September 26, 2003
China Poultry And Products Annual 2003
Report Highlights:
China's poultry imports during 2003 and 2004 are forecast to fall from last year due to SARS, quarantine/certification requirements and the import ban on 7 U.S. States due to Avian Influenza. Over the next couple of years, China's poultry industry is not forecast to compete with U.S. frozen broiler cuts in key export markets. However, China will increase exports of highly processed cuts and cooked products. China's poultry meat production during 2004 is forecast at 10.1 million MT, two percent above this year's level. The output increase is due to a recovery in consumption following the end of SARS coupled with expectations that the Japanese and EU export markets may reopen.
Situation and Outlook: SARS Outbreak in 2003 Negatively Impacts China's Poultry Market
The United States remains the largest supplier of poultry to China. The U.S. domination of this market is expected to continue in 2004, as other countries cannot compete with U.S. product. Additionally, as the result of a bilateral agreement, the United States is the only country that can sell poultry and other meat products directly to the retail sector. Other suppliers, such as Brazil, can only ship poultry products to Chinese processors, not retailers.
China's poultry meat production during 2004 is forecast at 10.1 million MT, two percent above this year's level. The increase is due to a recovery in consumption following the end of SARS and expectations that the Japanese and EU export markets will reopen. Poultry meat production in the first quarter of 2003 increased six percent over the same period of 2002 aided by low feed prices. However, the pace of production growth for all of 2003 is forecast to slow due to the outbreak of SARS in the second quarter. In particular, a rumour that the SARS virus originates in poultry pushed down consumption and prices. Although SARS is over for now, scientific research disputed the rumour and consumption has recovered to normal levels, it will still take months for poultry production to recover.
Japan is China's largest export market for poultry products, comprising 69 percent of China's fresh, chilled and frozen poultry exports in 2000. However, both Japan and the European Union shut down the market in 2001 because of quarantine concerns. Though the Japanese market reopened soon after for cooked products, the Chinese industry complains that Japan's stricter quarantine requirements narrow China's export opportunities and increase costs. China and Japan continue to have bilateral negotiations to narrow the differences and facilitate poultry trade between the countries. The growth in joint venture poultry operations has made these operations more competitive and resulted in increased exports to Japan of U.S. poultry processed in China. Though the amount is not clear, trade sources indicate a considerable volume of U.S. poultry is re-exported to Japan.
Negotiations on poultry access between China and the European Union will start soon. The Chinese industry reportedly feels optimistic about the chances for a re-opening. However, the industry also recognizes that the EU's additional health requirements and stricter quarantine inspections may constrain poultry export growth. China's poultry export picture was also recently impacted by Russia's application of an import quota. During 2003 China is only allocated 3,100 MT, only 10 percent of China' total export volume to Russia in 2002. The quota application will continue the next couple of years.
China's poultry production growth due to domestic breed chickens and non-chicken poultry as the industry strengthens quality to meet tougher quarantine and quality requirements.
China's total poultry production in the first quarter of 2003 was 4.08 million MT, about 6 percent up over the same period in 2002. The top three producing provinces were Shangdong, Sichuan and Guangdong. Poultry meat accounted for about 21 percent of China's total meat production, about 2 percent up from last year. The growth in 2003 is attributed to domestic-breed chicken, ducks and geese, varieties gaining acceptance on international market and becoming more popular here with consumers. Ducks and geese are considered healthier food by consumers, because more natural feed is reportedly used. Steady exports of down products and preserved goose and duck eggs are other reasons. Overall, China's poultry trade volume is very small compared with the magnitude of production, and this situation will not significantly change in the future.
Poultry product quality is improving and will continue over the next few years due to pressure from consumers and the government to reduce disease and the use of chemicals and drugs. Consumers are also paying more attention to physical health, environmental protection and tighter controls on growth of domestic operations, feed, slaughter, processing, and distribution.
In response to these concerns, the Chinese Government in January 2003 required that all newly opened animal drug plants obtain a "Good Manufacturing Practices" (GMP) certificate before production. The GMP system will be implemented for all animal drug plants by the end of 2005, and those that cannot meet GMP requirements will be closed down. The national standard (GB 18596-2001) for animal and poultry waste handling became effective. The Chinese Ministry of Commerce (MOFCOM), previous MOFTEC, recently issued a request to strengthen animal and poultry slaughter and standardized meat product distribution. Processed meat products will be subject to a reinforced system that they cannot enter domestic retail market without a certified mark "QS" (quality safety) in the latter half of this year.
In the long run, China's poultry industry will benefit from improved quality and competitiveness on both the domestic and international market. However, since approximately 70 to 80 percent of China's poultry production is raised on small, non-modern family farms, it will take time to see large-scale improvements.
As Chinese incomes rise and living standards improve, broiler consumption in China is shifting towards more processed products such as ready-to-cook, pre-portioned and breaded broiler parts. For consumption of highly processed poultry products, producers' brands are important because Chinese consumers believe that the well-known brands normally have better quality.
Currently, high-quality, domestic breed broilers are mostly consumed in the southern part of China, coastal areas or large cities where incomes are higher. Although western breed broilers are making inroads in northern China, high quality domestic breed broiler consumption is spreading the fastest. This trend will continue over the next few years in part because many Chinese consider broiler meat as a delicacy stressing color and taste. High-quality domestic breed broilers are considered tastier than western bered broilers--especially in traditional ways of cooking. Consumption patterns in China also reflect cultural differences. Consumers in the west prefer broiler chest meat and do not eat offal, while Chinese believe that paws, legs, wings and wing tips taste better. Because of lagging production of paws coupled with strong demand, the shortfall in offal must be met by imports. The United States will continue to remain the largest offal supplier for China over the foreseeable future.
Domestic breed broiler production grows fast while western breed broiler production falls due to consumers' preferences
Although China's broiler prices have been low over the year, broiler production has increased steadily. Profit margins are helped by lower domestic feed prices due to adequate corn supplies. Prices of high quality local breed broilers are about 30 to 50 percent higher than ordinary breeds. Given export frustrations, some companies traditionally involved in raising western breed broilers for export have started to focus on local breed for the domestic market. According to industry contacts, local breed broilers comprise about 90 percent along the Pearl River Valley, 60 percent along the Yangtze River Valley and 40 percent along the Yellow River Valley. In the future, local breed broiler meat may cut into the meat share of western breed broilers.
Due to fierce competition and stricter production requirements, increasing scale is being encouraged and moving faster than last year. Leading broiler companies in Shangdong province are increasing the scale of commercial farms, while reducing the number of contracts with smaller sized household farms as a way to prevent disease and reduce production costs. As evidence, contracts with family household have been reduced from 60 to 40 percent this year. Contracted household farms are now required to raise 5,000 birds at one hatching instead of 1,000-2,000 as in the past. Broiler production is also being concentrated to grain production areas for easy access to feed.
The Chinese Government no longer invests in broiler production. Existing state-owned broiler companies are being transferred into private share-holding companies. There are only a few foreign companies investing in the broiler industry in China. Most foreign investment is in slaughtering and processing or feed manufacturing. Most of their products are for Chinese domestic markets.
Despite the increasing scale of production, China's broiler industry faces challenges. The biggest problems are disease prevention and drug residue control. Up to now, there is no national official veterinary system. There are two standard animal drug residue laboratories at the national level and six animal drug residue test centers at the Ministry of Agriculture. Each province also has an animal drug residue test lab. However, it is still not enough to serve and monitor thousands of broiler plants and farms. Overlapping quarantine inspections by different government leading with similar inspection authorities have created more burdens for broiler producers, some to avoid inspections.
HACCP implementation appears out of reach for most small-sized broilers slaughter plants, thus limiting their ability to meet increasing stringent Chinese quarantine and certification standards. Most farms are small, and the over-density of birds sometimes causes low survival rates. Broiler production near large cities must also limit production due to increasing production cost. Shanghai has decided to close down 30 to 40 percent of livestock and poultry farms and move them to other places. The opportunity cost of pollution control in China is much greater than in western countries due to China's huge population density. Further, export difficulties still influence domestic prices.
During the first six months of 2003, prices of poultry products decreased because of SARS and the drop in food. Difficulties in exporting poultry meat during this period also increased supplies and pushed prices downward. Prices are expected to rise gradually as domestic consumption has rebounded following the end of SARS. The approaching public holidays (e.g., moon festival in September) also normally lead to higher poultry consumption. Prices are expected to remain stable in 2004 as feed production and prices are forecast to remain fairly constant due to sufficient corn supplies.
Trade
China's imports of broiler meat are forecast at 330,000 MT, a slight decline from the previous year and a 70,000 MT decrease from post's previous forecast. The reduced import forecast is due to China's outbreak of SARS in the spring and stricter implementation of quarantine and certification requirements. FAS/Beijing, in cooperation with USDA's APHIS regional office, continues to work with AQSIQ to find a way to ease these constraints on trade.
China's stricter requirements have impacted imports of U.S. poultry, the country supplying about 60 percent of China's imports. In recent months, several batches of U.S. poultry or other meat products were rejected due to supposed pathogens or chemical residues. China has imposed an import ban on seven U.S. States due to Exotic Newcastle Disease and non-pathogenic Avian Influenza (AI). Despite the fact that several of these states are free of these diseases, the ban remains. The ban on two other States for AI was lifted after FAS/Beijing coordination with AQSIQ and the Ministry of Agriculture, and post continues efforts on the remaining States.
The Chinese Government announced in August 2003 that all fresh and frozen poultry imports and exports must comply with the new national standard GB 16869-2000 (please refer to FAS/Beijing's report, GAIN CH1060). The U.S. Government and industry contend the zero pathogen tolerance for Samonella and E.coli is unfair on raw poultry meat for processing. These complaints have been forwarded to the Chinese Ministry of Health (MOH) and the State General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) by FAS, FSIS, USMEF and USAPEEC, and bilateral exchanges continue. This standard will be replaced in the future by a new draft standard, GB 16869-C2002, notified to the WTO (see GAIN report CH3052), but the zero tolerance for Samonella and E.coli would remain unchanged.
Chinese traders must also obtain both an Import Inspection Permit (IIP) from AQSIQ and Import Automatic Registration Certificate (IARC) from the Ministry of Commerce (MOFCOM) before signing a contract. Both processes seem to have an import quantity limit. No matter how much traders request each time, they can only get 200-300 MT per application. Traders complain they may also get one document at a time and not the other. But if both are not approved, imports are not allowed. Traders report that MOFCOM seems to allocate import quantities to each province at the beginning of each month. Since only the 73 companies granted poultry import rights can apply for IIP and IARC, many importers have to buy the two documents at a cost of several hundred RMB per ton, thus increasing their costs.
FAS/Beijing and the U.S. meat industry continue to exchange views with Chinese authorities. However, they deny import any quantity limitations. The IIP and IARC process will continue to constrain imports in the near future.
U.S. broiler exports to China through Hong Kong are sometimes reported to be fraudulent products originating from South America and Europe. When U.S. poultry products are repacked in Hong Kong, they are sometimes mixed with products from other countries under a fraudulent health certificate. According to the trade, the quality of these fraudulent products is not as good as U.S. products, but the prices are much lower.
In response to this problem, this year the USDA's Foreign Agricultural Service and the Food Safety Inspection Service (FSIS) successfully negotiated with AQSIQ use of a new FSIS export health certificate. The new certificate includes a watermark that will help accurately identify U.S. meat, poultry and pork products. The Chinese Government, in an attempt to reduce smuggling of poultry products, is encouraging direct shipments from the United States to China.
In the next couple of years, China will not likely compete with the United States in key export markets for frozen broiler cuts; however, China will increase exports of cooked and highly processed cuts.
China's broiler exports in 2003 are expected to decrease due to delayed negotiations with Japan and the EU for re-opening their markets. The country's exports are limited because of Japan and the EU, but also by Russia's import quota implemented in May this year. During 2003 China is only allocated 3,100 MT to Russia--only 10 percent of China' total export volume to Russia in 2002. Before the quota system started, Russian traders sharply increased their imports from China to expand their stocks. This quota application will continue during the next couple of years. However, China's increased exports of cooked broiler products to Japan have partly compensated for the decrease in frozen broiler exports.
Thailand is China's largest export competitor, as opposed to the United States or Brazil, because the country targets the same market segment. Both countries have cheap labor to process high-end cuts manually in different kinds of sizes. The Chinese industry has indicated that once Japan reopens its market, China will regain its export dominance in labor-intensive production of high-end cuts and cooked products.
Poultry Eggs
China continues 18th year as top egg producing country in the world.
China's poultry egg production accounts for 46 percent of the total world production. Output in the first quarter of 2003 was 6.08 million MT, 7.19 percent and 10.58 percent up respectively against the first quarter of 2002 and 2001. Commercial egg production was 41 percent in the first quarter of 2003. Annual per capita egg consumption in China is 17.9 kilograms. During 2002 farmers increased production due to lower feed prices and better egg prices. However, in 2003 increased production and the sudden outbreak of SARS pushed egg prices considerably down. Although the egg price decline slowed after the end of the SARS panic, the prices on average are expected to remain low. In China 90 percent of chicken eggs are consumed as in-shell eggs and 90 percent duck eggs are consumed as preserved eggs.
China's egg import situation remains constant. Shell chicken egg exports are still dominant. Egg exports in the first two quarters of 2003 were 607,413 MT, up 30 percent over the same period of 2002. Hong Kong and Macau are China's main export markets due to the close proximity. Egg exports are expected to grow by 6 percent in 2003.
Source: USDA
