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China Poultry and Products Annual Overview - September 2005

by 5m Editor
1 September 2005, at 12:00am

By the USDA, Foreign Agricultural Service - This article provides the poultry industry data from the USDA FAS Poultry and Products Annual 2005 report for China. A link to the full report is also provided. The full report includes all the tabular data which we have ommited from this article.

China Poultry and Products Annual Overview - September 2005 - By the USDA, Foreign Agricultural Service - This article provides the poultry industry data from the USDA FAS Poultry and Products Annual 2005 report for China. A link to the full report is also provided. The full report includes all the tabular data which we have ommited from this article.

Report Highlights

China's broiler slaughter during 2006 is forecast at 7.7 billion birds, a 3 percent increase from the estimated 7.5 billion birds in 2005, due to a recovery in domestic demand following the 2004 avian influenza outbreaks. Though the U.S. is still the top supplier of imported poultry products, Brazil and Argentina reduced the U.S. market share from 96% in 2003 to only 46% in 2005.

A pre-inspection requirement for transshipped products and the cancellation of processing permits continues to shift poultry trade away from Hong Kong and toward Mainland Chinese ports. China's broiler meat exports in 2006 are forecast at 360,000 MT, a 20-percent increase from the estimated 300,000 MT in 2005. Expanding cooked poultry exports will continue to be China's export priority due to the challenges it faces shipping fresh and frozen product.

Executive Summary

Post forecasts China’s broiler slaughter during 2006 at 7.7 billion birds, a 3 percent increase from the estimated 7.5 million birds in 2005. Broiler meat production for 2006 is forecast at 10.5 MMT, also a 3 percent increase from the estimated 10.2 MMT this year. The pace of growth in 2006 is forecast to be faster than 2005 because of the rebound in broiler meat demand after the 2004 avian influenza outbreaks, increased grain and feed production and increased poultry sector investment. Of total poultry egg production, 80 percent is comprised of chicken eggs.

Chicken layer production is becoming more concentrated in grain feed production areas in the Northeast and North China, though overall broiler production is constrained by feed grain supplies. The domestic corn production gap is around 20 MMT a year, and 70 percent of soy meal, 70 percent of fishmeal and 50 percent of amino acid inputs have to be satisfied by imports.

Though avian influenza (AI) outbreaks remain a concern for the China’s poultry industry and consumers, post forecasts China’s broiler consumption for 2006 at 10.8 MMT, a 2.7 percent increase from the estimated 10.2 MMT in 2005.

During January-June 2005, wholesale broiler meat prices increased 10.3 percent, while retail prices increased 15.7 percent over the same period of the previous year. Wholesale chicken egg prices increased 13.3 percent and average retails prices increased 10.5 percent respectively over the same period. Prices in the second half of 2005 are forecast steady to weak due to increased domestic grain production and large levels of soybean imports.

China’s broiler imports during 2006 are forecast to increase 14 percent to 320,000 MT from the estima ted 280,000 MT in 2005—still below the pre-AI levels. The U.S. is still the largest poultry product supplier to the import market, but strong competition from Brazil threatens this position. Although U.S. exports have been recovering after China lifted its ban on U.S. poultry at the end of last year, the market has not rebounded due to the absence of U.S. product during 2004, the unification of the chicken paw health standard for Hong Kong and the mainland and the higher prices of U.S. poultry products.

As a result, the U.S. export market share fell from 96 percent to 46 percent for direct shipments from 2003 through June 2005. U.S. broiler meat direct shipments to China in 2002, 2003 and 2004 were 471,917 MT, 545,398 MT and 75,645 MT respectively, accounting for 94.5, 96.4 and 42.0 percent market share. From January to June 2005, U.S. direct shipments were only 70,956 MT, accounting for 46.1 percent market share. China’s other policy changes such as pre-inspection in Hong Kong for transshipments and cancellation of processing permit will continue encourage trade shifting away from Hong Kong to more directly shipments to China.

Post forecasts China’s poultry exports during 2006 at 360,000 MT, a 2-percent increase from the estimated 300,000 MT in 2005. The export increase is driven by export market demand from Japan and Hong Kong that account for 80 percent of the export market. As frozen broiler exports to other countries remain constrained, China will continue focusing market access negotiations on cooked broiler exports.

Poultry Production: China’s broiler meat production for 2006 forecast to increase about 3 percent

China’s broiler meat production in 2006 is forecast to increase about 3 percent from the estimated 10.2 MMT in 2005 to 10.5 MMT due to strong demand and an increase in exports. Domestic grain and feed production increases in 2004 and most likely in 2005, combined with considerable increases in soybean imports, will bring feed prices down, thus helping poultry production remain profitable in 2006.

China’s broiler production in 2005 is forecast to increase 2 percent to 10.2 MMT from the previous year. Post adjusted upward the broiler production number for 2004 in the PSD table based on updated information from the China Meat Association. Although the broiler industry suffered a setback in the first half of 2004 due to highly pathogenic avian influenza (HPAI) in China, broiler production recovered quickly due to favorable policies. According to China’s National Development and Reform Commission, China provided RMB 45 billion in 2004 and will provide another RMB 25 billion in 2005 to subsidize agriculture including tax reduction or exemption, direct cash subsidies to grain farmers, high quality grain seeds, feed quality improveme nt, animal disease control (including subsidies of culled poultry due to AI infection) and government supervision of animal drug production. As a result, grain production rose in 2004 after falling for five successive years. Feed production in 2004 was a record high (see below), which helped poultry profit margins. Poultry production started recovering quickly after AI and ended up with a slight increase in 2004. China will also invest RMB 5 billion ($620 million) to establish laboratory labs in 2,000 counties for animal drug residue tests. These efforts are will build consumers’ confidence in meat safety.

However, the pace of growth for China’s broiler production in 2006 is still forecast below 2003 prior to the AI outbreaks in 2004. Factors constraining broiler production include lingering concerns about highly pathogenic avian influenza (HPAI). Occasional outbreaks of HPAI in the western region of China or in neighboring countries in 2005 make broiler production risky. Some farmers have turned to geese and ducks for higher profit. China’s broiler production is mainly constrained by feed resources. The domestic corn gap is around 20 MMT a year, about 70 percent of soy meal, 70 percent of fishmeal and 50 percent of amino acid inputs must be imported. Continued increases in poultry production will hinge on continued large imports of feed processing materials.

Feed production increased over 16 percent in the first half of 2005

China’s feed production from January to June in 2005 was 43.7 MMT, an increase of 16 percent over the same period of 2004, the largest rise in the last 20 years. China’s feed production in 2004 was 93 MMT, an increase of 6.8 percent from the previous year. Year-onyear compound feed increased by 3.1 percent to 68.2 MMT, concentrated feed increased by 6.2 percent to 20.8 MMT and compound pre-mixed feed increased 11 percent to 3.6 MMT.

Currently, 70 percent of China’s total corn is used for feed. The model of integrating flagship feed companies with farmers for direct supply has helped farmer profit and improved feed quality. The feed industry estimates that 1 MT of compound feed could help increase farm income $25 on average in the animal and poultry culture sector. Domestic feed additives such as vitamin E and C, choline chloride and other basic minerals can meet demand. Lysine production in 2004 reached 171,000 MT accounting for 50 percent of the market. China recently approved the last biotech “event” of the 8 U.S. genetically modified corn varieties to be used in China, eliminating a possible problem for imported feed grains. Better access to feed grains will translate into stable feed prices unless a bad crop keeps international corn prices at high levels.

Wholesale broiler meat prices up 10.3 percent, while retail prices up 15.7 percent from January to June 2005

According to Ministry of Agriculture (MOA) data, January to June 2005 China’s average wholesale broiler meat price was $1.07 per kilogram, and the retail price was $1.36, an increase of 10 percent and 15 percent respectively over the same period of 2004. The wholesale live chicken price during the same period was $1.23 per kilogram, while the retail price was $1.35, increases of 13 percent. Domestic broiler prices were pushed up by the slowed growth in broiler supplies due to the AI outbreaks and also due to higher international market prices.

The prices in the second half of 2005 are estimated to be steady or weaker due to lower feed costs. As evidence, the pace of growth for retail broiler prices already dropped from 26.8 percent in February to 5.5 percent in July.

China’s broiler consumption for 2006 forecast to increase 2.3 percent

China’s broiler meat consumption for 2006 is forecast at 10.4 MMT, a 2.3 percent increase from the forecast 10.1 million MT for 2005. The pace of growth in broiler consumption is forecast larger than the previous year due to growing consumer and industry confidence post-2004 (AI outbreak). In the first half of 2005, China’s GDP increased 9 percent over the same period of 2004, and per capita disposable incomes for urban residents increased 9.5 percent, while per capita cash incomes for rural residents increased 12.5 percent. As incomes increase, Chinese consumers’ demand for animal protein will continue to grow. Chinese consumers prefer chicken wings, drumsticks, leg quarters, paws and gizzard. Broiler necks are also becoming popular. According to the trade, 50 percent of drumsticks and middle-part wings are consumed at home and the other 50 percent are consumed at restaurants or industrial processing. The growing fast food delivery industry also consumes large volume of drumsticks and middle-part wings. Chicken paws are mainly used for cold dishes or soups everywhere. Most wing tips are smoked or stewed and sold in cooked meat stores consumed as cold dishes, especially in restaurants along streets where diners eat them with beer.

For spent layer hens, family consumption, bought directly from wet markets for their own cooking, accounts for 20 percent. Cooked processing distributed through cooked meat stores, supermarkets and restaurants accounts for the other 80 percent for low-end consumers. Almost all spent breeder hens are consumed by families, which are sold live and slaughtered on the spot at wet markets.

In general, Chinese consumers do not like breast meat due to its plain, dry taste. Family and restaurant direct cooking consumes 30 percent of China’s breast meat supplies. Cooked processing by plants into meatballs and sausages for delivery to super markets, fast food chain restaurants and canteens, or for export, consumes the other 70 percent.

Poultry Product Trade

China’s broiler imports for 2006 forecast to rebound 14 percent to 330,000 MT, the U.S. still the largest supplier, but Brazil challenges
China’s broiler meat imports for 2006 are forecast at 330,000 MT, a 14 percent rebound from the estimated 280,000 MT in 2005, but still below the 2003, pre-AI records. The pace of import recovery in 2006 is forecast smaller compared to 2005 due to domestic production increases and new import regulations such as cancellation of processing permits and the unified chicken paw health standard for China and Hong Kong. A new regulation requiring pre-inspection in Hong Kong on meat transshipme nts to China--effective last November--is another reason supporting a smaller recovery. The broiler import numbers in the PSD table exclude China’s chicken paw imports from world and Hong Kong re-exports to China, and also exclude U.S. spent hens to China.

Broiler imports in 2005 are forecast to recover only 25 percent instead of the previous forecast of 52 percent in the semi-annual report (CH5011), due to policy changes, domestic production increases and international higher prices. During January-June 2005, China’s import unit price increased 1.7 percent on average. According to U.S. data, average unit price for broiler exports to China increased 9.5 percent. Although Hong Kong re-export unit prices decreased, the additional cost of pre-inspection reduced profits. According to the trade, China will send a poultry purchasing delegation to the U.S. after President Hu Jintao’s visit to the U.S. in September 2005.

The United States remains the largest supplier of poultry products to China. However, the U.S. market share has dropped from 96 percent to 46 percent for direct shipments from 2003 to the first half of 2005. During the period that China banned U.S. poultry due to HPAI in 2004, Brazil’s exports to China increased over 600 percent, and Argentina’s exports increased over 900 percent. Brazil and Argentina shipments continue to limit the recovery of U.S. trade due to competitive prices and quality.

The Automatic Import Registration Form (ARF), issued by the Ministry of Commerce (MOFCOM), continues to function as an import volume management system. Although one application for an ARF can now total 2,000 MT--compared with 200-300 MT in the past--total imports are monitored and controlled by MOFCOM based on importers’ previous year import record. China’s poultry income tariff remains the same as indicated in the previous semi-annual report CH5011.

Chicken paw imports account for half of China’s total poultry imports

Despite domestic production increase, China’s chicken paw supplies lag behind strong consumer demand. As a result, chicken paw imports account for about half of China’s total poultry imports. In the first half of 2005, chicken paw imports accounted for 46 and 62 percent respectively of China’s total poultry imports directly and indirectly through Hong Kong. This pattern will continue into the next couple of years as long as the demand and supply gap exists.

Unified chicken paw health standard has impacted U.S. exports

Effective April 30, 2005, China unified the chicken paws standard for Hong Kong and the Mainland as an “edible product”. Previously, chicken paws exported to Hong Kong could be certified as “not fit for human consumption”. As the result of the new standard, the U.S. Department of Agriculture’s (USDA) Food Safety and Inspection Service (FSIS) must certify ante and post mortem inspection. The trade indicates this new requirement is impacting the volume and price of U.S. chicken paw exports to China because some U.S. plants have decided the investment is too high to change production lines in light of the regulatory uncertainty of China’s import policies.

China’s cancellation of processing permits will result in more approved 3rd country poultry processing plants

As of July 1, 2005, China stopped issuing import quarantine permit (IQP) for processing meat. Plants must have applied before July 1 to China’s quarantine authority, AQSIQ, to get audited and registered as a plant eligible for exports. An IQP that had already been issued before July 1 is valid until the end of 2005. The United States is the only country where China accepts the entire inspection system of USDA/FSIS without requiring a plant-by-plant certification (as it does for all other countries). As long as the U.S. plants comply with FSIS requirements, they are eligible to export to China for the retail market.

According to the trade, not many poultry plants from other countries have been registered since it takes time for AQSIQ to audit the applicants one by one. But once registered, plants in these other countries will have the same privileges as U.S. plants to sell broiler products directly to China’s retail market. This will reduce gray trade though Hong Kong and encourage direct shipments because broiler products from other countries were often smuggled into China through Hong Kong under a forged U.S. health certificate. The growing list of third-country plants will translate into tougher U.S. competition in the retail sector in the future. (See the list of eligible exporters in FAS Beijing’s livestock annual report CH5063).

Pre-inspection law and other measures “encourage” direct shipments to China

As of November 1, 2004, all meat re-exported to China through Hong Kong should be preinspected by the China Hong Kong Inspection Company (CIC). Containers must be moved from the entry port to the CIC inspection place within 2 hours to avoid repacking or relabeling for smuggling. The inspection cost for one container is about $500. The extra cost and burden has shifted direct trade up the coast to mainland ports. According to Hong Kong and China data, poultry re-exports to China through Hong Kong decreased 38.5 percent, while direct shipments increased 26.2 percent from January to June 2005. This trend will continue into the future.

According to the poultry trade in Panyu, Guangdong, the largest frozen meat terminal for imported meat through Hong Kong, traders report that the local government also collects an additional 4 percent of value-added tax (VAT). This will make imports less comp etitive and further shift meat imports away from Hong Kong to direct shipments to China. Effective May 2005, China no longer requires that FSIS meat export health certificates include the name of the mainland consignee for transshipments from Hong Kong to China. So, Hong Kong traders can be eligible consignees. They can import and stock poultry meat in Hong Kong first and later look for a mainland importer. Though this change makes Hong Kong re-exports more convenient, the general trend favors trade shifting to direct shipments as it becomes less and less profitable to ship through Hong Kong.

Comparing U.S. and Brazilian poultry products

Chinese wholesale distributors for wet markets, restaurants and supermarkets like fine, ready-cut chicken wings (middle part), drumsticks, paws, wingtips and gizzards. Large food processing companies prefer bone-in broiler meat cuts, mainly whole legs, leg quarters, drumsticks and whole wings, which are suitable for de-boning and further processing. Domestic traders prefer the following characteristics when buying poultry products: Moisture: Moisture not exceeds 8 percent. This is a maximum requirement based on China’s national standard. The trade reports that recent U.S. poultry products are higher moisture compared with Brazilian products due to different production methods. U.S. plants use ice cooling, while Brazilian plants use air-cooling after slaughter.

Size of paws: Large cities and wealthier consumers like U.S. jumbo-sized chicken paws because of more meat and because of price. Brazilian paws, normally 25 grams each, are medium-sized, though well accepted by lower income consumers.

Packaging: Domestic traders prefer Brazil’s packing by hand in smaller bags (for example, 5 kg x 3 bags in a larger bag for wings) compared with U.S. layer packing by machinery in large bags, because smaller packing are easier for super markets to use.

Prices: Most consumers are price sensitive. Lower pricing is a main reason Brazil and Argentina’s poultry have cut into the U.S. market share.

Color: Lighter color from both countries is preferable.

China’s broiler meat exports for 2006 forecast to increase 20 percent to 360,000 MT

China’s broiler meat exports are forecast to increase 20 percent to 360,000 MT from estimated 250,000 MT in 2005. The pace of increase is forecast smaller than that of 2005, because a stronger RMB against the US dollar will make China less export competitive. Asia will continue to be China’s main export market. In the first half of 2005, China’s exports to Japan accounted for 52.8 percent and to Hong Kong accounted for 27.1 percent. This will continue in 2006 unless there is another HPAI outbreak in China.

The European Union (EU) suspended imports of China’s meat products in early 2002 due to chemical residues and diseases. Although it lifted its ban on China’s animal products in 2004, its poultry ban has remained. Cooked poultry has made some progress with a couple of EU’s audits, but EU’s market has not yet reopened.

Due to the challenges of gaining market access for frozen poultry, China is focusing its export strategy on cooked poultry. The Chinese poultry industry, primarily due to foreign direct investment, has invested heavily the last couple of years on production capacity and machinery. This capitalization has enabled China to shift production from fresh to cooked broiler meat products for export markets.

USDA finishes a proposed rule to include China’s processing (not slaughter) part as an eligible country to export cooked poultry to the U.S.

USDA’s proposed rule would permit the export to the U.S. of Chinese cooked poultry processed from only raw material imported from approved countries. The rule would add China to the list of countries eligible to export cooked poultry to the U.S. A number of regulatory steps remain before the proposed rule is published in the Federal Register for public comment. If passed, China could export cooked poultry to the U.S., but the processors could only use imported materials from approved slaughter facilities.

USDA completed an official audit of China’s poultry slaughter process in August 2005. The next step is to draft the proposed rule and begin the regulatory review. This rule would permit China to export poultry slaughtered and processed in China.

Chinese officials report they intend to approve only 5-10 of the best processing plants to export cooked poultry to the U.S. when the processing rule is published. The largest has a slaughter capacity of 100 million birds a year and 40 percent are for export, mainly to Japan.

While the selected plants could feasibly import raw materials for processing, then re-export to the U.S.; the additional costs of transportation and quarantine inspection will reduce their profit margins. The plants intending to import raw material are interested in half carcass or bone-in parts.

Poultry Egg Production

Poultry egg production in 2006 forecast to grow 5.5 percent to 30.17 million MT China’s egg production in 2006 is forecast at a record 30 million MT, a 5.5-percent increase from the estimated 28.6 percent in 2005. The pace of growth for 2005 remains the same as forecast in the previous semi-annual poultry report (CH5011). Eighty percent of China’s total poultry egg production is chicken eggs.

A new trend in layer cultivation is large commercial chicken egg companies shifting location towards the key grain feed production areas such as the Northeast and North China. Layer cultivation in South and East China has been shrinking due to the higher cost of feed grain and soy meals. Ninety percent of large commercial layer companies in Beijing and Shanghai have abandoned production due to high labor costs and strict environment protection requirements. Other non-feed grain areas like Central-West China have limited production. As a result, increased shipments of fresh eggs will move from the North to the South during 2006.

From January to June 2005, China’s average wholesale chicken egg prices increased 13 percent from $0.60 to $0.68 over the same period of 2004. Average retails prices increased 10 percent from U$0.74 to $0.81. Higher grains prices from last fall to the second quarter of 2005 pushed egg prices up. Although feed prices are forecast steady in the second half of 2005, poultry egg prices may still go up during the traditional Chinese Moon Festival in September and the October national holidays.

Further Information

To read the full report please click here

Source: USDA Foreign Agricultural Service - September 2005