July 6, 2018
Brazilian trade woes, exporting opportunities in the world broiler market
Europe, China, Saudi Arabia put up import barriers as poultry exporters Thailand, Turkey, Poland, Ukraine and America vie for Brazil's lost business.
By Eric J. Brooks
An eFeedLink Hot Topic
For fifteen years Brazilian chicken farms have enjoyed a long lucky streak. Brazil's good luck began in the mid-2000s when bird flu got Thai chicken banned and Brazil filled the resulting market vacuums in Europe and Japan. Later that decade, its domestic market kept expanding even as export growth tapered off. In the mid-2010s when Brazil's economy went into a severe recession, it used America's bird flu epidemic to export its way out of trouble -but now the party is over.
2018 is turning into a disastrous year for Brazil's broiler sector. World broiler meat exports are forecast to rise 3% this year but many supplier countries will expand their shipments far more quickly -at Brazil's expense. The number one chicken meat exporter, Brazil shipped a USDA estimated 3.847 million tonnes last year and was projected to export 4.1 million tonnes this year.
As Brazil's troubles mounted, 2018 export forecast was initially revised to 3.875 million tonnes. With Brazil's January to May broiler meat exports coming in 8.5% below last year's volume and the full impact of new export barriers yet to be felt, even this more conservative export forecast is too optimistic.
Based on the dire market circumstances described below, Brazil's chicken exports are poised to fall by 440,000 tonnes or 11%. Its share of the world chicken market, which peaked near 40% and has held steady near 35%, is poised to fall to 30%.
Following Brazil's early 2017 tainted meat-for-export corruption scandal, the European Union conducted its own investigation. It found evidence of salmonella contamination levels that are illegal under EU regulations. Base on its finding, the EU decertified the export permits of 20 Brazilian poultry processing plants. With Brazil mostly exporting breast meat to Europe, dark meat cuts or whole chickens to the rest of the world, this has depressed world prices for the former.
Moreover, the EU's blockage of Brazilian chicken comes at a particularly bad time. In the five years since Thailand's frozen chicken was permitted back into Europe Brazil has gradually lost EU market share. At the same time, new emerging East European suppliers in Poland, Hungary and Ukraine means that the EU itself is increasingly self-sufficient in poultry and has less need for imports.
Based on official EU statistics, the continent's broiler meat imports fell 10.5% or 94,738 tonnes, from 902,051 tonnes in 2016 to 807,303 tonnes in 2017. Brazilian broiler exports fell 103,331 tonnes -or by more than the entire drop in the EU's demand for imported chicken. Europe actually increased its purchases of non-Brazilian chicken meat, though by less than the amount that Brazil's shipments decreased.
This tendency for other nations' poultry exports to Europe to rise while Brazilian exports fall is carrying on into 2018. In January to April of this year, they were down another 9.2% and on track to come in slightly above 750,000 tonnes for the year. -Even before the new EU restrictions, Brazil was enduring the brunt of Europe's diminished appetite for foreign chicken.
EU statistics show that from January through April the volume of chicken exported to the EU by Thailand (+15%), Ukraine (+45%), Argentina (+47%) and Chile (+85) all increased -while those from Brazil were 45% lower than in the same four months of 2017 -and this happened before the EU banned chicken from 20 Brazilian processing plants! You can expect the new EU restrictions to accelerate an ongoing trend to substitute chicken from other countries in place of Brazil.
By this time next year, Thailand will be the top broiler meat exporter to the EU, with shipments totaling above 300,000 tonnes for the first time. Thailand's share of the EU broiler market has jumped from 32% in 2016 and 2017 to around 40% this year. Brazil's chicken exports fell from 504,791 tonnes in 2016 to 401,465 tonnes in 2017, and are poised to fall below 200,000 tonnes this year.
Similarly, Ukraine tripled its share of the EU imported chicken market from 5% in 2015 to 10% in 2017 and possibly over 20% by the end of this year. These statistics do not even include EU member Poland, whose shipments to neighboring European countries have tripled from 250,000 tonnes in 2010 to 750,000 tonnes this year.
Consequently, from 60% of EU broiler imports as recently as 2014 and 49.7% last year, the de-certification of 20 chicken processing plants means Brazil's share of EU broiler meat imports may fall to around 20% in 2018. While Thailand increased its share of the European chicken market, Poland and Ukraine seem happy to occupy the market vacuum created by the EU's blockage of Brazilian broiler meat.
Nor is Europe the only market where Brazilian chicken is in trouble. No nation imports more Brazilian chicken than Saudi Arabia, which absorbed 15.4% of its exports in 2017. Its new, stricter halal criteria for its chicken imports frowns upon slaughtering chickens via Brazilian-style electric stunning. This caused Brazil's first quarter chicken exports to Saudi Arabia to fall 30%. On an annualized basis, it implies that the 591,000 tonnes of chicken that Brazil exported to Saudi Arabia in 2017 could fall to under 400,000 tonnes this year.
Eager to create market space for its depressed broiler industry, an investigation by China's ministry of commerce concluded in early June that "The quantity of imported [chicken meat] products and market share from Brazil have continuously increased while prices of similar domestic products have been drastically reduced, causing serious damage to domestic industries."
Beijing then promptly slapped deposit fees on all 29 Brazilian chicken meat exporters. It imposed 18.8% deposit rates JBS and Seara Comercio de Alimentos, 25.3% on those from BRF products and 38.4% on chicken exports from C. Vale Cooperativa Agroindustrial, with many other poultry exporters charged even higher deposit fees.
Though not as devastating as its situation with the EU or Saudi Arabia, Brazil supplies half of China's imported chicken and these new non-tariff barriers will have an impact. Chinese broiler meat imports had already been USDA forecasted to fall 11.6%, from 311,000 tonnes in 2017 to 275,000 tonnes this year. China's new exporter deposit rules, a conservative estimate of the reduction in chicken exported to China would be 50,000 tonnes.
Even moves designed to hurt other countries are having a bad impact on Brazil's broiler sector. China's imposition of a 25% tariff on US soybeans has raised the price of Brazilian soy by 15% to 20% above that of its US competition. This is lowering the feed costs of both US producers and rival chicken meat exporters who import US soy (eg. Thailand, Turkey) while raising Brazil's broiler production costs.
If all this trade-related news was not bad enough, Brazilian truckers staged a long, nationwide strike in May and June. As a result, ABPA reports that with the strike making it impossible to ship broilers-for-export to their final destinations, 400,000 birds had to be culled. With truckers refusing to transport chicken meat to ports, June broiler exports fell 37% from their level a year earlier.
While Brazil's woes are reducing exports by 400,000 to 500,000 tonnes, other countries are already doing their best to divide Brazil's lost market share among themselves. Thailand, Poland and Ukraine will compete for Brazil's European market losses. Turkey's geographic proximity and Islamic faith give it an inside track in supplying some of Saudi Arabian poultry demand.
Internal logistical problems such as rising Brazilian feed costs and its trucker's strike creates opportunities for exporters in America, Europe and Thailand to compete for export orders in places like China, Japan and Southeast Asia. Short-term increases for individual broiler exporting nations can be reasonably estimated but the long-term impact of these poultry exporting misfortunes on their respective world market shares cannot be known.
Over the short term, instead of rising 2.6% from 13.15 million tonnes in 2017 to 13.487 million tonnes this year, Brazil's poultry output will accommodate a 10% to 12% drop in exports by falling 3% to approximately 12.75 million tonnes. It re-enforces a problem that a mid-2010s US-bird flu driven export surge masked: Since 2010, Brazil's once rapid broiler sector expansion has flattened out, growing significantly slower than that of the United States.
Brazil's broiler output is far too large to be replaced entirely by it rivals. Even so, much depends on how quickly it can re-open the European, Middle Eastern and Chinese markets currently putting up barriers to its chicken. For the first time since the early 2000s, America may export almost as much chicken as Brazil does. Whether America overtakes Brazil and regains its world chicken exporting title may depend on what happens over the next two or three quarters.
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