Brazil poultry industry recovers from bird flu scare

But executives of industry leaders Sadia and Perdigao say the worst is over. There haven’t been any major cases of the deadly high-pathogenic H5N1 bird flu strain in any of Brazil’s major export markets since Spain’s first-ever outbreak reported on July 7 in a wild bird.

So if 2006 ends on a sour note, it’s not as bad as the sector original anticipated, said Ricardo Goncalves, president of the Brazilian Chicken Exporters Association or ABEF. Volume declines were seen at 10% a few months ago, but consumption has returned in Europe and the Middle East. Consumers apparently are learning to live with bird flu, according to Goncalves.

ABEF has 21 members who account for 94% of Brazil’s chicken exports. Brazil represents 15% of the world’s chicken meat production and 41% of the world’s chicken export market, compared to 35% for the second largest player, the US.

Exports hit record volume
Next year, companies expect to recuperate from profit losses caused by bird flu. Exporters see volume of fresh, frozen chicken meat hitting 2.8 million tonnes, which equals the pre-bird flu record export year of 2005. This volume is worth $3.3 billion. Revenue from 2006 exports was $3 billion.

The sector expects international chicken prices to begin rising in the months ahead, and stay that way for much of 2007 as corn meal prices are expected to continue rising due to competition in use for corn in ethanol production.

 â€œProduct costs are going to rise for everyone in this business and we’ll all have to pass that along to the consumer. But margins will be tighter in the US than they will be for us here in Brazil,“ said Nildemar Secches, president of Perdigao. All year, rumours have flown that one of the major US chicken companies would put a foot down in Brazil through acquisition, but Secches and Eduardo Fontana Davila, vice president of the board of directors at Sadia, said that was unlikely due to cash constraints.

New investments
Both Sadia and Perdigao intend to spend much of 2007 either completing international investment projects or are looking into new ones. Sadia will invest $371 million in 2007, including the completion of its first-ever overseas unit in Kaliningrad, Russia.

Perdigao said it’s looking into opportunities in Europe and Asia to hedge against eventual blockades in Brazil should bird flu ever get discovered here. No projects have been announced, however.

New EU tariffs imposed on Brazilian chicken exports could impact volume to European nations. Yet, most of Brazils chicken goes to developing markets. Some 54% of Brazil’s chicken exports go the Middle East and Asia, compared to 13% to the E.U.

Ultimately, Brazil chicken companies intend to spend 2007 recovering from 2006 losses. If no new cases of bird flu are reported in its major markets, Brazilian chicken meat companies will likely begin what they promise to be a long-term trend of internationalisation.