May 11, 2020

A pause of uncertain duration: Bird flu, coronavirus interrupt Polish poultry's vibrant growth

More export-dependent than ever, the sector's fate depends on the world economy's post-Covid-19 recovery.

By Eric J. Brooks

An eFeedLink Hot Topic

Boxed by both human and animal diseases, Poland's normally vibrant poultry sector is taking an unscheduled pause. With marginally higher domestic consumption counterbalancing a sharp fall in non-EU exports, poultry meat output will remain flat near 2.7 million tonnes –and for Poland, that is quite a change.

2019's 4% output growth, while faster than average world output growth, was slow by Polish standards. From 2000 through 2015 inclusive, output across all poultry meat lines grew an average of 9% annually. Growth slowed down over time but remained far more rapid than in rival tier 1 or 2 exporters.

Broilers account for 80% to 85% of any given year's poultry meat production Their still rapid growth is partially counterweighted by the slower-growing output of meat from turkeys, geese, duck, and other fowl, as their European consumers have slower demand growth.

After 2015, growth slowed but remained rapid with annual output of poultry (+5.9%) and broilers (+7.2%) becoming increasingly export-driven (+14.9%). Based on figures from FAO and AVEC, exports accounted for 10.5% of Polish poultry output volume in 2000, 22.5% in 2010, and 54% last year.  Over this time, exports of all types of poultry meat to neighboring EU nations were outpaced by faster chicken meat exports to non-EU nations.

Before recent human and poultry disease epidemics, the industry had enjoyed a good 2019. Led by broilers which expanded output 4% (to 2.242 million tonnes). Poultry meat output across all lines increased by 3.4%, from 2018's AVEC estimated 2.63 million tonnes to 2.72 million tonnes last year.

Exports were doing even better. From an AVEC estimated 2018 exports of 1.311 million tonnes (with 0.365 million tonnes going to non-EU destinations), they rose 12% to 1.468 million tonnes (with 0.441 million tonnes going to non-EU destinations, 20.8% more than last year). The only dim spot was export revenues, which only rose 5% (to US$2.53 billion) due to lower export prices.

The industry would have had an even better 2019 but a late-year bird flu outbreak broke the industry's momentum. Infecting not just broilers but also turkeys and guinea fowl, it was identified as strain A/H5N8, which is unlikely to infect people but can be carried on shoe soles from one infected area to another. Going forward, late 2019 bird flu outbreaks in eastern Poland were followed by its spread to western regions in early 2020. This has dented both supply and demand forecasts.

It will have a particularly strong impact on exports. They account for nearly half of all poultry production. From 13% of all exports in 2009, non-EU destinations accounted for 30% of its poultry trade and 15% of output.

Bird flu made many non-EU countries including South Africa, South Korea, Singapore, Japan, Taiwan, and Japan imposed blanket bans. Others such as Russia, Ukraine, and Saudi Arabia partially banned or restricted their imports of Polish poultry. Alongside this trade-related demand drop, the culling required to get bird flu under control is also constraining 2020's expansion.

Fortunately, EU nations absorbed 70% of export volumes. They did not put up trade barriers in response to these bird flu outbreaks. On one hand, a large proportion of Poland's EU exports go to European nations such as Germany, Italy, and Britain, whose economies have been impacted by the lockdown –an impact not fully reflected in the most recent reports by the USDA and other agencies.

On the other hand, both in Poland and in neighboring Western European nations, newly unemployed consumers are substituting cheaper poultry in place of red meat. This implies that while EU demand for Polish poultry exports will remain flat, non-EU shipments may fall by a third, making for an overall 10.1% drop in Polish poultry meat exports, from 2019's 1.468 million tonnes to around 1.32 million tonnes this year.

Bad news on the trade front is being counterbalanced by good, though not great demand growth. On one hand, with the recession forcing Poles to substitute poultry in place of pork, we expect per capita consumption to rise 2.2%, from 27.5kg in 2019 to 28.5kg this year. Poland's population has stayed flat near 38 million people for the last two decades, meaning that 2.2% will also be the increase in domestic consumption. While this helps buffer export losses, this one-off increase hides a longer-term problem.

In the years 2000 through 2014, average Polish per capita incomes increased by 2.5 times, from US$10,000 to US$25,000, helping per poultry meat consumption double from 14kg to 28kg.

–But from 2014 through 2019 inclusive, per capita income increased by another 21% (to US$30,250) and per capita poultry consumption stayed flat in the 27kg to 28kg range. This is because Polish consumers opted to spend additional income on pork, whose per capita consumption kept rising during this time.

From 4.4% annual increases in the years up to 2015, domestic poultry demand growth has averaged 0% in the years since.

Hence, while domestic consumption is insulating producers from 2020's bird flu and coronavirus export losses, domestic consumption has ceased to be a growth driver. For Polish poultry to continue growing at anywhere close to rates taken for granted since 2000, exports need to rebound.

Assuming it is getting bird flu under control, poultry inventory growth is expected to rebound but H2 but much depends on external factors: How quickly will non-EU nations remove their trade restrictions on Polish poultry exports? How quickly will its large EU customer base emerge from Covid-19 lockdowns and resume economic growth?

Deeply integrated with low labor costs, leading-edge farm management, and economies of scale, Polish poultry remains cost-competitive. With over half of poultry meat output now shipped outside its borders, the industry's starts and stops will now closely track the economic momentum of its trading partners. Both the world economy's recovery and Polish poultry's post-2020 prospects remain highly uncertain.

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