Summary
The EU poultry meat sector has proved surprisingly resilient to Covid-19 trade and market disruptions. While both EU imports and exports have fallen, exports of poultry meat to the main sub-Saharan African markets have risen dramatically. This role of sub-Saharan African markets as “markets of last resort” raises concerns about the impact of a ‘no-deal’ or ‘Thin FTA’ outcome to the Brexit process on international trade in poultry meat given the scale of current mutual EU/UK trade (1.2 million tonnes per annum). There are fears ACP markets could be targeted should this EU/UK trade be disrupted. This could then disrupt established or emerging African poultry sectors. ACP governments will need to prepare for these likely export surges, in a context where the EU’s new Chief Trade Enforcement Officer will be increasingly seeking to remove current trade restrictions on EU poultry meat exports, where these violate trade agreement commitments. Greater transparency in trade statistics on EU poultry exports to developing country markets could facilitate operationalising EU policy coherence for development commitments, particularly if a ‘window’ were opened through which the concerns of local ACP poultry producers could be made known.
While EU poultry production in the first quarter of 2020 was up 1.8% year on year, the demand side was disrupted by the impact of the Covid-19 linked lock-down on food service demand and the disruption of exports as a result of Avian Influenza (AI) outbreaks in Poland. This created a situation where an ample supply of poultry meat was confronted by lower demand (1).
This saw a dramatic 12% fall in EU broiler prices in week 11, from around €198/100 kg to under €173/100 kg. However, by week 36 prices had recovered to €187/100 kg (-5.6%); a level down only 1.7% on the average prices prevailing in 2019 (3). While growth in EU production of poultry meat slowed in the second quarter of 2020 to 1.5% year on year growth. For 2020 as a whole EU poultry meat production is still projected to increase by 1%, with a similar growth projected for 2021 (2).
Overall, despite initial fears, the EU poultry meat sector has been surprisingly resilient in the face of the economic disruptions generated by the Covid-19 pandemic (3). This resilience was in part linked to a switch to poultry meat from other meats during the lock down period; in part to the subsequent relaxation of lock-down restrictions and in part to the responsiveness of poultry producers in some EU member states to supply chain disruptions resulting from Covid-19 linked movement restrictions (notably in Italy) (2).
This shift in consumer demand over to poultry meat seems likely to gain further traction as the Covid-19 induced economic recession begins to impact on household disposable incomes (1). However, this being noted, renewed ‘lock-down’ measures are likely to again depress consumption in the HORECA market component. Overall, this is projected to see a decline in EU per capita poultry meat consumption of 1.5% to 23.7kg per capita per annum (2).
In terms of trade, given the role the HORECA sector plays as a market for imported poultry meat (2), EU imports of poultry meat (when the UK is included as a 3rd country) were down 17.9% from January to July 2020 compared to the same period in 2019, and down 14.6% if only extra-EU28 imports (3) are considered. Imports from China, Thailand, and Brazil were down 21.5%, 17.8%, and 8.1% respectively, but with the largest decline being on imports from Ukraine, which fell 26.3% (3).
From January until March 2020 the EU had in place an AI based ban on imports of poultry meat from Ukraine which depressed import levels in January and halted all imports in February and March (3). While limited volumes of imports from Ukraine were recorded in April and May (190 tonnes and 19 tonnes respectively), no EU imports from Ukraine were recorded in June and July. Overall, from February until July 2020 the EU imported only 209 tonnes of poultry meat from Ukraine compared to 31,456 tonnes in the same period in 2019 (3). For the whole 2020 EU poultry meat imports are projected to be down 12% before recovering in 2021 with an expected 6% increase (2).
From January until July EU poultry meat exports to 3rd countries including the UK were 1,373,626 tonnes. Excluding trade into the UK market, extra-EU exports of poultry meat totalled 984,812 tonnes. From 2016-2017 over the January to July period each year the UK market took the equivalent of 50% of the volume of EU poultry meat exports beyond the EU28’s borders (3).
This needs to be seen in a context where the EU27 has a 108% self-sufficiency in poultry meat production, generating over 1 million tonnes of poultry meat which is surplus to domestic EU consumer requirements (4).
In this context, any disruption of EU poultry meat exports to the UK would be likely to greatly expand the overall volume of EU poultry meat available for export to 3rd country markets beyond the EU28’s borders. These exports are already projected to increase, as AI linked bans on imports of poultry meat from Poland are progressively lifted, with the EU projected to return once more to an overall growth in poultry meat exports in 2021 (2).
While overall from January to July 2020 EU poultry meat exports to 3rd countries (excluding the UK), fell 4.9% compared to the corresponding period in 2019 (3), with an overall decline in exports for 2020 projected at 6% (2), from January to July 2020 EU exports of poultry meat to the DRC increased a massive 63.3% and to Ghana by 3.6% compared to the same period in 2019. Beyond these African destinations, the only other top markets showing positive EU export growth for poultry meat were the Philippines and Hong Kong (+10.7% and +1.1% respectively compared to January to July 2019) (3).
This export performance to African destinations was achieved despite EU broiler prices being over 230% higher than Brazilian price offerings and nearly 63% higher than average US broiler prices (3). This is attributable to the dominant role played by residual poultry part exports to sub-Saharan African markets within the EU’s overall poultry meat export profile. These exports are generally sold at marginal cost, linked to whatever price the market can bear rather than underlying poultry meat production costs.
This pricing practice is made possible by the EU’s trade policy, which strictly regulates imports of poultry meat. This policy means poultry meat imports almost exclusively enter the EU market under carefully managed tariff rate quota (TRQ) arrangements, negotiated either multilaterally or bilaterally. This carefully managed EU poultry meat trade regime means EU producers are the primary beneficiaries of any expansion of EU poultry meat consumption, despite the obvious price competitiveness disadvantages EU producers face. In addition, when market difficulties are faced, such as under the current Covid-19 crisis, it is imports which are primarily affected.
There is a significant link between this carefully managed EU poultry meat import regime and the pattern of EU poultry meat exports. With EU demand being dominated by breast meat consumption, the expansion of EU poultry production in response to growing EU consumer demand, means an ever expanding volume of poultry parts are generated which need to be exported to overseas markets, primarily in Africa.
What is more, the trade protection EU poultry producers enjoy enables much higher prices to be maintained on the EU market for the choice poultry cuts than would otherwise be the case. This then enables the disposal of residual poultry parts at extremely low prices to be commercially sustained. The EU’s poultry meat import regime is thus intimately connected to the volume and pattern of EU poultry meat exports.
| Comment and Analysis Despite the difficult trading conditions and the overall decline in EU poultry meat exports to extra EU28 markets, exports of poultry meat to major sub-Saharan African markets increased. This suggests that once again African markets are demonstrating their value as “markets of last resort” when times get tough for EU exporters. It is this role of sub-Saharan African markets as ‘markets of last resort” which raises concerns about the impact of a no-deal (or even in some instances a ‘thin’ deal) UK departure from the EU customs union and single market on the international poultry meat trade of both the EU27 and the UK. In the absence of a comprehensive EU/UK trade agreement (including of course phytosanitary requirements for mutual trade in animal products), the existing EU/UK mutual trade in poultry meat which is in excess of 1.2 million tonnes, is likely to be severely disrupted. Of this tonnage around 74% consists of EU poultry meat exports to the UK (mainly of breast meat) and 26% consists of UK poultry meat exports to the EU27 market (mainly poultry parts destined for eastern European markets). In the face of these disruptions, given the scale of poultry meat trade involved, EU27 exporters will be looking for alternative markets equivalent to half the volume of current poultry meat exports to international markets. Only the fact that most of this displaced poultry meat consists of higher value breast cuts is likely to ease pressure on some sub-Saharan African markets. Notable exceptions in this regard however will be the South African market and other more developed markets for ‘white’ poultry meat consumption in sub-Saharan Africa, and the Caribbean. The preponderance of poultry parts exports in the UK’s trade with EU27 members will probably see UK exporters focusing heavily on finding alternative markets in sub-Saharan Africa. However, the institutional constraints faced in post-Brexit Britain in administering the issuing of phytosanitary export permits is likely to limit the scope for export expansion in the first half of 2021. This however may only be storing up problems for the future, with a glut of UK frozen poultry parts being available for export at the end of 2021. This being noted the depth of the combined Covid-19 and Brexit induced economic recession in the UK may be such as to drive a rapid growth in UK consumption of low-priced poultry parts, which could then ease export pressures. What is clear is that the governments of ACP countries with established poultry meat sectors or with emerging poultry sectors which they wish to see further developed in the face of Covid-19 linked supply chain disruptions, will need to pay close attention to the trade strategies they put in place to manage likely export surges in the exceptional circumstances which are likely to be created in the poultry sector in the event of a no-deal Brexit. This could potentially prove problematical given the poultry sector is likely to be one of the first areas where the EU’s new Chief Trade Enforcement Officer will take up and challenge existing 3rd country restrictions on imports of poultry meat where EU trade agreements are in place. The provisions of these EU agreements with ACP countries (including with South Africa), generally prohibit the use of quantitative restrictions (the basis of the EU’s own poultry sector trade regime) on imports from the EU and insist on national treatment for EU companies in regard to access to 3rd country markets. Mr. Denis Redonnet, the new EU Chief Trade Enforcement Officer has made it clear he is looking to prioritise available cases of lack of enforcement under FTAs for immediate action, with to date this focussing on the poultry meat dispute with South Africa. In the coming period trade tensions could be eased if the EC were to expand the scope of the trade monitoring work of the Meat Market Observatory. For example, a case is increasingly being made for the EC, to publish on a monthly basis, poultry meat trade statistics for each sub-Saharan African and ACP Caribbean country to which EU exports take place, with more detailed monthly or quarterly data being provided (broken down by product sub-category) for sub-Saharan African countries where an expansion of EU exports is underway. This would allow trends in EU poultry meat exports to be monitored to those ACP countries which have established poultry sectors or are trying to develop their poultry production. An assessment can then be made of the possible local market effects of evolving patterns of EU poultry meat exports. If this was complemented by the establishment of a ‘window’ through which the concerns of local ACP poultry producers could be made known, then the scope would be created for more effectively ensuring the coherence of EU’s poultry meat trade with wider economic development objectives. This needs to be seen in a context where a) Local poultry meat production in African and Caribbean countries can make an b) Even relatively small volumes of EU exports (from an EU perspective) can have This issue of the relative size has led local poultry producers in individual ACP states to raise the question: why is the EU so intolerant of the use of limited trade policy measures as part of efforts to promote local poultry meat production, given the local employment and income gains it generates, when the size of the local markets disrupted is miniscule in terms of the EU’s overall poultry meat trade position? This is an area where closer monitoring of actual trade flows could enable more development friendly policies to be pursued without threatening overall EU poultry sector trade interests. |
Sources
(1) EC, ‘Short-term Outlook for EU Agricultural Markets in 2020: Summer 2020’
(2) EC, ‘Short-term Outlook for EU Agricultural Markets in 2020: Autumn 2020’
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/short-term-outlook-autumn-2020_en.pdf
(3) EC, ‘EU Market Situation for Poultry Committee for the Common Organisation of the Agricultural Markets’, 17 September 2020
https://circabc.europa.eu/sd/a/cdd4ea97-73c6-4dce-9b01-ec4fdf4027f9/24.08.2017-Poultry.pptfinal.pdf
(4) Global policy watch, ‘The EU Lifts Restrictions to Imports of Poultry Meat from Ukraine Following the Regionalization of the Country Due to an Outbreak of HPAI’, 4 March 2020
https://www.globalpolicywatch.com/2020/03/the-eu-lifts-restrictions-to-imports-of-poultrymeat-from-ukraine-following-the-regionalization-of-the-country-due-to-an-outbreak-of-hpai/