China’s poultry producers have long lived in the shadow of the pork industry, which remains the meat of choice throughout the nation. But now it seems that poultry is finally starting to develop in its own right.
According to a new study by Rabobank, the poultry market holds significant growth potential thanks to changing tastes and increasing demand for fast food. But while things are certainly moving in poultry, some age-old problems are doing their best to hold back the industry’s development, namely concerns around food safety and poor farm management.
Outpacing pork growth
But poultry production is still expected to continue to grow grow faster than pork thanks to the efficiencies it offers to both producers and consumers. Indeed, the industry itself is already the most industrialised protein segment, producing some 17m tonnes of annual output that accounts for 18% of global production—a figure that is second only to the US.
Chenjun Pan, a Rabobank analyst, explained: "Low current per capita consumption rates and a growing acceptance for eating poultry meat amongst the younger generation creates a strong growth potential that should enable the industry to take a meaningful share of meat consumption away from pork."
At present, fast food is the major driving force for poultry demand thanks to a double-digit growth rate and menus biased towards poultry. China's leading chains, KFC and McDonald's, have increased their outlet numbers to 4,000 and 1,500 respectively, with KFC claiming 39% of the fast food market. Even if the segment fails to maintain this rapid growth rate, there is still considerable opportunity in China's nascent frozen or processed food market.
However, in spite of the market’s growth, poultry production is still much less industrialised than in other leading producers, like the US, Thailand or Brazil. Vertical integration, a model adopted by poultry leading Chinese players Fujian Sunner and Shandong Nine-Alliance, is quickly gaining popularity, 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 behind 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 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.
According to Rabobank, China's poultry market has more potential than any other meat industry, and poultry companies are expected to benefit from growth in new segments, especially the development of a wider range of frozen processed products. In the long-term, the industry should focus on boosting efficiency through further industrialisation 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.