Brazil's poultry industry is still growing slightly faster than America's but the impact of its growth deceleration is finally starting to be felt. From 2001 to 2008, Brazil's broiler output and exports jumped at annual rates of 7.1% and 16.2% respectively. However, in the five years from 2009 to the end of 2013, output only increased at an average rate of 4% per annum and exports by 3.3%.

 

This year, at 2.8%, Brazil's poultry exports are growing a shade more slowly than America's and at 1.5%, its poultry production is growing at barely half the US rate. What has brought down Brazil's once near double digit expansion in poultry output in exports to the slower pace taken for granted in America's poultry industry?

 

Several factors are behind Brazilian poultry's marked slowdown. First, Brazil's own per capita poultry consumption jumped from under 20kg 20 years ago to nearly 40kg today -nearly the same saturation level that America's slow growing domestic market must contend with. Second, world poultry import demand growth has decelerated from more than 5% per annum 15 years ago to under 3% annual growth today.

 

Third, now that it accounts for 39% of world poultry exports, Brazil cannot take market share as easily as it did when it had under 10% of the market several decades ago. Finally, with Brazil's real rising strongly over the past 10 years, the cost difference between Brazilian and US broiler meat is not as great as it once was.

 

Consequently, after output doubled from 6.1 million tonnes in 2000 to 12.3 million tonnes in 2010, by the end of 2013, it will have risen to 12.83 million tonnes. After increasing at a more than 7% annual rate in the years between 2001 and 2010, Brazil's 2013 poultry output will only be only be 4.2% higher than 2010's total. In other words, output grew less in the last three years than it did in eight months during the mid 2000s.This makes for annual production growth of approximately just under 1.4% since the turn of decade.

 

In addition to all the above, Brazilian broilers face two other medium term factors, one against them, and two others in their favour. Trade-wise, the real fell 16% against the US dollar in 2012, undoing some of the competitiveness challenges that its previous, decades long appreciation against the greenback had created for exporters. But at the same time, Russia removed the preferential, lower tariff that Brazilian chicken meat had to pay upon its entrance to that country.

 

With Brazil and US poultry now paying the same tariff, America's Pacific coast gives its poultry a large transport cost advantage into Russia versus its Brazilian rival. Brazil's remote, southern hemisphere location also undermines its cost advantage over Thai poultry in East Asia, especially in the pre-cooked, ready-to-eat meal niche, where Thailand also enjoys a labour cost advantage.

 

Against the challenges of higher transport costs, trade barriers and slowing output growth stands one major Brazilian cost advantage: South America has overtaken North America as the most feed abundant region on earth, and this is now reflected in poultry production costs.

 

In April, the USDA reported that after subsidies paid an average of US$5.00/bushel for corn and US$8.25/bushel for soymeal, versus the US$6.40/bushel corn and US$10.86/bushel soymeal paid by American integrators.

 

Along with lower feed costs, Brazilian integrators are returning to profitability faster than their American counterparts for a second reason: Brazil's domestic chicken consumption is better balanced between dark and white meat parts. This means that despite a disappointing trade front, dark meat inventories are not accumulating in Brazil the way they are in the US.

 

Whereas US broiler markets saw white meat prices rise and boney, dark meat parts fall this year, Brazil has seen prices for all broiler meat parts increase this year. Granted, whole chicken and breast prices jumped by 26% in the first quarter, whereas legs and wings went up by 5% and 20% respectively. But this holding up of poultry prices across all chicken parts leaves Brazilian poultry producers in better condition, and with less of an inventory accumulation problem than their US rivals.

 

Going forward, provided America enjoys the bumper corn and soy harvests predicted by the USDA, US feed costs will narrow or even entirely close the cost gap with Brazil. The Brazilin real's long-term appreciation against the US dollar will intensify competition against America's technically advanced, higher productivity broiler industry.

 

With the world poultry export market growing by 2% to 3% per annum and Brazil's per capita poultry consumption near the saturation point, nothing can stop Brazilian poultry's long-term growth rate from falling towards the slow-growth pace that characterizes its US rival.

 

Brazil is also facing strong competition from regional exporters such as lower cost Argentina in Latin America, or Thailand in East Asia. That means that Brazil may lose 2% to 3% of its current 39% of the world poultry market, but its abundant feed supplies, scale economies and rising productivity should keep it slightly ahead of America as the world's number one poultry exporter for many years to come.