Executive Summary

Despite earlier fears that the impact of the global financial crisis could hurt EU-27 poultry production, it appears now that the EU poultry sector has continued to grow, benefiting both from growing domestic demand (which is less affected than other meats by the economic recession) and booming exports. The broiler meat production is foreseen to increase in all major EU producing countries.

The hike in global grain prices since the summer of 2010 directly impacted broiler production costs but it appears that producers were able to pass most of the increase to their domestic customer, thus keeping their operational margins or only lowering them marginally and keeping their export price competitive. With EU-27 grain prices expected to remain high in 2011, no decline in broiler prices is foreseen for the coming months.

The EU-27 broiler trade surplus is expected to increase in 2011 in light of stable imports – mainly due to the strength of the Brazilian real and the Thai baht – and surging exports. Brazil and Thailand remain the largest suppliers of broiler meat to the EU-27. EU-27 broiler imports from China (exclusively cooked and prepared broiler meat) are expected to grow again in 2011.

In contrast to earlier pessimistic forecast, EU-27 broiler meat exports are now expected to increase by 10 per cent in 2011, driven by booming exports to Hong Kong, Saudi Arabia and sub-Sahara Africa more than compensating lower exports to Russia, Ukraine, Yemen and Viet Nam. The dioxin incident in December 2010/January 2011 in Germany did not significantly hurt EU-27 exports. EU-27 exports (of frozen cuts) to Hong Kong but also to mainland China are surging at a fast pace. After a surge in 2010, mainly due to Russian restrictions on US poultry meat, EU-27 broiler meat shipments to Russia will shrink in 2011 as Russia halved its broiler EU-27 TRQ to 350,000 metric tons (MT).

In 2012, EU exports are foreseen to slow as competitors are expanding production and high feed costs could hamper EU-27 competitiveness.

While all sources show that total meat consumption in the EU-27 has been negatively impacted by the economic recession. Poultry meat, which is the cheapest source of animal protein, was less affected. However, its consumption growth (calculated by balance) is slower than the population increase, showing that per capita, consumption is slightly decreasing. In the EU-27, sales of cheaper broiler cuts also increased faster than sales of more expensive parts such as breasts or sales of whole birds.

EU-27 turkey production is expected to decrease in 2011 and 2012, as declines in France, UK and Hungary are forecasted exceed gains in Poland and Spain. In many EU-27 countries, turkey production is not competitive compared to broilers. Turkey meat imports should remain stable in 2011 and 2012 under import quota control. French turkey exports to Africa are expected to remain stable as well as German and Dutch exports to Russia. Turkey meat consumption in the EU-27, overall, is expected to decrease in 2011 and 2012. In some countries such as France and UK, consumers continue to shift away from turkey to chicken which is perceived as tastier and more convenient to use.

Broiler

Production

Despite earlier fears that the impact of the global financial crisis could hurt EU-27 poultry production, it appears now that the EU poultry sector has continued to grow, benefiting both from growing domestic demand (which is less affected than other meats by the economic recession) and booming exports.

The hike in global grain prices since the summer of 2010 impacted directly broiler production costs but it appears that producers were able to pass most of the increase to their customers, thus keeping their operational margins or only lowering them marginally. With EU-27 grain prices expected to remain high in 2011, no decline of broiler price can be foreseen for the coming months.

With no rebound in the EU-27 economic situation foreseen for 2012 and the continued strong domestic demand for poultry meat combined with strong export demand, EU-27 broiler production is expected to grow again in 2012, albeit a slower growth. However, the short production cycle – a couple of months– of the poultry industry makes it very reactive to outside events, both upside and downside, making accurate forecasts more difficult.

The broiler meat production is foreseen to increase in all major EU producing countries, including UK, Benelux, Spain, France, Poland, Germany and Italy while some smaller producing countries such as Hungary and Czech Republic decrease their production.

Overall, Benelux broiler production is expected to grow driven by the growing demand in the EU. During 2010 and first half year of 2011, prices of broilers in Benelux increased steadily and were above the five-year average. Until the second half of 2010, feed prices were low, resulting in average to good profit margins. But during the last quarter of 2010, margins deteriorated due to the high feed and energy prices. During the whole year of 2010, costs were also high for manure disposal and chicks. Margins are expected to increase in 2011 as broiler prices rose further and feed prices stabilised. There is a lag time of high feed prices and the prices of compound feed.

In the first quarter of 2011, poultry meat production in the Czech Republic amounted to 38,407MT; it dropped by 12.0 per cent in comparison to the same quarter of the previous year. A decline in animal production has been a very significant trend in the Czech Republic in the last decade and this also applies to poultry production. Broiler production is gradually decreasing and imports from Thailand and other Asian countries are replacing domestic supply.

Danish broiler production is expected to remain relatively stable at last year's high level. The high feed prices do have negative impacts on the economy for broiler producers but these effects are to some extent outweighed by relatively high prices on meat. The overcapacity of Danish poultry slaughterhouses gives broiler producers the freedom to choose between slaughterhouses and thereby negotiate better prices. They do also have the opportunity to sell their broilers to slaughterhouses in neighbouring countries.

Production growth (+4 per cent on average in 2010 and 2011) in France continues to be driven by both growing domestic demand and booming exports. Production of ‘free range’ and &lsuo;red Label’ high quality chickens declined in 2010 and may remain stable in 2011 as the production is more expensive for the consumers, and was hit by the economic recession. Producers and processors were able to pass most of their increased production costs (+30 per cent for broiler feed cost in mid-2011 versus mid-2010) to their retailers and consumers.

In Germany, the top four poultry processing companies continue expanding their slaughter capacity in a quest for higher market share. For 2011, a capacity increase of 160,000MT is projected. the hike in production is also driven by two factors: firstly, the increase in domestic demand (because poultry meat is perceived as healthier) which is also fuelled by the success of the promotion of the D/D/D origin labelling (born/raised/slaughtered). This is an effective incentive for increased slaughter in Germany as opposed to imports from neighbouring countries.

Production of broilers in Hungary is expected to decline slightly in 2011 and 2012, as production margins remained tight due to higher energy cost (+15 per cent in the first quarter of 2011 compared to 2010) and feed costs (+7.1 per cent) not fully compensated by higher producers' prices (+15.6 per cent). Consumers price also stagnated, further compressing processors' margins.

According to first projections, the Italian broiler market is expected to level off in MY 2011 with a slight production and consumption increase (around one per cent) after a record year in 2010 due to good domestic and export demands compared to other meat products such as beef and pork. The domestic demand was fuelled by the price strategy of the broiler producers and retailers who lowered prices to pull in consumers. However, this strategy made broiler price decline to a minimum level of €0.80 per kg which, combined with the input costs (mainly feed) surge, have severely threatened Italian producers' margins.

Chicken meat production in Poland is expected to continue to grow in 2011 and 2012 in response to higher export demand and strong upward trend of domestic consumption. However, growing costs of feeds and declining farm-gate prices for chicken broilers are expected to slow the increase in 2011 in comparison to 2010. Figures for 2010 were significantly revised upward from previous estimates due to the surge in third country exports.

In line with the previous expectations, broiler domestic production in Romania declined in 2010 by 5.6 per cent and, based on the four-month data available, the descending trend is expected to continue in 2011 although at a slower pace. Facing a decline in domestic demand, poultry companies intensified efforts in finding markets in other EU member states thus exports are forecasted to double in 2011 compared to 2009. The sector is expected to recover in 2012 and resume rising.

The Swedish market for poultry meat is very strong and demand is increasing constantly. Prices are 10 per cent higher in March 2011 than in 2010 but do not, however, outweigh the high feed costs.

Production of broiler meat in Spain rose 2.2 per cent in 2010 from the previous year. This increase is expected to accelerate to five per cent in 2011 to then slow down in 2012. The smaller growth in 2010 is linked to the hot summer, leading to lighter birds.

Spanish broilers are generally slaughtered at 47 days. Birds are usually large (carcass weight: 1.5-1.9kg) to match the consumer demand for both whole birds and cuts.

As in other European countries, rising feed costs impact production margins. Spain has low production densities because of the warmer weather, which also reduces the competitiveness. There have been continuous technological developments in trying to reduce energy costs with fuel and biogas.

The continued resurgence in broiler meat production in UK in 2011 is mainly due to increased domestic demand due to the economic situation, which favours cheaper protein sources such as poultry meat.

Consumption

While all sources show that total meat consumption in the EU-27 has been negatively impacted by the economic recession, poultry meat, which is the cheapest source of animal protein, was less affected. However, its consumption growth (calculated by balance) is less than the population increase, showing that, per capita, consumption is slightly decreasing. Several market analyses showed that while, in general, consumers switched from beef or pork meat to poultry meat, the low-income consumers reduced their protein purchases, switching to carbohydrate products (bread, pasta) with the exception of Spain, where pork meat was preferred over poultry meat. Tax hikes on food products implemented in 2010 in Hungary and Romania impacted negatively on poultry meat consumption (minus 17.5 per cent in Romania in 2010).

In the EU-27, sales of cheaper cuts also increased faster than sales of more expensive parts such as breasts or sales of whole birds. In the UK, retailers are reported to have significantly discounted cuts and parts. Such a trend is foreseen to extend into 2012 in the absence of any economic recovery.

In several EU countries such as Germany, France and Poland, the switch to poultry meat is enhanced by the feeling that it is a healthier and leaner meat and more convenient to cook than beef or pork. It is also considered as easier to prepare for catering and restaurant than other meats. It is reported that, in Poland, the dioxin incident in Germany in December 2010/January 2011 combined with the promotion of processed poultry meat products which often look very similar to pork sausages but offer a lower level of cholesterol or no fat content can lure consumers away from pork meat. The German domestic broiler meat consumption has also benefitted tremendously from the decision of the major German discount retail chains to sell fresh meat and convenience products in their stores.

Data from Italy shows that approximately 78 per cent of Italian households generally buy broiler meat and 14.4 per cent of them purchase it once a week. In Italy, 64 per cent of the broiler consumption is sold as legs and breasts, 21 per cent as processed products (such as stuffed chicken, sausages and wurstel) and 15 per cent as whole birds.

On the other hand, while overall in the Benelux, consumption of poultry meat shows a steady increasing trend, the Dutch consumption of broilers stagnated in 2010, while consumption of pork and beef slightly increased. This stagnation of Dutch consumption is possibly caused by rising prices for poultry and the media attention for the presence of resistant bacteria and dioxin.

Trade

Brazil and Thailand remain the largest suppliers of broiler meat to the EU-27, followed by Chile and Argentina. Broiler imports are expected to stagnate because of the weakness of the Euro against the Real and Baht. Another reason is the change in the management of the Brazil import quota, the main supplier of broiler meat to the EU-27. It is estimated that less than 50,000MT of broiler meat is imported outside the quota.

Some EU-27 importers expects that, providing the EU-27 grants Thailand its AI-free status, Thailand will be able to export salted poultry meat again – it has a 90,000MT quota. If the AI-free status is granted before the end of 2011, imports from Thailand could grow to 40,000MT in 2012.

EU-27 broiler imports from China (exclusively cooked and prepared broiler meat) are expected to grow in 2011, the first six-month period of 2011 showing a doubling in volume over the same period of 2010. The United States, which exported as much as 92,000MT of broiler meat in 2005 to Romania and Bulgaria, is no longer a supplier to the EU-27 because the EU does not accept pathogen reduction treatments.

It has been reported that licences for quotas of processed poultry meat are increasingly sought, with licence prices increasing. With more companies applying, speculation seems to have entered this market. It highlights the fact that the EU demand for poultry is very strong, but that imports of processed poultry outside the quota are not profitable. There is a very limited volume of unprocessed poultry meat imported outside the quota. Some importers import unprocessed meat outside the quota to build an import volume with a company to be eligible to participate in the quota in the next year. EU poultry imports could also be impacted by the EU-27 stringent regulations for fresh poultry – frozen cannot be sold as fresh.

Contrary to earlier more pessimistic forecasts, EU-27 broiler meat exports are now expected to increase by 10 per cent in 2011, driven by booming exports to Hong Kong, Saudi Arabia and sub-Sahara Africa more than compensating lower exports to Russia, Ukraine, Yemen and Viet Nam. The dioxin incident in December 2010/January 2011 in Germany did not significantly hurt EU-27 exports. Dutch exporters also reported that good or stable economic situations in the traditional EU-27 export markets also helped exporters keep export credit facilities from banks.

The traditional French export markets of the Middle-East, such as Saudi Arabia and United Arab Emirates, are less impacted by the global economic recession and benefit from high oil prices, thus keeping a high internal demand, with the exception being Yemen where political instability is likely to hurt trade in 2011. The good economic situation of those countries also helped EU-27 exporters to raise their export prices of whole frozen chicken in line with their rising production costs.

EU-27 exports (of frozen cuts) to Hong Kong but also to mainland China are surging at a high pace; exports to China more than quadrupled in the first semester of 2011. Trade sources also reported that South Africa, traditionally supplied by imports from the US and Brazil is to be a growing market for EU poultry with EU exports to this country growing ten-fold between 2010 and 2011 (six-month data).

Export of low-priced cuts and mechanically deboned meat (MDM) to sub-Sahara Africa increased remained brisk. After a surge in 2010, mainly due to Russian restrictions on US poultry meat, EU-27 broiler meat shipments to Russia will shrink in 2011 as Russia halved its broiler EU-27 TRQ to 350,000MT.

Exports are also supported by increased supply. As in 2010, it is expected that the strong demand for breasts in the EU-27, will lead in 2011 to an elevated production of low-priced parts such as wings and legs, which are being exported mainly to sub-Sahara Africa.

In 2012, EU exports is foreseen to slow-down as competitors are expanding production and high feed costs could hamper EU-27 competitiveness.

Turkey

Production

EU-27 turkey production is expected to decrease in 2011 and 2012, as declines in France, UK and Hungary are forecast to be outweighed by gains in Poland and Spain. In France, turkey production is not competitive compared to broilers and processors have shut down several slaughterhouses for profitability reasons.

In Germany, the steady production increase of recent years seems to have come to a halt. In the first four months of 2011, slaughter was three per cent below the same period in 2010. Turkey and chicken compete for the same uses but chicken is cheaper to produce.

Hungary's turkey industry reported 8.2 per cent drop in production in 2010 and the downward trend continued in the first quarter of 2011. Profitability of turkey production was negatively affected by the high feed, energy and other industrial input prices but similarly to broilers, turkey producers managed to enhance their prices in 2010-2011. Turkey producers similarly to farmers of other poultry face the challenges of mandated renewal of barn technology and a national Salmonella eradication programme. Both programmes receive some EU support but the tight profitability of poultry production and the limited agricultural budget of the GOH are unable to provide farms with the required support.

Consumption

Turkey meat consumption in the EU-27 overall is expected to decrease in 2011 and 2012. In some countries such as France and UK, consumers continue to shift away from turkey to chicken which is perceived as tastier. Processors also prefer to switch to broiler from turkey as processing yields on carcasses are higher.

Imports should remain stable under import quota control. French turkey exports to Africa are expected to remain stable as well as German and Dutch exports to Russia.

Production figures have been revised significantly due to revised production data from Spain.

Policy

Renewed concerns about Mercosur FTA negotiations

EU-Mercosur FTA ^[1] negotiations, which started in 1999, came to a halt in 2004 after the gap on especially agricultural positions proved unbridgeable. However, after informal contacts, the EU decided in May 2010 that negotiations could continue and an EU-LAC Summit^[2] convened in Madrid on 18 May 2010 with the theme 'Towards a new stage in the bi-regional partnership: Innovation and Technology for sustainable development and social inclusion'. Several negotiation rounds were called with active participation of Trade Commissioner De Gucht, but after the fifth round of talks in May 2011, it became clear that a conclusion of negotiations would be delayed for political reasons, like the Argentinian presidential elections in October 2011.

Nevertheless, the resumption of the EU-Mercosur trade talks spurred serious concerns in EU Member States and agricultural sectors, especially beef, poultry and sugar. In a press release on 17 May 2011, EU farmers union Copa-Cogeca ^[3] supported opposition from EU Member States (MS) and farmer unions. Also in the European Parliament critical voices were raised about the impact of an EU-Mercosur FTA on European agriculture.

Animal welfare situation for EU poultry farming

Council Directive 2007/43/EC laying down minimum rules for the protection of chickens kept for meat production, with final implementation date of 30 June 2010, set the general stocking density for broilers in the EU at 33kg per square metre, with derogations possible by MS to 39kg per square metre or even 42kg per square metre under certain circumstances. This directive did not create major market disruptions during implementation. However, it is estimated that it increased the cost of production by around one per cent. Reports are also appearing about practical implementation issues of the stocking density criteria, as a delay of only a few days before slaughter can lead to a breach. Farmers complain that they have little control over slaughterhouse decisions and therefore cannot be held accountable for incidental breaches of the stocking density criteria.

Furthermore, the European Food Safety Authority (EFSA) is working on a report on the implementation of the transport Council Regulation (EC) No 1/2005 ^[4]. This EFSA report is expected to become the basis for a new Commission proposal to strengthen the animal transportation legislation, which could also affect the transportation of poultry.

After the EU remedied on the tariff loophole in its tariff schedule for salted poultry, which led to the WTO case by Brazil and Thailand, it appears that the tariff for processed poultry under HS16023230 became the next lowest tariff line for poultry exports to the EU beyond the existing quota at reduced duty. After exponentially increasing between 2005 and 2008, the growth rate levelled off but imports continue still increasing at a high level.

It is not clear how the EU can stop this new tariff ‘loophole’ without risking another WTO complaint. The EU has been negotiating with the exporting countries under Article XXVIII for the modification of concessions, but it is not known when an agreement can be reached.

^[1] http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/regions/mercosur/

^[2] Latin-America and the Caribbean countries

^[3] www.copa-cogeca.be/Download.ashx?ID=639500&fmt=pdf

^[4] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2005:003:0001:0044:EN:PDF

Further Reading

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September 2011