Summary
Growth in African poultry production is projected to lag behind growth in consumption making Africa the region with the highest rate of growth in poultry meat imports. African governments need to adopt policies which will encourage poultry companies in exporting countries to invest in local poultry meat production. This would build on an emerging trend. This may require managed trade regimes in the poultry meat sector, similar to those used by the EU. This may also require flexibility in how existing EPA commitments on the use of non-tariff trade policy tools are interpreted and applied so as to create market space for expanded domestic production. However the trade disruptive effects of a ‘no deal’ could make it more difficult for the EC to implement such a flexible approach.
The OECD FAO Agricultural Outlook report which covered projections for the period form 2018 until 2027, provides a review of likely trends on global meat markets. The report highlights how ‘low production costs, high feed conversion ratios and low product prices have contributed to making poultry meat the meat of choice, both for producers and consumers’. This is particularly the case in sub-Saharan Africa, where meat consumption has been growing rapidly with poultry meat accounting for the bulk of this additional meat consumption. The OECD/FAO analysis highlights how production growth in Africa ‘remains insufficient to satisfy demand growth’ and that ‘consequently import demand is expected to remain strong throughout the outlook period’. Indeed, Africa is projected to experience the most rapid import growth of any region in the world. This occurs on the back of rapid population growth and urbanisation in Africa (1).
The OECD/FAO report notes how in 2017 global poultry production and trade was affected by outbreaks of Avian Influenza, with these outbreaks resulting in a ‘slower increase in world output’. Overall in the 2018/2027 period global demand for poultry meat is projected to slow down further (1), with according to Rabobank analysis a slow-down in the growth in global trade in poultry meat having been underway since 2011.
Against this background the period will see only a moderate increase in poultry prices in the face of slowly rising feed costs, with this being further supported by rising incomes. In the coming period prices of poultry meat are expected to ‘rise to around US$ 1,600/t c.w.e. and US $1,700/t product weight (p.d.)’, with this implying a downward trend in poultry meat prices in real term (1).
Poultry meat will continue to ‘strengthen its dominant position within the meat complex accounting for nearly 45% of all additional meat that will be produced over the next decade’. According to the OECD/FAO analysis ‘production will expand rapidly in countries producing surplus feed grains, such as Brazil, the European Union and the United States’, while a ‘rapid expansion is also foreseen in Asia, led by China’ (1).
In terms of the EU’s role in trade in poultry meat while recently the EU has ‘improved its access to Asian markets…competition from North and South America will prevent it from taking full advantage of this opportunity’ (1). This suggests that in the medium term Africa will take on growing importance for EU poultry meat exporters.
In the short term however EU poultry meat exports to the Philippines and Vietnam have grown strongly, increasing 123% and 83% respectively from 2014 to 2017 and a further 58% and 63% respectively from January to July 2018 compared to the same period in 2017 (3).
From January to July 2018 5 sub-Saharan African destination markets were amongst the top 10 destinations for extra-EU poultry meat exports, accounting for just over ¼ of total extra-EU poultry meat exports; a comparable level to in 2017. However in the three years up to 2017 these destinations had accounted for fully a 1/3 of total extra-EU poultry meat exports (3).
This reduction in the share of sub-Saharan Africa in extra-EU poultry meat exports is in large part attributable to the decline in EU poultry meat exports to South Africa in the face of regular HPAI outbreaks in EU member states, which resulted in the imposition of import restrictions from the affected countries on SPS grounds (see companion epamonitoring.net article ‘EU Poultry Exports to South Africa In the Face of Avian Influenza Based Export Restrictions’, 11 October 2018) (3).
However the 57,000 tonne decline in EU poultry meat exports to Benin over the 2014-17 period linked to increased Nigerian customs controls and reduced Nigerian demand in the face of low oil prices, was more compensated for by the increase in exports to Ghana (+ 78,398 tonnes), with strong growth (+15%) carrying on into 2018 (3).
An important trend however is underway. According to analysis from Rabobank in the coming period more international poultry meat companies will ‘shift focus from being “exporter only” to becoming a direct investor in the fast growing markets’. This will see the emergence of a ‘short to mid-term trend of moving from global trade to local production growth’ in the face of growing trade risks in the sector (e.g. the spreading of disease, geopolitical tensions and trade protection) (2). This in part reflects the findings of the OECD/FAO analysis which highlights how in the poultry meat sector ‘trade policies remain a major factor impacting the dynamics of world meat markets’ (1).
In addition Rabobank describes ‘investing in the processed poultry segment…as a “logical” business strategy for poultry companies’, since ‘this market segment has performed well in recent years and was the only segment with significant growth in value and volumes’ (2).
| Comment and Analysis Given the trends identified in the Rabobank report of a move over to poultry meat exporters becoming direct investors in the expansion of poultry meat production in fast growing markets, the question arises: what policy measures can African governments set in place to encourage investment in local African poultry production to address the region’s growing deficit in poultry meat?Ensuring European investment supports the development of local poultry meat production across Africa would appear to be an important priority for the EU’s new ‘Africa-Europe alliance for sustainable investment and jobs’, given the strong backward linkages poultry meat production has to rural grain and oilseed production (for details of the new ‘Africa-Europe alliance for sustainable investment and jobs’ see epamonitoring.net companion article ‘EU Sees Mauritania’s EPA signature as Stepping Stone to an EU-Africa FTA?’, 25 October 2018).However as the EU’s own poultry sector experience highlights, encouraging investment and production expansion will require managed trade policies which create a profitable market space for local meat production (see companion epamonitoring.net article, ‘What Do Current Investment Trends in the UK Poultry Sector Tell Us About the Impact of EU Poultry Sector Trade Policies?’, 14 October 2018). This is something the EC will need to take on board in regard to how it interprets and applies the provisions of bilateral EU trade agreements dealing with the use of non-tariff trade policy measures. However resisting corporate pressures to secure full market access for EU poultry meat exports under EU trade agreements is likely to become more difficult if a ‘no-deal’ Brexit occurs. While the UK has been losing ground as Brexit uncertainties impact on investment decisions of UK poultry producers, the UK remains the 3rd largest poultry producer in the EU. Currently 78% of EU poultry meat exports go to EU27 markets (the Netherlands 39%, Ireland 28% other EU27 21%), with these exports consisting largely of poultry parts for which there is only a limited market in the UK. This trade is highly vulnerable to disruption given the EU’s strict controls on animal products imported from non-EU members. Animal product imports are subject to compulsory inspections at the initial point of entry into the territory of the EU (see companion epamonitoring.net article, ‘Getting to Grips with the Import Controls Required If the UK Is Treated As Just Another 3rd Country’, 13 August 2018). Against this background any disruption of UK poultry meat exports to the EU could carry important consequences for UK poultry meat exports to the sub-Saharan African markets, as UK producers seek out alternatives to EU27 markets for poultry parts production An additional area of concern relates to the low value poultry parts imported into the EU in growing volumes from the Ukraine. These products have only a limited market in the EU, with most of the EU’s own production of these low value poultry parts being exported. This suggests much of these imports from the Ukraine may end up being re-exported to non-EU markets, particularly in sub-Saharan Africa. This raises important rules of origin issues where EU labelled products enjoy preferential access under EU trade agreements (e.g. under the SADC-EU EPA, which encompasses South Africa which was, until the implementation of SPS related import restrictions at the end of 2016, the single most important market for extra-EU poultry meat exports). |
Sources:
(1) FAO ‘Agricultural outlook 2018-2027 – Meat’, 2018
http://www.fao.org/docrep/i9166e/i9166e_Chapter6_Meat.pdf
(2) Globalmeatnews.com, ‘How do poultry companies prepare for the future’, 12 October 2018
https://www.globalmeatnews.com/Article/2018/10/12/Poultry-sector-urged-to-change-trading-strategies
(3) EC, ‘EU Market Situation for Poultry Committee for the Common Organisation of the Agricultural Markets’, 20 September 2018
https://circabc.europa.eu/sd/a/cdd4ea97-73c6-4dce-9b01-ec4fdf4027f9/24.08.2017-Poultry.pptfinal.pdf