Production

The Korean poultry industry was hit by a series of outbreaks of highly pathogenic avian influenza (HPAI) from December 2010 to May 2011. Nearly one million broilers were culled to stem the spread of the disease. However, these widespread HPAI outbreaks did not have a noticeable impact on 2011 production since the disease affected less than one per cent of the country’s total inventories.

In fact, broiler inventories as of June 2011 actually grew to a record 110 million on the back of strong farm gate prices due to increased consumer demand resulting from the shortage of local pork and fears about fishery products being contaminated by radiation from the nuclear power plant meltdown in Japan.

While feed accounts for 60 per cent of production costs, rising grain prices have not had a noticeable impact on broiler production since farm gate prices are hovering at record highs. From January to June of this year, farm gate prices, which are found at the end of this report, hit a record 1,971 won (KRW; US$1.84) per kg. Average compound feed prices during the month of July were KRW536 per kg ($0.49/kg), up about 15 per cent from the 2010 average of KRW468 per kg ($0.38/kg).

In response to growing consumer demand, farmers are expected to continue to build stocks this year and into next year. The 2011 broiler production forecast is accordingly raised to 686,000 metric tons (MT).

The anticipated return of domestic pork to the market in 2012 is not expected to dampen prospects for broiler meat production next year as consumer demand is expected to remain strong. The 2012 production estimate is therefore forecast to hit a record 720,000MT, an increase of five per cent from the previous year’s estimate.

Consumption

The HPAI outbreaks last winter did little to impact consumption since consumers have already weathered past outbreaks and understand that the virus, if present in the meat, would be destroyed through cooking.

Broiler meat consumption during 2011 is expected to grow more than originally forecast because increased demand resulting from the shortage of local pork and fears about radiation-contaminated fishery products from areas affected by the nuclear meltdown in Japan. Demand is also up since broiler meat is a relatively cheap source of protein and is also considered to be a health-conscious alternative to red meat. The consumption estimate is accordingly revised upward to 775,000MT.

In July, the Korea Rural Economic Institute (KREI), a local agricultural think-tank, conducted a consumer survey to see what consumers were buying since local pork supplies were scarce. Of the 745 individuals surveyed, about 83 per cent had replaced some of their pork consumption with other meat. The top choice was chicken, selected by 36 per cent of consumers.

Starting in August 2010, local fried chicken delivery services had to start carrying the origin of the meat on their menus. Anecdotal evidence suggests that this new labelling requirement has resulted in a slight rise in demand for domestic chilled meat in place of imported frozen chicken. However, the overall impact of this labelling requirement on consumption of imported meat is expected to be negligible for a couple of reasons: firstly, imported chicken is cheaper than domestic broiler meat; and second, 60 to 70 per cent of all imported chicken goes for processing, while almost all the rest is for restaurant use. Of note is that imported chicken, which is almost always frozen, is not normally sold through retail or wholesale outlets as consumers prefer fresh chicken meat.

Based on 2010 import statistics, roughly 85 per cent of imported chicken cuts were leg quarters, while the remaining 15 per cent was more or less divided evenly between breast meat and wings. As noted above, the majority of the imported meat goes for processing into items such as nuggets, popcorn chicken and sandwich meat. The remainder is used at restaurants in barbeque chicken dishes that are growing in popularity. On the processed side, heat-treated products from Thailand and China are warmed on skewers and sold by roadside vendors.

In 2012, consumption is projected to increase three per cent to a record 798,000MT as local production increases to respond to growing demand from health-conscious consumers. The return of domestic pork to the market is not expected to have a sizeable impact since per-capita consumption, which is currently at 16kg, still has room to keep growing. The local industry is hoping to see this figure grow to 20 kg per person over the next few years. In comparison, per-capita consumption in Japan is slightly higher at 16.5 kg, while that of the United States is three times higher at 44.5kg.

Beyond 2012, demand for chicken cuts is expected to continue growing, especially amongst the younger generation. According to local industry estimates, 35 per cent of total chicken consumption in 2011 was made up of cuts rather than whole birds, which still account for the bulk of consumption. The share of cuts is expected to continue climbing upward in the future.

Trade

Korea imported 73,381MT of frozen broiler meat from January to June 2011, up 46 per cent from the same period from the previous year. The increase was largely attributed to the replacement demand for pork as well as the 50,000-MT zero-duty TRQ for frozen chicken meat to help mitigate against rising food inflation. The quota was announced in May and was reportedly filled by July.

While imports were up significantly from January to June, the pace of imports is expected to slacken during the second half of this year because of an abundance of chicken already on the market. The broiler meat import estimate for 2011 has therefore been trimmed slightly to 100,000MT, of which roughly 90 per cent is made-up chicken cuts. The import forecast for US chicken is revised upward to 62,000MT, in part because it is more competitively priced than Brazilian broiler meat.

As noted above, the implementation of the country of origin labelling (COOL) requirements for fried chicken delivery services will likely result in some restaurant owners opting for local broiler meat. However, in the long-run this practice is not expected to have much of an impact for a couple of reasons: firstly, US chicken legs and wings are on average 70 to 80 per cent cheaper than the same locally produced cuts; and secondly, while consumers prefer domestic chicken, they are willing to eat imported meat.

The United States and Brazil are the first and second largest chicken suppliers to the Korean market. Thailand is third and China is fourth. Each country has a different portfolio of products depending on their respective competitive advantages and disease restrictions. When breaking it down by product, the United States ships the most frozen leg quarters, and Brazil the most frozen wings and breast meat. China and Thailand ship heat-treated product given the two country’s poultry disease status.

The implementation of the Korea-EU FTA on 1 July 2011 is expected to give Denmark – the fifth largest overall supplier and the second largest supplier of wings – a slight price advantage on frozen wings since the 20 per cent duty has now been cut to 18.5 per cent. The duty on EU-origin frozen wings will be phased-out over 14 years, whereas the tariff on US frozen wings will be reduced over 12 years under the Korea-US FTA.

In 2012, Korea’s broiler imports are forecast to decrease to 90,000MT, down 10 per cent from the previous year due to the anticipated increase in local production. The US chicken import estimate is scaled back to 55,000MT.

Korea’s chicken exports in 2011 are forecast to hold relatively steady at 11,000MT. In 2012, the export volume is forecast climb slightly to 12,000MT. The top destinations for Korean chicken are Viet Nam and Japan. Korea ships around 10,000MT of spent hen meat to Viet Nam and 2,000 to 3,000MT of processed meat products to Japan, like the traditional chicken ginseng soup dish.

Further Reading

-

You can view the full report by clicking here.

September 2011