I F C G I o b a I A g r i b u s i n e s s S e r i e s Public Disclosure Authorized ',~~~~~~~b I Public Disclosure Authorized The World Pou/try Public Disclosure Authorized Industry Richard Henry Graeme Rothwell Public Disclosure Authorized IFCK INTERNTIONAI.FINAN( ECORPORATION - P - = = - - -- = - - - I F C Gl o b a I A g r i b u s i n e s s S e r i e s The World Po u/try Industry RichardHenry Groeme Rothwell itIFC TNrnmnoL FpNawCECRoRAuTION A Ymrof h ibid Bk (h-p 7M,he 1 rId Bai,k 11,'YwhitZLfgin,D.(,! (.,pvri,//r 1499s 1 b,rf;,,/,/ ,,ankan,,c/h In/t,a/ina/ Fina,m,'f.',p/toston 18181HS/nd/ A' If. 0zi.,iw,,ton,D.[).f' 2 . t'3 .S.J. ,4/I119/i/ t(t&' a!s,i .lIO/d/1,-igh'1., itr/ c/u t0 ('a: ,'ms riufw pz'in/mi .'g1N;.'/ 199S The Interna tional Finance Clorporanon (1FC) an aftfiliate ot''l'he World Basik. proiisote the econtomic development of its Itoerllher countitries through i uvestnment in the privatc sector. It is the wo rld's largest m Lltilateral orgaliizarion providing financial assistancedirectly it the forns of loatts and cquirt to private enterprises in developing counitries. The findings. iltcrpretationis, and concltusionsexpressed in this paper are entirelv those of the authors atsdshould noijt be at rributed it anv mannser to the IF(CIrr rite World Bank or to memilbersof their Board of Executive Directors or the counitries rhey represent. T'he World Bank does not gtiaranitee the accLIracyof the data inclLided ini this publicariott and accepts n1orespotisihilitv s hatsoeeverfir anivcotsseq tetece of tleir Use. The material it this pubslication is copyrighted. 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'lsc WVorldBanik. 1818 H Street, NA. \Washington, D.C. 20433.,U.S.A., or from Publications, The \Vorld Bank, (i6, avelttie d'ld sa, 75116 I;aric, Frattce. ISBN 0-8213-3429-S ISSN 11)20-3850 Riclsard Hen's is a senij(Srecononsist antd (:raenmeRotlwvell is a senior engi ieer, hoth iTsthse Agribusiness Departmenstof the IPFC. l.ibt-at of Congress C'ataloging-in-Pnblication Data llenrvs,Richard, 1950- The world poultry industtr' / Richard Hcnrv. Graeuit Rothw%ell. p. cm. -(IFC Global agribusiness scries) ISBN 0-82 I13-3429-8 1. IPoulir' industrry 1. Rothvwell,Graeme, 1941-11. Tirle. 111.Series. HD9437.A2H4 1995 338. 1'765-dc2( 95-32116 ClIP FOREWORD v ACKNOWLEDGMENTS . ... vi SUMMARY .. .. .. .. vii I INDUSTRY ORGANIZATION AND STRUCTURE.. .. ... .1 Introduction I Methods and Rate of Integration I Technology Supply 4 11 GLOBAL POULTRY MEATS MARKET. .8 Introduction 8 Regionial Demand 8 Demand Structure II I)istribution 15 World Demand Parameters 17 Consumption Trcnds 19 III POULTRY PRODUCTION . 22 Introduction 7 Regional Production 23 IV DIMENSIONS OF COMPETITIVE ADVANTAGE .30 Cost Competitiv eness 30 L-ive Bird lProduction Costs 32 Processing (Costs 36 Economies of Scale 36 Non-cost-related Sources of Competitive Advantage 41 V INTERNATIONAL TRADE IN POULTRY MEAT .. 44 Introduction 44 Trrade Versus Local Production 44 Determinants of Irade Flows 46 \'ain Poultry Importers 47 Mlain Poultry Exporters 54 VI GOVERNMENT INTERVENTION AND POLICY REFORM . ... .61 Introduction 61 Rex iew of Selected Countries 62 International Trade Agreemcints 65 Regional Prefercntial Agreements 67 Trade Perspecti%cs 68 ANNEX 1 World Poultry Consumption, 1988 to 1993 . ... .. .70 ANNEX 2 World Poultry Production, 1979 to 1994 . ... ... .. .. ... .. .. 71 ANNEX 3 Major Poultry-Processing Companies. 72 BIBLIOGRAPHY. ... 74 F O R E W O R D Dominated by developed countries' exporters a few years ago, the world market today is largely shared by developing countries, some of which may be highly competitive for years his report is the first of a series to to come. The authors of this report estimate be published by the IFC Agribusi- that annual world consumption might grow ness Department. The series will by another 15 million tons by the end of the comprise sectoral presentations of industry decade, thus making poultry meat the trends with specific emphasis on developing second most popular meat in the world after countries. The objective is to make this pork. This growth should support additional information available and highlight the investments of about US$2 billion annually increasing importance of emerging countries during this period, including LUS$0.7to $0.9 in the world economy,not only as quickly ex- billion for grower production facilities and panding markets, but also as competitive US$I to $1.2 billion for integrators' produc- production bases. It is hoped that the Global tionifacilities. Most of these investments are Agribusiness Series will underline the strong expected to be undertaken in developing production assets of developing countries countries. and thus help to generate additional private investment in these countries. The informa- tion presented here has been collected from various public and private sources in several countries and continents. K A R L V O LT A I R E Poultry meat consumption has been growing Dir-to; AgribusinessDeparnet at an exceptional rate over the last decade, InternationalFinance Corporation spurred by its nutritional value and price relative to other meats. The evolution of the poultry market in recent years epitomizes the emergence of developing countries as global competitors in the agribusiness sector. I A C K N O W L E D G M E N T S Detailed comments were received on an earlier version of this report from the following reviewers: Jacques Risse (Fed6ration des Industries Avicoles), Arthur Karlin and loannis Karmokolias (IFC), George Watts and Bill Roegnick (National Broiler Council), Milton Madison (Economic Research Service, U.S. Department of Agriculture), and Cornelis de Haan and Tjaart Schillhorn Van Veen (The World Bank). Their time and assistance is herebv gratefully acknowledged. ri S U M M A R Y the current rate of convergence to best industry practice, an example of which is the emergence of Brazil as arguably one of the lowest-cost producers in the world. The poultry meat industry will clearlvgrow on a worldwide basis at 5 percent per Cost of production comparisons favor countries with annum for the foreseeable future. Variation ample low-cost rawnmaterial feedstuff supplies and in growth of per capita consumption will see faster low labor cost. To some extent climate and industry rates of increase in developing countries than in the structure do have an impact on competitiveness but developed world, largely because of increases in per not to the extent that they can overcome disadvan- capita disposable income and population. Trade in tages in the two factors mentioned above. However. poultry meat products, although small as a propor- in spite of the range in cost structures, the industry tion of total world production, will continue to grow in most countries has a strong local production base. as some countries, particularly Japan. find it increas- ingly difficult to mect consumption demands from International trade as a proportion of total production local production because of high production costs is a small part of the world poultry meat industrv. and problems related to land use and environmental The strong local production base in most countries considerations. is largely because of the local market structure, which tends to be based on live or freshly produced The supply of raw materials for poultry production, products, whereas internationally traded poultry is particularly grain and protein materials, increasingly frozen whole, in parts. or in further-transformed will become a key issue in forming the growth and products. The three main importing groups of coun- relative competitive strengths of the industry in tries are relatively developed markets: whole frozen various countries. In particular, in some developing poultry at low prices in the Middle East; frozen countries the link between poultry meat and grain breast meat for the institutional market in Europe; will mean diversion of some raw materials from and frozen leg meat varying from bone-in legs to direct human consumption to animal consumption. preprepared, fully transformed products in Japan. A In this respect poultry meat will compete very well further produict range is emerging in international with other meats when relative feed conversion trade-prepackaged, branded, precooked or frozen factors are considered. The issue will become breaded products. particularly important in areas where there are natural land constraints on production of raw Increasingl] developing countries, particularly in materials. Latin America and Asia. will assume greater propor- tion of international trade in poultry meat products Technology is readilv accessible on a worldwide basis, as companies in the sector gain experience in target and growth in individual countries will not be markets. Local consumption growth, which will be constrained because of lack of access to technology,. high in these areas. will compete with export oppor- Indeed, in developing countries the ability to compete tunities for locally produced resources and in some with more developed countries will be enhanced by countries will constrain the ability to export.