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COMMENTARY & ANALYSIS

December 20, 2017
 
China, bird flu and chicken meat's supply-side dilemmas
 
For the first time in decades, chicken production is growing more slowly than that of red meat. -But when China's unique predicament is factored out, the industry continues to expand at a healthy 3%+ rate. Will supply rebound and satisfy healthy demand growth fundamentals?
 
By Eric J. Brooks
 
An eFeedLink Hot Topic
 
 
After decades when it was the world's fastest-growing meat line, the 2010s are becoming the decade when poultry meat production decelerated. The USDA projects world chicken meat production to rise 91.278 million tonnes in 2018, a mere 1.2% more than the 90.175 million grown in 2017. This compares to a projected 2% increase in the collective, combined output of beef and pork.
 
Private analyst estimates also paint a conservative forecast. Rabobank's Q4 Poultry Quarterly for example, estimates 2018 world production growth of 1.3%. This is a severe slowdown compared to what was once taken for granted: From 1990 through 2010 inclusive, world chicken output expanded at a 5.3% annual rate.

Over the longer term, chicken meat still leads… or does it? Based on USDA estimates, from 2010 through 2018 inclusive, world chicken meat output will have expanded at 2.0% annual rate. That's less than half its pre-2010 pace but still significantly faster than beef (0.7%), pork (1.3%) or even fluid milk (1.7%).

-Even so, the last five years have seen bird flu profoundly impact poultry production: From 2015 through 2017 inclusive, world chicken meat production has risen at only 1.2% annual rate, compared to 2.8% for beef and 2.7% for fluid milk.

Much of the slowdown in world poultry production is due to China, which ironically was once the greatest driver or world poultry demand. Accounting for nearly 20% of world poultry output at the start of this decade, China's broiler meat output expanded at a 7.1% annual rate in the 20 years spanning 1992 to 2012 inclusive. Without China, world chicken meat production would have risen at a 4.7% annual rate rather than the 5.0% rate it grew by over these two decades.

On the other hand, from 2012 through 2017 inclusive, China's broiler meat output has contracted at a -4.1% annual rate -And Do Note: if one subtracts China's negative growth, chicken meat output expanded at a still healthy 3.1% annual rate in the rest of the world in the five years from 2012 through 2017.

With its escalating bird flu epidemics, food safety scandals, ban on breeder broilers and cultural bias against chicken, China is a unique case (please see our Markets article on China broilers). Even so, without a rash of bird flu epidemics spanning regions as diverse as the United States, India, Turkey and France, world broiler meat production outside of China could be expanding closer to a 3.5% annual rate.

America's bird flu epidemic, while nominally shaving a fraction of a percent off world poultry production, had a far greater impact than meets the eye. First, while it did not impact US broiler output as much as feared, America's bird flu epidemic has left it exporting at least 600,000 tonnes less chicken than it would be by this time. That is one reason why not only did chicken production lag that of red meat but why beef and pork exports grew more quickly than those of chicken since 2012.
 
Second, together with bird flu epidemics in China and a raft of regions ranging including Europe, the Indian subcontinent and America, world broiler output is almost 5 million tonnes lower in 2018 than what was expected at the turn of the decade. At least 3.2 million tonnes of this supply shortfall is due to China and its bird flu epidemic, with bird flu outbreaks in other parts of the world contributing to the rest.

Third, bird flu hit not just major poultry producers and exporters but also several leading world suppliers of grandparent broiler stock including America and France. The resulting trade bans and unwillingness to import from grandparent stock from afflicted countries has slowed down output growth in places as diverse as China, India and Thailand.

Going forward, there is much uncertainty ahead. Will China's bird flu situation improve? Or will it be as bad as 2017, which saw more human cases than in the previous four years combined? Will bird flu continue to bedevil the industry in places outside China to the point of derailing forecasts? Only time will tell.

The good news is that while no one expects world poultry meat demand to increase by 5% yearly as it did prior to 2010, the potential for decades of 3%+ consumption increases alongside much faster growth in markets ranging from the Middle East to India is still there. For now, the market will absorb all the exports it can get and with any luck, China will get back on its growth path before 2020.
 


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