February 27, 2018
Poland becomes Europe's chicken exporting powerhouse
While most of its million-plus tonnes of poultry meat shipments stay within Europe, its rising volume of non-EU exports is making it an important world poultry market player. Even so, it faces a slew of challenges from rival exporters.
By Eric J. Brooks
An eFeedLink Hot Topic
In less than fifteen years, Poland first became Europe's leading poultry meat supplier and is now making its presence felt on the world market too. Based on AVEC statistics, Poland was an inconsequential poultry supplier and a minor producer even within the EU itself. 2005's 1 million tonne output put Poland in sixth place behind France (1.92 million tonnes), Britain (1.58 million tonnes), Spain (1.3 million tonnes), Germany (1.2 million tonnes) and Italy (1.1 million tonnes). Eleven years later, AVEC estimated Poland's 2016 output (2.13 million tonnes of broilers, 0.368 million tonnes turkey meat, 0.048 million tonnes ducks and geese) at approximately 2.5 million tonnes.
In 2017, Poland's USDA estimated 2.8 million tonnes of poultry meat (of which 2.3 million was broiler meat) lead all EU countries and was a million tonnes more than either France or Germany produced. Over this time, Poland's proportion of EU chicken production has risen from 5% in 2005 to 12.1% in 2011 and an estimated 19% this year. As of last year, 85% of its poultry meat production was accounted for by chicken, with turkey (14%), ducks and geese (1%) accounting for most of the rest.
At €1.35/kg (US$1.66/kg), Poland's 2017 poultry production costs are roughly €0.10/kg to €0.25/kg (US$0.12/kg to US$0.31/kg) lower than that of other top European producers. With Q1 2018 European broiler prices above €1.80/kg, profitability appears assured over the first half of this year.
Over the longer term, Poland has successfully leveraged abundant feed supplies and labour costs up to 50% below that of rival European producers to boost production by 61% from 2011 through 2016. The EU as a whole only increased broiler meat production by 16% over this time.
Exports increased by 132% over this same five year period, versus a mere 14% for the EU as a whole. Five years ago, Poland was the third-ranked poultry meat exporter, trailing France and Germany. The nearly 1.3 million tonnes of chicken it will export in 2018 is greater than the combined shipments of France and Germany, the second and third largest producers.
Indeed, the export trade is both diversifying and becoming increasingly important to the industry. From 4% to 6% of output in the early 2000s, exports made up 30% of Polish poultry output by 2010 and 39% by 2015.
With Polish per capita poultry consumption having shot up from 14kg in 2000 to 24kg in 2010 and 30kg in 2017, there is less scope for rapid domestic expansion. Slowing domestic consumption growth means that the industry is becoming more reliant on exports. Hence, it is not surprising that 42% of Polish poultry production was output in 2017 or that this figure may rise as high as 44% this year.
Fortunately for Poland, not only is the quantity of poultry meat exported rising, it is also diversifying beyond traditional European destinations. In the early 2000s, only a few thousand tonnes or 4% to 6% of exports (totaling less than 1% of output) was exported to non-EU countries. Even ten years ago, only 25,000 tonnes or 9% of 2008's exports were shipped outside the EU.
Just five years later, non-EU shipments increased 4-fold, to 110,000 tonnes and 18.7% of all exports. Within three years, they more than doubled, with non-EU shipments totaling 246,000 tonnes or 24% of all exports in 2016. With 2018 non-EU poultry meat exports projected in the 320,000 to 350,000 tonne range, Poland's non-EU chicken export volumes rival or exceed those of tier two exporters such as Argentina or Turkey.
Indeed, Polish chicken is even pushing out large-scale exporters from Europe's own market. Rabobank's Q1 2018 Poultry Quarterly states that Polish chicken "is gradually gaining some of the market position from Thailand and Brazil in the EU market, especially in further processed products."
This is not surprising: Poland enjoys far lower European shipping costs, tariff-free entry into EU countries and better market access under EU trade laws. Britain, France, Germany, Netherlands and Slovakia are among the top European export destinations for Polish poultry meat.
Despite its large share of the EU market, nowhere did Polish poultry meat exports expand more rapidly than in Africa. According to EU statistics, Polish poultry exports to Africa jumped 327% in seven years, from 18,990 tonnes in 2010 to 81,030 tonnes in 2016. They are expected to exceed 100,000 tonnes this year. As a result, shipments to Africa rose from 21% in 2010 to 33% in 2017.
From 2010 through 2017, Poland's exports to EU countries grew by 15.5% annually while those to non-EU countries expanded by 18.5% a year. At 3.4% per annum, Poland's domestic poultry consumption grew -and continues to grow- faster than that of many developing Asian countries. Even so, it is obvious that the industry's development has been export-driven, and that this will be even more true in the future.
There is much ahead to keep the pace of export expansion moving. After a European bird flu outbreak got Poland's chicken banned from China in December 2016, it was recently allowed back into the country.
Prior to the ban, annual Polish chicken exports to China never exceeded 30,000 tonnes and had a market share of under 5%. Even so, it is thought that it could export far more chicken meat to China in the future.
With a reputation for higher quality meat than dominant supplier Brazil, Poland hopes to become a major supplier of chicken feet and other parts to China's market. Poland's National Poultry Council believes that China has potential to buy several hundred thousand tonnes of Polish chicken, with a value of approximately €500 million (US$615 million) by 2021.
Similarly, in September, Polish poultry meat was allowed into Japan for the first time. It is also currently attempting to negotiate access to the US market. Moreover, to Thailand's great frustration, the EU is keeping its Thai poultry import quota constant to make room for rising Polish chicken production inside EU member markets.
In response to this situation, Thai integrator CP recently purchased a 33% share of Polish chicken producer SuperDrob for €49.5 million (US$58.9 million). Producing a wide range of branded cooked or processed chicken products including sausages, grilled and breaded chicken meals, this Polish integrator fit into CP's own business model, which combines value-added processing with strategic marketing and distribution strategies.
For Thailand-based CP, the deal allows it to sell chicken throughout Europe from a Polish export base without worrying about trade restrictions. CP CEO Adirek Sripratak stated that Poland, "Has vast resources and potential with low cost of production. This will also help respond better to the regional [European] consumer base at a faster pace."
Jarosław Kowalewski, SuperDrob's vice-president for strategy stated that with CP's investment, "We can increase production capacity." He predicts SuperDrob "Will extend the range of products and we will integrate [CP's] production and logistics processes."
SuperDrob immediately used the funds provided by CP to buy the 50% share of its joint venture in a poultry processing plant with fellow producer Indykpol.
Of course, if Poland's foreign competitors are capitalizing on its advantage in poultry production, local producers are even more keen to do the same.
With exporting to China in mind, Q3 2017 saw Polish integrator Indykpol invest €1.7 million (US$2.09 million) to modernize its meat processing facilities over the short-term at its large processing plant in Olztyn, in Poland's northeast. It is also undertaking a 2 year, €24.9 million (US$30.63 million) investment to boost the plant's processing capacity by 74%. Thanks to these production capacity expansions, Indykpol was able to painlessly sell off its 50% share of the plant it jointly operated with SuperDrob.
In a similar vein, leading producer Drobimex recently completed a €47.9 (US$58.9 million) modernization and expansion of its main facility in Szczecin-Dabie and simultaneous addition of a new meat cutting and processing production in Goeleniow, both some 500km north of Poland's capital, Warsaw.
According to Drobimex chairman Klaus Roppel, this investment in new slaughterhouses, cutting lines, cold storage and chicken processing facilities was the largest in the company's history. Roppel states that they will boost Drobimex's chicken processing capacity to over 1 million broilers a week.
Late 2017 also saw chicken meat processor Sokolow SA invest €26 million (US$32.0 million) in expanding and modernizing its cold storage facility and meat processing plant in the western Poland city of Debica. Doing so will enable it to add 11 new meat snacks to its product line.
This is not to say that Polish poultry is without challenges. Poland's currency has risen 10% over the last year and its economy slowed down. That makes it less competitive against both rival EU suppliers such as Germany and outside of Europe relative to nations like Thailand and Brazil. Facing both slower domestic consumption growth and more intensified competition in overseas markets, the USDA predicts that after years of rapid growth, production will only grow 2% in 2018.
There is also the question of current trade negotiations between the EU and Latin American MERCOSUR trade bloc countries. South American negotiators are demanding the EU give Brazilian and Argentine chicken unrestricted market access to the European market. If this is included in any EU trade pact with MERCOSUR countries, Polish chicken could lose significant European market share sometime in the 2020s.
Going forward, with per capita poultry consumption now above 30kg and EU export growth potential becoming more limited, Rabobank predicts that from now to 2025, Polish poultry meat production will rise at a 3.3% annual rate. This assumes continued 3% growth in Polish per capita chicken consumption, incremental rises in chicken exports to Europe and 5%+ growth in non-EU exports.
On one hand, that's twice as fast as the overall EU market and comparable to the growth rate of some emerging markets. On the other hand, it is much slower than the 8.8% annual growth Rabobank estimates Polish poultry enjoyed from 2009 through 2015. Such a growth slowdown could necessitate a wave of industry consolidation, especially if Poland's currency or labour costs rise at the same time.
Over the longer-term, Polish poultry's trade prospects are also clouded by the European poultry's wild card factor: The impending entry of Ukraine into the EU: Ukraine's poultry sector has an even greater advantage in feed resources and lower labour costs than Poland. Its poultry sector has developed even more rapidly than Poland's.
At this time, Poland exports four times more chicken than Ukraine but Poland's non-EU exports are roughly equal to total Ukrainian exports, with each totaling slightly over 300,000 tonnes in 2018. At this time, Ukraine is seeking EU membership but will not achieve it anytime before the mid-2020s -but if it does get full EU membership, Ukrainian chicken would enjoy the same EU-wide tariff-free access Poland currently has. Hence, Ukrainian poultry meat presents a huge, long-term competitive threat to Poland's increasingly trade-dependent industry.
Moreover, in a classic case of shooting oneself in the foot, the next month may see Poland's government's ban traditional Jewish and Islamic ritual livestock slaughtering. That could put in danger over 100,000 tonnes of Polish chicken exported annually to Israel, Middle Eastern and North African countries.
These challenges and uncertainties are outweighed by one immutable fact: For most of the next decade, few countries few countries outside of Thailand can combine low labour costs, plentiful feed resources and a sophisticated poultry meat marketing model the way Poland can. Despite 2018's expected slowdown and looming competition from Ukraine and South America, the future looks bright for Poland's poultry sector.
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