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China - Poultry and Products Semi-Annual 2010

by 5m Editor
23 April 2010, at 12:00am

China's broiler production will increase slightly in 2010, rising four per cent to more than 12.5 million metric tons, according to Michael Woolsey, Joshua Lagos and Jianping Zhang in the latest GAIN report from the USDA Foreign Agricultural Service.

Executive Summary

FAS Beijing projects China’s broiler production in 2010 will rise nearly four per cent to 12.55 million metric tons (MMT), as China’s steadily improving market conditions for domestic producers towards the end of 2009 is expected to continue in 2010. A gradual strengthening in demand is offsetting higher feed costs and producers are confident of higher broiler prices and production in 2010.

On 13 February 2010, China began requiring duties on US broilers in the form of cash deposits ranging from 43 to 105 per cent as a result of its preliminary determination in China’s anti-dumping investigation of US poultry. Final determination is expected sometime this summer. The anti-dumping duties will lower China’s direct imports from the United States, and raise sales of domestic products and imports from Brazil. Overall, China’s poultry meat imports (not including paws) are forecast to increase six per cent to 425,000 metric tons (MT).

FAS Beijing forecasts China’s broiler exports in 2010 will increase three per cent to 300,000MT from the previous year. While Japan and Hong Kong continue to account for more than two-thirds of total sales, Chinese poultry exports to a number of emerging markets have been rising and these will become more important in 2010.

Production

Broiler production growing steadily

FAS Beijing projects China’s broiler production in 2010 will rise nearly four per cent to 12.55 MMT, following a two per cent increase in 2009. Steadily improving market conditions for domestic producers that began toward the end of 2009 are expected to continue in 2010. A gradual strengthening in demand is offsetting higher feed costs and producers are confident of higher broiler prices and production in 2010. Strong sales of breeding chickens in 2009 reflect the gradually improving conditions and suggest strong production of commercial broilers this year. In 2009, imports of grand-parent generation (GPG) western broiler (also called white-feathered broiler) stocks reached 936,000 sets (1 set=120 birds), up 19 per cent from the previous year (785,900 sets).

Higher domestic production will also be supported by China’s decision to impose anti-dumping tariffs on US poultry as a result of China’s preliminary determination in its anti-dumping investigation. The tariffs, ranging from 43 to 105 per cent, are expected to remain in place until China’s final determination later this year. A significant reduction in Chinese imports of US poultry is expected, resulting in higher demand for local poultry meat, as well as imports from Brazil.

Meanwhile, input costs for poultry production are on the rise and will limit further gains in production through 2010. Of particular importance to poultry farms, China’s corn production dropped eight per cent this grain year driving broiler feed costs higher (see Chart 1). In January 2010, the average Chinese broiler feed price was RMB2,850 ($417.28) per ton, a 0.7 per cent increase from December, and a 6.9 per cent increase over the same month in the previous year. Feed prices in 2010 are expected to remain higher than 2009 throughout the year. Other input costs on the rise include energy and water. Rural labor costs are reportedly up this year following the return of millions of migrant workers to urban areas for manufacturing jobs after coming home in 2008/09 due to global recession.

Large-scale operations are becoming more important in China and these more efficient facilities will account for a greater share of production in 2010. Shineway, China’s largest meat processing company located in Henan Province, has set up a joint venture with Japan to build China’s largest broiler raising facilities. Total investment is RMB1.72 billion ($251.8 million). Completion of the first stage will provide 50 million commercial birds for slaughter later this year. Other investments include Tyson Foods Company, whose joint-venture broiler farms in Shandong Province will produce 600,000 sets of breeding broilers and 24 million commercial birds for slaughter upon completion. The Huamu Group in Chongqing began raising commercial broilers in 2009 and will expand production to one million birds in 2010.

Consumption

Total broiler consumption continues to rise

Chinese broiler consumption in 2010 is forecast to rise four per cent to 12.68 MMT. Currently, traders and producers are consistently reporting expectations of higher sales in the first half of 2010 compared to 2009, due to projected stronger economic growth and consumer demand. Current stocks are reportedly very low, down from 700,000 MT in early 2009.

The absence of avian influenza outbreaks through February is also supporting stronger consumption over last year. Following several outbreaks nationwide and human avian flu fatalities in January and February 2009, sales were dampened as many Chinese consumers, particularly in metropolitan areas, cut back purchases due to food safety concerns. While broiler meat prices are expected to rise in 2010, they will remain well below prices for pork and other substitute meats.

Poultry meat distributors are reporting particularly strong demand from low-end food-service outlets, including factory canteens and mom/pop restaurants. A key driver has been the return of migrant workers to manufacturing jobs. These workers are an important market segment, as chicken meat is their primary protein source, due to relative affordability compared to pork, beef and mutton. An estimated 20 million migrants became jobless in 2008/09 due to global recession. Reportedly, 90 per cent of these workers have since returned.

Suppliers to China’s fast-food chains are also reporting better sales so far in 2010 and expect the positive trend to continue. A chicken price war started by McDonalds (more than 1,200 outlets) to attract new customers and grab market share from Kentucky Fried Chicken (3,400 outlets) and others is reportedly building overall fast-food demand. Aggressive pricing led by McDonalds includes their popular spicy wings, priced at RMB4.5 ($0.66) for two, down from RMB6.5 ($0.95) last year. Other chains are responding with discounts and boosting overall demand.


Chart 2. China Average Retail Broiler Meat and Live Chicken Prices, 2006-2009
Source: The Ministry of Agriculture

Trade

China introduces anti-dumping tariffs against US broiler products

On 5 February 2010, the Ministry of Commerce (MOFCOM) issued a preliminary determination in its anti-dumping (AD) investigation of US poultry and initial injury findings. As a result of the initial AD determination, US producers (through Chinese importers) must pay cash deposits ranging from 43 to 105 per cent of the value of imports beginning 13 February 2010. A final determination in its investigation is expected this summer.

MOFCOM launched its anti-dumping investigation of US broiler products on 13 September 2009. The investigation includes products under the following tariff lines: 02071100, 02071200, 02071311, 02071319, 02071321, 02071329, 02071411, 02071419, 02071421, 02071422, 02071429, and 05040021. On September 27, 2009 MOFCOM announced a separate investigation of US subsidies for domestic broiler production. A preliminary finding in this investigation has not been released.

Broiler imports expected to rise

Despite China’s increased production and anti-dumping tariffs against US broiler products, Post expects that strong demand will drive 2010 imports (not including paws) up an estimated six per cent to 425,000. Argentinian and Brazilian exports are expected to grow due to less US competition.

In 2009, steady gains in China’s broiler meat imports since 2004 continued, rising over a 100 per cent to 401,394 metric tons. The United States accounted for 80 per cent of shipments, with South America comprising nearly all the remainder. Including paws, Chinese imports of poultry reached 917,622 metric tons, with shipments from the United States accounting for 75 per cent of total sales.

Pennsylvania and Texas poultry banned

On 15 January, China suspended broiler imports from Pennsylvania and Texas due to detections of low pathogenic avian influenza (LPAI), raising the number of banned states to six (Arkansas, Idaho, Kentucky and Virginia were banned due to LPAI detections in 2008 and 2009). China’s policy contradicts World Animal Health Organization (OIE) guidelines for LPAI. USDA continues to raise this issue with China’s Ministry of Agriculture and AQSIQ (the Administration of Quality Supervision, Inspection and Quarantine) and urges China to lift these bans immediately.

Increasing broiler exports

Post projects China’s poultry meat exports will rise three per cent to 300,000 MT, revised from our previous forecast of two per cent growth. Gains will be led by rebounding economies in China’s two main markets (Japan and Hong Kong). Almost all Chinese poultry meat exports are cooked products as all significant trading partners continue to ban Chinese fresh/frozen poultry due to high-pathogenic avian influenza on the mainland.

While Japan and Hong Kong continue to account for more than two-thirds of total sales, Chinese poultry exports to a number of emerging markets have been rising and these will become more important in 2010. In 2009, these markets included Malaysia (up 11 per cent to 17,000 MT), the EU (4,500 MT, up from 15 MT in 2008), and Kyrgyzstan (up 15 per cent to 4,300 MT).

Canada eyeing approval of Chinese poultry

In January 2010, Canadian inspection and quarantine experts audited 11 Chinese processing plants selected by AQSIQ for future exports to Canada. AQSIQ officials report the results of the audit were positive. However, it is unknown when formal approval will occur. Chinese industry officials expect Canada will open its market to Chinese cooked poultry later this year, though sales will be limited.

Procedure for China’s cooked poultry exports to the US resumed

On 1 December 2009, the USDA Food Safety and Inspection Service resumed its procedure for reviewing China’s market access request for cooked poultry exports to the United States. A first step is for AQSIQ to provide USDA with updates to China’s poultry slaughter, processing and inspection system since USDA’s review was suspended in 2007. Once review of this information is completed, USDA will conduct audits of China’s poultry slaughtering and inspection, to be followed by rulemaking.

Poultry Eggs

Poultry egg production expected to rebound in 2010

Post forecasts 2010 Chinese egg production will reach 27.1 MMT, up from 2009, but down slightly from our previous forecast. As the world economy is expected to continue rebounding, rising export demand will encourage slightly higher production resulting in a modest two per cent increase in output.

China Total Poultry Egg Production, 2005-2010 (1,000 Metric Tons)
Estimated % Change
2005 2006 2007 2008 2009 2010 2010/2009
Poultry Eggs 24,381 24,240 25,290 27,017 26,600 27,100 1.88
Source: China National Statistics Bureau
Note: 2010 production is Post's forecast.

In 2009, poultry egg production dropped 1.5 per cent to 26.6 MMT, as egg producers were challenged by oversupplies and falling prices. A new policy of subsidising imported GPG breeding stocks started in 2008. One set of GPG breeding egg layers were subsidised RMB100 ($14.64), resulting in large imports. The policy was eliminated in the second half of 2009 due to oversupply. At the same time, China’s largest domestic GPG grower (western breeds), Yukou Company in Beijing, quickened its own production. The company alone provided 100 million commercial egg layers in 2009. Over-supplies combined with lower consumption pressured egg prices downward, driving producers to slaughter many egg layers as feed prices increased during the year.

Disease outbreaks were another factor impacting egg layer production. Outbreaks of J-ALV (avian leukosis virus) occurred in Hebei, Henan, Shandong, Liaoning, Hubei, Jiangsu, Guangdong and Guangxi in 2009. Although the outbreaks were not serious, some smaller producers or backyard operators were pushed out of the egg business. As a result egg production declined, and the prices were weak for most of the year.

At the end of last year, EU announced their 2009/799/EC decision to lift its ban on Chinese eggs and egg products imposed in 2001 due to food safety concerns. Hong Kong and Macau will continue to be China’s main export markets for shelled eggs in 2010.

Further Reading

- You can view the full report by clicking here.


Further Reading

- Since this report was prepared, China has proposed adding a further 'anti-dumping' levy on US poultry meat imports. See the news item on that story by clicking here.


April 2010