Executive Summary

FAS Beijing (Post) forecasts China’s broiler meat production will continue higher, rising nearly five per cent to 13.8 million metric tons (MMT) from an estimated 13.2MMT in the previous year. Rising broiler meat prices are more than offsetting still high feed costs.

Total poultry production in 2012, including goose and duck production, is forecast to account for 23 per cent of Chinese total meat production.

Broiler meat imports in 2012 (not including chicken claws) are forecast to fall 13 per cent to 200,000 metric tons (MT) following an estimated 20 per cent decline in 2011 due primarily to sharply lower imports from the United States resulted from China’s measures of anti-dumping duties (AD) beginning February 2010 and countervailing duties (CVD) in August 2010 on US broiler product exports to China. These measures are expected to continue into 2012. Chicken claws will continue to dominate overall broiler meat imports with chicken wings accounting for most of the remainder. So far, higher shipments from South America have not completely offset reduced US shipments to China.

China’s broiler meat exports in 2012 are forecast to increase over nine per cent to 445,000MT, following an eight per cent increase in the previous year. Consumer demand in Japan and Hong Kong has been particularly brisk in 2011, and industry contacts are expecting continued higher sales in 2012.

Broiler Meat

Broiler Production in 2012 Will Continue Higher

Broiler meat output is expected to jump nearly five per cent in 2012 to 13.8MMT, following another five per cent increase in 2011. Including duck and goose, total Chinese poultry meat production will also rise five per cent to 18.7MMT. Fuelled by strong demand, Chinese broiler meat output growth is outpacing all other meats in 2011. Considerably higher pork prices in 2011, combined with expected lower broiler meat imports in 2012, are helping to fuel rising broiler meat production. High prices for pork are expected to continue into 2012.

In July 2011, the price of broiler meat on average was US$2,737 (RMB17,490) per MT, up 24 per cent from the same month a year ago. Strong pricing and demand for local chicken is offsetting continued high feed prices and encouraging producers to expand placements. Compared to red meat and feed ratios (8:1 for beef and 3:1 for pork), broiler meat is the most efficient at just over 2.5:1, thus keeping broiler producer feed costs relatively low. Pork prices are a major driver in the domestic meat market as pork accounts for most Chinese meat consumption. Record high pork prices this year have helped push broiler meat price to its highest level in the last four years. Reduced imports from the United States following China’s implementation of AD and CV duties in 2010 are also helping to boost local prices.

Chinese broiler meat production is being supported by lower rates of reported disease, as China’s continued shift toward larger-sized and more standardised commercial production boosts disease control. These farms raise broilers in isolated facilities, thus reducing risks of spreading highly pathogenic avian influenza (HPAI), China’s greatest avian disease threat affecting mostly backyard and other small operations. The table below reveals the number of larger operations is expanding while the number of small-sized operations continues to shrink. While still a tiny share of total broiler farms, larger operations now account for a significant share of China’s poultry meat output and this continues to rise.

Minimum volumes for contracted household farms are also reportedly rising, especially in Shandong province which is China’s largest producing province, in some cases to more than 5,000 birds per delivery instead of the previous 2,000 birds per delivery for contracts. This has encouraged smaller operators to improve their production capacity and facilities.

A large and steadily rising inventory of grandparent-generation (GPG) breeding broilers is paving the way for higher commercial bird production in 2012. All GPG breeding western-bred broilers must be imported. Imports in January-June 2011 increased 29 per cent over the same period in the previous year. Industry contacts informed Post that total imports in 2011 are forecast at 1.1 million set (1 set = 120 birds), a record high, with especially strong sales in the last quarter of 2011 to prepare for higher expected output in 2012. These imports in the previous three years were 800,000, 960,000 and 973,000 sets, respectively. Government support for broiler producers is far lower than for pork, and price fluctuations for poultry meat are generally lower. As the second largest animal protein in China, broiler meat plays an important role as a substitute meat when pork supplies are short.

Meanwhile, higher demand for local goose and duck is also expected in 2012 as duck meat is increasingly perceived as healthier than other meats with less fat and cholesterol. Producers report a new poultry disease that affected water fowl production in Southern China in 2010 is now under control. Increasing exports of goose livers, down garments or bed products will also help drive production in the coming year.

While improving scale economies and integration is improving competitiveness, Chinese poultry operators, like beef and pork producers, continue to be challenged by overall high feed costs. Corn normally accounts for 55 to 60 per cent of broiler feed. MOA data collected from over 400 markets of farm produce indicate that China’s retail corn price on average in July 2011 topped $0.43 (RMB 2.75) per kilogram, compared to $0.33 (RMB2.10) in the same month in the previous year.

Short labour supplies and higher labour costs will become long-term constraints for animal and poultry production. China’s implementation of the one-child policy over the last 31 years since 1980 continues to reduce the labour force as an overall share of the population. Official data shows that by the end of 2010, aged population reached 178 million accounting for 13.26 per cent of China’s total population. Keeping young workers on the farm is increasingly difficult as younger Chinese consider farm work dirty and rural life less interesting than previous generations.

Total and Per-Capita Broiler Consumption on the Rise

China’s total broiler meat consumption in 2012 is forecast to rise four per cent to 14MMT (not including chicken claws), following a five per cent increase in the previous year. This will maintain Chinese per-capita broiler consumption at 10kg as in the previous year, which is one kilogram higher than 2010.

Continued demand gains are bolstered by the lower cost of broiler meat compared to Chinese red meats. Broiler meat has played an important role substituting red meats when prices are high due to short supplies. The efficient feedgrain ratio for broilers reduces production costs and helps keep broiler meat prices competitive.

Meanwhile, consumption of other poultry, such as goose, duck and turkey meat are also on the rise. Goose and duck meats are considered healthier than alternative meats with less fat and cholesterol. Consumption gains are also bolstered by more popularity of local specialties, such as Beijing roasted duck, Nanjing salted duck and Guangdong roasted goose, and the convenience of ready-to-eat sales at supermarkets or specialty food chain shops, such as cooked ‘duck neck shops’. Ready-to-eat products are particularly popular among younger urbanised Chinese. Supermarkets also provide raw half carcass cuts for consumers who want to cook at home but do not want to buy the whole bird due to large size.

Almost all turkey products are imported. Cooked drum legs or wings account for most turkey meat sales. Local consumers normally prefer ready-to-eat (RTE) turkey middle-part wings and drum legs sold at supermarkets. Turkey products are mostly consumed in larger cities with better economies and more consumers willing to try new products. Roast turkey meat is often served at high-end hotels and restaurants, especially Western food restaurants, while local supermarkets provide RTE turkey cuts to home consumers.

Broiler Meat Imports Expected to Fall 13 Per Cent

Post forecasts China’s broiler meat imports in 2012 will decline 13 per cent to 200,000MT (not including chicken claws), following an estimated 20 per cent decline in the previous year, mainly attributed to the previously mentioned AD and CVD measures on US broiler product exports to China.

Chicken claw imports will continue to dominate China’s total broiler product imports in both 2011 and 2012, accounting for over two-thirds of China’s total broiler product imports because of strong domestic demand. Claw imports in 2011 are forecast at nearly 300,000MT, a 42 per cent decline from 2010 due to the AD and CVD measures against the US exports to China.

Chinese broiler meat imports (not including chicken claws) in 2012 from the United States are forecast to drop 20 per cent to estimated 24,000MT, following a 51 per per cent decline in the previous year, while chicken claw imports from the United States are forecast to decline 15 per cent to 21,500MT following a 75 per cent decline from the previous year. Before China’s implementation of the AD and CVD duties, the United States was China’s largest broiler product supplier. Overall, US product (including broiler meat and chicken paws) in 2009 accounted for 85 per cent of China’s total broiler product imports. At the moment, US share is only 10 per cent. Limited volumes of US claw shipments will continue despite the AD and CVD duties due to strong market prices in China.

Higher shipments from South America cannot completely offset sharply lower imports from the United States due to capacity limitations on South American product. In addition, traders are reporting that quality is sometimes uneven on South American product compared to other suppliers. With tighter import supplies due to the AD/CVD duties against US exports to China, China’s broiler import prices have risen markedly, reaching $2,219 per MT in July 2011, up almost 30 per cent from the same month in 2010.

Turkey Meat Imports Expected to Continue Strong

Given strong domestic demand and small local production, Chinese turkey meat imports in 2012 are forecast to approach 47,000MT, up about 21 per cent from estimated 39,000MT shipments in 2011.

Shipments in 2011 will be 70 per cent higher than 2010 due mostly to higher domestic prices for pork and broiler meat, making turkey meat a price-competitive alternative. The United States is the largest supplier to China’s imports accounting for almost 90 per cent of China’s total imports. This pattern will not likely change in 2012.

Broiler Exports in 2012 Forecast to Rise

China’s broiler exports in 2012 are expected to increase nine per cent to 445,000MT, following an estimated eight per cent increase in 2011. Exporters are reporting robust growth in nearly all of China’s key markets, with Japan and Hong Kong continuing to lead sales accounting for nearly 80 per cent of the total combined.

Sales to Japan are bolstered by an improving economy compared to the same period last year and shippers expect continued strong sales in 2012. In Hong Kong, mainland Chinese chicken cut imports are rising along with overall sales of fresh/chilled chicken, which increased eight per cent from January to July 2011. Environmental concerns are reducing sales of live broilers and encouraging a shift to fresh/chilled cuts, a trend that will continue to support sales to Hong Kong in 2012.

Poultry Eggs

Egg production in 2012 to Continue Modest Growth

China is the world’s largest poultry egg producing country and total production in 2012 is forecast to grow moderately one per cent to 28.3MMT from an estimated 27.9MMT in the previous year. Current year production appears slightly higher than Post’s previous forecast because of a better control of the avian leucosis virus (J-ALV).

Since 2009, China’s GPG breeding layer supplies started to change, given domestic expansion of GPG breeding layer production with Yukou Company in Beijing taking the lead. Imports of GPG breeding layers before 2009 accounted for 70 per cent of China’s total market demand. In 2011, total imports are forecast at 270,000 to 280,000 sets but import share is estimated to drop to 60 per cent. The supply pattern change is expected to continue into 2012 as Yukou is building a third GPG breeding layer farm with an expected additional inventory of 125,000 sets of GPG breeding birds in the spring of 2012. It is reported Yukou could be able to provide nearly 10 million parent-generation (PG) breeding layers in the coming year. As a result, US exports to China, which account for 70 per cent of China’s breeding stock imports, could be challenged in the coming years.

Chinese poultry egg producers are facing higher production costs which are dampening output growth potential. In July 2011, China’s commercial layer chick price topped $0.53 (RMB3.36) per bird, up 38 per cent from the same month in the previous year. Corn normally accounts for 55 to 60 per cent of chicken feed. Higher corn prices combined with other higher production materials pushed layer feed price to $443 (RMB2,830) per MT in July 2011. Labour shortage will become a concern. These factors will keep egg production growth at a slow pace next year.

China does not import table eggs. Over 90 per cent of Chinese egg exports are fresh table eggs to Hong Kong, Macau and Japan, the traditional Chinese export markets. Exports in 2011 are expected to fall over three per cent, due to higher export prices caused by domestic inflation. In January-July 2011, export prices rose 24 per cent for Hong Kong and Macau markets.

Further Reading

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October 2011