September 6, 2004

Brazilian 2005 Poultry Production Seen Up 6%

Brazilian broiler production is expected to increase by 6% in 2005 due to a rebound in domestic consumption and continued expansion in exports, according to information from the U.S. Department of Agriculture's Foreign Agricultural Service web site.
 
Commodity Outlook, Broilers
 
Production
 
Post projects an increase in broiler production in 2004 to reach 8.6 million metric tons, up 6% from the record production level of 8.1 million metric tons this year. The projected increase in production reflects the following factors:
 
a)      rebound in domestic consumption due to higher employment rate and consumer purchasing power as the Brazilian economy improves;
 
b)      continued expansion in poultry exports due to a favorable exchange rate, exports to new markets due to market promotion, and the impact of Asian Influenza in the world poultry market which continues to benefit Brazilian exports;
 
c) maturing investments in productive capacity by major poultry packers, mostly in the Center-West region of the country
 
d) Profit margins for both producers and exporters are expected to continue to be firm in 2005 due to projected lower feed costs and a less volatile exchange rate;
 
e) additional funds in the federal budget for social programs to fight hunger and improve nutritional levels of the poor.
 
Nearly 98% of the poultry meat produced in Brazil is broiler meat, with the balance consisting mainly of turkey production, which is increasing rapidly but from a small base.
 
According to trade sources, about 55% of the estimated broiler meat production in 2004 will consist of broiler parts and 45% of whole broilers. This is the result of a strategy adopted by the large broiler processors in Brazil to add value to their products in order to increase their profit margins and shift away from a "commodity" type of product, such as whole broilers. These companies produce whole broilers to meet demand from the export market, such as Saudi Arabia, which prefers whole birds. Leading Brazilian poultry producers have developed sophisticated processed food product lines, which include not only various poultry meat cuts but also prepared poultry, pork, and fish-based dishes.
 
In 2004, the ten largest poultry processors in Brazil are expected to account for nearly 56% of total broiler slaughter, up from 55% in 2003, reflecting some consolidation in the sector. These same companies are also leaders in pork production in Brazil, which allows for economies of scale and greater use of lower-cost feeds based on volume purchases. Also, these large companies import corn under the drawback system, which allows for exemption of import duties (currently at 8%) normally applied to corn imports from outside the MERCOSUL trading block. However, under this system, poultry processors must prove that corn imported will be used for producing products for export.
 
Review of 2004
 
Estimates for broiler production, exports, and domestic consumption remain unchanged from our semi annual report, dated Feb. 6, 2004.
 
Production Costs
 
Although Brazilian poultry companies do not release production cost information, there are some representative costs supplied by trade sources. During the first half of 2004, the estimated average cost of broiler production reached R$1.44 per kilogram, live weight (about US$ 0.22 per pound), up 4% from an estimated cost of R$1.40 per kilogram, live weight (about US$ 0.21 per pound) from the same period of 2003. These prices in dollars are based on an average exchange rate of R$3.00 per dollar during Jan-Jun 2003-04. The exchange rate as of Aug. 30, 2004 is R$2.95 per dollar.
 
During Jan-June 2004, the price of soybean meal increased by 30%, compared to the same period in 2003 due to booming soybean exports and lower than expected production.
 
However, during the same period, corn prices remained stable. Post projects feed prices to remain stable during the 2004-05 crop year (Oct 1/Sep 30), based on current estimates that soybean and corn crops will be higher than the previous crop year and lower volatility of the exchange rate. The new crop plan announced by the federal government in June 2004, maintained the volume of subsidized funds available to corn producers to finance their cost of production at R$400,000 (US$ 133,000) per producer.
 
Animal Health Update
 
Brazil established in 2002 a program to monitor migratory birds from the South Pole, Argentina, and Paraguay. Since 2003, this program was improved to monitor and tests birds with potential to carry the Avian Influenza virus. The program is a joint effort of the Ministry of Agriculture, Ministry of Health, and Ministry of the Environment.
 
Since the outbreaks of Avian Influenza in Asia, the Brazilian government has activated the Sectorial Chamber for Poultry and Swine to develop preventive measures against the possibility of Avian Influenza being introduced in Brazil. In addition to the animal health requirements, which are part of the National Poultry Health Program, several preventive measures have already been adopted: tightening controls at ports and airports for tourists and visitors arriving from Asia, prohibition to import paddy rice from Asian countries, prohibitions for visitors from Asia to visit Brazilian poultry farms, and new restrictive import requirements for imported poultry genetics.
 
Nitrofuran
 
The European Union agreed to lower the spot check from 100% to 20% for Brazilian poultry meat for traces of the banned antibiotic nitrofuran. According to trade sources, since August 2003, no residues for nitrofuran have been found on Brazilian poultry samples due to the action plan put in place by Brazilian officials to address the deficiencies and enforce the action plan.
 
Consumption
 
The outlook for 2005 calls for a rebound in broiler consumption compared to this year, mostly because of a projected decrease in the unemployment rates, higher per capita income due to the improvement in economic conditions and higher funds allocated to social programs, which could have a small impact on food consumption in general.
 
In addition, demand is expected to increase from the food service industry for products such as frozen chicken meals, pre-cooked meals, and chicken burgers, the report said. In addition, broiler meat is more affordable to lower income consumers compared to beef and pork.
 
There are no statistics on the structure of domestic broiler consumption between whole birds and parts. However, Brazilian consumers still have an overwhelming preference for large whole broilers as a result of lower prices relative to beef products. However, the structure of broiler demand is changing in Brazil according to some market analysts. Since the economic stabilization in late 1994, there has also been a shift in consumption toward more highly processed broiler products, mostly among the Brazilian middle and upper classes.
 
The traditional diet staples, rice and dried beans, are losing ground to animal protein products such as poultry and dairy products. Large Brazilian poultry processors are responding to these changes by shifting their sales mix strategies toward broiler parts (mostly leg quarters and breast meat) and further processed value-added branded products, such as frozen chicken meals, pre-cooked meals, chicken nuggets, and chicken burgers. The institutional, food service, and fast food markets also offer great potential for Brazilian firms. Tailoring products to these sectors' needs is key to the processors' new strategies.
 
Trade
 
Post projects broiler exports in 2005 to increase by 10% in volume because of the following factors: a) continued expansion into new markets due to market promotion programs; b) positive impact on Brazilian poultry exports due to the outbreaks of Avian Influenza in different regions of the world, and c) favorable exchange rate which makes the Brazilian product highly competitive.
 
Overview of 2004: During the first half of 2004 broiler exports reached 1.1 million metric tons, up 22% from the same period last year. This expansion in volume is higher than initially estimated by trade sources early in the year. In addition, the expansion in value of exports is significantly higher at 58%, compared to the same period in 2003 due to an increase of 28% in the average export price. The Brazilian Poultry Exporters Association (ABEF) informed that the total volume exported could have been higher this year if the shortage of containers did not affect some shipments combined with the strike of Brazilian government inspectors that temporarily hit all exports of agricultural and food products.
 
The significant increase in the value of exports in 2004 can also be attributed to the following strategy adopted by major broiler packers and exporters: (1) prioritize the valorization of chicken prices due to the outbreaks of Avian Influenza in different regions of the world; (2) concentrate efforts on the exports of high value products (parts and processed broilers); and, (3) expand and/or maintain volume by market promotion in non-traditional markets.
 
Major Market Destinations
 
Japan
 
Exports of broiler parts to Japan increased by 80% in volume during Jan-Jun 2004, compared to the same period in 2003, while the value of exports increased significantly by 190%. The average price of chicken meat exports to Japan in the period increased by 61% from US$ 988 to US$ 1,590 per metric ton, FOB.
 
According to our trade sources, the increase in the volume exported to Japan is due to the ban on fresh/frozen poultry from China, Thailand, and the United States. The volume of exports to Japan would have been higher if consumption in that market had not declined.
 
Brazilian traders estimate a decline in chicken consumption in Japan of nearly 20% during 2004. Traders say that higher exports of chicken meat toJapan have somewhat offset the impact of the decline of chicken meat exports to Russia and the European Union during the first half of 2004.
 
Brazilian poultry exporters also expect trade with Japan to continue to be strong in 2005 due to continued Japanese import restrictions from other suppliers because of the Avian Influenza.
 
Russia
 
Brazilian Chicken meat exports to Russia (whole and parts) decreased by 31% in volume during Jan-Jun 2004, compared to the same period in 2003. Although exports of whole broilers remained nearly flat at 40,000 metric tons, broiler parts dropped by nearly 50% during the first half of 2004.
 
Although the total volume of broiler exports to Russia declined by 31%, the value of exports increased by 7%, compared to the same period in 2003. According to Brazilian exporters this increase in value is the result of higher export prices to Russia and the quota system that contributed to increase the cost of imports. Brazilian exporters are also optimistic that the new Russian government resolution that allows redistribution of poultry meat may contribute to increase their market share in the Russian market in 2005.
 
European Union
 
Exports of broilers to the European Union dropped by 12% in volume, during the first half of 2004 due to the following factors: (1) increase of 75% in the tariff for broiler parts (chicken breast); (2) overall drop of 5% in poultry consumption in the European Union due to the effects of Avian Influenza; and, (3) Major drop of nearly 50% in the export of chicken meat, mostly parts, to Germany due to competition from other suppliers and the impact of Brazilian meat with residues of nitrofuran. Brazilian poultry exporters are optimistic that they will recover their market share in the European Union in 2005 due to an expected increase in poultry consumption and higher exports to Germany.
 
Middle East Markets
 
In general, volume of Brazilian broiler exports to the Middle East markets increased by 22% during the first half of 2004. Saudi Arabia remains as the largest market for Brazilian poultry exports in volume and second in value. During the first half of 2004, exports to Saudi Arabia, mostly whole broilers, increased by 13% in volume and 37% in value.
 
Although Brazilian poultry exporters are optimistic about increasing exports to Saudi Arabia in 2005, they are concerned about possible restrictions from the Saudi government intended to protect the local poultry industry. Trade sources reported that the Saudi poultry industry could file an anti dumping case against Brazilian poultry imports.
 
Other markets
 
Brazilian chicken meat exports to non-traditional markets increased by 118% during the first half of 2004. Exports to the Former Soviet Republics increased significantly by over 400% during the first half of 2004, mostly due to higher exports to Ukraine and Georgia. China also became an important market for Brazilian exporters with imports increasing from an insignificant volume of 600 metric tons during Jan-Jun 2003 to 19,655 metric tons during Jan-Jun 2004.
 
Stocks
 
There are no official stocks of poultry in Brazil.
 
Policy
 
There have been no changes in poultry production policy since our previous annual report.
 
Marketing
 
The Brazilian Poultry Exporters Association (ABEF) is a private, non-profit organization formed by the largest poultry processors and exporters. ABEF has similar goals and programs compared to the U.S. Poultry and Egg Export Council (USAPEEC). ABEF has worked in the past as a national lobbying group for poultry exporters with program activities aimed at the Brazilian government, international organizations, and foreign governments to guarantee market access and reduction of non-tariff barriers for Brazilian broiler exports.
 
The five largest poultry exporters account for nearly 90% of all poultry exports from Brazil, and the two leading poultry processors - SADIA and PERDIGAO account for 51% of all poultry exports.
 
ABEF was one of the first private organizations to implement its export promotion together with the federal government's market promotion agency - APEX. Since 2000, ABEF has participated in several trade shows overseas, mostly in Europe, Asia, and the Middle East.
 
Promotion activities include in store promotions, general media activity, and market research. Although similar to FAS's market promotion programs, ABEF includes several market access activities such as eliminating sanitary barriers and conducting trade servicing, under the budget for market promotion. ABEF's 2004 budget for market promotion is estimated at US$1.5 million, of which APEX funds 43%.
 
Commodity Outlook, Turkey
 
Production
 
Note: There is no official data on turkey production in Brazil. Data provided in this report is derived from interviews with sources from SADIA, which accounts for about 90% of turkey production in Brazil.
 
Brazilian turkey production is estimated to increase by nearly 15% in 2005 because of an expected rebound in domestic demand due to the improved conditions of the Brazilian economy, and booming turkey exports. The second poultry packer in Brazil also announced a major investment in a new plant in the center-west region of Brazil to increase production of turkey for the export market.
 
Consumption
 
The projected economic growth of 5%, lower unemployment rate, and higher disposable income will likely contributed to increase turkey consumption in 2005 by nearly 6%.
 
Frozen Ready to Cook (RTC) turkey consumption remains highly seasonal in Brazil. Trade sources estimate that 85% of whole turkey sales occur during the pre-Christmas period, because consumer habits in Brazil favor turkey consumption during this holiday season. However, processed turkey products, such as sliced loaf and nuggets are consumed throughout the year. This is part of Sadia's business strategy to increase consumption of processed turkey products and to expand consumption of whole turkeys during other major holidays in Brazil.
 
Trade
 
Turkey exports are expected to continue to increase in 2005, after an-all time export record estimated for this year. During Jan-Jun 2004, turkey exports in volume increased by nearly 24% compared to the same period last year, which reflects the competitiveness of the Brazilian product. The value of turkey exports during Jan-Jun 2004 increased significantly at 73% compared to the same period last year due to an increase of the average export price.
 

Source: USDA