Report Highlights:

Bulgaria and Romania joined the EU to form the EU-27 at the start of 2007. This should have minor impacts on EU poultry markets, although poultry imports into these new MS will decrease as a result of EU legislation.

EU broiler markets in 2007 have recovered from the 2006 AI scare, although producers remain cautious in setting up production because of the ongoing AI threat. This has driven broiler prices to record highs. EU broiler imports have peaked in spring of 2007 before the implementation of the new quota. Broiler exports recovered in 2007 after AI related export bans ended. Broiler consumption recovered as consumers renewed confidence in broiler meat. Forecasts for 2008 foresee further increases in broiler production and consumption, except for severe AI outbreaks. Broiler imports are forecast to decrease because of restricted quota. Turkey markets did not recover and are forecast to continue contracting.

Executive Summary

The beginning of 2007 brought another expansion of the European Union, with two additional member states (MS): Bulgaria and Romania. While this enlargement is much smaller than the 2004 accession of ten New Member States (NMS-10), it again integrates two countries with a weaker economy, adding 29 million inhabitants, in which agriculture is an important economic sector and employer. However, both countries are net poultry importers and will therefore have a minor impact on EU meat markets. Bulgaria and Romania combined add three percent to the EU poultry production. One of the main impacts of this enlargement on the EU market was the threat from Russia to close its border for all EU animal products, for fear for the animal health situation in Bulgaria and Romania, especially for Classical Swine Fever (CSF) and Avian Influenza (AI).

EU broiler markets in 2007 have mostly recovered from the 2006 AI scare, which resulted from the arrival of AI H5N1 outbreaks in the South-East of the EU, including an outbreak on a French turkey farm. Broiler production is still below pre-AI levels because producers are cautious in setting up new production. The ongoing threat of new outbreaks and limited numbers of mother birds and hatching eggs keeps production low. This has resulted in record high broiler prices. Broiler meat imports have peaked in the spring of 2007, before the implementation of new TRQs for salted and cooked poultry for Brazil and Thailand on July 1, 2007. EU broiler exports are recovering after different export bans, mainly because of AI, were lifted. EU broiler consumption has also recovered as consumers renewed confidence in poultry meat. However, AI remains a threat that throws a shadow over the EU poultry market.

For 2008, forecasts foresee further increases in EU broiler production and consumption assuming no major AI related event occurs. Broiler imports are forecast to somewhat decrease as they are restricted by import quota. EU broiler exports are forecast to stabilize as competition from Brazil is strengthening.

EU turkey markets show a different evolution. Turkey production in 2007 has not recovered, but continued its long-term decline. Turkey imports are slightly decreasing and are also being restricted by quota as of July 1, 2007. EU turkey exports are also decreasing for lack of competitiveness with exports from Brazil. EU turkey consumption is slowly decreasing further. For 2008, EU turkey markets are forecast to continue their contracting trend.

Broiler

2006

In the first quarter of 2006, the Mediterranean part of the EU suffered from an AI scare, caused by infected wild birds with AI strain H5N1 and an outbreak in a French turkey farm in February of 2006. While the financial impact on the EU poultry sector was severe, the impact in terms of volume on production and consumption was much less than first feared. EU-25 broiler production decreased 3.5 percent, EU-25 broiler consumption decreased 3.1 percent and total EU-25 broiler exports were stable, although France faced a 20 percent drop in exports because of a range of import bans on France.

As AI had already been confirmed in Bulgaria and Romania in the autumn of 2005, both countries were already facing import bans to the EU-25 at the start of 2006. Production and consumption of broilers suffered, especially in Romania where production decreased by 5 percent and consumption by 7 percent compared to 2005. Consumption numbers of broilers in Romania and Bulgaria are somewhat overstated as they include some commercial stocks. Stocks were built up in anticipation of the halt of imports from non-EU countries, mainly the United States, as a result of the implementation of EU legislation at accession. In Romania, the EU requirements were suddenly enforced in the beginning of June 2006, instead of end of December 2006, giving U.S. exporters very limited time to arrange shipments to Romania. Stocks in Romania were already built (from both imports and domestic production), following an AI outbreak in a commercial flock during May 2006.

2007

Broiler production in the EU is expected to have recovered from the 2006 AI scare, although producers remain cautious in the set up of new broilers. Production is not expected to return to the 2005 level yet. Production of mother birds and hatching eggs at the end of 2006 lagged 2005 numbers by 5-10 percent. High feed and energy costs help explain this lag in production. The accession of Bulgaria and Romania is not expected to have any significant impact on the EU market, as they only represent 3 percent of EU broiler production. AI H5N1 remains a threat as infections in wild birds were detected in several EU Member States (MS) in June 2007. Broiler production temporarily dropped in the United Kingdom after an outbreak of AI H7N1 in a turkey flock in February of this year reduced consumer confidence in domestic poultry meat. Production is also lagging in France, the Benelux and Hungary. However, in Germany a doubling in slaughter capacity by a major processor is expected to push up production by up to 9 percent. In Poland and Romania production is expected to increase by 2 and 17 percent, respectively. As a result of this controlled recovery in production, EU broiler prices are at record highs and profitability is above average despite high feed costs.

Broiler imports into the EU-27 are expected to remain fairly stable compared to 2006. Imports into the EU-25 are expected to increase by about 100,000 MT. This is largely due to the unlimited imports of salted poultry at low tariff in the first half of 2007 following the outcome of the WTO panel, and the consequent implementation of new TRQ’s for salted and cooked poultry for Brazil and Thailand in the second half of 2007. Commission Regulation (EC) No 616/2007 provides that in the first two quarters of the quota year 2007/2008 licenses for 30 percent of the quota can be filed and 20 percent in each of the last two quarters in 2008. Thailand is still not able to use its salted poultry quota because of AI. Additionally, former broiler imports to Romania of about 60-90,000 MT, from the United States, have stopped because of the adoption of EU legislation upon accession.

Exports of EU broiler exports are expected to partly recover in 2007, as export bans against France, because of AI, and Denmark, as a consequence of the Mohammad cartoons in early 2006, have been lifted. The strong EURO exchange rate and vigorous competition from Brazil are hampering this recovery. Domestic consumption of broilers in the EU is also expected to recover to about the 2005 pre-AI level. Media coverage on recent outbreaks of AI in wild birds in several MS has not shown strong impacts on consumer behavior.

2008

EU broiler production in 2008 is forecast to recover after two turbulent years. Imports are forecast to slightly decrease as cheap imports are restricted by import quotas. However, if broiler prices maintain their high level, it is possible that out-of-quota imports at full duty become viable. EU exports are forecast to remain stable, but this also depends on the continued availability of export refunds. Broiler consumption in the EU is forecast to slightly increase further in 2008.

Turkey

2006

EU turkey markets suffered from AI in 2006, but again less than originally feared. France was most severely impacted because of the AI outbreak in a turkey flock in the south-east of France in February of 2006. Bulgaria and Romania were also badly hurt as AI was already present in the autumn of 2005 and export bans were already in place.

2007

Contrarily to broiler production, EU turkey production is not expected to recover in 2007. Rather, a continuation of recent years’ decreasing production trend is anticipated, especially in France and the United Kingdom. Production increases are expected in Poland and Hungary, but these are not expected to fully offset the decreases in the rest of the EU. EU-27 turkey imports are expected to be slightly lower, as increased imports into the EU-25 will probably not completely offset the loss in imports from the United States to Bulgaria and Romania, which results from their EU accession. EU turkey exports are expected to further decrease, as EU turkey further loses market share to the more competitive exports from Brazil. EU turkey consumption in 2007 is also not expected to recover, but rather decrease slightly further.

2008

The 2008 forecasts for EU turkey markets is a continuation of recent trends. A further decrease in turkey production is forecast, mainly in France, and will not be completely offset by gains in Poland and Hungary. Imports are forecast to remain stable as they are controlled by import quota. EU turkey exports are forecast to further loose competitiveness and domestic consumption is forecast to continue its slow decrease.

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July 2007