China Poultry and Products Semi-Annual Overview - February 2006 - By the USDA, Foreign Agricultural Service - This article provides the poultry industry data from the USDA FAS Poultry and Products Semi-Annual 2006 report for China. A link to the full report is also provided. The full report includes all the tabular data which we have ommited from this article.

Report Highlights:

During 2006, China's broiler production is forecast at 10.4 MMT, lower than the previous estimate due to the impact of HPAI on poultry consumption and production. On January 1, 2006, China implemented a new national standard that reiterates a "0" tolerance for the pathogens salmonella and Ecoli O-157:H7 on raw poultry products.

As the result of this regulation and increased quarantine inspections, during December and January AQSIQ suspended shipments from a number of U.S. poultry and pork plants. China's broiler meat imports for 2006 are still forecast to increase 25 percent to 275,000 MT, below the pre-HPAI levels of 2003. China's broiler exports are forecast to increase 31 percent to 470,000 MT due to strong demand in Japan and Hong Kong.

Situation and Outlook

China’s broiler meat production in 2006 is forecast to increase 1.5 percent to 10.4 MMT. The pace of growth is below last year due to the HPAI impact in China. During 2005, domestic wholesale prices fell 15.8 percent for live chickens and 10 percent for broiler meat. Despite this challenge, the Chinese broiler industry benefited from low feed prices, favorable policies supporting production and expanding exports.

China’s broiler consumption growth in 2006 is also forecast to be sluggish. The slight rebound in domestic broiler production will be partly channeled to the export markets, and an increase in imports will not fill the supply shortfall left by slow production increases. On January 1, 2006, China implemented a new national standard (see FAS Beijing’s translation in CH6001, dated January 17, 2006) for fresh and frozen poultry products. The standard reinforces a “0” tolerance for the pathogens salmonella and Ecoli O-157:H7 on fresh and frozen poultry products. Other tolerances, such as moisture and lead levels, are lower. As the result of increased import quarantine inspections during the later part of 2005 and early 2006 and the reported detection of pathogens and residues, China’s General Administration of Quality Supervision Inspection and Quarantine (AQSIQ) suspended poultry and pork shipments from 13 U.S. meat establishments. USDA is continuing efforts to resolve the situation.

China’s broiler imports in 2006 are forecast to increase 25 percent to 275,000 MT due to tariff reductions on popular chicken wings, the sluggish slow increase of domestic production and a favorable U.S. Dollar exchange rate. Despite the impact of U.S. plant suspensions, U.S. broiler exports to China in 2006 are forecast to gain market share on Argentina.

China’s broiler exports in 2006 are forecast to increase 31 percent to 470,000 MT due to strong demand in Japan. China’s exporters are dependent on the Japan and Hong Kong markets. Japan and China reached a consensus that if the 35 plants registered by Japan for eligible exports are free of HPAI, Japan would not stop imports. In the past, when HPAI occurred in China, Japan suspended imports from the entire country.

A proposed rule, entitled “Addition of the People's Republic of China To the List of Countries Eligible To Export Processed Poultry and Poultry Products to the U.S.”, is in the final stages of public comment. If the proposed rule is approved, China would be eligible to ship processed (cooked) poultry products to the United States from imported raw materials originating from approved countries (currently Canada and the United States).

Despite the challenges of HPAI, China’s broiler production forecast to grow 1.5 percent during 2006; exports also forecast to increase

FAS Beijing forecasts China’s broiler production in 2006 at 10.4 MMT, a 1.5 percent increase from the estimated production of 10.2 MMT in 2005. This new forecast for growth is below post’s previous forecast in the last annual poultry report (CH5064) due to the HPAI impact in China. According to trade contacts, the sluggish recovery in poultry production, coupled with further Chinese tariff reductions in 2006 and a favorable U.S. Dollar exchange rate, will provide market opportunities for U.S. broiler exports to China in 2006. Based on past trade figures and future trends, the value of U.S. poultry exports to China has the potential to reach $300 million annually.

China’s reported HPAI situation in 2005 has had a greater impact on poultry and human health than in 2004. As the result of the impact on poultry production and consumption, domestic wholesale prices fell 15 percent for live chickens and 10 percent for broiler meat in the last quarter of 2005. During 2005, there were also 10 human infections due to HPAI, including 6 deaths (in 2004 both the figures were reported as zero), and 32 HPAI outbreaks with 154,600 dead birds and 22.5 million culled (destroyed) birds. During all of 2004, China culled only 9 million birds. Further, since the outbreaks started in 2005, HPAI has lasted 6 months, compared with only 3 months in 2004.

HPAI outbreaks in China have mostly occurred on small or backyard farms . As a result, the disease is changing China’s production pattern by speeding the formation of larger-sized commercials farms and integrated farm/processing plants in the advantageous production areas like Shandong Province. China slaughters over 9 billion birds of all poultry a year, and Shandong Province accounts for 1.5 billion birds. Most of Shandong’s broiler farms are largesized with effective bio-safety control measures.

The increase in imports of breeding chickens during late 2005 reflects the Chinese broiler industry’s efforts to boost first quarter production in 2006. China imports grandparent generation breeds, and total imports in 2005 increased 33.7 percent over 2004, with fourth quarter 2005 imports at the highest level.

According to trade sources, China’s improved disease reporting system (i.e., to the International Organization of Animal Health, or OIE) has helped sustain China’s broiler meat exports—particularly to the largest export destination, Japan—in the midst of HPAI outbreaks.

Despite the HPAI situation in China, several factors are at play to improve China’s poultry industry situation. Since the outbreaks of HPAI began last year, the Chinese Government provided subsidies worth about $31 million to farmers for culled birds. The Government also exempted poultry processing plants from paying any value added tax (VAT) on imported poultry parts until the end of June 2006. Further, although some consumers have shifted from poultry to red meat due to HPAI, stable sales continued at supermarkets for well-known brands of broiler products, and sales are expected to rise in 2006. Finally, increased domestic grain and feed production, coupled with a decline in feed exports, will lead to lower feed prices in China and help producers’ profit margins.

During 2006, China’s broiler industry will continue to expand, though the growth rate may not be as significant. China has about 127 grandparent generation broiler breeding farms, and import demand from these operations will provide market opportunities for U.S. breeding chicken exports to China. According to trade sources, the market potential for the U.S. breeding stock is about $13 million, accounting for over 70 percent of China’s total imports.

Broiler consumption for 2006 forecast at 10.2 MMT, a slight increase from last year

FAS Beijing’s reduced broiler consumption forecast during 2006—driven by HPAI concerns—is one percent below the last forecast in the Annual Poultry Report (CH5064). The decline in “wet market”, live chicken sales is the main cause for slower consumption growth in 2006. Red meat supplies and availability can only substitute a portion of broiler meat consumption, while the level of pork consumption is basically saturated. Because the export markets will absorb most of the increase in China’s broiler production, the forecast 25 percent increase in imports will not be enough to offset the supply gap. As a result, China’s overall broiler consumption in 2006 is forecast to increase by a smaller margin.

New standard effective on January 1, 2006, “0” tolerance on pathogens remains

On January 1, 2006, China implemented a new national standard, GB 16869-2005, for fresh and frozen poultry products (see CH6001), replacing the GB 16869-2000 standard. The standard reinforces a “0” tolerance for the pathogens salmonella and Ecoli O-157:H7 on fresh and frozen poultry products. The following chart is a translation of the microbial requirements. Under Salmonella and 0157:H7, “0/25g” means no pathogens detected in five, 25-gram samples.

Other changes include: 1) no longer regulating the tolerance of methamidophos and clenbuterol hydrochloride, 2) a stasis of blood less than 0.5 cm2 can be ignored, 3) allowing 1 detection of hard feather per 10 kg (feather exceeding 12 mm or root feather exceeding 2 mm), 4) the center temperature of frozen poultry products shall not exceed –18 ºC., 5) the moisture shall not exceed 6 percent (8 percent in the past), 6) lead residue shall not exceed 0.2 mg/kg (0.5 mg in the past), 7) the benzene hexachloride (BHC) residue shall not exceed 0.1 mg/kg (whole sample) and not exceed 1 mg/kg (fat sample), 8) the test method for diethylstilbestrol is changed to SN 0672. The rest of the requirements in the new standard remain the same as GB 16869-2000 (please refer to CH1060).

The “0” tolerance standard for pathogens on raw poultry will impact all imported products. But according to the trade, the lower moisture tolerance will impact U.S. products more than Brazilian products, because most U.S. plants use ice for cooling during processing and U.S. moisture tolerance is reported as higher than the Chinese tolerance. Brazilian plants apparently use air-cooling. As a result, their poultry products more easily meet the Chinese specifications.

As the result of increased import quarantine inspections during the later part of 2005 and early 2006 and the reported detection of pathogens and residues, China’s General Administration of Quality Supervision Inspection and Quarantine (AQSIQ) suspended poultry and pork shipments from 13 U.S. meat establishments. USDA is continuing efforts to resolve the situation.

Broiler meat imports in 2006 forecast to increase 25 percent to 275,000 MT

Post estimates that China’s broiler meat imports will increase 26 percent to 220,000 MT in 2005 and are forecast to increase another 25 percent to 265,000 MT in 2006. China’s tariff reductions (i.e., the specific duty) on imported broiler wings fell from $0.9/kg in 2005 to $0.8/kg in 2006. Also, the favorable U.S. Dollar exchange rate, coupled with the sluggish domestic production increases, will drive increased import levels. However, the import number in this report’s broiler PS&D table for 2006 is smaller than FAS Beijing’s previous estimation in the annual poultry report (CH5064) due to China’s tightened quarantine inspections.

Currently, China’s poultry import tonnage—regulated by China’s issuance of Automatic Registration Form (ARF) through the Ministry of Commerce (MOFCOM)—is sufficient for 2006 import needs (according to the industry). The market potential for imported poultry parts remains large. During 2003—pre-HPAI—China’s total poultry imports reached almost $500 million, including direct imports and HK re-exports. However, during 2006 the reported increase in quarantine inspections—and the resulting claims that pathogens and residues are being found—could put a damper on trade.

Market access update for U.S. broiler products to China

China closed its market for U.S. poultry products during the first 9 months of 2004 due to an outbreak of low pathogenic avian influenza (LPAI) in the United States. After China lifted the ban on U.S. poultry at the end of 2004, U.S. exports to China rebounded. The U.S. market share in 2005 increased about 15 percent, cutting in to Argentina’s share. This trend is expected to continue in 2006, and the United States will maintain its position as the largest supplier in 2006, accounting for estimated 63.6 percent of China’s total imports. The market potential for U.S. exports is about $400 million—assuming trade levels pre-AI level 2003 could be achieved.

The “0” tolerance pathogen standard, coupled with strict surveillance of residues, continue to pose challenges for all poultry suppliers to China, particularly the United States. During December and January, AQSIQ suspended poultry and pork shipments from 13 U.S. meat establishments. USDA is continuing efforts to resolve the situation. Broiler exports in 2006 forecast to increase 31 percent to 470,000 MT.

China is extremely dependent the Japan and Hong Kong markets for exports. Its export volume to the two markets accounted for 81 percent (292,000 MT) in volume and 86.5 percent ($755 million) in value in 2005. According to the quarantine protocol between Japan and China, Japan applies a policy of regionalization on broiler imports from China’s 35 eligible export plants (most in Shandong Province). Japanese officials also regularly check the plants to be sure Chinese broiler exports comply with the requirements, according to trade contacts.

Cooked poultry is the focus of China’s export strategy since most overseas markets remain closed for China’s raw products. Cooked poultry exports increased from 37.8 percent (153,000 MT) in 2003 to 56.9 percent (203,847 MT) in volume and 57.6 percent ($447 million) in 2003 to 73.4 percent ($640 million) in 2005 respectively. This pattern will continue in 2006. China’s boiler exports to Russia in 2006 is not promising because of HPAI in China and because Russia’s import quota for China is very small. China’s exports do not threaten U.S. broiler exports to Japan due to the product difference and levels of processing.

Poultry egg production and trade

FAS Beijing forecast that China’s poultry egg production for 2006 will increase 4 percent to 29.8 MMT. The new forecast, one percent below post’s previous forecast in the last annual poultry report CH5064, reflects the HPAI impact in China. The six largest egg producing provinces--Hebei, Shandong, Henan, Liaoning, Jiangsu and Sichuan—account for nearly 65 percent of China’s total production. HPAI pushed fresh chicken egg price down about 34 percent from September to December 2005 over the same months of 2004. Egg prices are forecast to rise a bit during the January/February Spring Festival period, but on a whole it is forecast to stay low due to increased grain and feed production in 2005. Poultry egg consumption will grow steadily as there is little substitute for it.

China is self-reliant on poultry eggs. Fresh egg imports in 2006 are insignificant. China’s fresh egg exports account for about 90 percent of total exports. Hong Kong and Macau are the key markets, with Hong Kong alone accounting for 81 percent of China’s total exports. The frontier autonomous region, Xingjiang—for the first time—successfully got approved and registered by the local quarantine agency, CIQ Xinjiang, to export poultry eggs to Asian countries such as Kazakhstan due to quality improvements and geographical convenience.

China started implementing two new national standards on December 1, 2005. GB 2748- 2003 is Hygienic Standard for Fresh Eggs and GB 2749-2003 is Hygienic Standard to Egg Products. Since China’s imports of fresh eggs and egg products are very small. FAS Beijing has not heard any problems.

China’s egg exports in 2006 are forecast to remain flat at 985 million pieces due to impact of HPAI in China. Given that China’s market share in Hong Kong and Macau is already very high, fresh egg exports cannot grow by large margin, unless new markets were developed successfully.

Further Information

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Source: USDA Foreign Agricultural Service - February 2006