Summary
The structure of EU demand and the EU’s tightly ‘managed’ poultry sector trade regime are major factors driving EU exports of frozen poultry parts to Africa. Important ‘pull’ factors include growing African demand for low cost protein and the poultry sector trade policies pursued by African governments. EPA commitments could bring into question the current use of trade policy tools in support of local poultry sector development in Africa.
What Factors Enable EU Poultry Exporters to Win African Markets?
While EU poultry meat exporters face intrinsic cost disadvantages vis a vis their principal international competitors (see box 1) EU poultry meat exports have shown phenomenal growth since 2007 (+575,000 tonnes or a 76% expansion). This is the result of two main factors: the structure of EU poultry meat consumption and the EU’s poultry meat import regime.
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The Underlying Competitive Position of EU Poultry Production A December 2013 study financed by the EU Association of Poultry Processors and Poultry Trade (AVEC) highlighted the production cost disadvantages of EU producers. Production costs for poultry meat produced in Argentina, Brazil, Ukraine, the USA, and Thailand were estimated at only 71%, 72%, 77%, 80% and 84% of average EU production costs respectively.
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Consumers in the EU largely favour breast meat, with their being only limited demand for other poultry parts and offal in the EU. For many years these poultry parts and offal were used to produce meat and bone meal animal feed. However the BSE crisis saw the feeding of meat and bone meal to animals banned, closing off this important market. This left EU poultry producers facing the problem of how to dispose of those poultry parts for which there was only a limited market in the EU.
This has created a situation where, provided the price paid exceeds the costs of transport minus the cost of alternative methods of disposal, poultry companies and traders are willing to export these poultry parts at virtually any price. It is these exports of frozen chicken parts and offal which are increasingly finding their way onto sub-Saharan African markets.
The EU’s poultry sector trade regime meanwhile remains highly managed (see box 2), being based on high MFN tariffs, TRQs and the permanent use of a special safeguard mechanism. This has ensured the rapid growth of EU consumption of poultry meat (+1,510,000 tonnes between 2007 and 2015) has been met almost exclusively from expanded EU domestic poultry production. However this expanded domestic production to meet rising EU demand for breast meat has also given rise to parallel expansion of poultry parts, for which only a limited market exists in the EU. It is the export trade in frozen poultry parts which increasingly targets African markets.
In addition according to the USDA the operation of the EU’s import regime also means that EU poultry producers can pass on any increase in input costs to EU consumers without fearing any loss of market share, since imports are strictly controlled. This enables the EU poultry sector to maintain export price competitiveness, even during times of high feed costs.
Overall this has seen the EU not only return to the status of a net poultry meat exporter, but has also seen the EU enjoy a growing trade surplus in the trade in poultry meat. This has occurred despite the low value of the bulk of EU poultry meat exports and the decision of the government of the Russian Federation to progressively restrict imports of poultry meat from the EU from 2010 onwards.
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The Impact of the EU’s Poultry Regime The principal source of support for poultry producers is the EU’s poultry meat import regime. This consists of:
To facilitate the implementation of the regime all imports and exports of poultry products are subject to the issuing of licences.
This trade regime allows the EU to manage market access in response to rising EU consumer demand, while protecting the interests of EU poultry producers. This managed trade regime also prevents global market price volatility or unforeseen market developments from disrupting domestic EU poultry production (e.g. the August 2014 Russian import embargo).
According to EU poultry producers these high tariffs and import quotas play a ‘vital role in restricting the volume of imports into the EU from third countries’. A 2005 evaluation of the EU poultry regime argued import tariffs maintained prices between 11.5% and 13.1% and production between 7% and 13.3% higher than would be the case in the absence of tariff protection (this varies, depending on world market price levels).
According to EU poultry industry representatives, ‘in the absence of import tariffs…the EU market would rapidly be influenced by imported products, with EU producers increasingly restricted to supplying niche markets’.
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The Complementary ‘Pull’ Factors
These ‘push’ factors which drive the EU poultry meat exports to Africa are complemented by an important pull factor, namely the rapid expansion of demand for low cost protein, on the back of recent strong income growth in Africa.
A further important ‘pull’ factor influencing specific patterns of EU poultry meat exports is the national poultry meat import policies pursued by African governments and increasingly important the trade policy commitments entered into by Africa governments under trade agreements concluded with the EU (see companion article ‘EU Poultry Exports to South Africa to South Africa Begin to Bite’).
Sources:
LEI, ‘Competitiveness of the EU poultry meat sector’, December 2013
Agra CEAS Consulting, Evaluation of the Common Market Organisation (CMOs) for Pigmeat, Poultrymeat and Eggs, Contract 30-CE-0009330/00-422134/CC/November 2005,
http://ec.europa.eu/agriculture/eval/reports/pig_poultry_egg/fullrep_en.pdf
Initiativet for Handel og Udvikling, ‘The Impact of EU Poultry Sector Policies on Sub-Saharan African Countries’, November 2015
Agritrade, ‘The EU’s agricultural policy toolbox: A sector-by-sector review’, special report, 13 December 2011, http://agritrade.cta.int/en/Agriculture/Topics/CAP-reform/Special-report-The-EU-s-agricultural-policy-toolbox-A-sector-by-sector-review
Thepoultrysite.com, ‘USDA International Egg and Poultry: Sub-Saharan Africa’, 17 July 2014, http://www.thepoultrysite.com/reports/?id=3982
See USDA, ‘EU28 poultry sector to grow again in 2013 and 2014’, GAIN Report No. FR9146, 9 September 2013, http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Poultry%20and%20Products%20Annual_Paris_EU-27_9-16-2013.pdf
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Comment and Analysis The factors driving the EU trade in frozen poultry parts mean that tariff protection is largely ineffective in preventing an expansion of EU exports where there is growing consumer demand. This is why so many African governments which wish to promote local poultry sector development seek to use quantitative restrictions or SPS based import bans, to restrict poultry meat imports.
It is the use of these trade policy measures which could be brought into question under the recently concluded EPAs, depending on how the European Commission chooses to interpret and apply the various EPA provisions dealing with the use of non-tariff trade policy tools.
The Use of Contentious Trade Policy Tools in ACP Poultry Sectors: An Overview
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Key words: Poultry
Area for Posting: Poultry sector, SADC EPA, General EPA, West Africa EPA, Central Africa EPA, EAC EPA, ESA EPA