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Recent and future dynamics in U.S. poultry meat production and trade

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The USA are the leading producing and exporting country of broiler and turkey meat. In 2006, they contributed 21.8% to the global production volume of chicken meat and 56.2% of turkey meat. For years, the USA were the dominating exporting country for broiler meat, however, in 2005 they were surpassed by Brazil. Recent estimates for broiler meat exports show that Brazil was able to stabilise the first rank. In turkey meat exports, the United States have been in a leading position for years, followed by France, Brazil and Germany.
In this paper, the recent dynamics and spatial patterns of U.S. poultry meat production and trade will be analysed. In addition, projections of poultry meat production and exports until 2017 will be given.

The role of poultry meat production in U.S. agriculture

The role of poultry meat production in U.S. agriculture is very often underestimated. Between 2000 and 2007 this sector of livestock production contributed between 7.4% and 10% to the value of agricultural production (Table 1).

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In the most recent years, the contribution has stabilised at about 9%. The dramatic increase in the production value between 2006 and 2007 is a result of higher feed costs.

The development of U.S. poultry meat production between 2000 and 2007

In a first step, this analysis will deal with the development of broiler and turkey meat production between 2000 and 2007.

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Between 2000 and 2007, the value of poultry production increased from 21.2 to 31.9 billion US-$ or by 50.3%. Whereas the value of broiler meat and eggs showed an almost identical growth rate of 53%, turkey meat fell far behind with only 31% (Table 2). The latter is a result of a stagnating or even decreasing per capita consumption. In 2007, the production value of broiler meat was almost six times as high as that of turkey meat. It is worth mentioning that the value of production changed abruptly from one year to the other, for example between 2001 and 2002 or 2005, 2006 and 2007 in broiler production and between 2004 and 2007 in egg production. The remarkable volatility is a consequence as well of changing prices on the domestic market as of the possibility to export part of the surplus production.
A comparison with the development of the production volume (Table 3) shows that broiler meat production increased almost continuously in the analysed time period. This explains the above-mentioned fluctuations in the value of production. Quite obviously, the broiler industry expanded its capacity too fast in several years, hoping that the additional production volume could be sold on the domestic or the global market. In contrast, in spite of several ups and downs in the analysed time period, turkey producers have better been able to adjust their production to the domestic and global market situation (see also Table 4).
As can also be seen from the data in Table 3, the average weight of broilers as well as of turkeys increased continuously between 2000 and 2007. This reflects the change from the use of whole birds to cut up parts and convenience products.


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The changing spatial pattern of U.S. broiler and turkey meat production

In a second step, the changing spatial patterns of broiler and turkey meat production will be analysed.
The spatial patterns of both branches of poultry meat production have been fairly stable over the past decades. The spatial shift of broiler production from the former corn belt to the Southeast started the 1950s. It is one of the most fascinating changes in the spatial pattern of agricultural production. When the per capita consumption of chicken meat increased, the domestic demand could not be met with the conventional organisation of production, slaughtering, further processing, and marketing. The food chains asked for a continuous supply of chicken meat. This led to a revolution in poultry meat production. Within a short time, vertically integrated agrobusiness companies sprang up in the Mid Atlantic states (Delmarva) and the Southeast. The integrators controlled the hatcheries, the feed mills, the slaughterhouses, and marketing. They made contracts with farmers (growers) who supplied the chicken houses, the land for spreading the manure, and their labour. This form of contract production was very efficient. As many farmers in the Midwest were not willing to become part of such an integration, the contractors built their hatcheries, feed mills, and slaughterhouses in the Southeast. Here, farmers welcomed the new income source as they had lost their main cash crop, cotton. The centre of cotton production had moved from the former cotton belt to the Delta states and the Southwest where the cotton boll weevil was no threat to the cotton plant. In addition, the availability of a cheap labour force, which had been set free because of the demise of king cotton, was an attractive basis for the labour intensive slaughterhouses and further processing plants. Within less then two decades, the Southeast became the centre of broiler production (Figure 1; see also Windhorst, 2003b).

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Table 5 shows that the regional concentration of broiler production has not changed very much between 2000 and 2007. The ten leading states are contributing almost 79% to the overall production volume of the USA. Even though the leading six states have not changed their position, a closer look reveals that in North Carolina broiler production increased by over 620,000 t or 33% in the analysed time period, followed by Georgia with about 580,000 t or 20%. The highest relative increase showed South Carolina with 48% and Kentucky with 45%. The high growth rate in Kentucky is of particular interest. Obviously, the proximity to the feed base in the former corn belt has been the decisive steering factor. It can be assumed that with rising feed costs broiler production in general may follow this trend and move at least partly back to its original location.

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The regional concentration process in turkey production is still going on and has reached a similar value as in broiler production. In 2007, about 79% of the U.S. production volume was concentrated in 10 states with Minnesota and North Carolina in leading positions (Table 6). Whereas the number of produced turkeys changed only slightly between 2000 and 2007, meat production increased by 15%. This is a consequence of the higher average live weight of the produced turkeys. The highest absolute growth showed Minnesota (+ 100,000 t), North Carolina and Indiana (+ 75,000 t each); the highest relative growth rates could be observed in South Carolina (+ 40%), Indiana (+ 25%), and Minnesota (+ 22%).
The spatial pattern (Figure 2) has been fairly stable over the years. It differs considerably from broiler production, as the industry has only partly moved to the Southeast and the Mid Atlantic states. Because of a less favourable feed conversion rate, turkey production has always had a tendency to stay closer to the feed basis than broiler production. It can be expected that with increasing feed costs this trend will stabilise so that no dramatic change in the spatial pattern is foreseeable (see also Windhorst, 2003b).

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The sectoral concentration process is going on

The spatial pattern of broiler and turkey meat production reflects the location of the integrators as the live birds cannot be transported over long distances, particularly not under hot and humid climatic conditions. A parallel development between the sectoral and regional concentration processes can be observed. The consolidation of the broiler industry has been going on for several decades. In 1987, the three leading companies had a market share of 29.9%, in 2007, their contribution to the overall production volume was as high as 50.9%. In 2006, Pilgrims Pride, ranked number 2, acquired Gold Kist, ranked number 3, and surpassed Tyson Foods, the until then leading broiler company. The share of the ten leading companies in broiler production (Table 7) increased from 61.9% in 1987 to 75.9% in 2007 (Thornton, 2008).

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From the data in Table 8 one can see that the degree of sectoral concentration in turkey meat production is very similar to broiler meat production. The three leading companies contributed 50.7% to the overall production volume of the 26 vertically integrated companies of the USA, the top ten companies 75%. According to O´Keefe (2008, p. 58), the U.S. turkey industry plans to expand its processing capacity in 2008 by 4.6%. This optimism is resulting from the fact that the industry was able to remain profitable in spite of increasing feed prices and mortality rates.

Export patterns

As mentioned before, the USA are the leading poultry meat exporting country with a dominating position in turkey meat. However, the contribution of poultry meat exports must not be overestimated, for their contribution to total agricultural exports has been hovering between 3.1% and 4.1% in the analysed time period (Table 9). The value of poultry meat exports increased by almost 1.5 billion US-$ or 80% between 2000 and 2007. Parallel to the dramatic increase of the export value of all agricultural products (+ 26.7%) between 2006 and 2007, poultry meat showed an even higher growth rate of 41%. It has to be considered, however, that 2006 was a bad year for U.S. exporters. Compared to 2005, the growth rate was almost identical with total agricultural exports (+ 26.3%). The next step of the analysis will deal with the development of poultry meat exports and the recent trade flows.

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As can be seen from the data in Table 10, the volume of turkey meat exports increased much faster between 2000 and 2007 than that of broiler meat. It is worth mentioning that in spite of again growing broiler meat exports, the volume of 2001 has not yet been reached again. This is mainly a result of the successful marketing strategies of Brazilian broiler companies and the low prices that they can offer on the global market. Turkey meat exports have been fairly stable between 2005 and 2007, a consequence of the large amounts which can be exported to Mexico within the NAFTA market. Whereas about 11% of the U.S. broiler meat production (live weight) go into the export market, only between 6% and 7% of turkey meat (live weight) are exported.

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Table 11 shows that the export volume of broiler meat increased from almost 2.3 mill. t in 2005 to 2.6 mill. t or 14.5% in 2007; the export value showed much higher absolute and relative growth rates, it increased from 1.4 bill. US-$ to 2.6 bill. US-$ or by 85.2%. The unbalanced growth is due to the fact that the average value per tonne increased from 622 US-$ in 2000 to 1,007 US-$ in 2007.
A comparison of the top ten countries of destination reveals that the leading broiler meat exporting companies were able to strengthen their market position in Russia in spite of the competitiveness of Brazilian exporters. The export volume increased by 280,000 t, the export value by 437 mill. US-$. Even though the export volume to China decreased by almost 170,000 t, the value grew by 65 mill. US-$. It is obvious that Chinese importers preferred higher value products in recent years, as the average value per imported tonne rose from 591 US-$ to 1,084 US-$. A similar trend can also be observed in Russia and Mexico. The average value per tonne is still comparatively low in Cuba and the Baltic countries, Turkey, and Angola. The share of the two NAFTA trade partners has remained fairly stable over the analysed time period. It is worth mentioning, however, that the average value of Canadian imports was almost twice as high as that of Mexican imports. The dependence of the U.S. broiler industry on the ability to export large amounts of their surplus production to Russia and Mexico is quite obvious. If Brazilian companies should be able to gain higher market shares in Russia, the profitability of the U.S. broiler sector could be severely hurt.

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The regional concentration of turkey meat exports is much higher than that of broiler meat as can be seen from Table 12. The ten leading countries of destination contributed 90% to the overall export volume in 2007. The share of Mexico as the dominating importer has even increased in the analysed time period. The distance to the second most important importing country, China, has remained almost the same. With the exception of Guatemala, which replaced Japan, the composition of the top importing countries of U.S. turkey meat remained the same; the ranking has, however, changed. Panama and Canada as well as Taiwan and the Dominican Republic changed positions. The dependence of the U.S. turkey industry on exports to Mexico is quite obvious. If the industry should lose market shares in future, a serious economic crisis might be the case.
The main results of the first steps of this analysis can be summarised as follows:

• The contribution of the poultry meat sector to U.S. agricultural production reached about 9% over the last years. It is very often underestimated.

• The production volume of broiler meat increased faster than that of turkey meat. The continuously growing per capita consumption of broiler meat resulted in a fast expansion of the production capacity. Stagnating or even falling prices were the consequence. Turkey meat producers adjusted better to the ups and downs of the domestic and international market situation.

• The spatial patterns of broiler and turkey meat production differ considerably. Whereas broiler meat production is concentrated in the Southeast and the Mid Atlantic states, turkey meat production has remained to a higher degree in the former corn belt. A less favourable feed conversion is a decisive steering factor.

• Poultry meat exports increased considerably between 2000 and 2007. This is due to an increasing demand on the global market, especially in Russia and several threshold countries. Nevertheless, the contribution of poultry meat exports to the overall agricultural export of the USA must not be overestimated. It has been hovering between 3% and 4% over the last years.

• The dependence on a small number of leading importing countries is an economic risk, particularly the dependence on the imports of Russia (broiler meat) and Mexico (turkey meat).

Production and export perspectives until 2017

In a final step, perspectives for the development of broiler and turkey meat production as well as for exports will be analysed. The projections are based on the USDA Agricultural Long-term Projections to 2017 und the FAPRI 2008 Agricultural Outlook.
An important steering factor in the future development of broiler and turkey meat production of the USA will be the dynamics in per capita consumption. In Table 13, the projections of the USDA and FAPRI are compared. Whereas the USDA expects a decrease of broiler meat consumption until 2012 and after that a new increase, FAPRI projects a continuous increase. The expected per capita consumption for 2017 does not differ very much. For turkey meat consumption, the USDA is not expecting major changes. FAPRI, in contrast, projects a continuous decrease from 8.1 kg in 2008 to only 7.7 kg in 2017. If their projection should come true, the U.S. turkey processors will have to find new export markets to avoid major economic problems.

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The projections of the USDA and FAPRI for the development of broiler meat and turkey meat exports differ considerably, as can be seen from the data in Table 14.
FAPRI expects an increase of the broiler meat export volume by 630,000 t or 22.5% between 2008 and 2017.
The USDA, in contrast, predicts an absolute growth of only 330,000 t or 12.6%. Quite obviously, the USDA assumes that it will not be easy for U.S. broiler companies to compete with Brazil in the global market. On the other hand, FAPRI expects that with the growing demand in several threshold countries, new export markets will open for U.S. producers. FAPRI also projects a higher absolute and relative growth of turkey meat exports than the USDA. The difference in their perspectives is mainly due to the fact that FAPRI expects a decreasing per capita consumption which makes higher exports necessary if the planned expansion of the production capacity will be realised.
Based on their perspectives of per capita consumption and exports, the USDA and FAPRI presented projections for the development of broiler and turkey meat production (Table 15). FAPRI expects a 300,000 t higher production volume than the USDA for broiler meat in 2017. This results mainly from the more optimistic assumption of export possibilities. In contrast, the USDA expects a 100,000 t higher production volume for turkey meat than FAPRI. The higher USDA projection of the development of the domestic per capita consumption is the main reason for this difference.

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The USDA as well as FAPRI also published projections for the development of poultry meat respectively broiler meat exports until 2017. The USDA perspectives for poultry meat exports of the leading exporting countries are shown in Table 16. One can easily see that Brazil and the USA will be able to strengthen their top positions even though China and Thailand show higher relative growth rates. The gap between the export volumes of Brazil and the USA will become wider over the next decade because of lower production costs in Brazil. Brazil will already export about 520,000 t more than the USA in 2008; in 2017, the difference will be as high as 920,000 t.
The projection explains the lower production estimate of the USDA for broiler meat (c. f. Table 15). If China and Thailand will be able to increase their exports as projected will depend on the control of the Avian Influenza virus and the development of feed prices.
The EU (27) is the only region with decreasing exports. This is on the one hand due to the expected growth rates of per capita poultry meat consumption in the new EU member countries and also to the decreasing competitiveness because of higher production costs (feed, labour, animal welfare).
FAPRI projected the changes in market shares of the leading net exporting countries of broiler meat between 2007 and 2017 (Figure 3). Brazil will contribute between 48% and 49% to the net exports of the leading countries, the USA will lose market shares to the EU (27) and Thailand in 2012, but recover from the losses until 2017.
The main results of the perspectives on the future development of poultry meat production and exports can be summarised as follows:

• The dynamics of poultry meat production over the next decade will depend on the development of the domestic per capita consumption and the possibility to export to major markets in Asia, Russia and Eastern Europe.
• The domestic per capita consumption of broiler meat will increase between 1.5% and 2.2% according to USDA and FAPRI projections.
• The export volumes will also increase, but here the projections of the USDA and FAPRI differ considerably. Whereas the USDA expects a higher export volume for turkey meat, FAPRI is more optimistic regarding broiler meat exports.
• Rising feed costs in the USA and the future policy of the EU regarding poultry meat imports from the USA will be major steering factors in future, as they will decide about the competitiveness of U.S. companies and the possibility to sell part of the surplus production on the European market.
• Brazil will remain the most important competitor for the USA on the global market for poultry meat in spite of growing export volumes of China and Thailand.

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References
Food and Policy Research Institute (FAPRI, ed.): 2008 Agricultural Outlook. Ames, Iowa 2008.
O´Keefe, T.: Nation´s top turkey companies: Profiles. In: Poultry USA 2008, February, p. 61-66.
Thornton, G.: USA´s top broiler companies: Profiles. In: Poultry USA 2008, February, p. 36-54.
Trostle, R.: Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices. (= WRS-0801). Washington, D. C.: USDA, Economic Research Service 2008.
USDA, Foreign Agricultural Service: Livestock and Poultry: World Markets and Trade. (= Circular Series DL&P 1-08). Washington, D. C. 2008.
USDA, Office of the Chief Economist (ed.): USDA Agricultural Long-term Projections to 2017 (= OCE-2008-1). Washington, D. C. 2008.
Windhorst, H.-W.: Sectoral and regional patterns of the U.S. poultry industry: Part II: The broiler industry. In: Zootecnica 25 (2003a), Nr. 6, S. 26-32.
Windhorst, H.-W.: Sectoral and regional patterns of the U.S. poultry industry: Part III: The turkey industry. In: Zootecnica 25 (2003b), Nr. 7, S. 16-23.

 

Hans-Wilhelm WINDHORST
Director of the Institute of Spatial Analysis and Planning in Areas of Intensive Agriculture (ISPA),
University of Vechta,
Germany