Bird flu poses risk to US processors: Fitch

by Meat&Poultry Staff
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NEW YORK – The impact of the bird-flu virus could spread to companies from other countries with a significant business presence in China, according to Fitch Ratings. The ratings firm said companies such as McDonald's Corp., Tyson Foods, Inc., JBS S.A. and Yum! Brands could be affected if poultry consumption in China continues to decline.

"We believe rising consumer fears around avian influenza in China [or elsewhere if human-to-human cases develop], could cause a meaningful pullback in chicken consumption with fewer restaurant visits, lower retail chicken sales and reduced export activity. Respiratory pandemics such as the 2003 SARS epidemic and past outbreaks of animal disease or food-borne illnesses negatively affected the operating earnings and cash flow of US protein processors and restaurant companies," Fitch reported. "Past outbreaks include the H1N1 swine-flu virus in the US during 2009 and the spread of the H5N1 bird flu through Asia during the 2003-2006 period."

China’s poultry industry has suffered significant financial losses because of the virus, which has killed 14 people and infected 63 others. Health and food-safety officials have culled thousands of birds and closed live-poultry markets in Beijing and Shanghai to slow the rate of infection. To date there has been no reported human-to-human spread of H7N9, which would signal the potential for an international pandemic to occur, Fitch said. However, the Atlanta-based Centers for Disease Control and Prevention reported that limited human-to-human spread of the virus is possible.

"Last week, YUM announced that March same-store sales [SSS] declined an estimated 13 percent for its China division, a sequential improvement from the 20 percent decline during the month of January and February combined, but added that sales at KFC China are being negatively affected by publicity associated with H7N9 outbreak," Fitch said. "We believe consumer perception around chicken consumption and the H7N9 virus could delay the firm's recovery from negative publicity that began in late 2012 surrounding the use of excessive antibiotics by certain of its Chinese chicken suppliers."

US chicken exports to mainland China, Taiwan and Hong Kong totaled 699 million lbs., or 10 percent of US chicken exports, during 2012, according to the US Department of Agriculture. Year-to-date through February, US broiler exports have declined 3 percent with exports to the countries being down 16 percent in the aggregate.

Fitch said rising chicken supplies due to significantly lower export activity to key markets in Asia could dampen pricing in the US and hurt profitability for the US chicken industry. However, diversified processors such as Tyson and JBS could weather declines in chicken consumption if Chinese consumers began buying more pork, while pork exporters such as Smithfield Foods Inc., could benefit. Pork is China's most-consumed protein.

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