December 27, 2013

 

 

 

 

 

 

In a slow, subtle but irreversible manner, the world poultry market is shifting gears and changing direction. For one thing, after growing at a 6% to 7% pace in the 1990s and by 3% to 4% rate in recent years, world broiler exports are only growing at a 1% to 2% annual rate in both 2013 and 2014.

 

While this is partly due to slowing economic growth in developing countries, that does not tell the whole story: At one time, broiler meat exports grew quicker than any other protein line. But according to the USDA, from 2009 to 2014 world chicken exports increased 27.8% while those of pork rose 28.6%.

 

Nor is chicken performing more poorly only in comparison to pork. The USDA projects that from 2011 to the end of 2014, world exports of chicken and turkey will have expanded 12.7%, while those of beef and veal will rise by 13.8%.

 

On the supply side, with feed costs falling, the production cost of less efficient red meats will fall by more than those of poultry. Demand-wise new East Asian consumption trends imply that chicken exports may not grow any faster than those of pork, and may get more competition than they expected from beef too.

 

That is partly due to the nationalistic, import substitution policies of countries like Russia, and also due to the fact that as the first meat to be exported en masse in the late 20th century, export volume growth for chicken is topping out before that of other meat lines. Moreover, particularly in countries like China where its import increased thousands of percent over the past four years, higher East Asian incomes are being increasingly spent on imports of red meat lines like beef.

 

Moreover, as our article on China discusses, chicken now faces a very steep marketing challenge in its most populous national market. Alongside the internal policies of large poultry consuming countries, there are other strong forces transforming our assumptions about the chicken meat trade.

 

For example, from 2003 to 2006, Brazil's broiler meat exports grew 106%, those of the United States by 41%, Argentina's by 321%, while Thailand's fell 23%. While many continue to assume that Brazil's poultry industry remains an unstoppable giant, in reality, this is no longer the case: From 2009 to 2013, Brazil's broiler exports increased 12.5%, America's by 11.6%, Thailand's by 42% and Argentina's by 99%.

 

In sum, before the turn of the decade, Brazil's exports were rising several times faster than all its competitors except Argentina. Since 2009, Brazil's broiler exports have barely grown faster than those of America while those of Thailand and Argentina have grown many times faster. Although the export boom is also over for America, Brazilian chicken export growth has slowed down far more sharply than that of its US competitor.

Internally, with both Brazilian and US per capita chicken consumption at the near saturation level of 35kg to 40kg, Brazil's domestic poultry demand rising no more quickly than that of its main competitor, the United States. Except that America contains 50% more people, finds its domestic market growing faster than its exports. The larger US scale economies brings are further multiplied by its greater production consolidation and technological lead. Among the top three poultry exporters, only Thailand appears to have the potential to sustain both internal consumption and export growth of near 5% over the better part of a decade.

 

Externally, Brazil's plentiful, inexpensive feed finds itself pitted against equally low Argentine production costs in its Latin American back yard. In the rest of the world, it faces higher US broiler productivity in broiler rearing and processing.

 

At the same time, in the EU and wealthy Asian countries like Japan, Thai cooked chicken throws a combination of higher value-added content, superior marketing and distribution and lower labour costs that large South American producers have barely started to address.

 

But the pecking order of poultry producers is rearranging more than just export market shares. After nearly a decade when developing countries enjoyed the highest broiler rearing returns, profitability is now shifting westward. Enjoying bumper harvests, slower growing feed demand and lack of government price supports, feed costs in the Americas fell more than in Asia. Alongside unexpectedly strong demand growth in America, recovering live broiler prices in Brazil, slow but steady export growth made western broiler rearing returns flourish in 2013.

 

By comparison, with the exception of Thailand, slowing world economic growth meant that emerging markets like Russia, China and India suffered from a broiler meat oversupply, slack demand or both.

 

With western feed costs falling by more than those in Asia and consumers continually opting for convenience, broiler farming's profitability moved westward, while export momentum appears to be shifting towards North America and Thailand.