In 2020, success for stakeholders in the global poultry trade will be defined by the sector’s ability to manage supply chain challenges caused by the coronavirus (COVID-19) pandemic and animal diseases such as African swine fever.
Some supply chain complications required short-term fixes. Shelter-in-place orders and panic-buying consumers led poultry processors to shift production to retail outlets from foodservice clients; not an easy feat to accomplish in only a month or two.
“It has been challenging, especially for those integrators that service the foodservice industry,” said Christine McCracken of Rabobank. “It really is very challenging to shift production in chicken given the differences in size of the birds that service the foodservice industry relative to retail. There isn’t that ability to move products in between channels as easily.
“For those guys it’s been really difficult. But they’ve been really resourceful; they’ve found ways to market their birds – whole birds and parts in bags – through the retail channels. They’ve done truckload sales that have been quite successful in a lot of areas.”
Stop-gap measures would only brace the industry until more restaurants opened, and there were signs of foodservice springing back to life by late May. Still, uncertainty remains surrounding the duration of the pandemic and the depth an economic recession forecast for later in the year.
“Fortunately, they’ve been able to cut back production pretty hard,” McCracken said. “So, through this summer, we’ll have a lot less chicken, which should help improve prices and stabilize profits. But through the rest of the year, there’s still a lot of questions.”
What is certain is that the pandemic has upended global poultry markets. The Foreign Agricultural Service (FAS) of the US Department of Agriculture recently lowered its 2020 export forecasts for poultry.
FAS revised its forecast for global chicken meat production 2% lower to 100.5 million tons with the expectation that gains in China would fail to offset lowered production forecasts for all major producers, the agency said in its Livestock and Poultry: World Markets and Trade report.
FAS revised its outlook for 4% lower for global chicken meat trade on downward revisions for all major exporters accept Brazil, according to the agency’s report. As a result, FAS expects world chicken meat trade to contract 1% in 2020 compared to 2019 despite minor gains in the United States and Brazil.
But, FAS said that world production is forecast 1% higher compared to 2019 as gains in Brazil, China and the United States offset declines in the European Union, the United Kingdom, Thailand and Turkey.
“Compared to red meats, chicken meat demand is expected to be more resilient when faced with economic turmoil due to its position as a low-cost versatile animal protein culturally acceptable in virtually all markets,” FAS said.
McCracken said that in her career, the meat and poultry industry has been challenged by animal diseases in the past – avian influenza, bovine spongiform encephalopathy (BSE), porcine epidemic diarrhea (PED). But never has a zoonotic disease like coronavirus delivered so many body blows to the sector at one time.
“This definitely is the most impactful to all segments,” she said. “It’s global, it’s obviously impacting all parts of the channel. It’s hitting it in such a different way in that we’re forced to close plants, but at the same time, there’s an economic shock impacting the American consumer at the same time.
“And then, all our export customers…really there’s nothing quite like this for sure.”
Labor and logistics
In its Poultry Quarterly Q2 2020 report released in March, Rabobank maintained a moderately positive outlook for most markets for poultry with coronavirus adding significant uncertainty. Labor availability and logistics issues developed in the months following the release of the report.
In the United States, the industry already was grappling with a shortage of qualified truck drivers. At the processing plants, workers and food safety inspectors became sick with COVID-19, the disease caused by the coronavirus. Processing plants across proteins became “hot spots” for infections because, as processors ramped up on-site testing for the virus, more workers were found to have the virus without showing symptoms.
More than 20 processing plants temporarily shut down – the number changed regularly as some facilities re-opened and others closed for disinfecting and the installation of enhanced safety equipment such as Plexiglas barriers at workstations. The closings included some plants operated by the largest meat processors: Smithfield Foods Inc., Cargill, JBS USA, Tyson Foods Inc. and others. Furthermore, fewer workers were placed on processing lines to enforce social distancing which caused reductions in line speeds and processing capacity.
In the early aughts of the pandemic, government issued shelter-in-place orders changed where consumers dined and the foods they purchased. These changes in consumption habits had knock-on effects in the food supply chain. More consumers preparing meals at home, eating leftovers and favoring non-perishable and frozen poultry items emerged as a dominant trend.
Rabobank, in its report, said some supply chain issues would persist and impact supply and demand for poultry despite the world returning to economic growth in 2021. However, poultry is the protein consumers turn to during economic slowdowns because of lower prices compared to red meat.
“Consumer behavior will shift towards more at-home consumption impacting poultry demand in some markets like China and the US, where poultry has a relatively large share of foodservice demand,” the report said. “This means that companies with good access to food retail will benefit, while foodservice suppliers are impacted. The shift towards more home delivery could receive an additional push, with this industry capturing market share in poultry and meat distribution.”
The long-term impact of this shift to retail from foodservice on supply chains is unclear. McCracken said a few food companies have said publicly that they intend to make the shift to more retail and less foodservice.
“It is a pretty big shift, and you’d have to be sure that if you were going to make that kind of shift, it’s going to be for the long term,” McCracken said. “There’s a pretty big investment around that, not just from a capital perspective, [but] in terms of your customer base. I think if you were already involved in both sides and were able to shift some of your birds, it’s possible. But I’m skeptical.
“The reality is a lot of those operations, the segments of the foodservice industry that they serve, should come back. You think about it they’re a quick entry point – quick-service and fast-food. I think that segment will be fine. But they’ll likely be slower than what we’ve seen before.”
The United States began exports of US poultry to China this year. But shipments have slowed due to the coronavirus. Officials involved with US-China trade negotiations have expressed concerns that the pandemic may have complicated implementation of the phase one trade agreement the two countries signed in January.
McCracken said political tensions have mounted across all trade markets, but China will be relying on imported animal proteins from around the globe for the next few years at least because of the country’s domestic protein shortages.
“Relative to the broiler industry, it’s a very small market for the US – obviously, until this year, it was zero,” McCracken said. “They have been buying a lot of paws and wing tips this year, and that has been incremental to the broiler industry. If something were to go wrong, probably for the broiler industry, it would be a net benefit. The thought there is if they somehow fell short of their trade commitments and didn’t buy as much grain or meal or oilseeds, that could lower our feed costs more than the value of those lost export sales.”
Other animal diseases
Outbreaks of animal diseases are a persistent threat to global protein markets. A new wave of avian influenza swept across the Northern Hemisphere during the winter while the constant threat of African swine fever in Asia and Eastern Europe continued to drive volatility in global markets for both red meat and poultry.
In March, as coronavirus infections were rising in the United States, the USDA’s Animal and Plant Health Inspection Service (APHIS) confirmed the presence of highly pathogenic H7N3 avian influenza in a commercial turkey flock in Chesterfield County, SC. It was the first confirmed outbreak since 2017.
APHIS said the outbreak strain mutated from a low pathogenic strain that was found in poultry in that area. In March, routine testing uncovered the presence of low-pathogenic avian influenza (LPAI) on three farms in Union and Anson counties of North Carolina which are located on the North Carolina-South Carolina state line, adjacent to Chesterfield County. The flock in South Carolina and 11 total confirmed and presumptive positive turkey flocks in North Carolina were culled before the discovery of the HPAI flock in Chesterfield County.
“I think what’s unusual is that it was in a different flyway,” McCracken said. “We haven’t had it there before, so that probably raises some eyebrows. But generally, because we’ve been able to follow OIE guidelines and compartmentalize any trade restrictions to that region, it shouldn’t be a big issue aside from those operations that were impacted.”
McCracken said avian influenza is an issue each year because of wild migratory birds. The incident in Chesterfield County reinforced the need for strict biosecurity protocols on poultry farms.
“With any health risk, you’ve got to be concerned. Given everything that’s going on, you always have to be mindful, and I think that’s why all of the things that we’ve done over the last several years in terms of putting in strict biosecurity have really done the industry a huge service, because you really limit outbreaks of this kind. Historically, maybe this would have been a big deal. Now, given the practical biosecurity measures that have been put in place, that just doesn’t have the big impact that it might have had before.”
However, a new wave of avian influenza outbreaks during the winter hit Eastern Europe, especially Poland and Romania, Slovakia, the Czech Republic, Hungary and Ukraine, Rabobank said. Poland likely will refocus on poultry markets in the EU while Ukraine will need to increase domestic poultry sales to offset impacts from AI-related trade restrictions.
Rabobank said AI outbreaks in Saudi Arabia and Asian markets like China, Taiwan, and Vietnam will have limited impact on trade.
Ongoing pressure from African swine fever is expected to cause a drop in global pork production, particularly in Asia, Rabobank said in its report. Pork production in China is forecast to drop by 15% to 20% this year.
“Under normal circumstances, this would mean a further significant expansion of poultry production in China, by 15% to 20% year-over-year, but this will be delayed by the impacts of coronavirus,” Rabobank said.