December 26, 2018
World poultry recovery and re-invention: The Americas give way to tier 2 exporters
North and South American shipments fall a collective 358,000 tonnes over five years. Thailand, Poland, Turkey, Ukraine account for 71% of the 2014-19 increase in world exports.
By Eric J. Brooks
An eFeedLink Hot Topic
After expanding only 1% in 2018, the coming year should see a world chicken meat market revival. Based on USDA statistics, at 11.62 million tonnes, world broiler meat exports will rise an above-trend 4.2% over 2018's 1.115 million tonnes.
This is twice the 2.3% growth expected in world broiler meat production and in line with longer-term trends: From 2015 through 2018 inclusive, poultry expanded at below trend rates but even at this time, annual export growth of 2.7% exceeded 1.5% yearly growth in world output.
Reviving broiler sector fortunes are being led by booming Poland (9.9% non-EU export growth), which is spearheading EU export growth of 5%. Ukraine (16.7%), Thailand (5.3%) and Turkey (5.2%) are also growing strongly above trend. By comparison, America (3%) and Brazil (2%) are expanding their exports at a far slower pace that reflects their half-decade of misfortunes.
Demand-wise, broiler meat's revival is being led by China and Saudi Arabia, both of which are poised for two or more years of above-trend import growth. The latter saw its chicken imports fall 27% from 790,000 tonnes in 2017 to 575,000 tonnes in 2018. That occurred when religious authorities determined that chickens from its top supplier Brazil were being electrically stunned in a non-halal manner.
Saudi Arabia's mid-year blocking of Brazilian chicken followed a sanitation-driven EU ban on exports from plants that accounted for 35% of its shipments to the continent. After falling by 1.1% (or 42,000 tonnes) in 2017 (due to high domestic feed costs), these trade blockages made Brazilian exports fall by 4.2% or 162,000 tonnes in 2018.
Brazil's underperformance is a big part of the reason why world chicken meat exports only grew 1% in 2018. Earlier this decade, the USDA projected Brazilian chicken exports to exceed 4.3 million tonnes 2016 and top 4.5 million tonnes by 2020. Instead, 2019 will see Brazilian exports only partly recover, and remain more than 100,000 tonnes below their all-time high of 3.889 million tonnes in 2016.
Going forward, some Brazilian plants are now slaughtering chickens in a halal manner. On one hand, high soybean prices and low returns are causing Brazil's 2019 output to fall 2% and constraining the scope for an export revival.
On the other hand, Saudi importers are eager to restock low inventories, be it from re-approved Brazilian plants or newer, Islam compliant suppliers such as Turkey. Hence, Saudi chicken meat imports will partially rebound by 17% or 100,000 tonnes, to 675,000 tonnes, but Brazil will lose market share.
Similarly, China's recent African Swine Fever (ASF) epidemic is expected to boost 2019 pork prices and induce a shift towards poultry consumption. However, with China refusing to import grandparent stock from leading suppliers including America and France, the proportion of inventories accounted for by high productivity white feather broilers has fallen from over 85% three years ago to less than 50% today.
Consequently, low native broiler productivity will constrain Chinese chicken meat production in the face of rising demand. That will force Chinese chicken imports to rise a steep 33%, from 350,000 tonnes in 2018 to an eFeedLink estimated 465,000 tonnes or more in 2019. Collectively, Saudi Arabia, China, the UAE and Japan will account for nearly 50% of 2019's projected 424,000-tonne increase in world chicken meat imports –but the quantity and source of world chicken trade growth are rapidly changing.
Over the longer term, after growing at a 6.4% annual rate in the 2000s, the years since 2010 have seen world broiler meat exports rising at a significantly slower 3% annual rate. The slower growth is in large part due to Russia, which reduced imports by 85%, from over 1.30 million tonnes in 2001 to under 200,000 tonnes today, with most of this decline occurring after 2010 (see www.efeedlink.com/contents/11-16-2018/bd3f6da8-fbb7-45e5-90d7-faef9d3b68f0-a001.html
). –In other words, chicken meat exports in the rest of the world had to grow rapidly just to make up for over a million tonnes of lost Russian imports.
While Russian import substitution held back demand, supply-side misfortunes including high feed costs, a US bird flu outbreak and Chinese food safety scandals slowed down consumption growth and prevented exports from rising 4% annually over the past decade, as had been initially rejected.
On the other hand, this has had the effect of postponing pent-up poultry demand growth in fast-growing import markets into the 2020s. Hence, the 2020s is likely to see broiler exports continue to expand at an approximate 3% annual long-term rate.
At the same time, world poultry's former duopolistic structure is giving way to more diversified export sourcing. In 2005, America (34.4%) and Brazil (40%) accounted for over 74% of world chicken meat exports. Their share of the world poultry market fell to 66% by 2015 and based on USDA estimates, has fallen even more steeply, to 60% in 2019.
Interestingly even though their export volumes are now rising, based on USDA projections America (-114,000 tonnes) and Brazil (-111,000 tonnes) will collectively export 225,000 tonnes less chicken in 2019 than they did five years earlier, in 2014. This reflects America's 2014-15 bird flu epidemic, Brazil's feed cost inflation and subsequent temporary bans from EU, Saudi and Chinese markets.
If one adds Argentina's loss of the bankrupt Venezuelan market and subsequent domestic economic crisis, top North and South American exporters will collectively ship 358,000 tonnes less chicken in 2019 than they did in 2014.
On the other hand, the five years ending in 2019 will see Thailand (+354,000 tonnes), Poland (+221,000 tonnes), Ukraine (+182,000 tonnes) and Turkey (+52,000 tonnes) account for 70.5% or 809,000 tonnes of the 2014-19 increase 1.147 million tonnes increase in world broiler meat exports –with other EU countries accounting for most of the rest.
While the EU (+367,000 tonnes from 2014-19) appears to be a formidable exporter, it tends to hide Poland's rising market influence. EU statisticians officially only "count" estimated exports to non-EU countries. At 366,000 tonnes, Poland is the EU's single largest chicken meat exporter, supplying 24% of the chicken the EU sells to the rest of the world.
Superficially, this is less than half of the 900,000 tonnes Thailand is expected to export in 2019. –But Poland will also ship approximately 1,000,000 tonnes of chicken meat to neighboring EU countries.
Thus, if one counts Poland's chicken meat shipments to EU member nations, then it is the world's third largest chicken meat exporter, behind America and Brazil but significantly ahead of Thailand. From 16% of output in 2004, exports made up 45% of its nearly 3 million tonnes of Polish poultry meat production across all bird species in 2018.
While Poland makes the EU a net chicken exporter, it also depends on Ukraine for a large proportion of the chicken it imports every year. Ukraine leveraged its free trade agreement with the EU to double its poultry exports in five years, from a USDA estimated 141,000 tonnes in 2013 to 300,000 tonnes in 2018. With its currency staying at competitive low levels relative to the Euro, the USDA forecasts another 16.7% increase in Ukrainian chicken shipments, to 350,000 tonnes in 2019.
A similar though interrupted story is shared by Turkey, where exports skyrocketed from 2,000 tonnes in 2000 to 348,000 tonnes in 2014 before Iraq's civil war and the rise of ISIS disrupted growth for several years. With Iraq (which absorbs nearly half of exports) returning to oil-driven prosperity, Turkey's export growth has resumed. Shipments increased 6.4% in 2018 to total 380,000 tonnes, and are projected to rise another 5.3% to 400,000 tonnes in 2019.
Leveraging low wages and processing costs, Poland, Ukraine and Turkey all saw their exports grow from several thousand tonnes in the early 2000s into the 300,000 to 400,000 range. With domestic demand also growing strongly, both Poland and Turkey multiplied their domestic broiler production from around half a million tonnes at the turn of the century to 2.25 million and 2.45 million tonnes in 2018. Turkey accomplished a similar feat, growing its broiler production from 162,000 tonnes in 2000 to 1.2 million tonnes in 2018.
Thailand by comparison maintained its leading tier two exporting position by strategically using technology to weather eight years of crisis. Unlike the three above mentioned suppliers, Thailand was already producing 2 million tonnes of broiler meat in 2004, when bird flu made exports fall from 500,000 tonnes to 200,000 tonnes in just one year.
After 2012, Thai raw chicken exports were allowed back into Japan and Europe. Subsequently, its growth in chicken exports jumped from 3.4% during the 2000s to 7.6% in the years 2010-15. This boomed to an even higher 8.2% annual growth in the three years since 2015.
Going forward, these tier 2 chicken exporters enjoy competitive advantages that will enable them to enjoy above-trend growth into the foreseeable future. Turkey is geographically and religiously well poised to meet the increasingly strict halal chicken slaughtering rules demanded by wealthy Arab importing nations.
Poland has established itself as Europe's main chicken supplier to fellow EU countries and increasingly, as an exporter to fast-growing African and Asian nations. China's recent approval of Polish chicken exporting plants and more pending approvals to come should extend the growth momentum of its non-EU exports. Similarly, with even lower labor costs than Poland, Ukraine will continue leveraging its free trade agreement with EU while seeking export outlets in neighboring Arab and Central Asian states.
Thailand used the eight years when its frozen chicken was banned to specialize in the export of high value processed cooked chicken products such as frozen, ready-to-eat meals. Alongside creating a large, solid high-value market niche for itself among time conscious European and Japanese consumers, Thai integrators have created countless joint ventures and marketing alliances with their counterparts in Japan.
It is now taking advantage of ASEAN trade liberalization and its established regional distribution network to dominate Southeast Asia's poultry trade. Brazil, its main competitor in the region has a currency that is poised to appreciate versus the Thai baht and only competes against Thailand in lower-end frozen chicken lines.
Hence, expect the world chicken trade to grow by a respectable 3% annually well into the late 2020s. –But with two European, one Middle Eastern and one Southeast Asian competitor biting at their heels, the Americas' share of the world broiler market will gradually inch down from 60% to around 50%.
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