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EU-27 - Poultry and Products Annual

by 5m Editor
17 September 2010, at 12:00am

The growth of the poultry industry in the EU-27 is expected to slow in 2011, according to Xavier Audran in the latest GAIN report from USDA Foreign Agricultural Service.

Highlights

After a two per cent growth in 2009 and 2010, the EU-27 broiler growth is projected to lessen to less than one per cent in 2011, due to rising grain prices. The EU-27 broiler trade surplus is likely to stagnate in 2011 as competitors are expanding production and high feed costs are expected to reduce the margins of poultry farmers.

Brazil and Thailand remain the largest suppliers of broiler meat. Poultry meat, the cheapest source of protein, was less affected by the impact of the economic recession. Its consumption growth was less than demographic growth, which indicated a decrease of per-capita consumption. EU-27 turkey production is expected to stabilise, as declines in France, the UK, and Hungary are forecast to be outweighed by gains in Germany and Poland.

Summary

Despite fears that the impact of the global financial crisis could hurt EU-27 poultry production, it now appears that the EU broiler sector expanded at around two per cent per year in 2009 and 2010, benefiting both from rising demand (which was less affected than other meats by the economic recession) and exports. The overall EU-27 2010 production expansion hides differences between countries, such as the UK, France, Italy, Germany and Poland where production increased, and for other countries, such as Spain and Benelux production declined or stagnated. The rising grain prices in mid-2010 are more likely to slow the growth of the production to less than one per cent in 2011.

EU-27 broiler trade surplus is expected to improve in 2010 in light of diminishing imports and growing exports. Brazil and Thailand remain the largest suppliers of broiler meat. Broiler imports are expected to decline slightly because of the weakening Euro against the Real and Baht, as well as the change in the management of the Brazil import quota. The weak Euro is expected to support EU-27 broiler exports in 2010. Moreover, traditional EU-27 export markets such as the Middle East are less impacted by the economic recession. In 2011, EU exports are forecast to stagnate as competitors are expanding production and high feed costs are expected to reduce the margins of poultry farmers and the competitiveness of the EU poultry sector.

While all sources show that total meat consumption in the EU-27 has been negatively impacted by the economic recession, poultry meat, which is the cheapest source of protein, was less affected. Its consumption growth was less than the demographic one, which indicated a decrease of per-capita consumption. In general, consumers switched from beef or pork meat to poultry meat; however, consumers in lower income brackets reduced their protein purchases, favouring products rich in carbohydrates. In the EU-27, sales of cheaper cuts added to the detriment of more expensive parts. This trend is probable for 2011 in the absence of any economic recovery.

EU-27 turkey production is expected to stabilize in 2010 and 2011 as declines in France, the UK and Hungary are forecast to be outweighed by gains in Germany and Poland. EU-27 turkey imports in 2010 and 2011 are expected to remain stable under import quota controls. Lower French turkey exports to Africa replaced by stable or increasing German and Dutch exports to Russia should steady the EU-27 export market at a stable level in 2010 and 2011. EU-27 turkey meat consumption is also expected to continue to stabilise in 2010 and 2011.

Regarding policy issues, during the EU-27-Latin American Countries Summit on 18 May 2010, it was decided that negotiations for an EU-Mercosur Free Trade Agreement would begin again. Such an agreement is likely to deeply impact the European poultry sector with a potential 25 per cent rise in EU-27 poultry imports. The final implementation date of Council Directive 2007/43/CE on the protection of broilers was 30 June 2010. This Directive limits the stocking density of birds on broiler to reduce overcrowding. This legislation sets in place other conditions to ensure animal welfare, such as lighting, litter, feeding, and ventilation requirements. The true impact of the Directive on the EU-27 poultry industry?s competitiveness has yet to be assessed, but most analysts believe that it could further hamper EU broiler meat exports in the future.

Broiler Production

Despite earlier fears that the impact of the global financial crisis could hurt EU-27 poultry production, it now appears that the EU poultry sector has continued to grow, benefiting both from growing domestic demand (which was less affected than other meats by the economic recession) and exports. Producers also benefited in 2009 and early 2010 from lower grain prices, which increased their competitiveness. The overall EU-27 2010 production increase hides differences between countries such as UK, France, Italy, Germany and Poland where production increased and other countries such as Spain and Benelux where production declined or stagnated.

As grain prices rise due to short grain crops in 2010 in major producing areas such as Russia, Ukraine, Kazakhstan and even Germany, they are expected to negatively impact EU-27 poultry production competitiveness in 2011 and force producers to either increase their prices or reduce their margin. It is likely that production growth will slow to less than one per cent in 2011.

Growth in France is also driven by growing domestic demand and exports as the main third countries export market (namely the Middle East) is less affected by the global economic crunch.

For Germany, the hike in production is driven by the following factors: the increase in domestic demand – because poultry meat is perceived as healthier – which is also fueled by the success of the promotion of the D/D/D origin labelling (born/raised/slaughtered in Germany). This is an effective incentive for increased slaughter as opposed to imports from neighbouring countries. In addition, the top four German poultry processing companies are expanding their slaughter capacity in a quest for higher market share. As a result, self-sufficiency for broiler meat increased from 92 per cent in 2004 to 99 per cent in 2007 and 105 per cent in 2009.

Broiler production in Hungary increased about six per cent in 2009 and sales of chicken for slaughter continued to grow in the first quarter of 2010. Hungarian producer prices of chicken in early 2010 were three per cent lower than in the beginning of 2009.

Italian broiler production increased slightly in 2009 as the result of growth in domestic demand and to a general decline in input costs, particularly for feeds (mainly grains). However, it led to a production surplus at the end of 2009, leading broiler meat prices to fall sharply and pushing Italian producers to slow their setting of broiler chicks in the beginning of 2010.

Broiler production in Poland is expected to increase by seven per cent in 2010 and six per cent in 2011, due to high supplies of cheap feed and growing domestic and export demand.

Broiler domestic production in 2009 for Romania continued its ascending trend, haven grown by eight per cent. The same pattern is forecast for 2010 and 2011 but at a lower pace, 2.6 per cent, mainly due to the impact of the economic situation and the suspension in 2010 of the per-capita subsidy (which covered about 15 to 20 per cent of the production cost) by the Romanian Ministry of Agriculture. Another programme was authorised by the European Union for animal welfare compliance but due to a lack of financial resources, support will be disbursed no earlier than January 2011 to breeders. Additionally, the total procedure for applying is different, as only part of the expenditure for animal welfare will be covered by the Romanian Ministry of Agriculture as opposed to a per-head amount disbursed so far.

The resurgence in broiler meat production in the UK in 2010 is mainly due to increased domestic demand, due to the economic situation which favours cheaper protein sources such as poultry meat.

Production in Spain is declining. Poultry meat is still the second most important meat after pork, in terms of production. It represents about 22 per cent of all meat produced. The evolution of the poultry sector is highly conditioned by feed costs and consumer demand. During 2009, feed prices were fairly stable and are expected to remain the same in 2010. Demand for poultry meat was weak during 2009 due to the economic situation and lower consumption.

Benelux broiler production peaked during 2009. Despite the recession, demand remained strong on the EU domestic market, as well as for export markets. In the Netherlands, consumption of broilers increased, in particular legs; however, leg prices declined significantly during the last half of 2009. This decline was due to higher supply and lower demand from New Member States (NMS) and in particular Eastern Europe. Due to reduced demand, poultry meat is reportedly being stored. During 2010, production is expected to fall marginally. Demand for fresh and frozen poultry meat remains strong in North-west EU-27, but margins are expected to be pressed by higher feed prices.

A decline in animal production has been the normal trend in the Czech Republic in the last decade, and this applies to poultry production. Broiler production is gradually decreasing and imports from Thailand and other Asian countries are replacing domestic supply.

Broiler Meat Consumption

While all sources indicate that total meat consumption in the EU-27 was negatively impacted by the economic recession, poultry meat, which is the cheapest source of protein, was less affected. Its consumption growth is less than the demographic one, showing that, per capita, consumption is decreasing. Several market analyses have shown that while some consumers switched from beef or pork meat to poultry meat, consumers in the lower income brackets reduced their protein purchases, switching to carbohydrate products (i.e. bread, pasta) with the exception of Spain, where pork meat is preferred over poultry meat. Tax hikes on food products implemented in Hungary and Romania are also expected to impact negatively poultry meat consumption but in line with other food products.

In the EU-27, sales of cheaper cuts increased to the detriment of more expensive parts. In the UK, retailers have reportedly discounted significantly cuts and parts. This trend is foreseen to extend into 2011 in the absence of any economic recovery. In other EU countries, such as Germany and France, the switch to poultry meat is enhanced by the consumers' perception that it is a healthier and leaner meat and more convenient to cook. It is also considered easier to prepare for catering and restaurant dishes than other meats. Data from Italy shows that 64 per cent of the broiler consumption is sold as legs and breasts, 21 per cent as processed products (such as stuffed chicken, sausages and wurstel) and 15 per cent as whole birds.

Trade

EU-27 broiler trade surplus is expected to swell in 2010 in light of declining imports and growing exports. Brazil and Thailand remain the principal suppliers of broiler meat to the EU-27, followed by Chile and Argentina. Broiler imports are expected to drop slightly, due to the weakened Euro against the Brazilian real and Thai baht. Additionally, the change in the management of the Brazil import quota, the main supplier of broiler meat to the EU-27, is also another factor. It is estimated that less than 50,000MT of broiler meat is imported outside the quota. Some importers import outside the quota to build an import volume with a company in order to be eligible to participate in the quota the following year. EU poultry imports could decline because the EU has imposed stringent regulations for fresh poultry: frozen cannot be sold as fresh. EU-27 broiler imports from China (exclusively cooked and prepared broiler meat) are also expected to grow in 2010 and 2011, the first five months of 2010 revealed a 37 per cent surge in volume over the same period of 2009. The United States, which exported as much as 92,000MT of broiler meat in 2005 to Romania and Bulgaria, is no longer a supplier to the EU-27 because the EU does not accept Pathogen Reduction Treatments.

The aforementioned weak Euro is also expected to support EU-27 broilers exports in 2010. Moreover, traditional French export markets, such as the Middle East, were less impacted by the economic recession, thus keeping demand high. Stable economic situations in the EU-27 export markets helped exporters keep export credit facilities from banks, according to Dutch exporters. EU-27 exports (of frozen cuts) to Greater China are surging at a high pace. Exports of low-priced cuts and mechanically deboned meat (MDM) to Africa are expected to remain stable. EU-27 broiler meat shipments to Russia will rise in 2010, as opportunities mount due to restrictions on US poultry meat outweighing TRQ constraints and the de-listing of EU-27 poultry plants by Russian Veterinary authorities in 2009.

Broiler meat exports are also supported by increased supply. In 2009 and 2010, the strong demand for breasts in the EU-27, led to an elevated production of low-priced parts such as wings and legs, which are exported to non-EU destinations (mainly Africa). During the end of 2009, Dutch exporters reported lower demand from mainly the NMS and Eastern Europe. The Dutch Poultry Board requested export restitutions for legs to Eastern Europe and the Middle East as a result of low demand, and increased supply from Brazil. During the first half of 2010, demand from Eastern Europe remained limited.

Also noted is the Government of Poland's effort to open new non-EU-27 export markets for its chicken meat. Recently, Poland signed an agreement with China on recognition of veterinary certification of poultry meat. Poland also applied for eligibility of export of poultry meat to the United States. USDA Food Safety and Inspection Service (FSIS) audit of Poland's poultry meat plants is expected in late 2010. Positive results of the audit and publication of the final rule by USDA Animal and Plant Health Inspection Service (APHIS) will be the final steps in the process of opening US market for exports of poultry meat from Poland.

In 2011, EU exports are forecast to stagnate as competitors are expanding production and high feed costs are expected to reduce the margins of poultry farmers and the competitiveness of the EU poultry sector.

Turkey Production

EU-27 turkey production is expected to stabilise in 2010 and 2011, as declines in France, the UK and Hungary will be outweighed by gains in Germany and Poland. In France, turkey production is not competitive compared to broilers, thus forcing processors to shut down several slaughterhouses for profitability reasons. As for broilers, the German turkey sector is expanding but while domestic turkey consumption has gradually increased over recent years, room for further increase seems to be limited. Future production increases will likely displace turkey meat imports or will be exported to either other EU member states or the world market.

It is worthwhile to note that the UK has corrected an historical error in its turkey meat production survey numbers. Specifically, 2008 turkey meat production previously reported as 135 is revised to 160. As such, what appears to be a large revision to the 2009 turkey meat production number is, in fact, a statistical change.

Turkey Meat Consumption

Turkey meat consumption in the EU-27, overall, is expected to continue to stabilise in 2010 and 2011. In some countries such as France and the UK, consumers are shifting away from turkey to chicken, which is perceived as tastier and more convenient to use. Processors also prefer to switch to broiler from turkey as processing yields on carcasses are higher.

Turkey Meat Trade

Imports should remain stable under import quota control. Lower French turkey exports to Africa, replaced by stable or increasing German and Dutch exports to Russia should hold the EU-27 export market.

Policy

Mercosur negotiation

Mercosur was established in 1991 and encompasses Argentina, Brazil, Paraguay and Uruguay. Venezuela was accepted as a full member in 2006, and is currently in the process of integrating into Mercosur. In 2009, EU-Mercosur trade represented nearly as much as EU-27 trade with the rest of Latin America taken together. Mercosur ranked 8th among EU trading partners, accounting for 2.7 per cent of total EU trade in 2009. The EU is Mercosur's first market for its agricultural exports, accounting for 19.8 per cent of total EU agricultural imports in 2009.

The EU-Latin American Countries (LAC) Summit, which took place on 18 May 2010 in Madrid, resulted in a decision to re-launch negotiations for an EU-Mercosur Free Trade Agreement, which had been stalled since 2004, due to important divergences related to the trade pillar of the agreement. Several EU agricultural organizations condemned Europe's decision to reopen trade talks with South America and have expressed concerns about the impact the talks could have on their livestock sectors. The European farmers union, Copa-Cogeca, has stated that a deal would put further pressure on farmers' incomes and cause an exodus from the sector and from rural areas. The Commission estimates that labor costs in the Mercosur area are only 16 per cent of those in the EU-27.

Such an agreement is likely to deeply impact the European poultry sector. The French government has reiterated that the Commission's negotiating mandate with Mercosur should remain within the July 2008 agricultural proposals for the Doha round, and no free-trade agreement with the Mercosur should be concluded before an agreement is reached in the Doha round. French Agricultural Minister Bruno Le Maire has warned other EU agricultural ministers that removing EU import tariffs on agricultural products from Mercosur countries would lead to a 25 per cent rise in poultry imports.

Animal Welfare

New Animal Welfare Strategy 2011-2015

The EU-27 is working on the follow-up plan of the Community Action Plan 2006-2010. Key elements for the new plan include upgrading animal welfare standards, introducing standardized welfare indicators and promoting animal welfare on the international scene (click here).

Animal welfare labelling

On 28 October 2009, the EU-27 adopted a report COM(2009) 584 [1] on Animal Welfare Labeling. This report will function as the basis for a future animal labeling system as part of the Animal Welfare Strategy 2011-2015.

Animal welfare for broilers

The final implementation date of the Council Directive 2007/43/CE of 28 June 2007 on the protection of broilers was 30 June 2010. This Directive limits the stocking density of birds on broiler farms to 33kg per square metre and establishes the requirements for derogations that allow in increase of the stocking density to a maximum of 42kg per square metre. Despite calls from Member States (MS), particularly Poland, to delay the implementation deadline, the EU-27 has refused. It is arguing that this would lead to market distortions, as most MS have already transposed the Directive into their legislation. The true impact of this legislation on the EU-27 poultry industry's competitiveness is yet to be assessed but most analysts believe that it could further hamper EU broiler meat exports in the future.

Bulgaria: Directive 2007/43 was transposed in the Bulgarian legislation by the National Veterinary Authority through Order 26/2008 (adopted on 5 August 2008) click here with implementation on 30 June 2010. According to the broiler industry representatives, the commercial farms do comply with the standards provided by the directive.

France: Implemented on 1 July 2010. It notably establishes rules for producers to raise their density up to 42kg per square metre from the 33kg per square metre. Slaughterhouses should report to their local veterinarian offices if they find abnormal mortality rates, carcasses lesions or diseases on animals brought in for slaughter. The impact on the competitiveness of the French broiler industry is still to be assessed.

Germany: Implemented into national law with the “Forth regulation to amend the farm animal welfare regulation” of 1 October 2009, which became effective on 9 October 2009. The requirements in the German regulation are more rigorous than those in the EU directive. The maximum density may not be higher than 39kg per square metre at any given point in time, even if producers meet the derogation requirements. In addition, if the average weight of the broilers is less than 1.6kg, the maximum density may not exceed 35kg per square metre on average of three production cycles. The regulation is not expected to have a negative impact on the competitiveness of Germany broiler producers, as the industry already adhered to comparable voluntary production standards for the past ten years.

Hungary: The Order 178/2009 of the Ministry of Agriculture and Rural Development (MARD) amending the Order 32/1999 on Animal welfare rules for keeping farm animals, has adopted the EU Council Directive for broilers and other Directives governing other species of farm animal. The practical implementation of the broiler welfare rules goes well, differentiating between the old (existing) barns and the new investments as allowed by the quoted EU legislation. EU co-funded investment program supported farms to change the technology.

Netherlands: Implementation of the EU broiler welfare directive in Dutch Law has been delayed. Farmers who want to stock up to 42kg per square metre were required to request permission to do so from the Dutch Ministry of Agriculture before 17 June 2010. The Ministry will inspect if these farms apply the additional measurements required for this stocking density. Compliance with the EC legislation will require investments by the Dutch poultry sector. This is not expected to significantly affect Dutch broiler production, as a result of the relatively good financial position the sector compared with, for example, the Dutch swine sector. In Belgium, the EU broiler welfare directive has been implemented in Belgian Law. Farmers who take part in the Belgian sector programme, Belplume, which are the majority of the Belgian poultry farmers, already applied the measurements required for the maximum stocking density of 42kg per square metre. Before the EC legislation was implemented, the average stocking density in the Belgian sector was 45kg per square metre.

Romania: Directive 2007/43 was transposed in the Romanian legislation by the National Sanitary-Veterinary Authority through Order 30/2010 (March 2010), with the implementation date 30 June 2010. The regulation allows farmers to increase the density up to 39kg per square metre up to 42kg per square metre, based on the notification and additional documents submitted to the local veterinary authority.

Spain: The directive has been transposed to the national regulation by the Royal Decree 692/2010. The maximum stocking density in Spanish farms is 33kg square metre, however, higher densities are allowed under certain conditions (39kg per square metre and up to 42kg per square metre if stricter requirements are met). This regulation entered into force on 30 June 2010. The large majority of Spanish poultry farms are compliant with the 33kg per square metre limit, so the enforcement regulation will not seriously impact producers.

Sweden: National animal welfare legislation for broilers was already in place before the implementation of 2007/43/EC. While the EU maximum stocking density is 33kg per square metre and 39kg per square metre for producers who also meet the requirements on ventilation and water access, the Swedish maximum levels are 20kg per square metre and 36kg per square metre, respectively.

Industry

The French company, Doux, is the largest EU poultry producer by volume (and fifth world producer) with a 2009 turnover of about €1.3 billion. It is operating both in France (40 per cent of sales) and in Brazil (60 per cent of sales). Doux sold its Spanish subsidiaries and has refocused on broiler meat, selling its Brazilian turkey activities to Marfrig. Doux is now processing more than two million birds a day. The leader, LDC, purchased in 2008 the number 4, Arrive. The two entities have expected sales in excess of €2.3 billion but produce fewer birds than Doux. LDC is specialised in free-range Label Rouge (‘Red Label’) poultry.

In Germany, the Rothkoetter Group, originally a feed miller, branched out into poultry production in 2003 and is currently the number four in the highly integrated German poultry sector. According to the food journal, Lebensmittelzeitung, the poultry section of the group had an annual turnover of €500 million in 2008. Its subsidiary, Celler Land Frischgefluegel GmbH, is planning to construct the 'largest' broiler slaughterhouse in Europe in Wietze, in order to capitalise on the expected further increase in German per-capita consumption of broiler meat. The plant is expected to come on line in 2011 and will have a slaughter capacity of 27,000 broilers per hour. According to press reports, the plant will source broilers from about 400 broiler producers in the region although other sources question whether enough broilers will be available. There may be potential problems in getting enough new production plants approved. The project is highly controversial in the region as opponents fear increased traffic and noise levels. The top three poultry companies (PHW Group, Sprehe and Stolle) also expanded their slaughter capacity in recent years but to a lesser extent.

Further Reading

- You can view the full report by clicking here.

September 2010