December 10, 2014
Argentina's broiler export safety valve
Once famous for its steak, Argentina exports nearly 100% more chicken as it does beef. With domestic consumption levelling off, the sixth largest exporter needs to keep climbing up world market rankings.
by Eric J. BROOKS
An eFeedLink Hot Topic
Brazil may be Latin American poultry's face in most of the world but in South America, Argentina's broilers are more likely to come to mind. 2013 saw Argentina's broiler exports to South America overtook those of Brazil. Although this success is built on strong fundamentals, one of its two growth drivers is no longer there, making neccessary change in the industry's production and marketingLike Brazil, Argentina has plentiful feed crop supplies relative to a small population. Over the past fifteen years however, its domestic market also did it favours -thereby providing support in a manner which it no longer is doing.
Production outraces consumption
From just under 20kg in the early 2000s, per capita chicken meat consumption jumped to 40kg in 2014 –and has levelled off since 2011. To a certain extent, this was due to this steak eating country's economic hardship, as it was accompanied by a drop in per capita beef consumption from 68kg in 20078 to barely 60kg at this time. Per capita chicken consumption went from 30% of per capita beef consumption in 2000 to a USDA estimated 67% today.
This allowed chicken meat output to rise at a near 10% rate for well over a decade, outracing a comparably impressive, 7.4% average annual rise in chicken consumption from 2004 to 2014. Broiler meat production jumped from 640,000 tonnes in 2002 to 2.10 million tonnes in 2014.
The only problem is that with domestic consumption flattening out, so are its formerly spectacular production gains. Even during the boom decade, with output growing 30% faster than consumption for over a decade, a widening gap between supply and domestic demand was bridged by strong export growth. This can be seen in exports' share of broiler output, which went from 1.3% in 2000 to a USDA estimated 21.8% in 2015.
With the past fifteen years seeing strong economic growth throughout Latin America, more than geography was on the side of Argentina's South American export drive. Large poultry exporters are known for specializing in a particular type of sub-product.
America is known for its export of bonier, dark meat parts. Thailand for cooked chicken to large, wealthy markets and frozen whole birds to nearby ASEAN states like Cambodia. Argentina, by comparison, mostly exports whole, frozen chickens to neighbouring South American countries. They comprise almost 70% of its total chicken meat export volume and approximately 60% of overall broiler meat production. This however, limits Argentine broilers' market scope, both in South America and further overseas.
From 2009 to 2013, Brazil took advantage of higher Middle Eastern prices, redirecting part of its exports away from Latin America to Central Asia, particularly the Middle East. As Brazil's share of South American broiler imports fell from 67% to 40%, Argentina's climbed from 19% to 40%. –But do note how at the same time, America's share of Latin American broiler exports also increased, from 14% to 19%:
The reason Argentina shared Brazil's lost market share with US chicken meat is the following: Whereas Brazil previously provided its Latin American neighbours with both whole birds and chicken parts, Argentina could only provide mostly whole chickens, America mostly frozen chicken parts.
Product diversification, new large markets needed
Having said that, frozen whole broilers is not an entirely good niche to be in. While the Middle East is a large, rapidly growing importer of whole birds, Turkey's relatively close geographic location gives it an advantage in supplying Central Asian and North African markets.
Moreover, as Latin American consumers become wealthier, they too, will demand more of their broiler meat in the form of chicken parts, processed chicken or high value-added, pre-cooked, ready-to-eat chicken based meals -all subcategories in which Argentina's broiler sector is currently very weak and lacking.
Although the USDA reports that Argentina's integrators are tooling up to produce chicken parts as a larger proportion of their output, here too lies a long-term challenge. For now, Argentina's low labour costs keep it competitive. However, the country's currency is near rock-bottom and after its recent default, has nowhere to go but up.
That will make it harder for Argentina's broiler meat to compete against low-cost US chicken parts in South America, especially after America signed trade liberalization agreements with several Latin American countries including Chile and Colombia.
Nevertheless, the short term does look bright: After Russia banned most western chicken imports, Global Meat News announced that Russia will import at least 30,000 tonnes of Argentine chicken in 2015, double the 15,000 tonnes purchased in 2014. Even so, it is expected that new agreements between Russia and Argentina will soon be announced and this volume will be exceeded. It is also why
Over the long run, Argentina will need to penetrate several more markets the size of Russia: Squeezed between a slowing domestic market where double digit growth days are over, an increasingly competitive South American poultry market and Turkish chicken's rising prominence in Middle Eastern dinner tables, the true test of Argentina will be if it can diversify its export base beyond South America.
Since 2012, per capita chicken consumption has been near the 40kg saturation point seen in western countries, where domestic demand can only be boosted by nominal population growth. On paper, Argentina possesses feed resources, sanitary standards and low costs to become the world's third largest poultry exporter after Brazil and America. -And for its broiler sector to maintain its dynamic growth pace, the sixth ranked exporter has no choice but do exactly that.
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