Report Highlights:

The US, currently the only significant poultry exporting country with sanitary access to the Taiwan market, continues to bask in the afterglow of Taiwan’s January 2005 removal of Tariff Rate Quotas (TRQs) on broiler meat and offal imports. 2006 imports, expected to top 85K mt, represent a 185% increase over 2004 imports in terms of volume. However, further gains in broiler imports, which currently center on frozen leg quarters and wings, can be expected to begin slowing well into the single digits as easy opportunities in the “lunchbox meal” sub-segment of foodservice become saturated.

To realize further significant growth, US poultry suppliers must address qualitative issues (e.g., defrosted meat texture vs. fresh, moisture content) essential to winning acceptance for US poultry in Taiwan’s largest market segment (approx. 85% of total market consumption) for chicken meat – retail sale for sitdown restaurant and home consumption.

The relatively small, but highly viable, market for imported turkey thigh meat (widely used as a pork substitute / protein filler in processed pork products) fell by some 3K mt in 2005 due to lower pork prices. Without an opening of key export markets (e.g., Japan) for Taiwan pork, cyclical pork prices can be expected to remain low through the coming 2~3 years, which can be expected to suppress prospects for near term growth in Taiwan’s turkey meat imports.

EXECUTIVE SUMMARY

Poultry meat and eggs are pillars of the traditional Chinese diet. From kungpao chicken, Peking duck, and stir-fries to Cantonese-style air dried duck, "1,000 year-old" eggs, and deep-fried chicken nuggets, Taiwan today consume s approximately 760 thousand metric tons of poultry meat (about 85% of this chicken) and 8.1 billion eggs annually. This translates into around 33.5 kg of poultry and 360 eggs per capita, which supported a continued, albeit mellow, increase in poultry production over the past five years (averaging 3~4% per year) and a highly stable egg market. Local producers currently supply approximately 90% of the overall poultry meat and offal market, 90% of the broiler meat and offal market and, effectively, 100% of the egg market. The broiler meat and offal market, in particular, present opportunities for continued significant US export growth over the coming 2~3 year period.

The market for broiler meat and certain relatively lucrative poultry offal categories were subject to strict quota volume limitations until January 1s t, 2005, when imports were normalized, although subject to a WTO-permitted special safeguard (SSG) levy (which adds roughly an additional 6.5% to the Customs -cleared cost of imports). Generally high current market prices for meat proteins, coupled with a still relatively inefficient poultry domestic production base, saw imports into the broiler segment rise exponentially in the months immediately following liberalization. Continuing structural problems with domestic producers, high relative domestic prices, and increasingly sophisticated marketing programs on the part of overseas producers and associations are expected to help boost imports of broiler meat close to the 100,000 mt level by next year (2007) – at which time imports could account for roughly 15% of broiler meat consumption.

Given current marketing and sales conditions, an import level of 100 ~ 110 thousand metric tons is viewed as a tentative peak after which continued import growth will tend to taper off or slow significantly without a change in competitive conditions in terms of imports vs. domestic production.

The United States is the predominant supplier of poultry, and one of only nine countries currently eligible to export to Taiwan based on sanitary approvals. The United States (US) is expected to retain a dominant position through the foreseeable future. Conditions that combined to give Taiwan high prices for animal proteins other than chicken (see Taiwan’s poultry annual for 2004) have relaxed considerably, with pork prices down by some 15% over their high 2004 levels and beef imports from the United States once again open. Cheaper (relative to previous years) pork and beef are combining to restrict poultry consumption growth and may be expected, should poultry supply prices rise relative to other proteins, cause poultry consumption to decrease somewhat in terms of total quantity in the coming several years. Such a decline should be primarily be met by further reductions in domestic production, coupled with a plateauing of poultry import growth.

The outlook for imports remains positive in the critical category of broiler meat over the long term. With a cost structure that is stacked against local birds, imported frozen chic ken meat, particularly leg quarters and drumsticks, is expected to continue earning market share away from local producers through the foreseeable future. By next year, imports of frozen chicken drumsticks, wings and leg quarters should be at more than double 2003 levels (approaching 100K mt). Given continued favorable pricing for turkey, similar opportunities exist for exports of frozen US turkey meat once pork prices begin to rise again.

Taiwan currently exports only limited quantities of poultry products, mostly fresh/frozen meat and prepared chicken and duck eggs, to customers in the region. Taiwan broiler producers, in particular, are hoping to see a growing market for processed broiler breast (white) meat in western markets, particularly the United States. The United States Department of Agriculture (USDA)’s Food Safety Inspection Service is in the midst of the fairly lengthy review process to establish the equivalency of Taiwan’s poultry slaughter and processing inspection system.

Poultry Production

Long-term, the poultry meat production sector in Taiwan is on a gradual downward trend and the market share of imports is rising. Chicken production stalled during 2005 to at 695 thousand mt due to weak prices and prospects through the near term of lower market prices and continued pressure from imported leg quarters (the best selling cut). Domestic production over the coming three years should see a return to contraction, with average annual reductions in domestic production of around 2% anticipated to give the Taiwan chicken production industry an output of around 655 thousand mt in 2008.

During 2005, domestic production in other categories, including non-broiler chickens (i.e., non-standardized varieties known collectively as tuji), ducks, geese, and turkeys either saw mild declines or maintained production levels similar to the previous year. While broiler production through the long-term faces direct threat from imports, these other categories are relatively insulated due to local taste preferences / factors and may slightly increase or decrease from year to year due largely to local demand factors.

Chickens (both broiler and various non-broiler (tuji) varieties) dominate the poultry industry in Taiwan - accounting for 85% (2006, est.) of all poultry raised. Ducks follow a distant second at around 10%, with geese, turkeys, and game birds accounting for the remainder. During 2005, 348.9 million head of chicken should be channeled into meat & offal production and an average 35.7 million head will be engaged as layers. In a similar ratio, Taiwan will slaughter 32 million head of duck this year while employing an average 2.7 million head in egg production. Figures are not expected to change signific antly in 2007. Eggs of poultry other than chickens and ducks are not produced on a commercial scale.

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August 2006