Brazil's chicken run

By Rick Pendrous

- Last updated on GMT

Related tags Chicken Brazil

Brazil's chicken run
Brazil's poultry processors face misrepresentation, bird flu, political issues and trade disputes, but are still managing to expand and grow, as Rick Pendrous discovers

Brazil's poultry exporters are out to prove their standards of hygiene, animal welfare and environmental credentials equal the world's best. They feel unfairly slated for inhumane factory farming methods and destruction of the Amazon rainforest. Oh, and they ain't too happy about what they see as EU trade barriers.

Christian Lohbauer, director of the Brazilian Chicken producers and Exporters Association (ABEF) says Amazonian soil doesn't suit crops such as sugar cane, which is increasingly sown for ethanol production in Brazil. He objects to restrictive EU quotas, unfair criticism of Brazilian food safety standards and use of animal health as a barrier to non-tariff trade.

"Europe isn't poultry's main market, but it's the most aggressive critic of Brazilian poultry," says Lohbauer. "There's misinformation about how Brazilian agriculture works."

He accepts that many bad things are occurring in the Amazon, where 1.5% of the tropical rainforest has been lost to soya production and deaths are occurring through land disputes. But he points to the 90MHa of land available for agricultural cultivation in Brazil's centre west region. "I'm not trying to say we don't have problems, but I don't want this stupid debate on food and energy," he says.

Lohbauer says centre west Brazil is the largest available agricultural area in the world yet to be exploited. But he fears pressure groups will push the myth that the chicken industry damages the Amazon and start calling for a Brazilian chicken boycott.

"I wouldn't be surprised in some years if Europeans stopped buying our chicken because the chickens eat soya bean," says Lohbauer. "Soya beans are grown in the savannah, which has nothing to do with the rain forest. Likewise, it's impossible to grow sugar cane in the Amazon forest."

Chicken is second only to soya in importance for Brazil's agribusiness exports (third if ethanol and sugar exports are combined), so a chicken boycott is a serious concern. It probably ranks just below fear of an avian flu outbreak. Brazil avoided that threat, which hit other countries, in 2006. But falling world demand connected to last year's avian flu outbreak hit Brazil's chicken exports. This would have been catastrophic had it continued for much longer, admits Lohbauer.

Fears of avian flu also explain the almost paranoid approach of Brazil's poultry industry to biosecurity for overseas visitors to plants. Restrictions are far more strict for farm visits.

Domestic issues

However, Brazil's chicken producers face other problems. The growth of Brazil's economy (+4% projected in 2007) has strengthened the Brazilian Real (R$), squeezing exports, but strong world poultry commodity prices have helped offset this.

Internal issues highlight the business community's discontent with Brazil's broad left government under president Luiz Inacio Lula da Silva, who heads the Workers' Party, which has close union links. Lohbauer accuses the government of failing to recognise the agrifood sector's importance to Brazil. It apportioned just R$0.8bn to the Ministry of Agriculture from the R$3.5bn allocated this year to social development, he claims.

"The government doesn't see the importance of beef, pork and chicken," he says. He also slates the government's lack of investment in Brazil's transport system and its reluctance to modernise restrictive working practices at its main ports. This is a growing problem as processors move closer to their sources of corn and soya feed in Brazil's centre west, away from the coast and ports.

Expansion and diversification

Nevertheless, Brazil's poultry processors recognise their dependence on commodity products is subject to the vagaries of international trade restrictions and crises such as avian flu.

Consequently, they are striving to develop added value business and expand at home and abroad. "If avian flu had lasted longer last year it would have been a tragedy here [for exports]," says Lohbauer, who adds that to reduce chicken producers' vulnerability in this area "we don't think we should export more than 35% of production"

In 2005 Brazil produced 9.3Mt of chicken meat (the third biggest amount after the US and China), 350,000t of turkey meat and 24.6bn eggs. In 2007 poultry meat production is set to reach 10.1Mt, double 2000's figures and 1.5% of the country's gross domestic product. Brazil's poultry industry supports 4M jobs, including 1.25M direct jobs.

Poultry exports, mainly chicken, to 142 countries (around 100 direct) amounted to 2.85Mt in 2005, generating income of US$3.5bn, up 35% since 2004. Exports are set to reach 3Mt, worth US$4bn, this year and could even reach 3.2Mt after dipping to 2.7Mt last year when world trade fell due to avian influenza. "This year we expect the best year ever," says Lohbauer.

The UK is Brazil's 15th biggest customer for chicken exports, with around 40,000t of direct exports, 60% as cuts (see table above).

ABEF represents 24 companies responsible for 90% of Brazilian poultry exports. About three quarters of broiler production is based in the south of the country, where grain feed production is also concentrated. Roughly 95% of poultry production is via contracted farmers.

Modern production and cheap labour

Brazilian poultry processors have been particularly active in the past year upping capacity at home and overseas and targeting more added value product. The two biggest, Sadia and Perdigão, are also expanding their activities in other food processing sectors, including beef, pork and dairy.

The chicken processors make use of modern production facilities, certified to most international hygiene standards, including Efsis higher level accreditation. They supply UK retailers, such as Tesco, Asda and Iceland, foodservice operators such as McDonald's and processors such as Grampian Country Food Group. Many customers also audit supplier facilities themselves.

However, low labour costs - typically basic pay of around R$650 a month plus benefits - and a ready supply of cheap foodstuff for birds - makes processors very competitive compared with those in the EU. So, companies are relatively unconcerned about high levels of shopfloor staff turnover (typically 20 to 25% per year). They point to a ready availability of people seeking work. An Organisation for Economic Co-operation Development report last year claimed 33% of the Brazilian population lived in poverty, while 15% lived in extreme poverty, mostly in north east Brazil.

Export conflict with the EU

Lohbauer says exports to Russia, China and the Middle East will rise in importance to Brazilian poultry processors from 2008, but the EU remains a crucial high value market. This year broiler prices hit a record high of euro 183/100kg, partly owing to rising feed prices, says European Commission (EC) administrator Laurent Lourdais from DG Agriculture.

But dispute continues over salted chicken exports to the EU, despite an International Court of Justice ruling favouring Brazil in 2003. This followed an EC application under Article 28 of the General Agreement on Tariffs and Trade.

Brazilians argue their exports to the EU are comparatively small and that the EU is overly protective against poultry imports. They also claim the EU is still a net chicken exporter. However, the EC delegation to International Poultry Council (IPC) meeting in Brazil claimed the EU would be a net importer of chicken by 2012. The EC's Lourdais puts it as early as 2008, with a balance deficit already in value terms: "We export very low value products while imports are very high value." In any case, most agree EU poultry demand is set to surpass production.

"One of the hottest issues between our countries is quotas of salted breasts," says Lohbauer. Although a new quota regime between Brazil and the EU has existed since early this year, he believes the EC is still obstructive, causing "a lot of confusion" by over-issuing place of origin and authenticity certificates. The dispute centres around the EU's implementation of the new quota ruling, which has seen numerous shell company importers set up because of import quota restrictions.

"It has been a mess because of our bureaucracy and the EU issuing thousands of licences," claims Lohbauer. He argues that because of the complexity of the system, his members haven't benefited from the new regime. "After five years we are not making money on this, we are losing."

Lohbauer adds: "We want to improve our contacts with the European consumer. You could be paying 100% less if you imported more chicken." While stressing that he has no desire to destroy European producers, he argues that the EU has to open up its markets further and is calling for a further 200,000t of quota above that already allocated.

But it appears the EU's quota restrictions are not just a problem for Brazil. The Thai representative at the IPC meeting Prasert Anuchiracheeva said rising production costs and EU quotas were hitting Thailand's production and exports of cooked chicken, which are expected to total 300,000t this year. He said: "Luckily we have enough Thai quota for this year, but for next year we could have a big problem."

With few expecting any resolution from the World Trade Organisation, quota issues are set to remain a running sore. FM

Brazil at a glance*

Area:​ 8.5Mkm2 (fifth largest country in the world)

Population:​ 182M (2006)

GDP:​ R$ 2,322bn (2006) - about US$ 1,067bn GDP per head: US$ 5.71 (2006)

Capital city:​ Brasilia

Federal Republic of 26 States and 1 federal district

World's 10th largest economy

Most large industry is in the south and south east, with the north east being the poorest region.

*Foreign and Commonwealth office figures

Direct exports of Brazilian chicken to the UK*

Whole birds Cuts Salted breast** Processed Total

2006 (t) 2,726 24,687 - 11,499 38,914

2007 (t) (Jan-Aug) 3,309 12,656 3,336 12,243 31,546

*ABEF figures **More salted breast is being exported and shown separately to cuts in 2007. (Some Brazilian chicken also enters the UK via other EU countries, such as The Netherlands. According to the British Poultry Council, UK imports of poultry were up to 530,000t last year)

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