Growth in EU28 poultry meat exports to ACP markets could accelerate under a no deal exit of the UK from the EU

Summary
SPS restrictions on poultry meat imports from Brazil saw EU poultry meat production expand in 2017 despite AI outbreaks. This highlights how important trade measures can be in stimulating domestic poultry meat production. In the face of AI related import bans EU poultry meat exporters have found new alternative markets for exports in Africa. The projected 3.9% expansion of EU poultry meat production to 2030 will drive a further expansion of exports (+18.4% or +219,000 between 2018 and 2030), with growing volumes of poultry parts being exported to Africa at progressively lower prices. Given likely Brexit related disruptions of the EU27/UK poultry meat trade, export growth to Africa could be even higher, particularly for UK poultry parts exports of which are currently concentrated on EU27 markets. Potential Brexit related trade effects are not factored into current EU projections. ACP governments may need to use non-tariff trade policy tools to protect against sudden import surges, with this potentially becoming a contentious issue. Additional SPS issues arise from the growing level of processing of Ukrainian raised chickens in the EU, parts of which are then exported as EU chicken to ACP markets.

Current EU Production
According to the European Commission (EC) in 2017 outbreaks of bird flu in a number of EU member states significantly affected EU poultry meat production. While this saw an initial decline of 1%, there was subsequently a strong recovery in EU production with EC figures showing gross indigenous production in 2018 up 2.2% on 2017 levels, which in turn were 0.5% above 2016 levels (1). By the end of 2018 EU poultry meat production reached 14,889,000 tonnes.

EU poultry meat production, consumption, exports and imports 2010-2018 (‘000 tonnes)

	2010	2011	2012	2013	2014	2015	2016	2017	2018
Production	12 154	12,382	12,717	12,804	13,263	13,787	14,494	14571	14,889
Consumption	11,800	11,922	12,233	12,285	12,719	13,254	13,829	13,818	14,074
Exports	1,150	1,290	1,325	1,311	1,365	1,388	1,548	1,542	1,580
Imports	796	831	84	792	821	855	882	789	766

Source: EC, ‘EU Agricultural Outlook for Markets and Income 2018-2030, tables, December 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/medium-term-outlook/2018/medium-term-outlook-2018-tables_en.pdf

This strong recovery in EU poultry meat production was supported by the imposition of EU SPS based restrictions on poultry meat imports from Brazil (1). This saw a fall in imports from Brazil in the course of 2017 and an even more dramatic decline in 2018 (-20% and -26% respectively in 2017 and from January to November 2018). This decline in imports from Brazil was only partially compensated for by increases in imports of poultry meat from Ukraine (+66,816 tonnes compared to +224,623 tonnes) (2).

This created more market space for EU poultry meat producers, with this seeing a 2.7% increase in EU production between 2016 and 2018 (+395,000 tonnes) despite the AI outbreaks in the EU.

Current EU Exports
Despite the imposition of avian influenza related bans on EU poultry meat in a number of important overseas market, this expansion of EU production saw a 2.1% increase in EU exports of poultry meat between 2016 and 2018 (+32,000 tonnes) (2). However according to the EC ‘EU exports of frozen whole chickens have been falling for several years’, with by 2017 these export volumes down half on what they had been 5 years earlier. By 2017 frozen whole chickens represented only ‘20 % of total poultry meat exports’ from the EU. Against this background the importance attached to EU exports of poultry parts has increased, with ‘halves and quarters mostly shipped to Africa’ (1).

However serving these African markets has been far from plain sailing for EU poultry meat exporters.

Challenges have been faced in serving markets in Southern Africa and West Africa. In Southern Africa this was linked to the introduction in December 2016 of SPS based import restrictions in the face of Avian Influenza outbreaks in certain EU member states, with these restrictions having largely been maintained in place pending assurances as to the safety of renewing imports from these regions (see epamonitoring.net, ‘EU Poultry Exports to South Africa In the Face of Avian Influenza Based Export Restrictions’, 11 October 2018).

Main Sub-Saharan Africa Destination Markets for Poultry Meat 2014- 2018 (tonnes)

	2014	2015	2016	2017	% change 14-17	Jan-Nov 2018	Compared Jan-Nov 2017
Ghana	57,394	81,025	115,783	146,958	+156%	150,706	+9%
Benin	164,460	139,324	120,685	105,709	-36%	87,416	-13%
South Africa	204,451	214,951	282,770	78,491	-72%	74,343	0%
Congo (DRC)	33,753	35,849	46,260	60,080	+78%	72,011	+25%
Gabon	30,026	37,877	32,340	49,183	+64%	41,469	-10%
Sub-total	490,084	509,026	597,838	440,421		383,865
Total Extra-EU	1,509,229	1,508,071	1,679,264	1,671,015	+11%	1,644,800	+6.4%
Sub-total %	32.4%	33.8	35.6%	26.3%		25.9%

Source: EC, ‘EU Market Situation for Poultry Committee for the Common Organisation of the Agricultural Markets’, 24 January 2019
https://circabc.europa.eu/sd/a/cdd4ea97-73c6-4dce-9b01-ec4fdf4027f9/24.08.2017-Poultry.pptfinal.pdf

In West Africa the principal challenge faced has been the application of stricter border controls by the Nigerian authorities on smuggling from neighbouring Benin, in a context where the bulk of EU poultry meat exports to Benin are subsequently smuggled over the border into Nigeria. Until 2016 Benin was the leading West African destination for EU poultry meat exports, with these Nigerian border measures and rising EU poultry meat exports to Ghana having subsequently displaced Benin into second place (see companion epamonitoring.net article, ‘EU Poultry Meat Exports to Sub-Saharan Africa Down Only Marginally in 2017 Despite South African AI Based Import Restrictions’ 21 March 2018).

These developments impacted on EU export volumes with between 2014 and 2017 exports to South Africa falling 72% and exports to Benin falling 36%. The decline in exports to South Africa was particularly noteworthy, for in 2016 South Africa had taken fully 16.8% of total extra-EU poultry meat exports, with this falling to only 4.7% in 2017 (2).

These declines were only partially compensated for by an increase in EU exports of poultry meat to other leading sub-Saharan African destinations (of which there are 5 in the top 10 extra-EU destinations for poultry meat exports) (2). Between 2014 and 2017 EU poultry meat exports to Ghana rose a massive 156%, with a further 9% expansion in the first 11 months of 2018. Exports to the DRC and Gabon also grew strongly increasing 78% and 64% respectively. In the case of the DRC this growth continued into 2018 increasing a further 25%. However in the case Gabon EU export were 10% lower between January and November 2018 compared to the corresponding period in 2017.

Given the ability of EU poultry meat exporters to find new markets in sub-Saharan Africa it is unclear to what extent export growth to markets beyond these top five sub-Saharan African destinations were able to further compensate for the declining level of EU poultry meat exports to South Africa and Benin (in fact largely Nigeria).

Projected EU Consumption, Production and Export Trends
The EC figures annexed to its December 2018 Agricultural Outlook Report project a 3.4% increase in EU consumption of poultry meat between 2018 and 2030 (+480,000 tonnes), with this being the only meat category in which EU consumption will increase. However EU production growth from 2018 to 2030 is projected to exceed this consumption growth, increasing 3.9% (+586,000 tonnes)

Beyond the EU, according to the EC there will be continued growth in global demand for poultry meat, with EU exports increasing by 291,000 tonnes between 2018 and 2030 (some 18.4%). This export trade will allow the EU poultry sector to better valorise the whole of the poultry carcass, with a wide range of different products being offered to different markets across the globe. This will see a concentration of exports of chicken parts to ACP markets, particularly in sub-Saharan Africa.

Projected EU Consumption, Production and Exports of Poultry Meat (‘000 tonnes) 2018-2030

	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028	2029	2030
Cons.	14,074	14,182	14,300	14,351	14,372	14,378	14,400	14,415	14,442	14,468	14,495	14,524	14,554
Prod.	14,889	14,903	14,985	15,048	15,097	15,140	15,183	15,228	15,280	15,331	15,382	15,428	15,475
Export	1 580	1 574	1,605	1,638	1,670	1,711	1,731	1,763	1,789	1,812	1,837	1,855	1,871

In terms of EU poultry meat price levels the EC expects prices ‘to remain around current levels in the first years of the projection period’, with this being followed by a gradual decline in prices ‘under increased competition (mainly from the US and Brazil)’. However actual EU poultry meat prices will be influenced by feed price costs with a ‘possible variation of poultry meat prices between EUR 1,630/tonne and EUR 2,130/tonne’ up to 2030.

In terms of the potential impact of Brexit on the functioning of EU poultry meat markets, the EC highlights how the UK is the second placed poultry meat producer in the EU, accounting in 2017 for 12.5% of total EU production (1.8 million tonnes). However there is a differentiated mutual trade in poultry meat between the EU27 and the UK. While the EU27 is a net exporter of largely breast meat to the UK (with in 2017 some 810 000 tonnes being exported to the UK with this accounting for 1/3 of total EU27 poultry meat exports), the EU27 takes almost 70% of UK exports of poultry parts (1).

Any disruption of the EU27/UK poultry meat trade would thus have potentially important implications for the ACP given sub-Saharan Africa is the major market for extra EU28 exports of poultry parts (see companion epamonitoring.net article, ‘UK Dependence on the EU for ‘Dark’ Meat Exports Potential Source of Concern’, 3 December 2018).

Comment and Analysis

EU poultry meat production growth in excess of high EU consumption growth is a source of concern for ACP countries given the strong focus on African markets for the export of poultry parts. This means that up to 2030 the growth in EU28 poultry parts available for export will be particularly pronounced. If the existing UK/EU27 trade in poultry meat were disrupted by a ‘no-deal’ Brexit, this could see a dramatic increase in UK exports of poultry parts to non-EU27 markets, particularly sub-Saharan African markets,.

It should be noted how the EC’s December 2018 projections for developments on agricultural markets takes no account of the pending withdrawal of the UK from the EU customs union and single market. A ‘no-deal’ outcome to the current withdrawal negotiations would see the application of standard EU 3^rd country tariffs and imports controls on UK poultry meat exports to EU27 markets.

Addressing the NFU in February 2019 UK Secretary of State Gove told UK farmers ‘tariffs are not the only problem we would face. All products of animal origin entering the EU would face SPS checks’. As a consequence under a no-deal exit there would be ‘delays at the port because of mandatory sanitary and phytosanitary (SPS) checks on any food or animal products exported to the bloc from Britain’. This it was felt could lead to UK products being ‘locked out of the EU from 30 March in the event of no deal’. This followed NFU warnings that ‘health and safety audits required on individual food processing plans required by the EU could take up to six months to complete, effectively locking British farming exporters out of the bloc’. The knock on effects of EU checks would also impact on EU27 exports to the UK regardless of the policy measure adopted by the UK (4).

Against this background the failure of the EC to build in the prospect of a ‘no-deal’ exit of the UK from the EU brings into question the usefulness of the projections for developments in the EU poultry sector up to 2030.

Given the huge volume of mutual EU27/UK trade in poultry meat which takes place, an introduction of new non-tariff import controls on mutual EU/UK trade would be likely to give rise to far higher volumes of poultry meat exports to ACP markets from both the EU27 and the UK. This is something which ACP governments which are currently protecting or seeking to promote local poultry sector development will need to prepare for in the coming months if the UK leaves the EU without a transitional trade deal in place.

The response of EU poultry meat producers to SPS restrictions on imports of poultry meat from Brazil highlights the sensitivity of domestic poultry meat production to the application of protective trade policy measures. This is an important lesson for any ACP government wishing to sustain or develop their own domestic poultry meat production industry. This lesson will need to be borne in mind in the implementation of EPA commitments on the use of non-tariff trade policy tools. In the difficult poultry meat market conditions which are likely to emerge under a ‘no-deal’ outcome to the current Brexit negotiations, pressure could increase on ACP governments to fully implement commitments they have entered into through EPAs to remove all quantitative restrictions on imports from the EU.

In addition given the use of TRQs to manage poultry meat imports into the EU28 the withdrawal of UK import demand could see a proportionate increase in competition from 3^rd country poultry meat suppliers on EU27 markets. This could increase price pressures on the EU poultry sector and further intensify pressures to find alternative overseas markets for poultry meat cuts.

However this dimension should not be exaggerated since the UK accounted for only 12% of extra-EU poultry meat imports in 2017. In addition the EU and UK have already agreed to apportion WTO agreed quotas between the EU and UK market, although this apportionment is being challenged in the WTO.

A final issue to bear in mind is the SPS implications of the growing corporate presence of Ukrainian poultry companies in the EU (see epamonitoring.net article, ‘Ukrainian Poultry Company MHP Secures Third foothold inside the EU’, 22 October 2018). Against the background of this growing presence of Ukrainian poultry companies in the EU poultry sector, the growth in EU poultry meat imports from Ukraine is matter of growing concern from an SPS perspective. Ukrainian whole chickens are being imported into the EU in increasing volumes (+157% between 2014 and January-November 2018) with these whole chickens then being cut and packaged in an EU member state, with the resulting poultry parts being exported as EU products, despite the chicken carcass originating in the Ukraine. This could potentially pose serious SPS control challenges, given the periodic yet differential outbreak of avian influenza in the EU and the Ukraine.

Total Ukrainian poultry meat exports to the EU

2014	2015	2016	2017	% change 14-17	Jan-Nov 2018	Compared Jan-Nov 2017
19,958	42,513	48,103	80,128	+301%	114,919	+43%

Sources
(1) EC, ‘EU Agricultural Outlook for Markets and Income 2018-2030, full text, December 2018
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/medium-term-outlook-2018-report_en.pdf
(2) EC, ‘EU Market Situation for Poultry Committee for the Common Organisation of the Agricultural Markets’, 24 January 2019
https://circabc.europa.eu/sd/a/cdd4ea97-73c6-4dce-9b01-ec4fdf4027f9/24.08.2017-Poultry.pptfinal.pdf
(3) EC, ‘EU Agricultural Outlook for Markets and Income 2018-2030, tables, December 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/medium-term-outlook/2018/medium-term-outlook-2018-tables_en.pdf
(4) Guardian, ‘UK will apply food tariffs in case of no deal, Michael Gove says’, 19 February 2019
https://www.theguardian.com/politics/2019/feb/19/brexit-uk-will-apply-food-tariffs-in-case-of-no-deal-michael-gove-says