010 and early 2011, as strong demand and slow growth in broiler production in 2008-2009 resulted in favourable returns that in turn fueled this rapid expansion. Although production could potentially increase in tandem with the increase in capacity, trade sources believe that this would not likely happen as most producers are large integrated facilities that are able to reduce production once a market glut looks imminent. In addition to expanded capacity, these new facilities come equipped with evaporative cooling systems and use improved genetics in broiler breeding stocks which results in increasing yields.

The slow growth in broiler production in 2008 and 2009 has also resulted in sound profitability in the chick breeding business. In 2008-2009, average chick prices were 12-13 baht (THB) per bird and skyrocketed to a record high of THB20-21 in May of 2010, with an average production cost of THB8-9 per bird. This high profitability encouraged, both independent chick breeders and integrated chicken producers, the expansion of breeding facilities. Trade sources estimate that total chick production capacity increased from 18 million birds per week in early 2010 to a current capacity of 20 to 21 million birds per week, and will increase to 22 million birds in early 2011 and 23 million birds by mid-2011. Again, since most breeding farms are integrated farms, they will likely respond to changes in market dynamics in a reasonable time period to avoid falling prices.

In addition to poultry and breeding facilities, at least four integrated chicken producers, i.e. Betagro, Saha Farm, GFPT Company and Thai Food Industry Company, have expanded their processing facilities, which, by the end of 2010, will add 400,000 birds per day to their production lines. These lines currently process 2.5 to 2.7 million birds per day, the new added capacity would increase by 16 to 18 per cent. Integrated farms have also invested in introducing or improving fully cooked meat processing facilities to meet the requests of sophisticated markets in Japan and the EU for cooked broiler meat.

The Thai broiler industry has improved farming systems to mitigate animal health and food safety challenges, such as the Highly Pathogenic Avian Influenza (HPAI) outbreak that did so much damage to the industry in 2004. All integrated producers are strictly implementing biosecurity measures from the farm level to the processing level. Nearly all broiler houses of integrated producers are currently equipped with evaporative cooling systems which, in addition to increasing productivity, reduce disease exposure and mortality rates. This has been a factor for not having any HPAI incidents since the last affected flocks were depopulated on 12 November 2008.

Production costs

In 2010, average live broiler production costs are estimated to increase almost 10 per cent from THB32-33 per kilo (47-48 US cents per pound) in 2009 to THB35-36 (51-52 US cents/pound) due to escalating prices of chicks and feed. For example, prices for corn, ingredient that accounts for 60 per cent of the broiler feed ration, is expected to increase by 16 to 17 per cent in 2010 from 2009, while those for fishmeal – another ingredient that accounts for five per cent of the ration - has risen by three per cent. On the other hand, prices for soybean meal, accounting for 25 per cent of the feed ration, have decreased 12 to 13 per cent from 2009 which is not enough to offset the increase in corn and fishmeal prices. Trade sources reported that feed mills replaced corn with cheaper feed-grade wheat from Russia and Ukraine in 2010. Prices for these imported wheat grains were about 20 per cent lower than domestic corn prices and some 700,000 to 800,000 metric tons of these wheat grains have been imported for this purpose in 2010. However due to the current outlook on tightening supplies and skyrocketing prices, this alternative is no longer viable for the rest of 2010.

Trade sources forecast that in 2011 live broiler production costs should increase by two to five per cent in anticipation of stronger prices for bulk feed ingredients, which would offset any savings from a possible reduction in chick prices.

Consumption

In 2011, domestic consumption should grow by five per cent as it remains the most popular and affordable meat, an increasing population, growth in GDP (projected growth of 6.5 to 7.5 per cent) and an anticipation of softened prices due to an over-supply in broiler production. In addition, an increase in domestic consumption should be partly attributed to efforts in promoting new ready-to-eat chicken menu in the domestic market by quick service restaurants (QSR) and food processors, spearheaded by the largest poultry integrator, Charoen Pokphand Group. This ready-to-eat market should grow 10 to 15 per cent annually in the next five years.

Despite sharply increased domestic prices, domestic consumption in 2010 is estimated to grow five per cent over the 2009 level due to its price competitiveness as compared to other meats and a favourable economic growth (estimated 6.5 to 7.5 per cent). Average domestic prices for live broilers in the first seven months of 2010 (January to July) increased significantly by 24 per cent over the same period of 2009 to THB42.37 per kilo (approximately 62 US cents per pound) due mainly to increased production costs and strong export demand for chicken meat. Meanwhile, average retail prices for chicken boneless breast meat in Bangkok in 2010 (January to July) also rose by 27 per cent to THB87.54 per kilo ($1.27/pound) from the 2009 level.

Trade

Export trend

In the first half of 2010, chicken meat exports (both cooked and uncooked) increased 13 per cent to 198,029 metric tons (MT) from 174,781 metric tons in the same period of 2009. Of these exports, cooked chicken meat exports in the first half of 2010 grew 13 per cent to 188,986MT while uncooked product exports rose 23 per cent to 12,043MT. Based on the export performance of the first half of 2010, total exports of chicken meat are expected to reach 410,000MT, up eight per cent from the 2009 level.

In 2011, Thailand’s broiler meat exports should grow by seven per cent, of which most of the growth will take place in Asian markets, including Japan, ASEAN countries, Hong Kong and South Korea. Exports to Japan are anticipated to increase almost 10 per cent in 2011 on the assumption that the over-supply in the domestic market would spill over to the world market causing Thai chicken meat products to become more competitive than other supplying countries such as Brazil and China. Overall, cheaper export prices of Thai products should help a favourable expansion in other markets than the EU and Japan, which will still remain Thailand’s major markets accounting for 85 to 90 per cent of market share. In addition, several importing countries are likely to lift a ban on Thai uncooked frozen chicken meat in the near future as Thailand meets its OIE HPAI-free requirements. Currently, the countries that have lifted the HPAI ban on Thai uncooked frozen chicken meat include Hong Kong, South Africa, Bahrain and Russia.

In early 2010, reports were circulating that Thailand would begin to export leg quarters to Russia after this country banned imports from the United States. The Thai government authorities reported that a Russian inspection team had approved several processing plants in Thailand for export eligibility to Russia. However, no exports have occurred thus far mainly because Thai exporters consider prices offered by Russian importers too low and are wary of the financial terms on the possible trades.

Export prices and products

Trade sources reported that overall export prices for nearly all cooked products have firmed in 2010 reflecting higher costs and strong demand. Export prices for steamed dice-shape-cut skinless boneless breast (SBB), a major item exported to the EU, reportedly increased from about S3,800 per ton in 2009 to currently $4,000 to 4,500 per ton CIF. On the other hand, export prices for fried cut boneless leg, one of the basic cooked products for the Japanese market, rose from an average $4,100 per ton CIF in 2009 to $4,300/ton.

The bulk of the chicken products for export consist of made to order products that are processed or prepared by heat (such as grilling, steaming, boiling, etc.) and are usually puffed or seasoned (with salt, Japanese sauce, etc.).

EU quota administration

Under the agreement, Thailand receives 92,610MT out of a total quota of 264,245MT for uncooked salted poultry meat (EU HS code 02109939). The in-quota tariff rate is 15.4 per cent while the out-of-quota rate will be €1,300 per ton. Quota for cooked chicken meat (EU HS code 16023219) for Thailand is 160,033MT, out of a total quota of 250,953MT, and in-quota imports from Thailand will be subject to an eight per cent tariff. The out-of-quota rate for cooked chicken meat is €1,024 per ton. Thailand’s cooked chicken meat (EU HS code 16023219) reached the quota ceiling of 160,033MT in 2008.

Thailand’s request to the EU to increase the prevailing quota of 160,000MT for cooked chicken meat products and to lift a ban on uncooked chicken meat is still pending. In addition, the EU raised import tariffs on eight poultry meat products in 2009, including uncooked chicken meat products containing more than 57 per cent chicken meat, cooked chicken meat products containing 25 to 57 per cent chicken meat, and cooked chicken meat products containing less than 25 per cent chicken meat. These chicken meat products are currently not under the EU tariff-rate-quota. The import tariff applied for products containing 57 per cent chicken meat and below is 10.9 per cent. Thailand has thus far enjoyed this tariff to export products containing 57 per cent and below content out of the quota system. The export under this category should reach 20,000 to 25,000MT in 2010, as compared to 17,657MT in 2009.

Stocks

Anticipated growing demand from domestic consumption and exports should not be able to absorb the production increase, leading carry-over stocks of broiler meat at the end of 2011 to more than double from the estimated 32,000MT in 2010 to 72,000MT in 2011.

Policy

Thailand’s policy for the poultry industry has not changed from the last report. Thailand does not have price supports or export subsidy programmes for poultry. Because of the HPAI outbreak, the Royal Thai Government (RTG) launched several measures to support the poultry industry, from small-scale farmers to integrated poultry processors, including HPAI Stamping-Out Campaign on poultry farms/areas and a compensation scheme for disease-affected farmers.

Thailand is a protected poultry market through the RTG’s use of non-transparent control of import permits (potential importers are unable to get them issued), high WTO bound rates of import tariffs (currently 30 per cent for chilled or frozen uncooked meat and 40 per cent for cooked chicken meat), and a discriminatory import permit fee on uncooked products (THB10 per kilo or approximately $320 per ton) and imposing an arbitrary import ban which is inconsistent with the OIE guidelines such as a ban on US poultry meat upon a finding of Low Pathogenic Avian Influenza (LPAI) in some states.

Marketing

Thailand is a potential market for US chicken parts (especially leg-quarters), mechanically deboned meat (MDM) and value-added chicken meat. Thai local consumers, like those in other Asian countries, prefer dark meat to white meat. Potential buyers for chicken parts and MDM would be food processors (sausage processors in the case of MDM) and supermarkets. Value-added chicken meat can also be introduced to modern retail markets and HRI industry. Thailand could import bone-in-leg meat for processing in Thailand and re-export it to such markets as Japan and non-EU countries. However, the US export opportunities of these chicken parts are currently hindered by Thailand’s non-transparent controls on issuing import permits.

Further Reading

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September 2010