April, 2006- In the last three years bird flu has reduced the production and consumption of chicken around the world, sometimes in a spectacular fashion.
In the country of Turkey for example, consumption dropped 90 percent in the week after the tragic death of four children from avian flu. In other countries like Italy, consumption dropped by 50 percent temporarily, without even a single case of bird flu in either people or birds. Because of the possibility, however remote, of the development of a human pandemic, there has been an understandable nervousness about chickens.
The end result of all the anxiety has been a reduction in the number of chickens that would otherwise have been produced without the bird flu problem. Sometimes, the reduction is dramatic as in the case of millions of chickens being destroyed to prevent the spread of avian flu. Other times, the reduction is more subtle, fertile eggs that are not hatched, chicks that are destroyed or breeder flocks that are sent to slaughter because of the weakness in demand.
The total of all the fertile eggs never hatched, the chicks that never were placed and the flocks that were destroyed constitute a phantom flock of chickens. One way to calculate the damage caused by avian flu is to estimate the size of the phantom flock and the economic activity that will never take place due to the disease.
Chicken production around the world normally increases at a rate that exceeds the rate of increase of world economic growth. With world economic growth in the last three years averaging a strong 4.3 percent per year, growth in chicken production would have been expected to be at least 5 percent per year, absent avian flu. The actual rate of growth averaged only 2.8 percent.
The difference between the 5 percent growth rate expected and the 2.8 percent growth that was actually realized created a growing difference between the phantom world without bird flu and the real world with bird flu. The difference between the two gives a rough idea of the consequences of avian flu.
For the years 2003-2006, the total difference in production between the phantom and real worlds will total approximately 15 million metric tons. Assuming a retail value of $2 per kilo (90 cents per pound), the reduced production would have been worth $30 billion. That is the economic activity that the world chicken production and marketing chain has lost so far to this disease outbreak. The size of the phantom broiler flock is now 700 million broilers (6.3 billion kilos / 1.5 kilos eviscerated each / six times a year) nearly half the size of the U.S. broiler flock.
Hopefully, the avian flu problem will be solved this year before inflicting even more damage on the world poultry industry. Once solved, real chicken production is likely to grow faster than normal and may catch up or nearly catch up to phantom production. Unfortunately, the phantom dollars are gone forever.