China’s poultry industry production, sales weak in 2018

Learn why Chinese demand for locally produced chicken will be lower in 2018 and how restricted access to genetic stock is impacting poultry production.

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More live bird markets in China are being closed to reduce the risk of avian influenza spreading into the human population. | Willard Losinger,
More live bird markets in China are being closed to reduce the risk of avian influenza spreading into the human population. | Willard Losinger,

China’s production of chicken meat is expected to decline further in 2018, contracting to 11.1 million tons from the 11.7 million tons estimated for 2017, while demand is also predicted to be lower than in recent years, forecasts the USDA.

The Chinese chicken meat market is experiencing difficulties on the demand and supply sides, with producers facing difficulties sourcing stock, ongoing disease concerns, and other production and marketing issues. On the demand side, consumer confidence in chicken meat remains dented, while several major purchasers are moving out of the country.

Genetics issues

The difficulties that China’s poultry producers experienced in sourcing genetic stock through 2017 are expected to continue in 2018.

With disease-related trade restrictions halting supplies of genetic stock from several countries, only Canada and New Zealand are supplying white-feathered grandparent stock to China and, although imports from these countries have risen, they have been unable to match previous supplies.

Imports of genetic material have been at their lowest for several years and, while China is now investing in its own genetic stock, this shortage is expected to continue affecting broiler production throughout 2018.

Environmental restrictions

Also on the supply side, however, China’s broiler production is being hit by the tighter application of environmental standards in the country.

China has created “forbidden zones” near environmentally sensitive areas, with the aim of reducing land and water pollution. Farms operating within forbidden zones have to either close or relocate.

The most important region for white-feathered bird production is Shangdong Province, home to Shougang City. More than half of the almost 2,000 white-feathered poultry farms around the city are located in forbidden zones and, according to the local environmental plan, should have ceased operation by the end of 2017.

Producers in Henan and Sichuan are also being badly had by the tighter application of environmental legislation, reports Rabobank.

The requirement to relocate is expected to hit smaller producers to a greater degree than larger producers and may see a number of companies exit the industry.

Avian influenza

The direct impact of avian influenza on poultry production and demand for chicken meat in 2018 cannot be forecast with any certainty. However, it is worth remembering that from the second half of 2016 through to the second quarter of 2017, the country suffered its worst outbreak of N7N9.

While being low pathogenic, the direct impact on production was minimal, but with over 700 reported human infections – and a mortality rate of approximately 40 percent - wide geographic distribution, and reports of mutations to high pathogenic, consumer confidence, particularly in yellow-feather birds, was severely knocked.

As absence of further outbreaks may see an upturn in consumer confidence, but with more live markets, the primary route to the consumer for yellow-feathered birds, being closed, producers may continue to experience difficulties in selling their birds. While there remains room for this segment of Chinese poultry production to expand, much will depend on rebuilding confidence and finding route to market.

The market for meat from white-feather meat, however, has performed rather differently. With growth in the middle class and ever more urbanization, fast food chains are now increasingly penetrating third-tier cities, and both KFC and McDonald’s are thought to have reported increased sales in 2017.

Although demand for meat from white-feather birds may be forecast to increase, there are reports that production may decline in 2017, with a growing shortfall in supply being made up by increased imports

Changing economy

Consumption patterns in China are becoming ever more complex and varied and, where food, or any other purchase is concerned, consumers are no longer focusing primarily on attaining maximum value.

Perhaps illustrative of rising incomes is the fact that, according to the McKinsey China 2017 consumer survey, 30 percent of adults in China are now overweight while 6 percent are obese.

There is a growing interest in health and nutrition, the report continues, but this can take a variety of forms. Where fresh food and poultry is concerned, despite the local food hygiene scandals of recent years, 59 percent of respondents to the 2017 survey said that they preferred local brands, while 32 percent responded that they somewhat preferred local brands. Only 6 percent said that they somewhat preferred foreign brands, with just 3 responding that they preferred foreign brands.

This growing consumer selectivity is coming from rising living standards and higher wages, but where chicken consumption is concerned, this trend is both positive and negative.

Rising wages costs mean that a number of large companies are moving production overseas in search of lower labor costs. Many of these large companies have their own cafeterias, which are major consumers of poultry meat. As these companies look to relocated, their catering faculties will be closed.

Should output fall again this year, it will be the third year in a year that production of broiler meat will have declined in China. Chicken meat exports are also forecast lower, however, broiler meat imports are predicted to rise by 7 percent.

In this issue of Poultry International, you will also learn about:

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