July 31, 2003
China's Poultry Industry Need To Review Its Focus on Export for Growth
To China's poultry industry, the outbreak of SARS in the 2nd quarter of 2003 could not have happened at a worse time.
Since the end of 2002, most of the poultry meat processing enterprises in China have encountered increasing difficulties in their business operations. In particular, many of the large-scale broiler production enterprises with integrated meat processing plants have been operating in a loss situation.
During the early part of 2003, enterprises in China's poultry industry were hopeful of better times to come. They were looking forward to a forecast rise in Japanese poultry prices; and the anticipated visits of veterinary officials from the European Union (EU), which would hopefully lead to a lifting of EU's import ban on China's poultry products. Unfortunately, their hopes were shattered by the outbreak of SARS in China. Not only were the visits of EU veterinary officials cancelled, China's export of duck meat to Japan was also banned by the Japanese authorities on the excuse of avian flu.
In the domestic market, the already depressive consumer markets were also badly affected by the outbreak of SARS. Various restrictions and checks on transportation across different parts of China, to prevent the spread of SARS disease, have affected deliveries and sales in China's domestic markets. Especially hard hit were enterprises in the poultry industry, particularly those involved in broiler production, which were being pushed to the limits of their ability to survive.
However, behind every test and trial stand immense opportunities, which may potentially lead to scaling greater heights if appropriately tapped.
So far, enterprises within China's poultry industry, especially the large-scale integrated poultry production enterprises, have targeted their operations towards the global export markets; and have overlooked potentials which are available in China's domestic markets.
Of EU's total population of 375 million people, less than 200 million are living in countries which are target markets for China's poultry exports. Using pre-1996 poultry export trade statistics for EU countries as a base, it is estimated that even with the opening of all the targeted EU markets to China, the total number of consumers for China's poultry exports to EU will be less than 10 million.
On the other hand, Japan, which is China's major export market for poultry products, import only around 300,000 tons annually. Based on Japan's annual per capita consumption of poultry meat, the estimated number of Japanese who consume China's poultry exports to Japan is less than 20 million.
It should be noted that the Japanese and EU markets are matured markets. While the low-price strategy adopted by China's poultry production enterprises to compete in the global market is price-competitive, it has limited competing power as poultry products are consumer products, not capital goods.
Furthermore, China's low-price strategy is bound to threaten the local poultry industries in these poultry importing countries. It can be expected therefore, that the governmental authorities in these countries will do their part in preventing the access of China's poultry products into their markets, as far as possible. So far, technical barriers have been used against China's export of poultry products. Even if China should one day overcome these technical barriers by meeting all the standards stipulated by these countries, further obstacles in the form of anti-dumping objections can be expected.
China, with a population of more than 1.3 billion people and a per capita income of US$986 (in 2002), is classified as a country with lower-middle income levels. However, within the country, there are more than 100 million households with average income exceeding US$3000 each, which are equivalent to the average income level of households in developed countries. These figures indicate that there are already 500 million available consumers in China with the propensity for year-round consumption of poultry products. With further economic growth of China, this group of consumers will continue to grow.
In 2002, Mainland China's consumption of poultry meat totaled 5.8 million tons, with per capita consumption at a meager 4.5 kg. However, the figure for per capita consumption is not reflective of the actual state of household consumption, which are mainly minced poultry meat.
Most of the poultry meat in China's domestic markets are sold to manufacturers of ham and sausages, western fast-food restaurants and hotels. Very little of the more expensive poultry parts, like thigh and breast meat, are sold directly to household consumers, including the group with average household income exceeding US$3000.
With income distribution remaining largely unequal in China, there are evidently gaps in household consumption of poultry, which could be filled. Given the immense market potential available in China's domestic market, the focus of China's poultry industry on the global export market may be a case of "barking up the wrong tree".