New markets in Africa and the Caribbean helped Georgia poultry producers weather Russia‘s six-month ban on U.S. chicken imports, which ended last week.
Last Thursday, President Obama reached an agreement with Russian President Dmitry Medvedev that will restore access to a market that bought more than $750 million worth of American poultry in 2009. A large share of those revenues go to companies based in Georgia, the largest poultry-producing state.
If USDA guidelines on the pact come out this week as expected, companies might be able to begin packing and shipping product to Russia as early as the end of the week, said Jim Sumner, president of the Stone Mountain-based U.S.A. Poultry and Egg Export Council.
As justification for the ban, Russia cited American producers’ use of chlorine rinses to disinfect chickens during processing. Under the new arrangement, Russia will allow access by exporters that switch to one of three approved antimicrobial washes.
Although they will incur added costs, most producers will gladly make the change to begin selling in Russia again, especially in a year with so many hurdles.
While bouncing back from the recession domestically, producers found themselves shut out of the emerging economies that had become their two biggest export markets.
A month after the Russia ban went into effect, China launched an anti-dumping investigation against American chicken producers and followed it with hefty tariffs that rose in some cases to 105.4 percent, pending the outcome of the government’s investigation.
But losing access to Russia and China didn’t bring about the cataclysmic effects expected by some in the industry. Global prices of leg quarters, which make up virtually all U.S. exports to Russia, remained somewhat stable in the first four months of 2010 despite the drastic drop in demand. Overall, export values fell by only 4 percent in compared to the same period last year.
That’s largely because traditional markets picked up some of the slack, and new countries in Africa and the Caribbean grabbed significant slices of the market share that Russia and China forfeited, Mr. Sumner said.
“We have been developing additional markets, and we have been very successful at doing so,” he said. “We relied significantly on other markets during the course of this period and we were quite pleasantly surprised.”
As Russia and China’s combined 40 percent share of U.S. exports dwindled to 3.9 percent, Cuba jumped from the sixth largest market to third behind Mexico and Hong Kong, which both saw sizable increases. The share of countries whose volumes were too small to be measured individually jumped from 36 percent to 50 percent. The southwestern African nation of Angola‘s share climbed to 4.4 percent and Taiwan, considered separate from China in this case, broke into the top six at 3.9 percent.
All this diversification is not to say that the lifting of the ban isn’t big news.
It came with companies “getting into a very precarious position” as the “price for chicken leg quarters was getting ready to drop like a rock,” Mr. Sumner said. Now Russia is allowing 450,000 metric tons during the last half of the year, a quota U.S. exporters are unlikely to meet.
“It may mean the difference between profit and loss for many companies this year, so it was well-received news,” he said.
That also applies to companies that don’t export to Russia.
Baldwin, Ga.-based Fieldale Farms Corp. decided a few years ago that the costs and unpredictable nature of doing business in Russia didn’t justify continuing its sales operations there.
“We don’t mess with the Russians, I’m happy to say, but it does affect us that chickens that would’ve gone to Russia have to be sold in the U.S.,” Tom Hensley, Fieldale’s president, told GlobalAtlanta. The increased supply puts downward pressure on prices domestically, he said.
The lifting of the ban is good for the industry overall, he said.
“It was very important to all of us in the chicken business,” Mr. Hensley said.
Fieldale, which processes 3.2 million chickens per week, exports to many other countries, including China, where the company is dealing with the high tariffs to maintain its share of the trade in chicken feet, known in the industry as chicken paws.
“It’s still a good market, despite the tariff,” Mr. Hensley said, adding that China’s current levy on the average U.S. exporter is about 64 percent.
Gainesville, Ga., the world’s center for poultry processing and related technologies, didn’t see any immediate layoffs as a result of the Russian ban, said Tim Evans, vice president of economic development at the Greater Hall Chamber of Commerce.
The news of renewed access in Russia encouraged local industry leaders who are weary of the poultry trade being used for political leverage, he said.
“I think the poultry industry in general is relieved when those markets are open to them in Russia,” Mr. Evans said. “Poultry has been used as a bargaining chip by the U.S. in trade negotiations and that’s disappointing when those negotiations fall apart. There are bigger, other issues tied to this one point.”
U.S. chicken treated with chlorine sanitizer has been banned in the European Union since 1997.
Mr. Hensley said it’s simply a way for European countries to protect their domestic industry.
“It’s a trade barrier, pure and simple,” he said.
Even with all the trade hurdles, the proportion of poultry produced in the U.S. that is sold overseas has steadily grown from 3 percent in 1985 to 21.7 percent last year, Mr. Sumner said.