|food outlook||No.4, December 2005|
|global information and early warning system on food and agriculture(GIEWS)|
Avian flu: The potential market impacts of further outbreaks
Avian flu outbreaks in Asia and other countries as they progressively moves westward are prompting the imposition of import bans on poultry products from disease-affected countries. The global market impact of these bans over the past year and a half include a progressive shortage of poultry meat supplies, escalating world poultry prices, a sharp drop in global poultry trade, and trade diversion as countries scramble to procure product from disease free countries. The overall price impact on poultry prices in 2004 and 2005 has been additionally aggravated by shortages of other meats, particularly beef from North America, a region which, while traditionally supplying one-quarter of world beef trade, is now banned by many countries due to BSE-concerns.
Restrictions on exports from Asian countries affected by AI outbreaks in 2004 and halfway into 2005 contributed to a 30 percent increase in international poultry prices over the period (see figure). These upward world price movements contrast dramatically with declining prices in disease-affected countries as exportable supplies moved back into domestic markets and as demand declined as consumers responded to food safety and human health concerns. In fact, consumption gains in Asia, which exceeded world averages over the past decade, slowed as consumers in 2004 switched consumption to other protein sources which, along with a culling of flocks, prompted a decline in Asian production.
On international markets, export shortages due to avian influenza and higher prices led to an unprecedented 8 percent decline in global poultry trade in 2004. Limitations on fresh/chilled product movement from Asian exporters, in particular Thailand and China, caused a decline in Asian exports-which in 2003 exceeded 1.8 million tonnes- to less than 1 million tonnes in 2004/05, or approximately 12 percent of global shipments.
As outbreaks of avian flu continue to move in a westward direction, the global market is preparing itself for more market shocks. While most markets are concerned about the threat that wild bird migrations pose to local industries, the close proximity of recent outbreaks in the European region to EU member states has raised considerable concerns about the industry impact of potential outbreaks. This concern, particularly given the significant position of the EU in world markets, has led FAO to evaluate the impact that any extensive outbreak of avian flu that spreads over the major EU producing countries1/ would have on global poultry markets as countries around the globe ban imports from the EU. With the EU accounting for approximately 13 percent of global poultry production and exports, international poultry prices would be expected to move up sharply. Meanwhile, internal EU prices would decline as would production prospects and feed prices in the EU as poultry products intended for exports, approximately 10 percent of production, swamps local markets. The EU ships approximately 1 million tonnes of fresh/chilled/frozen poultry products, valued at over US$1 billion, to more than 150 markets around the world with three quarters of these shipments destined for Russia (23 percent), Middle Eastern markets (27 percent) and developing countries in Africa (26 percent). Meanwhile, they also import approximately 500 000 tonnes of import frozen fillets and other chicken products. These imports would be expected to drop as internal EU prices decline relative to rising world prices.
Assessing the overall impact of an animal disease impact on both global meat markets and other sectors such as the feed industry, necessitates the use of a framework which links markets, both spatially and cross-commodity. To evaluate the short term global impact of a potential outbreak of Avian Influenza in the EU, FAO’s short term commodity model was used to measure the impact of exogenously imposed export shocks to baseline projections which do not include the impact of these scenarios.
Any straightforward assessment of the potential global impact of avian influenza in Europe is, however, complicated by the recent outbreaks of FMD in Brazil - the world’s largest meat exporter -both of beef and poultry-which will also influence world meat markets over the short term. The market impact of poultry shortages in international markets, in particular relative price movements, would be heightened by reduced exportable beef supplies from Brazil which was expected to account for more than one-quarter of the global beef shipments in 2005. The combination of these two events would be expected to put considerable upward pressure on all meat prices, similar to the situation in 2004 when the absence of North American beef due to BSE-concerns led to hikes in all meat prices. In addition, the position of the EU as a net beef importer, with a large percentage of imports sourced from Brazil, would prompt a rise in domestic beef prices as bans are imposed on Brazilian beef products.
Conditioning the impact assessment are the various assumptions underpinning the analysis. This scenario assumes that AI outbreaks in the EU are spread out over the major producing areas thus inducing import bans on poultry products from the entire region. Producers in the EU, in response to lower prices, are expected to lower production levels commensurate to trade losses. While avian influenza is expected to result in changes in poultry consumption as consumers shift to alternative protein sources, it is assumed that this is only of a short duration as risk communication strategies ensure that consumers are aware of the minimal risk of bird flu transmission through poultry consumption. Consequently poultry consumption over the period of the shock is assumed to remain relatively stable.
This scenario evaluates the impact of two major shocks to global meat markets which are imposed exogenously: 1) the EU poultry exports drop to 0 from 1 million tonnes, and, at the same time; 2) Brazilian exports of beef decline by 800 000 tonnes2/ (down 45 percent from their projected exports of 1.8 million tonnes)
Any extensive AI outbreak in the EU would have immediate implication on global poultry and feed markets. Preliminary results of this analysis indicate that the potential short term impact would be higher meat prices for all meats on world markets (ranging from 7-8 percent for poultry and beef and 3 percent for pigmeat), lower global meat consumption, and a shift in trading patterns with some markets moving to fill the gap left by Europe (for chicken) and Brazil (for beef). In addition, spill over effects would be evident in the feed industry as lower meat production pushes down grain and protein meat consumption and prices down 1-2 percent respectively.
Particularly vulnerable to any reduced access to poultry imports are those countries heavily dependent on EU imports for price stability. In Africa, currently also at risk from AI outbreaks due to migratory bird patterns, poultry imports account for 20 percent of estimated regional poultry consumption of 4.2 million tonnes. Import bans on EU poultry, which supply nearly 50 percent of African imports, in the context of a major EU outbreak could potentially have major price implications for African consumers in selected import dependent countries.
The results of this short term analysis have been shaped on the basis of rather extreme assumptions including the total loss of the EU export market in the context of AI outbreaks and expectations that European consumers and others will not reduce their consumption of poultry products. In fact, poultry consumption in the EU has already been affected despite the lack of an actual outbreak in the EU. Sales of poultry have dropped in many European countries with poultry prices, production, and feed use reported down. In addition, trade flows within Europe have been affected with markets as the Netherlands, heavily dependent on intra-European trade, reporting poultry price declines of up to 25 percent and falling animal feed exports.
With potential outbreaks and consumer responses uncertain, the above scenario is only one possible impact assessment. Consumption responses are very difficult to anticipate as is the ability of other major exporting countries, particularly the United States and Brazil who supply nearly 70 percent of global poultry trade, to step up production and exports of poultry meat the short term. The ability of these countries to respond to market shocks and higher prices would obviously mitigate upward price shocks. This, of course, assumes that these are no supply constraints in these countries and they themselves do not experience any AI outbreaks.
1. Five countries account for two-thirds of EU poultry production: France, the UK, Spain, Germany and Italy.
2. This assumption is a worse case scenario which reflects Mato Grosso do Sul’s (the FMD-affected State) position as the supplier of nearly half of Brazil’s beef exports.