Market Information
Southeast Asia

The Philippine Broiler Industry:
Are We at Par or Far? *

Florence Mojica-Sevilla
Senior Agribusiness Specialist
Center for Food and Agri Business
University of Asia and the Pacific

The Philippine chicken industry is a significant contributor to the
country's agriculture sector. It is third after palay and hog in terms of value of output. Chicken production in 2004 was about 1.2M tons live weight, of which around 65% was broiler.

But where are we as compared with other countries?

Production performance

World poultry output was around 55.6M tons in 2004. It is expected to grow by 3% in 2005 to about 57.5 M tons. The top world producers are the United States of America (USA), with a share of 27%; China, 17%; Brazil, 15%; and European Union, 13%.

p - preliminary; f - forecast
Source: US Food and Drug Administration (FDA)
Philippines - Bureau of Animal Industry (BAI)

Among the Asian countries, China, Japan and Thailand have consistently been the top producers. However, China and Thailand are not exporters while Japan is a net importer. The Philippines is way behind producing an average of only 570,000 tons per year.

Consumption

World consumption of chicken meat in 2004 reached 53.3M tons. The USA is the world's largest consumer both in aggregate and per capita terms. Relatively rapid growths in per capita consumption were seen in India and Russia. Countries with high per capita income were observed to have relatively higher per capita consumption of chicken meat like the USA, Japan and the United Kingdom.

p - preliminary; f - forecast
Source: US FDA, BAI

Philippine chicken consumption is relatively low at only 7.7 kilograms (kg) per capita (ready-to-cook equivalent), at par with China. It is among the lowest when compared to Asian countries like Japan (14.5 kg per capita) and Thailand (12.7 kg) but higher than Indonesia (3.1 kg) and India (1.5 kg). It is even far lower compared to developed countries like the USA and Canada with 43.2 kg and 29.2 kg, respectively. Brazil, Australia and New Zealand also have high consumption of more than 30 kilograms per capita.

Source: Poultry International, May 2005

Exports

World poultry exports in 2004 were almost stagnant compared to 2003, as major importing countries banned the entry of poultry products because of the outbreak of the Highly Pathogenic Avian Influenza (HPAI). The outbreak led major producers in Asia such as Thailand and China to stop exporting chilled and frozen chicken. On the other hand, some countries still managed to sustain positive growth despite the impact of HPAI. Brazil was among the top exporters that gained the most from the outbreaks as it was spared from the disease. Barring the recurrence of HPAI, world producers foresee recovery in 2005, with exports projected to increase by 5.8%.

p - preliminary; f - forecast
Source: US FDA, BAI

Luckily, the Philippines was also spared from the major HPAI outbreak that hit many Asian countries last year. It also benefited from the restrictions imposed by importing countries on chilled and frozen chicken meat imports coming from countries affected by the outbreak. Japan, for instance, which sourced bulk of its processed chicken requirement from Thailand, had reduced tremendously its imports from this country and looked for alternative sources. Because of the Philippines' proximity to Japan and because it was HPAI-free during the major outbreak, it paved the way for Philippine chicken to enter the Japanese market. The first shipment to Japan was in March 2004 by San Miguel Purefoods. For 2004, exports of chicken meat and meat cuts reached 1,560 tons (industry data). Bulk of exports was in the form of frozen boneless leg and frozen wing stick.

Recently, however, there have been reports that a low-risk bird flu strain has reached the Philippines.

Imports

Import demand for broiler meat has declined by 10% in 2004. The big importers like Japan and China have reduced the entry of poultry products into their territories by as much as 16% and 60%, respectively, due to the HPAI.

p - preliminary; f - forecast
Source: US FDA, BAI

Russia is the number one importer and the biggest market for the United States. It is followed by Japan which has high demand for boneless chicken meat, and the European Union (EU). The EU imposes the strictest environmental and animal welfare laws. Exporting to EU entails the highest cost.

The Philippines imposes quantitative restrictions on poultry imports. The country imports chicken meat and meat cuts in order to augment local supply. Imports reached a high of 23 million kg in 2004, up by 44% from 2003. This was actually a repeat of the scenario in 1999, wherein the influx of imported chicken meat was at record levels. In 2004, chicken leg quarters accounted 75.5% of the total meat imports while deboned chicken and chicken cuts cornered 23.7%. The rest of the imports were in the form of whole chicken and chicken fats, which contributed a measly share.

Prices and Cost

Movements in live broiler prices in key countries reflect developments in world broiler trade. Among the key countries, China and Brazil experienced decreasing prices of live broilers. Brazil registered the lowest prices ranging from P26-P27/kg, while Thailand recorded lower prices relative to China and the Philippines. The Philippines, although not a major world producer as compared to Thailand and China, had higher broiler prices of P39-P43/kg.

Live broiler prices are reflective of the cost of production. A comparison of cost performance across key broiler countries in Asia showed that Brazil was the lowest cost producer as it had the lowest cost of corn and soybean meal. China, in contrast, had the lowest labor cost. The Philippines posted the highest input cost, particularly, for corn and day-old chicks (DOC).

Source: Yanson (2005)
The Plus Factors

The Philippine broiler industry possesses a competitive edge. First, Filipino buyers still prefer warm meat over frozen meat. Because of this, the entry of frozen chicken remains limited as household consumers still prefer to buy fresh, chilled chicken over frozen ones. Second, the Philippines is fortunate not to be included in the HPAI affected areas during the major outbreak in 2003. While there have been reports that a low-risk flu strain found in ducks has already entered the country, the Philippines was able to confine it in a small isolated farm. The Philippines was somehow given time for HPAI preparedness through prevention programs crafted by industry players and government.

Another plus factor is the expected growth in chicken consumption due to its price advantage versus other meats, higher per capita income and increase in population.

Can we compete?

The Philippines, even with its advantage of being HPAI-free, can barely export chicken due to uncompetitive cost. The country's cost of production is way above other producing countries due to high cost of corn and DOC. Corn is a major input to broiler feeds, accounting for about 70% of cost. Cost of corn in Brazil of P3.52/kg is less than half of Philippine corn cost of P8.10/kg. Cost of DOC in Brazil and even in Thailand is almost 50% lower at P7-8.5/pc compared to Philippine cost of P12-14/pc. The Philippines can export provided it has access to low cost of inputs. A low tariff corn from Thailand, for example, could help lower the total cost of production. Another possibility is to concentrate on higher value-added chicken addressing the demand for cooked products in other countries such as Japan.

Brazil will remain as the biggest exporter of chicken to the world, followed by the US. The US is strong in bone-in legs export due to consumers preference for white meat. The EU, which has the most stringent environmental and animal welfare laws, will continue to be a major exporter. China will remain competitive since it has the lowest cost of labor. China ranks fifth in the export market. Thailand has surpassed China and ranks fourth in terms of export. Thailand is slowly shifting to cooked products form instead of frozen chicken. This is where the Philippines can also come in with cost considerations.

The Philippine broiler industry will continue to be an import-dependent industry primarily because of dependency on the importation of DOC Grand Parent Stocks. Moreover, the chicken meat requirements of the country especially for the food service and meat processing sectors will continue to be beefed up through importation of chicken meat and chicken meat cuts to take advantage of low cost imported chicken.

References:

Bureau of Animal Industry

Poultry International, May 2005

US Food and Drug Administration

Yanson, Nenita T. 2005. Managing Supply-Demand Balances of the Broiler Industry Through an Early Warning System (EWS). An Unpublished Master's Thesis. University of Asia and the Pacific.