Poultry production in China continues to surge, reducing demand for imports and pork

China’s chicken producers are ramping up expansion plans despite a slump in consumer demand due to COVID-19, reducing reliance on food imports as officials raise concerns about the safety of foreign meat.
calendar icon 17 August 2020
clock icon 5 minute read

Reuters reports that China, the world’s second-largest poultry producer, is expected to produce a record 14.85 million tonnes of chicken meat in 2020 – marking a substantial increase over 2019’s 18 percent rise to 13.75 million tonnes, according to USDA data.

The significant expansion is boosting demand for key feed grains like corn and soybeans, traders in China say, while pushing down poultry prices.

It could also mean smaller purchases of imported frozen chicken just as consumer confidence in imported food takes a hit. Last week, chicken wings from Brazil tested positive for the coronavirus.

"Currently the price is so low. I don't think it's just weak demand but it's also the sufficient supply," said Pan Chenjun, senior analyst at Rabobank.

Implications for the pork market

China slaughtered 9.3 billion chickens last year, including 4.4 billion white-feathered broilers, favoured by fast-food chains for cheap, plump meat.

Industry leaders like Liaoning Wellhope Agri-Tech , Yum China KFC-supplier Fujian Sunner Development and Thailand's CP already had expansion plans to meet Beijing's goal for more integrated food production.

But some accelerated those projects after profits soared last year alongside the plunge in pork output. With consumers and restaurants seeking substitutes, chicken prices hit record highs.

Wellhope increased chicken production by 36 percent in 2019, and by a similar pace in the first half of this year, company filings showed.

"We sped up because of the better prices," said Jan Cortenbach, chief technical officer at Wellhope-De Heus Animal Nutrition, a joint venture.

New housing for at least 1 billion more chickens is now in the works, said Walter Benz, president and managing director of China at Big Dutchman Group, a German company that supplies equipment for poultry.

They include a 100 million-bird farm and slaughter project by Shandong Xiantan and two 100 million-bird projects by top Chinese pork processor, the WH Group-owned Henan Shuanghui Investment and Development Co Ltd, due for completion by the end of 2021 and June 2022 respectively.

Shandong Fengxiang Co raised funds in a public share offering last month to finance a doubling of output from 101 million birds.

The coronavirus pandemic

The rapid expansion may have been ill-timed, as the COVID-19 epidemic pummelled China's chicken demand. A large portion of chicken meat, cheaper than pork, is consumed in school canteens, which have been shut for much of this year.

Fast-food chains and staff canteens also saw weak demand even after reopening.

Wellhope noted in its earnings report that nationwide, chicken slaughter only increased by 4 percent in the first half, shrinking 8 percentage points on what had been forecast before the pandemic.

"Now with the downward economic pressure and large imports, supplies are quite big, which is not very optimistic for demand and meat prices," said Qiu Jiahui, deputy president.

Prices could take a further hit as the extra capacity comes online, he added.

Meanwhile, China's hog production appears to be recovering more rapidly than expected.

Wellhope is betting on a long-term shift towards higher chicken consumption among young urbanites with greater concerns about health and convenience.

"Poultry (production and consumption) will increase very fast, as the young generation grows up with new consumption habits," said Qiu.

A sustained period of higher pork prices could also push consumers to permanently put more chicken in their diets, said Pan, the analyst.

Meanwhile, producers are working hard to trim production costs. Those not already using cages are returning to them, Benz said, to maximise space and reduce labour cost and disease risk.

"We have a high operation level, so when we struggle, our competitors struggle even more," Qiu said.

($1 = 6.9440 Chinese yuan renminbi)

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