Special Report: Poultry

Food Manufacturing magazine asked key industry experts who will be presenting at the 2008 International Poultry Expo and International Feed Expo (January 23-25) to comment on current issues confronting the poultry industry. Detailed presentations on pressing topics such as fuel costs, supply and demand, and animal feed recalls will be offered free to attendees and exhibitors.

Food Manufacturing magazine asked key industry experts who will be presenting at the 2008 International Poultry Expo and International Feed Expo (January 23-25) to comment on current issues confronting the poultry industry. Detailed presentations on pressing topics such as fuel costs, supply and demand, and animal feed recalls will be offered free to attendees and exhibitors. For the complete schedule, please visit www.ipe08.org/events/
       

Impact of Feed & Fuel on Poultry Production

Ethanol


Graph 1 (click image for larger version.)


Graph 2 (click image for larger version.)

Ethanol has been touted as the "answer" to solving our fuel crisis. While it has environmental impacts and could eventually lessen our dependence on foreign oil, it is not unequivocally an economic savior.


        There is not always a direct correlation between ethanol prices and fuel prices. In other words, the poultry industry's investment in ethanol does not automatically equate to cheaper gasoline prices, although presently, wholesale ethanol is cheaper than gasoline.


        Using corn as fuel sparks a moral "food versus fuel" debate in the U.S. - a country where reportedly over 11 million people go hungry. This debate, however, tends to be somewhat misguided. Critics of ethanol tend to take a hierarchical approach - food first then fuel - but in truth, our present corn supply can sustain both.


        It is true that the percentage of corn (currently the main source of ethanol production in the U.S.) used for ethanol is steadily increasing. According to data (see graphs 1 & 2) provided by Brock Associates, an agricultural commodity advisory firm, from Sept 2007-Sept 2008, about 25% of the U.S.'s total corn will be used for ethanol. Five years ago, we were only using ten percent for ethanol.


        Richard Brock, the owner and president of Brock Associates, attests that our country has "more than enough" corn to meet demands for 2008. He notes that there is a possibility that we could fall short 1½-2 years from now, but only because corn planting will be down this spring, due to increased incentives to plant soybeans.

The blame game

When it comes to poultry production costs, feed (corn) costs are going to play a significant factor. But if we can't blame ethanol for depleting our corn supply, what is driving up the costs of poultry production?


        "Thus far, poultry has been more negatively impacted by the higher cost of fuel and transportation of grain than an increase in corn price itself," Brock explains.


        Geography - the cost of transportation between locations - is always going to affect production costs.


        The issue in the poultry industry is dislocation - meaning, the corn supply isn't in the same place as the poultry supply. With most of the poultry production in the east and south east, and most of the corn currently in Ohio and Indiana, getting the corn where it needs to be is going to bump up costs (imagine surviving as a poultry farmer all the way out on the west coast).


        Thus, the discussion about the impact of feed and fuel on the poultry industry should be geared more towards the cost of fuel and how it drives up the transportation cost of feed, as opposed to arguing why corn should not be used as fuel.
       

The Global Market: Supply and Demand for Poultry
contributed by Mike Donohue, Agri Stats, Inc.

Most poultry producers around the world continue to benefit from increasing demand for their products. In many areas rising personal incomes are increasing the demand for chicken as diets move from being based on vegetable proteins to animal based proteins.


        We also appear to be entering an era of consistently high feed ingredient costs. Relative to other animal industries chickens and turkeys benefit from more efficient feed conversion ratios. It takes fewer pounds of feed to produce a live pound of chicken than it takes to produce a live pound of pork or beef.


Graph 3 (click image for larger version.)

        As feed price increases a higher and higher percentage of total live cost is affected by feed conversions and poultry production benefits.


        There are also significant differences globally in production costs for poultry products. The volume of corn produced in the U.S. is staggering and when transportation costs are factored in it gives the U.S. producer a lower cost for 60 percent of a ton of feed. China and Brazil are the 2nd and 3rd largest producers of chicken meat and labor costs in these areas are much lower than the labor cost in the U.S. or the EEU primarily affecting the processing side of the business. The EEU is seeing a decrease in their percentage of world broiler production as they are challenged by both feed cost and labor cost disadvantages. (See Graph 3)


        On a worldwide basis poultry diseases can have curiously a positive or a negative effect on supply or demand for chicken. In recent years Highly Pathogenic Avian Influenza virus (HPAI) has caused high mortality in flocks in Southeast Asia, Africa and the Middle East and indeed has been shown to affect the human population in some areas as well. When HPAI is discovered in a country immediately consumers have less confidence in the safety of feeding poultry meat to their families. Consumption drops as supply exceeds demand and prices and profits fall.


        In the late '90's the poultry industry was affected by what was called the 'J' virus, a leucosis virus that had mutated and caused breeder pullet mortality to rise rapidly but did not have any human health implications. Where we had expected to lose 5 percent of breeder pullets during the growout phase, this mortality often surpassed 20 percent in affected flocks. Without the expected pullet numbers in the breeder supply flock, hens were in short supply and as a result hatching eggs, chicks and broilers weren't available to meet market needs. Supply couldn't meet demand and prices and profits rose.


        The industry cleaned up the 'J' virus within 18 months but during that same period increased the number of breeder chicks placed for hatchery supply flocks. By 2000, the 'J' virus 'disappeared' and with higher placement levels supply rapidly exceeded demand and prices and profits plummeted.


        Supply and demand is in pretty good balance right now but subtle shifts in many different production and consumer factors can change the balance rapidly.
       

Animal Feed Recalls: Your Rights & Responsibilities

Recalls are an inevitable part of the food and feed manufacturing process. Even the fortunate companies that have never had to recall a product need to prepare for the worst - just in case. Being well-prepared and well-practiced is your best defense against endangering the health of your customers and preventing unnecessary tragedy.


        Protecting your brand is also an important consideration. Animal feed is, after all, a business like everything else in the food industry. "Protecting a firm and its reputation can be almost as important as removing potentially harmful products and cooperation with regulatory agencies," states Richard Sellers, vice president of feed regulation and nutrition at the American Feed Industry Association. Understanding your rights and the recall procedure can help.


        At present, there are no mandatory recalls in either federal or state feed laws. The Bioterrorism Act of 2002 allows the FDA to detain animal food for 30 days, but only if they have "credible evidence" that these products could cause a serious health threat to man or animals. Sellers notes that the administrative detention is seldom put into practice, as the FDA is more likely to invoke assistant from the state in these matters.


        A regulatory agency can request a voluntary recall, and Sellers stresses that firms should not ignore these requests. "Generally, federal and state sanctions are quite severe and may include loss of license, criminal/civil lawsuits, fines and loss of property." In addition to these tangible reparations, a firm should have a good faith obligation to be a good corporate citizen and keep unsafe products off the market.


        On the horizon, however, is the newly proposed FDA Food Protection Plan, which could change the recall process. If instituted, the plan will empower the FDA to issue a mandatory recall when voluntary recalls are not effective.


        Keep in mind that while the FDA requests that it be notified immediately of a recall, your company is not always legally obligated to do so. It may be more beneficial to first notify state feed control officials (bearing in mind that they can then contact the FDA). Provided you have control over all potentially dangerous products, this is really a business decision. Government and state agencies can, however, prove helpful in getting product off the market faster.


        If a federal/state agency is notified of a recall, they will send representatives to your facilities to collect information and samples. Sellers stresses the importance of deciding beforehand how much information your firm provides to these agencies, keeping in mind that legally, you are not always obligated to provide full disclosure. In any event, thorough notes and records of each visit should be maintained.

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