World Poultry Trade Overview - November 2005 - By USDA Foreign Agricultural Service - This article provides an overview of global pork trade predictions for 2003. The report covers the US, Brazil, EU, Mexico and South East Asia. The report concludes that rising global demand is fueling growth in pork production and trade.

2006: Another Year of Record Trade in Red and Poultry Meat Forecasted

Trade of beef, pork and poultry by major exporters is forecast to reach record levels in 2006 despite the instability of continued disease outbreaks and their resulting trade restrictions. While avian influenza (AI) in Asia and Russia, foot and mouth disease (FMD) in Brazil, as well as trade restrictions on U.S. and Canadian beef due to bovine spongiform encephalopathy (BSE) have undoubtedly impacted global trade and will continue to be a cause of concern, meat consumption among major consuming countries continues to climb spurring increased production and growth in exports.

For the first time in history, broiler meat exports by major traders are forecast to reach 7.5 million tons. Poultry demand is expected to be strong due to the absence of the United States in major beef markets and constraints on growth in Brazilian beef exports.

World Overview: Positive macroeconomic growth will continue to encourage investment and increase consumer demand.

World economic growth is expected to remain strong throughout 2006, albeit at the same level of 2005. The forecasted positive economic environment will promote investment in meat production and processing capacity in many major livestock and poultry producing countries. Producers and processors in rising exporting countries are investing in a range of capacity and quality improvement projects such as the modernization and construction of slaughtering plants in Brazil and feedlot expansion in South Africa.

However, there are instances in which economic growth will not be enough to support production and processing growth. In the case of the Indonesian poultry sector, outbreaks of AI, escalating energy costs, weak currency, and higher feed costs will minimize profits and constrain growth in 2006. Increases in worldwide real per capita GDP in 2006 will continue to fuel rising livestock and poultry consumption and hence production. Asian economies particularly China, Hong Kong, Taiwan, and Thailand are forecast to experience strong growth, likely fostering meat consumption as consumers will have more disposable income.

Red meat and poultry meat prices for major exporters influenced by disease related trade distortions .

During 2004 and 2005, outbreaks of AI and BSE caused trade distortions which affected major exporters’ (such as the United States and Brazil) poultry and beef prices. Consequently, major exporters’ pork prices increased in the last two years as exports mushroomed in the wake of consumers shifting their animal protein consumption.

Favorable exchange rate enables U.S. to remain price competitive.

A weak U.S. dollar has made U.S. exports of meat and poultry more competitive in world markets since 2003. Even though further depreciation of the U.S. dollar vis à vis competitor countries such as Brazil and Australia is not anticipated to continue in 2006, favorable exchange rates will give U.S. exports a competitive advantage.

FMD in Brazil will have minimal impact on current meat trade flows.

The October 2005 outbreak of FMD in Mato Grosso do Sul, Brazil will constrain growth in the Brazilian beef and pork sectors. Brazil will shift beef production to FMD-free states to meet export demand in 2006, particularly to Russia. Mato Grosso do Sul is not a major pork producing region and the impact on Brazilian pork exports is anticipated to be small. At the time these forecasts were generated, Mato Grosso do Sul was the only state with confirmed FMD cases.

Broiler meat exports to surpass beef exports by major traders.

For the first time in history, broiler meat exports by major traders are forecast to reach 7.5 million tons. Poultry demand is expected to be strong due to the absence of the United States in major beef markets and constraints on growth in Brazilian beef exports. The 2006 increase of nearly 7 percent is the result of increased trade by a number of countries including Argentina, Brazil, China , Thailand, and the United States.

Poultry: Production Forecast to Grow Again in 2006

Poultry meat production by major producing countries is forecast to increase nearly 4 percent in 2006 to 65.6 million tons. With significant growth in Brazil, China, India, and the United States as well as a rebound in production in Asia, poultry production continues to expand worldwide. Despite higher oil and energy prices in 2006, moderate feed prices and continued integration and concentration will facilitate world poultry production.

Key Producers:

United States:

The United States accounts for the largest portion of the increase in broiler meat production forecast for 2006. Most of the increase in production will be consumed in the United States but exports are expected to benefit from increased production.

Brazil:

Brazil also accounts for a large portion of the increase in world broiler meat production in 2006. Brazilian broiler meat production is expected to increase 5 percent to just over 9.5 million tons in 2006. This follows significant production increases in the past two years.

The increase in broiler meat production continues to be driven by record exports as Brazil expands sales to various markets such as Japan due to AI-related bans on several of its competitors. From January to August 2005, Brazil increased its exports to Japan by 35 percent. In addition, domestic consumer demand and increased domestic soybean meal supply has supported broiler industry growth in Brazil.

Mexico:

Production of broiler meat is expected to increase 22 percent to just over 2.6 million tons between 2002 and 2006. Production has expanded faster than beef and pork production. Mexico’s rapidly growing poultry industry is becoming increasingly concentrated, integrated, and modern. However, producers have been unable to keep pace with growing consumption. Mexican poultry consumption is climbing due to population growth, the affordability of poultry relative to other meats, effective marketing, increased usage in processed food products, and improved product quality. The result is an expected 42-percent increase in imports from 2002 to 2006.

European Union:

While poultry production has mostly recovered from the 2003 AI outbreak in the Benelux and the 2003 nitrofuran scare in Portugal, producers and processors in the entire EU-25 are still adapting to the new market situation as a result of the 2004 EU enlargement. EU broiler production is expected to increase slightly in 2006 to reach nearly 7.7 million tons in 2006, while consumption is slowly increasing, particularly in the New Member States. The result is a growing import market which is anticipated to increase nearly 5 percent in 2006 to 460,000 tons. Argentina: Production has skyrocketed in recent years, an expected 84 percent from 2002 to 2006, to nearly 1.2 million tons. The increase is a result of good profitability in the sector, very competitive broiler prices in the domestic market and the opening of new export markets.

Southeast Asia:

The impact of AI on countries such as Indonesia and Thailand has been particularly difficult for small and medium sized producers who do not have the capital to withstand the economic shock such as animal loss through government ordered culling (with no or below-market compensation) and price declines following loss of export markets. Thailand lost an estimated 20 to 25 percent of its poultry inventory. Approximately 23 percent of Thai small and medium sized chicken producers are believed to have exited the industry following recent AI outbreaks. In 2006, Thai broiler meat production is to increase to just over 1.1 million tons. However, this is still 16 percent below pre- AI levels of 2003. Indonesian broiler meat production is expected to reach 672,000 tons in 2006, which is still below 2003 production levels.

Global Trends and Factors in Consumption

Increases in disposable income undoubtedly augment food purchases in low and middleincome countries. Further, of these boosts in purchasing power, a higher proportion is spent on purchases of higher-value products such as meat and dairy. Thus, macroeconomic stability and growth in low and some middle-income countries results in higher consumption of red meat and poultry, providing new growth- market opportunities for domestic producers and world suppliers.

Not only are low and middle-income countries increasing their per capita consumption, they are also gradually accounting for a greater share of world consumption. China’s pork consumption accounted for only 50 percent of pork consumption in major pork consuming countries in 2001 and is forecast to account for 53 percent in 2006. Alternatively, the European Union’s share of pork consumption is forecast to decrease from 24 percent to 22 percent from 2001 to 2006.

Red meat and poultry demand in developed countries such as the United States is strong. Given the already relatively high level of consumption, per capita consumption of these products cannot be expected to gain sharply. However, demand in higher income countries is shifting to more convenient and processed products, creating opportunities for value-added meat products.

Poultry Consumption

Unlike beef and pork, the forecast global increase in poultry consumption is not concentrated in one country. Broiler meat consumption in selected countries will continue to increase to slightly over 3 percent in 2006. Substantial increases in broiler meat consumption from 2005 to 2006 are forecasted for Brazil (4 percent) China (3 percent), India (16 percent) Mexico (5 percent), and Russia (7 percent). While the United States is anticipating a 3-percent increase in broiler meat consumption, it accounts for 21 percent of the increase among major consumers.

A number of counties with highly pathogenic avian influenza (HPAI) outbreaks have experienced drops in domestic consumption as consumers lack information about the nature of the disease and preventive measures. However as consumers respond to better information, they begin to return to prior consumption levels. For example:

Thailand:

After a sharp drop in domestic consumption in 2003 and 2004, poultry consumption in 2005 is estimated to begin recovering. In addition, despite an upward trend in domestic poultry prices, Thai consumption is forecast to grow 7 percent to 760,000 tons in 2006 due to increasing consumer confidence in product safety and competitive prices compared to other meats.

Indonesia:

Similar to Thailand, consumer confidence in poultry is returning after AI related human deaths in 2005 negatively impacted demand. Poultry consumption dropped about 20 percent after the announcement of human AI deaths in Indonesia in July 2005. However, sales at quick-serve chain outlets, which are primarily located in urban areas, reported normal sales during the AI outbreak. By August 2005, consumer confidence and purchases of poultry meat began to rise. As a result, the decline in Indonesian poultry consumption was only a very short-term reaction by consumers who quickly returned to normal patterns. Thus, the shock did not have a negative impact on annual Indonesian poultry consumption which will actually increase 2 percent in 2005.

Disease Impacting Trade Flows

Disease outbreaks and their resulting trade restrictions have impacted traditional trading relationships. While this generated negative consequences for certain suppliers, it also created new market opportunities for rising producers. Brazil and Argentina only accounted for 16 percent of beef trade among major traders in 2001, but are forecast to account for 35 percent of that beef trade in 2006.

The absence of Canada and the United States from the world beef market has created opportunities for other suppliers. Australia and New Zealand have increased their market share in Asian markets such as Japan and Korea. However, other exporters such as India and Mexico have also gained. Despite import bans in most of its major beef export markets, Canada’s beef exports are projected to achieve record levels in 2005 and 2006 due to increased slaughter and strong demand in the U.S. beef market.

After AI-related import bans on Thailand and China limited poultry meat sales, Brazil assumed the position of Japan’s leading supplier of broiler meat. Japanese import restrictions on beef from Canada and the United States as well as AI-related import restrictions on poultry and poultry products from various Asian countries have bolstered pork imports. The United States and other suppliers such as Canada and China have benefited from Japanese consumers’ increased pork purchases.

Poultry Trade

Overview

The 2006 forecast marks the first year in which broiler exports by major traders is expected to achieve over 7.4 million tons, surpassing beef exports. The 2006 export increase of nearly 7 percent is the result of increased trade by a number of countries including Argentina, Brazil, China, Thailand and the United States.

Key Exporters:

United States:

While the United States is expected to have a market share of just under 34 percent of the broiler meat exports by major traders in 2006, it is eroding. In 2001, the United States accounted for 45 percent of broiler meat trade among major traders. In 2006, U.S. broiler exports are expected to increase a modest 2 percent to just over 2.5 million tons.

Thailand:

While Thai broiler exports have not fully rebounded to pre-AI levels, exports in 2006 are expected to be one-third above 2005 levels, reaching 400,000 tons. Due to trade bans on fresh product, most Thai exporters are adjusting production by investing in processing facilities. Cooked chicken products are normally made-toorder meat products that are processed or prepared by heat (such as grilling, steaming, boiling, etc.). Thailand's success has been attributed to its market value, in terms of quality and price, being superior to that of competitors such as China and Brazil. In Thailand's traditional markets such as Japan and the European Union, the processed products are achieving success. Further, these processed products have found some new markets in Africa and the Middle East.

Brazil:

Brazilian broiler exports are forecast to increase a healthy 7 percent in 2006 to a new high of over 3 million tons. It is expected that in 2006 Brazil will be the world’s leading broiler exporter by quantity for the third consecutive year. The appreciation of the Brazilian Real and higher production costs may affect profit margins and price competitiveness in 2006. However, export expansion will be supported by market promotions and sanitary agreements in new markets.

Unlike pork, Brazilian poultry exports are extremely diversified and not dependent on any particular market. Healthy increases in Brazilian broiler exports have also been across the board and not in any one particular market. While Brazilian poultry exports to Japan in the first nine months of 2005 nearly doubled from 2003, this growth is a function of Thailand’s inability to ship fresh broiler meat to Japan. Brazilian sales in the Gulf region (Saudi Arabia, Kuwait and the United Arab Emirates) have also continued to grow and at a rate faster than the expansion of its sales to Europe.

Further Information

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Source: USDA Foreign Agricultural Service - November 2005