US could find $1 billion poultry market in China

In 2020, U.S. poultry will be imported into China legally for the first time since 2014. The market will be worth as much as a $1 billion immediately and could be lucrative going forward, provided the door remains open.

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Chinese consumers prefer U.S. chicken paws and will pay far above the rendering value for the part. (addkm | Shutterstock.com)
Chinese consumers prefer U.S. chicken paws and will pay far above the rendering value for the part. (addkm | Shutterstock.com)

In 2020, U.S. poultry will be imported into China legally for the first time since 2014. The market will be worth more than a $1 billion immediately and could be lucrative going forward, provided the door remains open.

In November 2019, the U.S. and China entered into a series of agreements formally allowing the resumption of trade between the world’s largest chicken-producing country and the world’s most-populous country. Market observers agree China’s on-going struggles with African swine fever (ASF) likely played a role in the decision.

The agreements

USA Poultry & Egg Export Council President Jim Sumner said the agreement should allow U.S. poultry access to China for the foreseeable future.

He, along with others in the U.S. poultry industry and representatives of China’s industry and its industry organizations, worked on the issue since well before trade was disrupted in 2014. Sumner said the stated reason for the ban was high pathogenic avian influenza (HPAI) in the U.S., and China maintained that reasoning for the ban publicly.

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Jim Sumner, USA Poultry & Egg Export Council | Courtesy USA Poultry & Egg Export Council

Behind the scenes, he said, the Chinese were willing to import U.S. chicken products but they would only do it if they were able to sell their products in the U.S., too. Sumner said its unlikely any substantial volume of Chinese chicken will be imported to the U.S., but the Chinese saw it as a matter of pride and principle.

The impact for the U.S.

Going forward, the U.S. should be able to freely export all poultry products – including chicken, turkey and duck – to China. For the domestic industry, this is exceedingly positive.

Ben Bienvenu, an analyst at Stephens Inc. covering food and agribusiness, said it may take a number of years to ramp up, but its realistic to expect the U.S. could be exporting about 300,000 metric tons annually. That’s the amount it was sending before the market closed. Paul Aho, an economist and consultant with Poultry Perspective, said exports could be worth about a $1 billion in total.

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Ben Bienvenu, Stephens Inc. | Courtesy Stephens Inc.

Christine McCracken, executive director of animal protein for Rabobank’s RaboResearch Food & Agribusiness imprint, said its possible, given the on-going struggles with protein shortages in China, exports could even exceed historic levels.

But, it will depend on whether Chinese tastes adapt. Chicken is far behind pork, fish and beef in consumer preference. There is also apprehension about modern broiler genetics in a country that prefers specialty and heritage breed meat.

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Christine McCracken, Rabobank | Courtesy Rabobank

Paws

The largest initial demand will be for paws. For years, U.S. jumbo paws flowed into China through illicit channels to satisfy national demand for the foodstuff. Now, Sumner said, the Chinese will pay on average $0.87 per pound for paws on an open market. Bienvenu said the price could be higher than $1.00 per pound, too. By comparison, in rendering – where most U.S. paws wind up now – the part is worth about $0.05 per pound.

There is a cost trade-off associated with processing paws and shipping them to China rather than rendering them. Nevertheless, this is a potential new, additional revenue stream for integrated poultry producers in the U.S. Sumner and Aho said the price paid for the paws will be worth the trouble.

Leg quarters and other parts

Beyond that, there should be a market for all other chicken parts in China. McCracken said the resumption of trade with China should be seen as a part of an overall lift in protein prices that should help drive the overall value of the whole bird.

As for leg quarters, Bienvenu said the price will likely rise based on stronger demand coming from China. Even if there are cultural reservations, the need for meat is profound and the prices are too attractive to ignore. On a broader scale, he said the agreement signals the seriousness of China’s meat supply problem and is a good indicator the country is ready to buy U.S. protein.

Will the deal last?

China is a rising strategic rival to the U.S. and an essential trading partner. It has a history of creating friction in international trade. As of press time, the world’s two largest economies are still locked in a so-called trade war. But, on this issue at least, the U.S. could have an open door to China well into the future.

Opinions ranged, but those consulted for this article were cautiously optimistic about the future of the market.

McCracken said, unless there’s an outbreak of HPAI, trade should go on unimpeded for now. Sumner was positive about the future of the relationship. He said a bilateral regionalization agreement is the next goal. Moreover, the U.S. is working to gain approvals to export eggs as well as breeding stock and hatching eggs, too.

Aho said the situation looks good now. But he cautioned that China can close trade off, too, just as it has in the past. He was reminded of Russia, a former major trading partner, who over the years stopped and started poultry trade unpredictably.

“That’s not a good market to have,” Aho said. “In the end, we are better off without Russia.”

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Paul Aho, Poultry Perspective | Photo by Benjamin Ruiz

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