October 21, 2011
Another banner year for Brazilian poultry
Strong demand in the Middle East, Asia and Brazil itself have given the country's chicken producers years of strong, steady growth.
An eFeedLink Hot Topic
by Eric J. BROOKS
While its red meat exports have languished, Brazil's position as top poultry exporter and top three global poultry producer is much stronger. A combination of strong domestic and overseas demand have powered this country's poultry sector to yet another prosperous year, with more of the same expected in 2012.
After seeing USDA-estimated export growth of 6% this year, 2012 is expected to see both domestic and export demand rise by a further 5%. Moreover, this will be the third consecutive year that both production and exports have increased by at least 5%. By the end of 2012, Brazil's annual poultry production should amount to 13.6 million tonnes.
This will be a 32% increase over 2007's 10.31 million tonnes and a whopping 127% increase over 2000's 5.98 million tonnes. While its long-term growth rate has fallen to the 5% to 6% range, Brazilian poultry production has jumped up by approximately 7% annual rate since the turn of the century. Nor is its domestic market to be underestimated, as it has consistently absorbed three-quarters of these massive output increases.
Despite these impressive output gains, exports remain more profitable: With the price of Brazilian meat exports rising from an average of US$1,660/tonne in 2010 to US$2020/tonne this year, this year's expected 6% increase in volumes will translate into a 23% to 25% increase in export earnings.
Immune to currency appreciation
Indeed, one interesting facet about Brazil's poultry export momentum is that it is much more immune to the country's currency appreciation much more than its red meat exports. This is because a majority of Brazil's chicken exports go to developing countries in the Middle East and Asia but more of its beef is destined for wealthy, western countries.
Consequently, while the Brazilian real's appreciation against the US dollar has created concerns about the country's export competitiveness, many Asian, Middle Eastern and North African (MENA) countries have seen comparably large jumps in their currencies value against the US dollar. This means that in many of its fastest growing developing country markets, Brazil's currency appreciation has not changed the price of its chicken exports by much.
Indeed, MENA accounts for much of the rise in exports, but also for some unexpected drop-offs. From January to June of this year, double digit increases were recorded in Brazil's MENA exports to Iran (up 113.6%), Saudi Arabia (19.2%), Iraq (12.9%), Angola (26.6%), Kuwait (9.3%) and Oman(14.8%).
EU, MENA and Asia offset Russia & Venezuela
Europe also provided prosperity, with poultry volumes to the EU up by 21.0%. This however, was not an entirely profitable situation for Brazilian agribusiness. The spike in EU chicken imports partly arises from a recessionary substitution of Brazilian poultry in place of more expensive beef exports.
Only in some of the politically troubled MENA countries such as Egypt, Jordan Yemen or did poultry exports drop off sharply; by 24.6%, 47.8% and 13% respectively. Other than politically troubled Middle Eastern destinations, Russia and Venezuela are also presenting long-term challenges to Brazilian exporters.
Russia in particular is playing hardball: In its effort to force Brazil to support its World Trade Organisation application, it is de-certifying Brazilian chicken and beef processing plants and declaring them unfit for export.
With Venezuela, exports are falling off due to the country's economic crisis, which has resulted in Venezuela not paying Brazilian exporters for their poultry. While shipments to Venezuela and Russia are down 7% and 10% respectively, these two countries together only account for 6.4% of Brazilian poultry exports; a figure insufficient to stop the industry's overall momentum overseas.
On the whole, declining shipments to Russia, Venezuela and selected Middle Eastern countries were more than offset by higher exports in other parts of MENA, Europe and East Asia.
With China's rapidly inflating meat prices and rising currency drawing in cheapening imports, Brazilian position was made even stronger by Beijing's imposition of stiff tariffs on US poultry imports. poultry volumes to that country jumped a whopping 70% over the same first six months of 2010. Essentially, Brazil gained the poultry market share lost by America in its ongoing trade disputes with China.
But China was not the only North Asian market with surprisingly strong demand for Brazilian poultry: Even the flat Japanese market recorded a 20.3% increase in Brazilian poultry shipments in wake of the tsunami and subsequent radioactive contamination's disruption of domestic poultry production.
Going forward, with both production and exports rising by 5%, the USDA projects Brazil's 2012 poultry output to rise from 2011's 12.95 million tonnes to a record 13.6 million tonnes.
At home, fast rising incomes are having a meat-friendly impact on the country's demographics: With the number of Brazilians wealthy enough to eat meat regularly increasing from 72 million in 2003 to an estimated 105 million by early 2012, the 74% of Brazilian poultry that is domestically consumed does much to power the industry's growth. With Brazilian incomes set to rise rapidly for at least another fifteen years, domestic demand will keep the industry buoyant for at least another decade.
Moreover, with Brazil's Middle Eastern and North African (MENA) export frontier growing as rapidly as Brazil's domestic economy, internal and external growth drivers should remain balanced in the forseeable future. The only risk arising from MENA is that over 30% of Brazil's poultry exports go to this region and the percentage will probably rise closer to 40% in coming years. This could make Brazil's poutry sector vulnerable to the sort of economic or political disruptions in this volatile region.
MENA and Thailand are the two unknowns
For 2012, a number of factors are working both for and against Brazilian poultry.
With America's own poultry numbers falling under high feed costs and domestic US consumers eating more chicken, there will probably be less of number two exporter's chicken available on the world market next year. If the US is not a market threat in 2012, that only leaves the number three producer, but Thailand is a distant third to both Brazil and the United States, having an export market slice roughly a third as large as that of the US.
On one hand, Brazil is doing surprisingly well in the EU and East Asia, and the latter should be a natural market for poultry from neighbouring Thailand. This of course, has much to do with Thailand's bird flu outbreaks from 2003 to 2005, which got its frozen poultry exports permanently banned from the EU and Japan.
On the other hand, Thailand, will petition the EU and Japan to have this export ban lifted, as has been its custom in the first quarter of every year for the better part of a decade. Should this ban be lifted, Brazilian poultry could face considerably stronger competition in the EU and especially in East Asia.
However, Brazil does enjoy one advantage over Thailand: Self-sufficiency in all major feed crops. This self-sufficiency is augmented by government subsidies, which lower the cost of transporting Brazlian corn from the country's northeast to its cooler, poultry producing regions on its southeast coast.
Moreover, Thailand's own government appears to be embarking on a program to raise farmers' prices for domestic corn. Especially with Thailand's own currency rising as much as Brazil's in recent years, these factors could make it difficult for Thailand to grab back Brazil's Asian market gains even if Thai poultry is unbanned.
Having said that, the day Thailand's frozen poultry is unbanned will make it more difficult for Brazilian poultry exports than for American chicken, as the former entered Thailand's old market strongholds more than the latter.
While Thailand's market position and possible MENA export disruptions always loom, Brazilian poultry's overall position remains strong. It does not face overseas market disruptions or the cost pressures of Brazil's beef lines. This means that unlike Brazil's red meat sectors, its poultry will not only maintain its number one export ranking but remain strongly export-oriented. In 2012 only a radical currency appreciation or global economic crisis could stop this country's poultry sector from taking flight.
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