Executive Summary

As capacity expansion continues in 2011 and 2012, due to the Thai broiler industry’s high profitability in both domestic and international markets in 2010 and most of 2011, production of broiler meat in 2012 is forecast to grow further by nine per cent to 1.50 million metric tons (MMT) from 1.38MMT in 2011. Both domestic consumption and exports in 2012 are also forecast to grow at the same rate (nine per cent) reflecting strong demand conditions.

Domestic consumption should be strong in 2012, mainly due to anticipated prevailing high pork prices against less expensive chicken meat, which is fostering the domestic per-capita consumption of chicken meat, which will be aided by the expansion of its use in the quick service restaurant (QSR) sector and ready-to-eat markets.

Thailand has successfully developed its export market for cooked chicken meat products and is the world’s leading exporter. Most of the growth in exports in 2012 will take place in Asian markets including Japan, ASEAN countries, Hong Kong and South Korea. Currently, the EU and Japan are the major markets for Thai exports, accounting for 83 to 85 per cent of total exports.

Thailand’s request to the EU to increase the prevailing quota of 160,000 metric tons (MT) for cooked chicken meat products and to lift a ban on uncooked chicken meat is still pending. In 2009, the EU announced its plan to raise tariff rates on additional eight poultry meat products, 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. In response to this initiative, Thai Department of Trade Negotiations, Ministry of Commerce, requested the EU to set an import quota for these products. This request is still pending; however, trade sources revealed that the EU is likely to agree to adopt the quota system for these products in 2012.

Production

Production trends

Although no HPAI incidences have been reported since November 2008, trade sources reported that inconsistent temperatures, flooding and disease outbreaks have caused significant damage to broiler production from late 2010 to May 2011. These damages have cut down the estimated growth of broiler production from a potential growth of 10-15 per cent to eight per cent in 2011. Trade sources reported that integrated chicken producers have used intensive measures, especially Newcastle disease vaccination and biosecurity programmes, to control the recent disease outbreaks. It is believed that the outbreaks are currently under control and should not pose a serious threat for the remaining months of 2011.

Production of broiler meat in 2012 is forecast to grow further by nine per cent to 1.50MMT from 1.38MMT in 2011 based on the ongoing expansion of broiler production capacity in 2011 and anticipated fewer disease outbreaks. As cited in the 2010 Annual Report, strong demand and slow growth in broiler production in 2008-2009 resulted in favourable returns that in turn fuelled the rapid expansion in 2010.

This capacity expansion continues into 2011 and 2012 as the Thai broiler industry continues to enjoy high profitability in both domestic and international markets.

Trade sources estimate that total chick production capacity increased from 20 to 21 million birds per week in 2010 to 22 to 23 million birds in 2011, and will increase to 23 to 25 million birds in 2012. This increase is derived from the expansion by nearly all of the integrated chicken producers and independent broiler breeding farms. Additionally, most breeding farms are integrated farms, and they have indicated that they would likely respond to changes in market dynamics in a reasonable time period in order to balance any significant shifts in the supply and demand equation.

Integrated chicken producers have not only expanded their poultry and breeding facilities but also enlarged their processing facilities. The current processing capacity of the Thai chicken industry totals 3.85 million birds per day, up from 3.10 million birds per day in 2010. Integrated farms have 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 equipped with evaporative cooling systems which, in addition to increased productivity, reduce disease exposure and mortality rates. This has been a key factor for the absence of HPAI incidents since the last affected flocks were depopulated on 12 November 2008.

Production costs

In 2011, average live broiler production costs are estimated to increase by 11 per cent from 35-36 baht (THB) per kg (54-55 US cents/pound) in 2010 to THB39-40 per kg (60-62 cents/pound) due mainly to increasing raw material costs, especially corn and chicks, and higher mortality rates caused by the disease outbreak. Prices for corn, a major ingredient that accounts for 60 per cent of broiler feed rations, increased by 10 per cent in the first seven months of 2011 (January-July). Higher feed costs derived from corn in 2011 have been partly offset by lower prices for soybeans and fish meal, however, they have not been able to offset the impact of higher corn prices. In addition, average prices for chicks in the first seven months (January-July) increased by seven per cent from THB18.43 per bird ($0.62/bird) in the same period in 2010 to THB19.78 per bird ($0.67/bird).

Nevertheless, broiler producers are able to generate profits in 2011 when average live broiler prices at farm of THB48.77 baht per kg (0.75 cents/pound) well outstripped the average production cost of THB39.50 per kg (0.61 cents/pound) in the first seven months of 2011 (January-July).

Trade sources forecast that in 2012 live broiler production costs should be close to the 2011 level considering that the strong prices for bulk feed ingredients and chicks should ease from 2011.

Consumption

In 2011, domestic consumption is estimated to grow seven per cent over the 2010 level mainly because QSR and ready-to-eat markets have expanded and a wider gap between pork prices and less expensive chicken meat caused several consumers to switch to chicken meat. The price-ratio of lean pork to chicken breast has increased from 1.45 in 2010 to 1.53 in the first eight months of 2011 (January-August). Average retail prices for chicken boneless breast meat in Bangkok in 2011 (January-August) rose by one per cent to THB87.20 per kg ($1.34/pound) from the 2010 level. Meanwhile, average retail prices for lean meat pork in Bangkok in 2011 (January-August) increased by 11 per cent from THB121.19 per kg ($1.87/pound) in 2010, to THB133.93 per kg ($2.06/pound).

In 2012, domestic consumption should grow by nine per cent mainly due to anticipated prevailing high pork prices against less expensive chicken meat that will foster the growth of per-capita consumption of chicken meat intake from 13.5kg per person per year to 14.7kg. 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.

Trade

Export trends

In the first half of 2011, chicken meat exports – both cooked and uncooked – increased 10 per cent in quantity to 217,906MT from the same period of 2009, while the value of exports increased by 22 per cent. Trade sources reported that the relatively higher export values than quantity reflect increased export prices for Thai chicken meat across the board. Based on these statistics, average export prices in the first half of 2011 (January-June) increased to $4,180 per MTn from $3,750 per MT in the same period of 2010. The export breakdown for poultry meat for the first half of 2011 are 200,206MT for cooked chicken meat or 92 per cent of exports and an increase of eight per cent from the same period in 2010. While uncooked product exports were 17,700MT or eight per cent of total exports, however, they rose 47 per cent from 2010. Based on the export performance of the first half of 2011, total exports of chicken meat are expected to reach 460,000MT, up seven per cent from the 2010 level.

In 2012, Thailand’s broiler meat exports should grow another nine per cent, and most of the growth is expected to take place in Asian markets, including Japan, ASEAN countries, Hong Kong and South Korea. Overall, cheaper export prices of Thai products should help a favourable expansion in other markets than the EU and Japan, however they will still remain Thailand’s major markets accounting for 83-85 per cent of total exports. Additionally, as countries lift their bans on HPAI, this will help fuel uncooked chicken meat exports. Currently, countries that have lifted the HPAI ban on Thai uncooked frozen chicken meat included Hong Kong, South Africa, Bahrain and Russia.

Export prices and products

Trade sources reported that overall export prices for nearly all cooked products increased sharply in the first half of 2011 (January-June) reflecting higher costs and stronger demand especially from Japan after the earthquake and tsunami hit the country in March 2011. Export prices for steamed dice-shape-cut skinless boneless breast (SBB), a major item exported to the EU, reportedly increased from $4,000-4,500 per ton CIF in 2010 to current prices of $5,000-5,100. On the other hand, export prices for fried cut boneless leg, one of the basic cooked products for the Japanese market, rose from $4,000-4,200 per ton CIF in 2010 to $5,000 in March/April and has since dropped to $4,600-4,700.

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, and boiling) and are usually puffed or seasoned (with salt, Japanese sauce, etc.).

EU quota administration

The EU quota administration remains unchanged from the 2010 Annual Report. Under the agreement, Thailand receives a quota of 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. However, Thailand does not export uncooked products to the EU and the EU announced in 2010 to extend its ban on imported uncooked chicken meat from exporting countries affected by avian influenza until 30 June 2012.

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. Since 2008, Thailand’s cooked chicken meat (EU HS code 16023219) annually used the quota up to the ceiling of 160,033MT.

While 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, Thai exporters have wisely opted to export chicken meat products that are not under the EU tariff-rate-quota regime but export products that have low tariff rates that make them competitive in the EU market. These products include those that contain 57 per cent chicken meat and below which have a tariff of 10.9 per cent. The export under this category should reach 25,000-30,000MT in 2011, which is close to 28,488MT in 2010.

Although this market has been challenged when in 2009, the EU announced its plan to raise tariff rates on additional eight poultry meat products including uncooked chicken meat products containing more than 57 per cent chicken meat, cooked chicken meat products containing 25-57 per cent chicken meat, and cooked chicken meat products containing less than 25 per cent chicken meat. In response to this initiative, Thai Department of Trade Negotiations, Ministry of Commerce, requested the EU to set an import quota for these products. This request is still pending; however, trade sources revealed that the EU is likely to agree to adopt the quota system for these products in 2012.

Stocks

In line with increasing production, year-end carry-over stocks of broiler meat are forecast to increase from the estimated 52,000MT in 2011 to 72,000MT in 2012.

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. After 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 kg or approximately $339/ton).

Thailand has made a request for sanitary approval to export cooked chicken to the United States. However, Thailand has not seriously pursued the approval process and the request has now been pending for many years. Thai industry sources recently mentioned to FAS/Bangkok that this is because Thailand sees the difficulty other countries, most notably China, have had in gaining US market access, and they feel the chances for Thailand are nil.

Marketing

Thai local consumers, like those in other Asian countries, prefer dark meat to white meat. Therefore, Thailand remains a potential market for US chicken parts (especially leg-quarters), mechanically deboned meat (MDM) and value-added chicken 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 aforementioned non-tariff barriers would need to be resolved. The paradox is that none of the barriers exist for US frozen turkey meat exports to Thailand.

Further Reading

-

You can view the full report by clicking here.

September 2011