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April 24, 2017

Southeast Asia's diverse broiler meat sector


Geography, religious differences make Southeast Asia a natural market for chicken. Demographics and government policies constrain its potential.




With religious demographics that restrict consumption of beef and pork among many of its citizens, chicken is Southeast Asia's meat of choice. Yet its production, consumption or importation is distributed very unevenly among ASEAN's diverse citizenry.


Within the constraints of Southeast Asia's high population and small arable land endowment, no animal protein line is more suitable for domestic cultivation. One nation even turned it into an exportable agricultural line. Even so, everything from perverse government policies to cultural preferences for red meat prevent Southeast Asia from reaching its true potential for chicken's consumption and production.


Based on USDA figures, Muslim majority Malaysia, Indonesia and Brunei produce 44% or 3.4 million of the 7.8 million tonnes of chicken meat produced within ASEAN is from these nations. Add the production of export oriented Thailand and four Southeast Asian nations produce two-thirds of its chicken.


From a low of 6kg in Vietnam and a near ASEAN average of 17kg in Thailand, chicken meat consumption runs as high as 45kg in wealthy Singapore or 55kg in Malaysia, where it is the one protein which their religiously diverse societies can agree on. At 8.8%, its share of world chicken production is slightly above its 8% share of the global population, but is destined to double over the next two decades.


But even within large poultry producers, the industry's scale, model and competitiveness at producing chicken varies greatly. Thailand, for example, is not just the leading ASEAN chicken grower, it is also the most competitive and export-oriented. While it is blessed with more corn growing land relative to its 66 million population, it makes no effort to protect its feed crop farmers. Nominally self-sufficient in corn and a large soy importer, it offsets above average chicken production costs with low labor and transport costs. The former gives it an advantage in cooked chicken lines such as ready-to-eat meals, while its proximity to markets like Japan gives it a shipping cost advantage within East Asia.


As a result, unlike the rest of ASEAN, Thailand stands out for exporting 39% or 730,000 tonnes of the 1.87 million tonnes of chicken meat it will produce this year. Had it not encountered a costly mid-2000s bird flu epidemic and been banished from world markets for eight years, Thailand would probably be exporting over a million tonnes and 50% of its broiler meat production by now.



One reason Thailand can afford to do this is because it is a majority Buddhist nation. Indonesia, Malaysia and Singapore have religious minorities that prohibit the consumption of either beef or pork. Due to Thai religious tolerance, its 17kg of per capita chicken consumption is complimented by 15kg of red meat. Approximately 13kg is accounted for by domestically produced pork, with mostly imported beef making up the other 2kg.


Thailand notwithstanding, there are essentially two broiler industry models. The wealthy city states of Singapore and Brunei import almost all their chicken. In the rest of ASEAN, domestic broiler meat accounts for most production, but both growth rates and import penetration vary greatly.


With regards to growth fundamentals, when adjusted for inflation, Myanmar's per capita GDP of US$1,200 is at the same level that China's was in the early 1980s. Rich in natural gas and just starting to open up to the world market, Myanmar's economy is starting a long stretch of 10%+ growth Hence, it is not surprising that according to UN FAO statistics, from 2011 through 2015, overall feed demand grew at a 14.1% annual rate. 

According to a report by Dutch consulting firm Larive International ("Poultry expert visit 15-19 March 2015"), the rapid expansion in feed output went to boosting the production of chicken meat. It states that per capita poultry consumption grew by a faster 15.2%, going from 4.6kg in 2012 to 7.0kg in 2015. Based on Larive's Myanmar per capita chicken consumption estimates, its broiler meat production has jumped 144% in ten years or 9.3% annual rate, from 2007's 183,000 tonnes in 2007 to an estimated 447,000 tonnes this year.


With Myanmar self-sufficient in corn and its economy operating largely outside global trading networks, there are one two decades of pent up, near 10% annual growth chicken meat output, with very little scope for import penetration. Large Asian integrators such as Thailand's CP and Indonesia-based Japfa Comfeed have led its feed milling expansion and are likely be at the vanguard of its poultry industry expansion. By the mid 2020s, Myanmar could join Thailand, Indonesia, Malaysia and Philippines as ASEAN's newest million tonne/year chicken meat producer.


With significantly more investment in productive capital than Myanmar, Indonesia is the most exciting, but more secure short-term ASEAN poultry investment prospect. Producing slightly less than 1.7 million tonnes of chicken annually, Indonesia's production is roughly equal to that of Malaysia. Indonesia however, spreads out that consumption over 250 million people to Malaysia's 31 million. With its economy growing by 6% to 8% annually and its chicken consumption at 2/3rd of Myanmar's pace, Indonesia has nearly 5 times more people and a far more advanced supply chain.


On the other hand, like every large family, ASEAN poultry also has its share of disappointments. None greater than Vietnam, which paradoxically also has strong potential: It had much more difficulty getting bird flu under control than Thailand, such that chicken meat output was 25% lower in 2007 than in 1997.


Since then, despite ongoing struggles with avian influenza, output has grown at a strong 11.6% annual rate, the fastest in ASEAN. On one hand, past struggles with bird flu have left Vietnam's chicken meat consumption at barely 6kg, the lowest of any large Asian market. On the other hand, with chicken consumption at barely 20% the level of how much pork Vietnamese eat, this makes for a second Asian country comparable in size to Myanmar and with pent up poultry demand growth of near 10% over the next decade.


Further to the north, a relatively more mature Philippine economy saw its healthy 5.2% growth over the last ten years be outstripped with 6.5% consumption growth, with imports making up the difference –and the latter points to a long-term problem: While Southeast Asia's chicken demand growth is not in doubt, policymakers are making it difficult for the industry to keep up with consumption.


Indonesia, Myanmar, Philippines and Vietnam all follow protectionist policies that seek to maintain feed crop self-sufficiency at the cost of higher corn prices and ultimately, inflated poultry production costs. Practicing free trade more than its ASEAN neighbors, high feed crop prices have been particularly damaging to Philippines.

From 18,000 tonnes in 2000, Philippine broiler meat imports jumped to 54,000 tonnes in 2007. They then multiplied 5 times over ten years to an estimated 250,000 tonnes, which account for 16% of the chicken Filipinos will be eating this year. -But while all ASEAN countries lag Thailand's export-driven broiler sector, the Philippines are not to be condescended: The Vietnamese, Indonesian and Myanmar poultry sectors face equally high or higher feed costs, but currently hide behind protectionist walls.


The problem is that sooner or later, exporters will take note of the fact their chicken is not being allowed into these fast-growing markets. America, the number two ranked chicken meat exporter, is already pressuring India (where feed costs are also artificially high) to open its market to chicken imports.


With the Trump administration playing hardball on agribusiness trade matters, it is probably only a matter of time before Indonesia, Vietnam and Myanmar are pressured into a Philippine type opening of their poultry market. Consequently, the Philippines and its less developed neighbors should take a pro-active approach. Far better to liberalize imports of feed crops than risk losing a fast-growing chicken market of several hundred million people.
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