Chicken is back in favor with China’s consumers. In fact, they just can’t get enough of it as the public turns away from its favorite meat due to food safety fears over the ongoing outbreak of African swine fever (ASF), although the deadly pig disease does not affect humans.
For China’s poultry producers, this is a somewhat familiar story, having had to cope with their own disease issues not so very long ago.
From late 2016 and into 2017, China’s chicken producers had to confront the sector’s “worst ever” outbreak of avian influenza H7N9. This included human infections, a lack of public trust in chicken meat, and destocking to bring the disease under control. According to the U.S. Department of Agriculture (USDA), output in 2017 contracted by more than 7% as a result.
As with previous avian influenza outbreaks, the market gradually recovered. A shortage of supplies led to improving prices and margins, but nobody could have predicted the surge in prices that occurred late last year in response to swine sector’s difficulties, with live broiler prices reaching levels not seen since 2011. This strong upturn meant that, for 2018 as a whole, China’s chicken production rose slightly.
While prices may have fallen back somewhat now, demand for chicken meat in the country remains strong – per capita consumption is forecast to increase by 9% this year – far outstripping what the local industry is able to produce, and providing a positive outlook for local producers and overseas suppliers selling into China. Forecasts from Rabobank suggest total local poultry production will be 5% higher this year, with output becoming stronger as the year progresses.
Tortuous route to recovery
ASF was first identified by the Ministry of Agriculture and Rural Affairs in Liaoning Province in August 2018, and up to April this year, more than 1 million pigs had been slaughtered in an attempt to bring the disease under control.
Some reports suggest a shortage of available meat while others a glut as farmers have rushed to offload stock. According to data from the country’s Bureau of National Statistics, total meat production over the first two months of the year fell by 17.3%, in comparison with January and February 2018.
Estimates vary, and become out of date almost as soon as they are made, however, China’s pork production has been forecast to contract 10-20% this year, while that of poultry meat will build on the small recovery seen last year and continue strengthening.
After contracting in 2017, China’s production of chicken meat expanded last year and output is forecast to significantly rise this year.
Unsurprisingly, this shift in production is translating into changing patterns of demand for feed, with sales of pig feeds falling while those of poultry feed are on the rise.
Despite positives on the demand side, the Chinese poultry industry has been hampered by difficulties of supply, although these are now being increasingly overcome as the year progresses.
Not only had flocks been culled to control avian influenza, but outbreaks of the disease overseas led to China halting imports of new genetics from most of its suppliers. Those remaining sources were unable to make up the shortfall. This lack of new supply has been described as being the “greatest obstacle” in the local industry responding to the opportunities that the ASF outbreaks have presented.
Since 2015, there have been no imports of breeding stock from the U.S., which had been China’s main supplier, and similar bans were placed on most other genetics suppliers.
Gradually, however, with the exception of the U.S., countries that had been suppliers of genetics or meat to the country, but that had been excluded due to disease issues, have regained access to the Chinese market.
For example, Poland, which gained access to the Chinese market in 2012, found itself shut out in 2016. Recognized as disease free in late 2017, it again started supply China late last year. In March 2019, France, which had only been a small supplier of meat to the country but a more important supplier of genetics, also regained access to the Chinese market.
The country’s breeding stock may now have been replenished, but it will take time for more production to come on stream. Producer prices, consequently, are expected to remain strong.
Where yellow-feather birds are concerned, there is no dependency on imported genetics, and while there is little room for expansion in the south of the country, yellow-feather production is thought to be growing significantly in the north.
Nobody can predict how long it will take for China’s pig industry to bring its difficulties under control and rebuild, but it will not happen quickly, meaning the outlook for alternative meats is now particularly healthy and is expected to remain so for years to come.
As the country rebuilds its flocks, it can expect not only strong consumer demand but beneficial feed prices, putting it in a particularly favorable position. It is little surprise, therefore, that larger integrated poultry companies in particular are said to be investing in additional capacity.
Opportunities for imports
Alongside the recovering local industry, China is now sourcing more meat from overseas. Again, estimates of how much will be imported this year vary enormously. In February, it was estimated that 2019’s poultry meat imports would be 20%, perhaps even 30%, higher than those of 2018. By April, some forecasters predicted an increase of 70%.
This surge in demand is expected to benefit several countries. In March 2018, the first shipment of frozen chicken was sourced from Thailand, which was excluded from the Chinese market since 2004, but it is Brazil that is expected to be the biggest beneficiary. Poland and France have also already regained access, Russia and Ukraine are also expected to benefit, and Chinese authorities are reported to be visiting processing plants in several countries looking to widen possible sources of chicken meat.
Brazil has been the largest supplier country, yet the relationship between the two countries has not been without its difficulties: China accused Brazil of dumping and harming local producers, a claim Brazil vigorously denies. Yet despite this difficulty, at the start of the year, the two countries reached a price undertaking and, in February, for example, China sourced 11% more meat from Brazil, making China Brazil’s largest export market, overtaking Saudi Arabia.
The small rise in China's chicken meat imports in 2018 will be dwarfed by growth in chicken meat sourced from overseas in 2019 as pork continues to be rejected.
View our continuing coverage of the African swine fever outbreak.
