Meat and Meat Products

International prices of meat are likely to rise in 2003 in response to tightening meat supplies. Complicating this price outlook, however, is a trade environment clouded by the potential impact of trade-restricting measures likely to be imposed by Japan and the Russian Federation - two of the world’s largest meat markets. Anticipated meat price developments are in contrast to 2002 when a strong recovery in meat supplies contributed to a 3 percent decline in the FAO’s meat price index; prices for poultry, pigmeat and beef dropped 5 percent, 8 percent and 3 percent respectively.

International Meat Prices

Constrained profitability in the livestock sector in early 2003, as a result of low meat prices and rising feed prices in 2002, will likely limit the growth in global meat output in 2003. Total meat production is expected to reach 248 million tonnes, up 1 percent from the previous year’s level. In developed countries, the strong supply growth in 2002, which resulted in sliding prices, is expected to abate with output estimated down nearly 1 percent. Stronger production gains in developing regions, particularly South America are, as a result, expected to enhance their share of global totals to a projected 57 percent, up from 46 percent in 1990. Meat consumption gains in 2003 are expected to be dominated by developing countries where per caput meat consumption could rise to 28.9 kilograms. Lower supplies and prospects for higher prices in developed countries may likely lead to a drop in total meat per capita consumption to 80.6 kilograms.

Global meat trade in 2003 is expected to reach 19.2 million tonnes, a gain of 2 percent. This is considerably lower than the 5 percent growth witnessed in 2002, and only half the annual growth witnessed in the 1995/2002 period. Most markets that were closed in previous years due to animal disease concerns have reopened; however, meat price developments and trade opportunities in global meat markets in 2003 will be heavily influenced by the looming impact of trade distorting measures imposed by major meat importing countries. These possible measures include tariff rate quotas (TRQs) in the Russian Federation and Mexico and higher tariffs in Japan - three of the world’s largest meat importers. Competition among exporters for market share in 2003 is expected to remain acute, influenced by relative price and differential exchange rate movements.

World Meat Production

Lower bovine meat supplies likely to pressure prices up in 2003

Clear indications of herd rebuilding in Oceania and North America are expected to reduce global beef slaughter and output in 2003. This follows a year of record global production and weaker prices as dry weather in Australia and North America and a recovery in the animal disease status in Europe and South America led to higher cattle slaughter. As production in developed countries falls by an estimated 3 percent in 2003, the developing countries share of global output is likely to rise to 52 percent, up 1 percent from last year and 9 percent up on the level in the early 1990s. Strong output gains in South America are led by Brazil, where higher carcass weights, particularly in the Centre-West, are expected to push output to a record 7.2 million tonnes, positioning Brazil only slightly behind the EU, the world’s second largest beef producer. Meanwhile, high throughput in Argentina and Uruguay, afflicted by FMD in 2001, will continue to support regional gains. In Africa, where livestock is a major contributor to the livelihoods of an estimated 70 percent of rural poor, beef output growth is slowing with drought in Ethiopia, Mauritania and other countries, resulting in reported livestock losses and lower productivity of surviving stock. In Europe, a slower pace of slaughter in the EU, combined with lower carcass weights, are expected to reduce output, as is the continuation of a decade-long restructuring of beef industries among the eastern European countries and the Russian Federation.

After a strong rebound in trade in 2002, the prospects for growth in beef trade remain robust, despite tighter supplies - a combination which portends higher prices. World bovine meat trade is projected to reach 6.1 million tonnes, a 5 percent increase from the previous year. This is despite potentially higher tariffs in two of the largest beef markets - the Russian Federation and Japan. The Russian Federation is set to impose tariff rate quotas (TRQs) on beef imports on 1 May 2003. While imports are expected to decline, beef TRQs are expected to have less of an impact on imports than those of pigmeat and poultry, which will face higher tariffs. Furthermore, fresh beef is presently excluded from the beef quota, as are imports from CIS countries. Simultaneously, in Japan, a recovery in beef imports as BSE-depressed consumption rebounds in 2003 may activate a safeguard measure in April, pushing up tariffs for beef products from 38.5 percent to 50 percent in the second half of 2003. Despite prospects of higher tariffs in Japan, imports are expected to rise sharply from 2002 BSE-depressed levels. Meanwhile strong growth is also expected in the Republic of Korea and the Philippines, as well as China and the Chinese Province of Taiwan where lower tariffs in the wake of WTO accession are stimulating imports.

Competition among beef suppliers is expected to be keen in 2003, with shipments of lower-priced South American products expected to expand this region’s share of global markets from 18 percent in 2001 to an estimated 24 percent in 2003. Prices of South American beef are expected to remain low in the wake of the 2002 devaluation of the Argentine and Brazilian currencies which led to 32 and 23 percent declines in their respective US$-denominated beef export prices. Despite increased competition and lower supplies in the United States and the EU, shipments from these two markets are expected to expand slightly as BSE concerns abate in Japan and markets gradually open up to EU product in the wake of animal disease crises. Meanwhile, exports originating from Australia and Canada will likely be constrained by reduced supplies.

Slowing pigmeat supplies and rising prices to constrain trade

Low producer returns in late 2002 are expected to limit growth in global hog inventories and output to less than 2 percent in 2003 with production expected to reach 95.8 million tonnes. After witnessing a brief recovery in 2002, output in developed countries is set to remain stable in 2003, with price-driven output declines in the United States and the EU offsetting export-driven increases in Canada. The developing countries’ share of global output is estimated at 60 percent in 2003, up from 57 percent in 1999 and 59 percent in 2002, with output gains in China, Viet Nam, the Republic of Korea, and the Philippines pushing up Asian production by 3 percent. In Brazil, while firm domestic demand is expected to support output gains of over 4 percent, this is considerably slower than the double-digit gains in 2002 spurred by strong domestic demand and an exceptional export performance.

Global per caput pigmeat consumption, which witnessed a 2 percent jump in 2002 due to low pigmeat prices and BSE concerns, is expected to grow only slightly in 2003 to an estimated 15.4 kilograms/caput. Expectations of higher pigmeat prices and a recovery in beef consumption, particularly in Japan, will result in a drop in per caput consumption in developed countries to 28.6 kilograms, while adequate supplies in the developing countries will push up their per caput intake to 11.8 kilograms.

Slow growth in exportable supplies of pigmeat is expected to limit global trade in 2003 to 4 million tonnes, a less than one-percent increase over the previous year, when trade increased by a record 15 percent. Imports by Japan and the Russian Federation, markets which account for approximately 42 percent of pigmeat trade, are both expected down in 2003. Imports by Japan, which reached record levels in 2002, despite the triggering of the safeguard mechanism, are expected to drop as prices rise and beef consumption recovers. Meanwhile, the activation of TRQs in the Russian Federation, with high out-of-quota duties for pork, will limit trade flows. Asian imports, which account for 44 percent of global totals, are expected to be down 1 percent as lower deliveries to Japan will more than offsett expected growth in China, the Chinese Province of Taiwan, and Hong Kong (SAR). Despite lower production, United States exports are projected to expand in 2003 as are those from Canada which, as a result of higher slaughter capacity and increased efficiency, has become the largest single country exporter of pigmeat. Trade restricting measures in the Russian Federation will likely constrain EU exports while slowing those from Brazil, which grew by nearly 80 percent in 2002. Poland is expected to register a 20 percent surge in exports as a result of higher output, increased access to the EU market through the “Double Zero” preferential agreement and higher government buying and provision of export subsidies. Meanwhile, exports from Viet Nam, which have grown rapidly over the last three years, dropped in 2002 and are expected to remain at low levels in 2003 due to continued high feed prices and problems with meat quality.

Poultry prospects in 2003 clouded by potential market disruptions

Influenced by low prices, disease problems, and an uncertain trade environment, poultry meat output is expected to increase by only 2 percent in 2003, reaching 74.5 million tonnes. This growth is only half the levels of the 1995-2002 period. The output share of developed countries is set to decline to 46 percent as output gains in the EU and the United States, poultry exporters which account for more than one-third of global production, drop or slow in response to a more than 8 percent decline in domestic poultry prices in 2002. Robust gains for developing countries will be supported by an expected growth of more than 3 percent in South America, China, India and Indonesia. Despite economic stagnation and low consumer demand in Argentina and Colombia, the strongest output gains are expected in South America. Higher feed costs and lower profit margins in Brazil, the region’s largest producer, will, however, likely constrain output growth to half of the 7 percent gains reported in 2002. Despite sanitary restrictions and increased product testing on exports from China and Thailand, two of the major producers in Asia, robust domestic demand is prompting strong production gains. Expectations of higher poultry prices in the Russian Federation are projected to lead to double-digit output gains, pushing production back up to the levels of the early 1990s.

World Meat Exports ^1/

Trade disruptions in 2002 led to the lowest growth in poultry trade in over 20 years and were a major factor in the 5-percent drop in representative international prices. Continued market disruptions are likely to spill over into 2003 with poultry trade projected to increase by only 1 percent in 2003, considerably less than the 6 percent annual gains witnessed since 1995. Product movement in 2002 was characterized by heightened residue testing at borders, difficulties in getting import permits, and country-specific product bans in response to animal disease outbreaks. These problems are expected to persist in 2003 as market opportunities in many of the major import markets - the Russian Federation, China, Mexico, Saudi Arabia, and the EU - are complicated by changing regulations, safeguards, and harmonized code adjustments. Imports to the Russian Federation are expected to slide 3 percent due to the 1 May imposition of a pro-rated poultry meat import quota of 744 000 tonnes (covering the remainder of the year), with 553 500 tonnes allocated to the United States. These quotas compare to an estimated 1.4 million tonnes imported by the Russian Federation in 2002. Meanwhile, in Mexico, where all NAFTA quotas and tariffs on poultry were to be eliminated in 2003, TRQs were placed on the importation of US broiler leg quarters, thighs and drumsticks, with over-quota duties set at 98.8 percent. Meanwhile, more complex import regulations in China are expected to constrain imports. Competition among exporters in 2003 is likely to remain acute, with low-priced Brazil chicken expanding its share in the world market to an expected 22 percent, up from 12 percent in 1999 and 21 percent in 2002. Limited supply availabilities and market concerns about recent disease outbreaks will likely constrain growth in United States and EU shipments. Thai deliveries in 2003 are expected up despite higher tariffs and more stringent residue testing in the EU, as well as lower demand in Japan due to reduced consumption and higher frozen stocks.

Lower sheepmeat export availabilities in 2003 to maintain high prices

Drought is taking a toll on global sheepmeat supplies with world output expected to be up by less than 1 percent in 2003. In Oceania, the major sheepmeat exporting region, supplies are estimated to be down 4 percent as a drought-related reduction in production in Australia more than offset higher output in New Zealand. These declines are contributing to the third consecutive decline in developed-country output. Output in developing countries, accounting for nearly three-quarters of global supplies, is expected to be up by 2 percent; however, this is only half of the nearly 4 percent gains on average since the mid-1990s. Expansion of animal numbers and higher carcass weights in Afghanistan and the Islamic Republic of Iran are expected to boost production. Moreover, drought in some regions of Africa is resulting in higher animal losses.

Deviating from the lower price movements for other meats in 2002, lamb prices reached levels not attained since early-1997 because of limited supplies, particularly from Australia. Global sheepmeat trade in 2003 is expected to maintain its three year declining trend, dropping to an estimated 664 000 tonnes. This is despite a steady growth in demand for imported lamb from some markets, particularly in North America, Mexico, Japan, China and the Chinese Province of Taiwan. Mutton imports to South Africa are expected to decline in 2003 due to high world prices and increased tariffs. In 2002, reduced supplies in Oceania and higher prices lowered regional exports of lamb and mutton by 7 percent. This decline is expected to continue in 2003. Keen competition in the Near East is expected to stem from Horn of Africa countries, previously restricted from exporting live animals to the region because of animal diseases.