In China, poultry producers have long lived in the shadow of the pork industry, which remains the meat of choice throughout the nation. While this trend is evident in the highly correlated prices between each market, a new report from Rabobank suggests that China's poultry industry is beginning to develop its own growth path.
The poultry sector has great growth potential thanks to changing food preferences and growing demand from the ever-increasing quick service restaurants sector. To capitalize on this potential, producers must address a number of barriers that constrain the industry at present, namely concerns around food safety and poor farm management.
Poultry production in China is expected to continue to grow faster than pork thanks to the efficiencies it offers to both producers and consumers. The poultry industry is already the most industrialised protein segment, producing some 17 million metric tons of annual output which accounts for 18 percent of global production (second only to that of the U.S.). "Low current per-capita consumption rates and a growing acceptance for eating poultry meat among the younger generation creates a strong growth potential that should enable the industry to take a meaningful share of meat consumption away from pork," said analyst Chenjun Pan.
Much of the growth will come from the burgeoning quick service restaurants and emergent frozen/processed food sectors. At present, quick service restaurants are the major driving force for poultry demand thanks to a double-digit growth rate and menus biased to poultry. China's leading quick service restaurants, KFC and McDonald’s, have increased their outlet numbers to 4,000 and 1,500, respectively, with KFC claiming 39 percent of the fast food market. Even if the quick service restaurant segment fails to maintain this rapid growth rate, there is still considerable opportunity in China's nascent frozen or processed food market.
Poultry production in China is still much less industrialized than in other leading producers such as the U.S., Thailand or Brazil. Vertical integration is quickly gaining popularity (a model adopted by poultry leading players including Fujian Sunner and Shandong Nine-Alliance), but contract farming is likely to remain the dominant business model as a result of prohibitive capital requirements, a lack of experience and rising land costs.
In addition to production scale, China lags other poultry producing countries in terms of farm management, productivity, food safety and disease prevention. Disease outbreaks have brought serious consequences to producers and processors in the past few years; outbreaks as far back as 2003's combined SARS (Severe Acute Respiratory Syndrome) and the H1N5 scares have caused panic about poultry consumption. In 2012 alone, avian influenza and other diseases have affected the industry several times. Similarly, the feed model has come under fire with consumers raising concerns over the use of growth promoter and medicines in poultry production. It will take a considerable amount of time for poultry companies to rebuild trust among China's consumers.
China’s poultry market has more growth potential than any other meat industry. The current product portfolio has not fully reflected the advantages of poultry meat and poultry companies are expected to benefit from growth in new segment, especially the development of a wider range of frozen processed products. In the long term, the industry should focus on boosting efficiency through further industrialization and crucially on improving food safety controls. If the industry can overcome these hurdles, poultry is well placed to move out from behind pork's shadow in the coming years.
The poultry sector has great growth potential thanks to changing food preferences and growing demand from the ever-increasing quick service restaurants sector. To capitalize on this potential, producers must address a number of barriers that constrain the industry at present, namely concerns around food safety and poor farm management.
Poultry production in China is expected to continue to grow faster than pork thanks to the efficiencies it offers to both producers and consumers. The poultry industry is already the most industrialised protein segment, producing some 17 million metric tons of annual output which accounts for 18 percent of global production (second only to that of the U.S.). "Low current per-capita consumption rates and a growing acceptance for eating poultry meat among the younger generation creates a strong growth potential that should enable the industry to take a meaningful share of meat consumption away from pork," said analyst Chenjun Pan.
Much of the growth will come from the burgeoning quick service restaurants and emergent frozen/processed food sectors. At present, quick service restaurants are the major driving force for poultry demand thanks to a double-digit growth rate and menus biased to poultry. China's leading quick service restaurants, KFC and McDonald’s, have increased their outlet numbers to 4,000 and 1,500, respectively, with KFC claiming 39 percent of the fast food market. Even if the quick service restaurant segment fails to maintain this rapid growth rate, there is still considerable opportunity in China's nascent frozen or processed food market.
Poultry production in China is still much less industrialized than in other leading producers such as the U.S., Thailand or Brazil. Vertical integration is quickly gaining popularity (a model adopted by poultry leading players including Fujian Sunner and Shandong Nine-Alliance), but contract farming is likely to remain the dominant business model as a result of prohibitive capital requirements, a lack of experience and rising land costs.
In addition to production scale, China lags other poultry producing countries in terms of farm management, productivity, food safety and disease prevention. Disease outbreaks have brought serious consequences to producers and processors in the past few years; outbreaks as far back as 2003's combined SARS (Severe Acute Respiratory Syndrome) and the H1N5 scares have caused panic about poultry consumption. In 2012 alone, avian influenza and other diseases have affected the industry several times. Similarly, the feed model has come under fire with consumers raising concerns over the use of growth promoter and medicines in poultry production. It will take a considerable amount of time for poultry companies to rebuild trust among China's consumers.
China’s poultry market has more growth potential than any other meat industry. The current product portfolio has not fully reflected the advantages of poultry meat and poultry companies are expected to benefit from growth in new segment, especially the development of a wider range of frozen processed products. In the long term, the industry should focus on boosting efficiency through further industrialization and crucially on improving food safety controls. If the industry can overcome these hurdles, poultry is well placed to move out from behind pork's shadow in the coming years.
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