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Hong Kong Poultry and Products Semi-Annual Overview - February 2005

by 5m Editor
14 February 2005, at 12:00am

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

Hong Kong Poultry and Products Semi-Annual Overview - February 2005 - By the USDA, Foreign Agricultural Service - This article provides the poultry industry data from the USDA FAS Poultry and Products Semi-Annual 2005 report for Hong Kong. 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:

Two new measures provide challenges for U.S. chicken exports to Hong Kong in 2005. First, chicken feet exports to Hong Kong produced on or after April 30, 2005 must comply with Hong Kong’s new certification requirements. As the new requirements warrant production line modifications, U.S. exporters are expected to cut their chicken feet exports to Hong Kong in the second half of 2005.

The second new measure is a compulsory pre-inspection requirement conducted by China Inspection Co. - in Hong Kong - for meat re-exports to Mainland China. This new requirement will incur additional cost to Hong Kong traders, which amounts to approximately HK$4,000 inclusive of transport and pre-inspection fees. This additional cost may be big enough to drive more direct shipments from the U.S. to China rather than transshipped or re-exported through Hong Kong.

Situation and Outlook

U.S. chicken exports to Hong Kong in 2005 is forecast to rise 57 percent over 2004, reaching 33,000 MT (excluding re-exports and chicken feet). The increase will partly recover the U.S. market share lost in 2004 due to the ban imposed following the influenza cases in the U.S. in early 2004. U.S. chicken products however are facing ever increasing competition from Brazil. In general, Brazilian products are more price competitive and are therefore advantaged in a price driven market like Hong Kong. Moreover, the ban triggered off some new business relationship between Hong Kong and Brazilian traders. The market share of Brazilian products has been steadily rising from 13 percent in 2000 to 27 percent in 2003 (including re-exports and chicken feet).

U.S. chicken feet exports to Hong Kong are required to comply with new certification requirements effective April 30, 2005. Any chicken feet products produced on or after April 30 must be accompanied by a new certificate which proves the products have undergone both ante-mortem and postmortem inspection. It is expected that U.S. chicken feet to Hong Kong will decline in 2005.

China chicken exports to Hong Kong continue to prosper particularly for the niche market of whole chickens. To reduce the number of live chickens in wet markets, the Hong Kong government has set the daily imports to 30,000. Given the quantitative restriction on live chickens, Hong Kong increases its imports of chilled/frozen whole chickens. The government will operate a trial scheme of slaughtering chickens in an automated abattoir this year. This trial scheme is expected to lead to ultimate central or regional slaughtering of chickens in the future.

Effective November 1, 2004, all meat re-exports to China through Hong Kong are subject to the compulsory pre-inspection required by China Inspection Co. in Hong Kong. The new measure incurs additional cost to Hong Kong traders, which amounts to approximately HK$4,000 per container inclusive of transport and pre-inspection fees. This additional cost may be big enough to drive more direct shipments from the U.S. to China rather than transshipped or re-exported through Hong Kong. Hong Kong is a mature market for chicken products. The only noticeable change is the gradual shifting of live chickens to chilled/frozen whole chickens. Sales of chicken parts, nonetheless, have not be affected at any noticeable rate by the reduced supply of live chickens.

The 2005 production of chicken is forecast at 20 million head, on an average of 55,000 head per day. This estimate is derived from the fact that the Hong Kong government sets the daily imports of live chickens from China at 30,000 and the local production capacity is also around 30,000.

To prevent the entire reliance on China for day old chicks, Hong Kong started in 2004 to reestablish hatching facilities. This is a precautionary measure for assuring Hong Kong to have a steady supply of live chickens even if Hong Kong bans China’s imports of live chicken should another outbreak of avian influenza arise in the future.

Narrative on Supply and Demand, Policy & Marketing

Production
A significant change in local chicken industry in the past year was the re-establishment of chicken hatcheries in Hong Kong. The process was once shifted to China in the past decade because of lower production cost. The local chicken industry instead buys day-old chicks from China and raises them to market size for sale.

Hong Kong suspended chicken imports from China on January 30, 2004. Local farms lacked day-old chicks supply and could hardly replenish their chicken stock during the import suspension. Since then, the Hong Kong government provides financial assistance to farmers for establishing local hatcheries although the supply of day-old chicks from China was resumed on June 25, 2004. To assure Hong Kong will have a continuous supply of day-old chicks in the future and prevent an entire reliance on supply from China, the Hong Kong government is determined to develop its local hatchery production.

At present, Hong Kong has a total of 2 off-farm hatcheries with a total incubator capacity of 780,000 eggs and 12 on-farm hatchery structures with a total incubator capacity of 400,000 eggs. These facilities have a total incubator capacity of nearly 1.2 million eggs, or an estimated daily production of around 27,000 marketable chickens per day. In addition, two on-farm hatcheries with an incubator capacity of 88,000 eggs are being installed. Once installed, Hong Kong would be self-sufficient to provide 29,000 marketable chickens daily.

The Hong Kong government aims to keep local chicken production and imports at 30,000 each a day at maximum, compared to 100,000 a day including both local supplies and imports in 2003. Following the outbreaks of avian influenza in China in January 2004 and its recurrence in the region, the Hong Kong government claimed to reduce the total live chicken population so as to curb the risk of an epidemic outbreak in Hong Kong. It is currently maintaining a level of imports of live chickens at 30,000 a day and aims to maintain an equivalent number from local chicken farms. As the demand for live chickens tends to surge around some traditional Chinese festivals, the Hong Kong government has adjusted the import level to say 50,000 daily. Such practice is expected to continue in 2005.

On one hand, the Hong Kong government has kept a cap on the supply of live chickens, on the other hand, it has launched a buy-back scheme of licenses of wet-market chicken stalls since July 2004. Before the deadline of July 12, 2005, chicken stalls operators who voluntarily surrender their live poultry retail licenses will be awarded an ex-gratia payment ranging from HK$123,000 to HK$500,000 (US$16,000 to US$65,000). The government has earmarked HK$236.4 million (US$31 million) for the buy-back scheme. The trade association estimates that about 500 stalls will surrender their licenses before the deadline of the buy-back scheme on July 12, 2005. Out of the 814 poultry stalls, 220 had already applied to surrender their licenses.

Meanwhile a regional abattoir capable of slaughtering 8,000 chickens an hour will probably start to operate this year on a trial run. The abattoir, based on a Dutch model, would cost more than HK$100 million (US$13 million). At present, the average cost for manual slaughtering of a chicken is about HK$5. The automated system would probably cost less so as to attract traders.

The government’s goal to separate chickens from humans is very evident from the various measures. While production for 2005 may stand at 20 million head, it will continue to decline in the future.

Consumption
Hong Kong consumers tend to substitute live chickens with chilled whole chickens and the majority of which come from China. In 2003, an average of 65,000 chickens were imported from China daily. The number was restricted to 30,000 per day in 2004 after live chicken imports from China resumed in late April 2004. (Live chicken imports from China were suspended between January 30 and April 20.) The drastic cut in supplies have pushed up prices correspondingly. Table 2 showed that the average retail price of freshly slaughtered chicken costs $5.69/kg in 2004 vs $4.22/kg in 2003, representing a surge of 35 percent. Hong Kong consumers’ are largely price-driven. When a 1.3 kg chilled chicken costs only about $3.9 or half of the price of a fresh chicken, many consumers opt to buy chilled whole chicken. Table 11 shows that the retained whole chicken imports during January – November 2004 increased by 44 percent compared to the same period in 2003, reaching 36,454 MT. China is the largest supplier accounting a market share of 87 percent.

Though the consumption of chilled whole chicken has significantly increased, the consumption of chicken parts remains stable. (Table 11 shows that the retained imports of chicken wings and chicken feet have jumped remarkably between January – November 2003 and 2004. The increase in retained imports could not be interpreted as Hong Kong people consumed more chicken parts because the figures simply reflected the fact that products destined for China had been stuck in Hong Kong because of China’s previous ban on U.S. poultry.) Meat retailers did not see any significant increase in chicken parts consumption. Hong Kong’s domestic market of chicken is very stable, with 2005 consumption estimated at 201,000 MT, which is only 1 percent higher than the 2004 level. The significant change is the gradual shifting of consumption of live whole chickens to chilled ones as a result of rising prices of the former due to limited supplies.

Trade
One significant change of chicken trade in 2004 was that Brazil overtook the U.S. as the leading supplier of chicken products for Hong Kong in terms of value. Including re-exports and chicken paws, Brazil exported $159 million of chicken products to Hong Kong, occupying an import share of 36 percent. The United States value market share dropped from 45 percent in January – November 2003 to 31 percent in the same period of 2004. Hong Kong’s and China’s ban on U.S. poultry in 2004 changed U.S. market position in Hong Kong. Hong Kong banned U.S. poultry products between February 11, 2004 and April 30, 2004. Hong Kong’s imports of U.S. chicken products, however, did not immediately rebound to the pre-ban level after normal trade resumed in May. Compared May – Nov 2004 and May – Nov 2003, U.S. exports to Hong Kong still declined 37 percent. Nonetheless, the decline of U.S. chicken exports to Hong Kong has been gradually arrested since July, 2004.

There are several major reasons why U.S. exports to Hong Kong in 2004 could not perform as well as in 2003 despite the ban was lifted in April. First, China did not lift the ban on U.S. chicken imports until December 27, 2004. When China’s ban on U.S. chicken products was still in place, many traders did not have the incentive to place orders for U.S. products, without knowing for sure whether shipments could be ultimately sold to China. Second, with a strong domestic market, U.S. exporters were reluctant to offer chicken products at competitive prices. Some Hong Kong buyers are then driven to Brazilian products by comparatively more economical prices. Hence, U.S. chicken exports to Hong Kong did not jump remarkably right after Hong Kong’s lifting of the ban. Moreover, Hong Kong traders have placed future orders with Brazilian exporters when U.S. exports to Hong Kong were still banned. Many Hong Kong traders, therefore, did not immediately sought after U.S. products when the ban was lifted on April 30.

2005 remains a challenge for U.S. chicken exports to Hong Kong. Hong Kong traders and consumers alike have been more price-driven in recent years. Brazilian products, while having improved in quality, are still cheaper than U.S. products. For example, a pound of whole leg chicken products from Brazil is a few cents cheaper than a comparable product from the United States. These few cents per pound could affect a trader’s purchasing decision. Moreover, traders have since established a business relationship with Brazilian exporters during the ban on U.S. products. They may consider U.S. chicken products again when prices are really attractive. Also, Hong Kong traders generally prefer Brazilian’s soldier packaging method rather than the U.S. layer packing.

The biggest challenge for U.S. chicken exports to Hong Kong will be the change of certification requirements for U.S. chicken feet, effective on April 30, 2005. To standardize the certification requirements for poultry products, the Hong Kong government required FSIS certificates accompanying chicken feet shipments to certify ante mortem and postmortem inspection. The Hong Kong government informed the Agricultural Trade Office that “U.S. poultry paws produced on or after 30 April 2005 should be accompanied by an export certificate in the new format.”

Chicken paws accounted over half of U.S. chicken exports to Hong Kong. There remains an uncertainty as to how many U.S. exporters are prepared to modify their production facilities to accommodate the inspections as specified in the new certification requirements. U.S. chicken feet exports to Hong Kong for 2005 are expected to decrease after April 30. Exports, however, may surge in the beginning of the year before the new certification requirements become effective.

U.S. chicken exported to Hong Kong in 2005 is estimated to rise to 33,000 MT (refer to PSD table) when re-exports and chicken feet are excluded. The increase might not be huge enough to fully regain the market share to the pre-ban level in 2003. It is worth noting that Brazilian products are steadily increasing its market share in Hong Kong from 13 percent in 2000 to 27 percent in 2003 (including both re-exports and chicken feet) as a result of its increasing acceptability in the local market.

China being the third largest supplier of chicken products to Hong Kong, its competitive edge is for the niche market of whole chickens, which are the substitutes for live chickens. With Hong Kong government’s continuing quantity restrictions on imports of live chickens from China, China’s exports of chilled/frozen whole chickens to Hong Kong will rise correspondingly, particularly when Hong Kong implements the central or regionally slaughtering policy for live chickens in the future.

Re-exports to China

China allowed U.S. chicken imports after December 27, 2004 when China resumed issuing Import Automatic Registration Certificates for U.S. chicken products except from the states of Connecticut and Rhode Island.

Currently, China has a strong demand for chicken products. The market has a support for RMB11,500/MT of grade A chicken feet. Some Hong Kong traders, however, are very reluctant to sell to China recently because the Chinese government has stepped up its surveillance on warehouses in Southern China. It was revealed that in early January, the Chinese government reportedly confiscated and auctioned over 1000 MT of chicken products in a week which lacked sufficient documentations. The estimated loss was over HK$10 million. Many Hong Kong traders have halted re-export businesses for the time being due to China’s stringent monitoring policy.

Effective November 1, 2004, China Inspection Co. Hong Kong (CIC) implemented compulsory pre-inspection for containers of meat products re-exported to China through Hong Kong. The company representatives explained that the main purpose of this pre-inspection system is to prevent repackaging of products in Hong Kong before being re-exported to China. CIC do not unload the products for inspection. They focus to check if health certificates are true copies and if they have fulfilled the import requirements. In addition, they have to make sure that the original seal to inspected containers is not broken. CIC will issue a certificate if the container successfully passes the inspection and will then fix another seal on the container. The process claimed will take 20 minutes. The inspection works throughout the year. Officials of CIC revealed that as of January 18, they inspected a total of 298 containers since November 1, 2004.

The compulsory inspection service provided by CIC costs HK$1,300 (US$1 = HK$7.78) per container. All meat products re-exported or transshipped through Hong Kong are required to go for pre-inspection in Hong Kong. Transshipped products through Hong Kong without being unloaded at all are not required to be pre-inspected. However, almost all transshipped containers actually have to be removed from ocean vessels to river cargo vessels in Hong Kong before reaching China ports in the south because not many ports in China are deep enough for ocean vessels. In this case, feeders (river vessels’ operators) will arrange for the inspections with CIC. Feeders charge traders around HK$700 per contain. This inspection processes will cause additional fees for Hong Kong traders. Traders revealed that the whole process costs about HK$4,000 inclusive of inspection and transport cost, if the container is cleared by the trader and transported to CIC for inspection.

In recent years, transport costs of direct shipments to Shanghai have become comparable to costs re-exported through Hong Kong. Consequently, direct shipments to China are ever increasing. The table below compares U.S. direct shipments to China and U.S. shipments to China re-exported through Hong Kong. The pre-inspection cost is expected to cause more direct shipments to China, which otherwise would have been re-exported through Hong Kong.

Further Information

To read the full report please click here

List of Articles in this series

To view our complete list of 2005 Semi-Annual Poultry and Products Semi-Annual reports, please click here

Source: USDA Foreign Agricultural Service - February 2005