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COMMENTARY & ANALYSIS

December 6, 2017

A history of Brazil's dominant, dynamic -and now slow-growing chicken sector
 
After years of meteoric growth, Brazil's chicken meat production is growing more slowly than that of America. With consumption expanding less than 1% a year, export windfalls cannot prevent stagnation from setting in.
 
By Eric J. Brooks
 
An eFeedLink Hot Topic
Today, Brazil is the undisputed world poultry king. Having overtaken China as the second biggest broiler meat grower, it is the world's top exporter, shipping a million tonnes or a third more chicken than America annually. Even so, Brazilian poultry's origins are humble: Our story begins in the early 1960s when despite poultry's feed efficient growth, Brazilians were paying three times more for their chicken than they did for beef.

At that time, many veterinarians and poultry farmers were brought to the United States on USDA-sponsored three month introductions to modern poultry raising techniques. Upon returning to Brazil, many of those USDA trained farmers modern chicken raising enterprises, some of which consolidated themselves into today's leading integrators. They tended to cluster in Brazil's cooler, southern regions near large metropolitan centers, such as Sao Paulo or Rio de Janeiro.
 
That era was marked by the mass importation of efficient breeder broilers from the United States. Blessed with plentiful feed inputs, land and water, broiler meat production took off like a rocket. It rose from less than 50,000 tonnes in 1960 to 1.25 million tonnes in 1980. From that time through to Brazil's early 1980s debt crisis, the industry drastically slashed unit production costs and chicken's real price, enabling production and domestic demand to expand at an average 20% annual rate.
 
The industry experienced its first growth deceleration towards the end of this era, after the mid-1970s oil crisis. Brazil's early 1980s debt crisis lowered domestic consumption just as the industry's production capacity was being ramped up. This freed up much chicken meat for mass exporting, which had only commenced a few years earlier. Brazil was still not competitive in whole birds but found it could leverage low labour costs to pursue niche markets such as chicken parts or processed chicken meat.
 
Even with both productivity and production less than a third of US levels, it briefly rivaled America as the top chicken meat exporting nation. This however, was not the case when after its economy recovered in the mid-1980s. From 1980 through 2000 inclusive Brazil's chicken consumption growth (+8.5%/yr) outraced its chicken meat production growth (+8.1%/yr), thereby limiting how much it could export.
 
With Brazil's domestic chicken consumption growing up to four times faster than America's, it could not meet domestic demand and still have surplus chicken meat available for export. Whereas US chicken exports totaled a million tonnes by 1992 and 2 million tonnes by 1996, Brazil's shipments stayed below 500,000 tonnes until the late 1990s and only exceeded a million tonnes after 2000.
 
The turn of the century however, brought important changes both to Brazil's poultry industry and its status in the world market. Supply-wise, from 2000 through 2017, average output growth (+4.8%/yr) decelerated but domestic consumption's pace of expansion (+3.6%/yr) did so by even more. That enabled exports to expand by 9.4% over the past 17 years.
 
By comparison, scarcer feed supplies, a high US dollar and slowing economy limited the growth of US broiler output (+1.8%/yr), exports (+1.8%/yr) and consumption (+1.9%/yr), such that by the mid-2000s, it overtake America as the world's top broiler exporter. From exporting less than a million tonnes in the late 1990s, by 2004, Brazil was exporting 2.4 million tonnes of meat, overtaking America's 2.2 million tonnes.
 
Partly due to bird flu, mostly due to its more abundant, elastic supply of feed crops, Brazil's lead over the United States has steadily increased. 2018 will see an extension of this trend, as Brazilian broiler exports expand 3.8% to a record 4.15 million tonnes. That is slightly faster than America's respectable but slower 3.2% increase, to 3.19 million tonnes.
 
Even so, we see a definite slowdown in Brazilian broiler fundamentals. The USDA estimated 4.1% rise in 2017's production is a fraction of the production increases taken for granted in previous years. –It belies the fact that after decades of 10%+ growth, chicken meat output has fallen in three of the seven years after 2010.
 
This slower pace of growth is continuing into 2018, with production rising 2.8%, to 13.8 million tonnes. While all fundamentals have decelerated, none more so than domestic consumption. Hobbled ed by years of recessionary economic conditions, it is increased by a less than expected 1.5% in 2017 to 9.15 million tonnes (9.25 million was initially forecast).
 
2018's domestic consumption increase has also been trimmed from the initial 9.4 million tonnes to 9.32 million. 2018's 1.5% rise in chicken consumption is lower than that of a mature market like America's. Only exports continue to drive growth, rising 3.8% to a USDA projected 4.15 million tonnes, from 2017's 4.00 million tonnes. It is because of domestic chicken consumption's growth deceleration that exports have gone from a tenth of the industry's output in the 1990s to 40% today.
 
With domestic consumption having risen by only 0.1% annually from 2012 through 2017 inclusive, 2.7% annual export growth led to an average five-year expansion rate of just 1.2% over the last five years. –Even with America's bird flue woes providing Brazil with an export windfall, the far more mature US broiler industry grew a markedly faster 2.7% annually since 2012.
 
In that sense, the chickens are coming home to roost for Brazil's broiler sector. I previously wrote an article ("Brazilian Poultry: Big, strong but not growing quickly anymore", 10 Dec 2010, http://www.efeedlink.com/contents/12-10-2010/a034a461-b459-43da-a5e6-74a933d7bbd7-1101.html) that declared Brazil's once-vibrant broiler sector "all grown up" and that the 2010s "will see a secular, long-term tapering off of growth."
 
On the one hand, the last five years have been a story where bird flu in places like America, China and Turkey have made Brazil's chicken trade performance come in far above expectations. All that was helped by Brazil's currency, which plunged by 50% not just against America's dollar but Argentina's peso too. That latter enabled it to take broiler import market share from Argentina in neighboring South American countries. These two factors gave Brazilian broiler exports a temporary but powerful one-off stimulus. 
 
On the other hand, with world chicken demand decelerating, Brazil's own poultry consumption has grown far more slowly than America's. Despite its impressive size, scale and global reach, Brazil's broiler sector faces –just as predicted– the longterm problem of maturity and stagnation.
 


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