Feed availability inducing structural change in the poultry sector

Transcription

1 1 Feed availability inducing structural change in the poultry sector Jan Hinrichs and Henning Steinfeld Animal Production and Health Division, Food and Agriculture Organization of the United Nations, Viale delle Terme di Caracalla, 153 Rome, Italy. Summary Feed is the most important input for poultry production in terms of production costs. Poultry have high requirements for protein and energy density to ensure their performance. Feed costs for intensive boiler or layer production amount to about 7 percent of total production costs. The availability of high-quality, low-cost feed is a crucial prerequisite for poultry production. Therefore, structural changes in feed production and feed market prices have an impact on the poultry sector in structural terms. This paper presents a retrospective description of developments in feed and poultry production. The impact of developments in feed production and availability on the structure of the poultry sector is assessed. The developments considered include technological progress, subsidies and competing demand for feedstock as an input for biofuel 1 production. Current trends in the feed sector are assessed, and a hypothesis about their impact on structural changes in the poultry sector is proposed. Key words: poultry, feed, structure, change 1 Introduction The availability of relatively low-priced, high-quality feed is a crucial prerequisite for competitive poultry production. The high productivity potential of poultry, resulting from its efficient feed conversion compared to other livestock, can only be achieved with protein and energy-dense feed (Chadd, in FAO, 28a). These high feed-quality requirements result from the relatively small monogastric stomachs of poultry. Low-intensity poultry production systems making use of low-quality left-over feed are characterized by relatively marginal meat growth rates and low egg yields. Subsidized crop production created surpluses in Europe and North America and made feed available at relatively low costs. Before these surpluses became available, low-intensity poultry production systems prevailed not only in developing but also in developed countries. There have been several waves of poultry sector development and intensification of production systems. Together with changes in the demand for livestock products, these 1 Biofuel is usually defined as any fuel from organic (non-fossil) material. Within the context of this paper biofuel is used for liquid fuels derived from feedstocks.

2 2 Poultry in the 21 st Century Figure 1 Broiler, pork and beef wholesale prices in the United States of America 6, 5, Broiler Beef Pork 4, US $/kg 3, 2, 1,, Source: USDA. Jan 197 Jan 1975 Jan 198 Jan 1985 Jan 199 Jan 1995 Jan 2 Jan 25 developments can be seen as a result of changes in the feed market. Poultry meat has a comparative production-cost advantage over pork and beef because of its more efficient use of feed. As can be seen from Figure 1, the wholesale price of broiler meat in the United States of America has been below beef and pork prices. 2 Feed surpluses inducing a first wave of poultry-sector growth After the Second World War, nitrogen fertilizer became increasingly available (Figure 2). Existing production capacities were used for the Haber-Bosch ammonia synthesis process (Smil, 24). The subsequent increased use of nitrogen fertilizer, together with other technical progress in crop production such as breeding and mechanization, resulted in significantly higher crop yields. Crop surpluses made feed for poultry production increasingly available. A first wave of intensified poultry production using high-quality feed inputs occurred in the United States of America in the 195s and in Europe in the 196s. Industrialized poultry production supplied the increasing demand for animal-based protein which was arising from growing incomes. Feed surpluses were a prerequisite for poultry-sector intensification and contributed to the industrialization of the sector.

3 Feed availability inducing structural change in the poultry sector 3 Figure 2 World nitrogen production tonnes Total N production N fertilizer consumption Unit value (US$/tonne) Oil crisis I Oil crisis II 2 15 Nominal US$ Oil crisis III Sources: U.S. Geological Survey; fertilizer consumption from IFA Databank. 3 Sustained sector growth fuelled by crop production subsidies Subsequent to the first wave of poultry-sector intensification, the demand for animal-based protein increased simultaneously with income growth in developed countries. Additional demand for meat resulted from rising incomes in developing countries, especially in emerging economies in Asia. The increased demand for meat was met through sustained growth and intensification of beef, pork and broiler production. Developing countries were applying the same intensified poultry production systems. These trends led to an accelerated demand for high-quality feed. Between 1975 and 1985 the global quantity of manufactured feed increased by 52 percent to 44 million tonnes (Feed International, 22). During this period, several shocks and an increased nominal price level occurred for major feed commodities (see Figure 3). A variety of substantial subsidies for crop production were paid, including for the major feed commodities. Subsidies for various agricultural products are paid in developed countries. OECD Producer Subsidy Equivalent (PSE) is an internationally recognized unit of measurement. It represents the monetary equivalent of the gross transfers to agricultural producers, measured at farm-gate prices. The PSE is the only available and internationally comparable indicator of support levels in agriculture in OECD countries. In Figure 4 the commodity PSE is presented as a percentage share of farm-gate prices. During the time period the PSE for the production of maize and wheat, respectively, averaged at 4 percent and 47 percent of the farm-gate price. Compared to the level of direct support for poultry meat, eggs or pig meat, the support level for these main feed commodities was substantially higher. It is also worth noting, that all PSE levels

4 4 Poultry in the 21 st Century Figure 3 World market prices for maize, wheat, soybean meal and crude petrol MAIZE (US$/tonne) SOYBEAN MEAL ($US$/tonne) CRUDE PETROL (US$/bbl) WHEAT (US$/tonne) Note: bbl = barrel. Source: World Bank (27). Figure 4 Subsidy levels for OECD countries for different agricultural commodities % PSE Maize Wheat Oilseeds Poultry Eggs Pig meat Beef & veal Sources: OECD (27). presented in Figure 4 are lower for the time period 23-25, with the exception of pig meat and beef and veal, which showed increased PSE levels. The high support levels for feed commodities and their subsequent use in livestock production imply a substantial indirect support. Subsidies for crop production meant that feed continued to be available at relatively low costs in the world market; this fostered another wave of poultry-sector growth in both developed and developing countries. For example, exports of maize and soybeans from the United States of America, a major contributor to international trade in these products, are

5 Feed availability inducing structural change in the poultry sector 5 Figure 5 Share of cereal production used for poultry Share of cereal production used for poultry Share of maize production used for intensive poultry production % 1 5 OECD Central & South America West Asia & North Africa Sub-Saharan Africa Eastern Europe & CIS Asia World Sources: Gerber et al. (in FAO, 28b) and FAO (22). estimated to have been 19 percent and 12 percent, respectively, below production costs during the period from 1997 to 23 (IATP, 25). In the United States of America, about percent of maize and 45 5 percent of soybeans are used for domestic livestock production, which also results in substantial support for the sector (Wise, 25). The availability of low-cost feed commodities also enabled poultry-sector growth in feed-importing countries. Imports of low-cost feed stocks, together with a protection policy for poultry products, facilitated accelerated growth of the domestic poultry sector. Based on poultry production output data for boiler meat and eggs, it can be estimated that a total of 294 million tonnes of feed and 19 million tonnes of cereal were utilized for poultry production in 24 (Gerber et al., in FAO, 28b). About 8 percent of world cereal production is used for poultry production, but the proportion varies substantially between regions (see Figure 5). For intensive poultry production systems, the share of maize used is also shown in Figure 5. In Central and South America, the share of cereal production utilized for poultry production is relatively high. In West Asia and North Africa, large amounts of cereals are imported. During the period about 8.4 million tonnes of maize were imported, while at the same time only 1.7 million tonnes of maize were exported (Steinfeld et al., in FAO, 26, p. 367). More than 2 percent of the regional production of maize is used for intensive poultry production. Poultry production in this region is benefiting from low-cost maize imports. 4 Trends in feed prices and the impact of biofuel production Several factors are causing a rise in feed prices. The demand for livestock products, and therefore feed commodities, is likely to increase as a result of rising incomes in emerging countries. At the same time, direct subsidies for crop production continue to decrease, and additional demand for cereals is resulting from the fast growing biofuel production sector.

6 6 Poultry in the 21 st Century In 26, about 45.6 billion litres of bioethanol and 7.6 million litres of biodiesel were produced (FAPRI, 27). Brazil and the United States of America are the main producing countries for bioethanol, with a share of 8 percent of total production; conversely, the European Union (EU) is producing 81 percent of total biodiesel. The most common inputs for biofuel production are maize, sugarcane, oilseeds and cassava. The 26 annual production of biofuel in Brazil required 26 million tonnes of sugar cane, while 55 million tonnes of maize were used in the United States of America. In the EU, about 8 million tonnes of oilseeds were used for the production of biodiesel in 26 (OECD/FAO, 27). The use of feed commodities for biofuel production is likely to increase within the next decade due to the expected high oil prices, sustained policy support, and sunk investment costs in biofuel production capacity. A second generation of biofuel production techniques, utilizing non-feed cellulosic inputs is not likely to be competitive during this time horizon (Naylor et al., 27). FAPRI (27) projected a 94 percent increase in bioethanol production by 216. This would require 264 million tonnes of maize, assuming it is the only feed input used and conversion efficiency stays the same. In view of these trends, the question that has to be addressed is whether increasing demand for feed commodities can be met by expanding production, and at what costs? Increased crop production via increased productivity and expansion of arable land might be feasible; the technical potential for improving crop production is under-utilized (FAO, 22, p. 4). However, yield improvements and expansion in marginal land will only be achievable with increasing marginal costs of production. Therefore, increased prices for feed commodities can be expected in the future. Several price shocks can be noted in the nominal price series data presented in Figure 3. Since the end of 26, prices for feed commodities such as maize, wheat and soybean meal have increased by more than 5 percent. This might indicate a new price level for feed commodities resulting from additional demand for biofuel production. With rising crude oil prices and policy support for biofuels, investments in biofuel production facilities are becoming increasingly profitable. Given a complete market integration of the feed market into the energy market, the break even point for feed-based biofuel production would become a long-term floor price for feed commodities. The energy market is relatively large compared to the feed market, and would therefore, in the long term, drive feed prices up to a ceiling price at which feed stocks would no longer be competitive. Complete energy and feed market integration has not yet been reached. Sufficient capacity in terms of biofuel production facilities and an effective distribution system for a flex-fuel fleet would be the necessary conditions for full market integration. Nevertheless, impacts of feed-based biofuel production can already be observed. The Brazilian market for sugar cane, for instance, is already completely integrated, and a strong co-movement of sugar cane and oil prices can be demonstrated (Schmidhuber, 26). The impact of the use of maize and cassava for bioethanol production in the United States of America and China is not limited to raising the prices of these commodities. Considerable ripple effects are evident in the shape of increased prices and changes in the planted area of other feed crops (Naylor et al. 27). In addition, the crude-oil market is relatively volatile. Over the last 25 years, the volatility of crude-oil prices has been more than twice as high as that of maize, wheat or soybean meal prices, based on the coefficient of variation. Price-shock transmissions from the energy market into the feed market can therefore be expected in the future.

7 Feed availability inducing structural change in the poultry sector 7 In the case of protein-rich feed stocks, price increases resulting from rising demand for biofuels are expected to be limited (Schmidhuber, 26). Additional protein-rich coproducts from the use of feed commodities for biofuel production would be available for livestock. The co-products in question are: dried distiller grains with solubles (DDGS); maize gluten feed and germ meal from wheat and maize used for bioethanol; crushed stover from cassava used for bioethanol; and soybean and rapeseed meal from biodiesel production. To a limited extend, these are valuable protein ingredients for poultry diets (Chadd, in FAO, 28a). 5 Conclusions and outlook The rapidly increasing demand for livestock-based protein can only be met on the basis of intensified production systems. Cereal prices and oil prices have become linked, and projections that model the impact of biofuels show significant increases in prices for feed commodities (Schmidhuber, 26). Energy market shocks will transmit into the feed market and increase market risk for poultry production. Risk-mitigation strategies for capital-intensive poultry production will become increasingly important in order to cope with market shocks. In the competition for the scarce resource feed, poultry has competitive advantages over other livestock as it has the best feed conversion rate. Poultry production cost will rise as a result of higher feed costs, but good feed conversion rates give a comparative advantage over other livestock production systems. In particular, the efficient conversion of feed energy into meat by broilers provides a comparative cost advantage over other livestock sectors (Chadd, in FAO, 28a). The changes in feed production are favouring and accelerating poultry-sector growth and inducing structural changes towards intensified production systems. Animal diets will become more diversified due to the use of biofuel co-products with valuable protein content. References FAO. 22. World agriculture: towards 215/23. Summary report. Rome. (available at FAO. 26. Livestock s long shadow. Environmental issues and options, by H. Steinfeld, P. Gerber, T. Wassenaar, V. Castel & C. de Haan. Rome FAO. 28a. Future trends and developments in poultry nutrition, by S. Chadd. In O. Thieme & D. Pilling, eds. Proceedings of the International Conference Poultry in the Twenty-first Century: avian influenza and beyond, held 5 7 November 27, Bangkok, Thailand. Rome. FAO. 28b. Poultry production and the environment a review, by P. Gerber, C. Opio & H. Steinfeld. In O. Thieme & D. Pilling, eds. Proceedings of the International Conference Poultry in the Twenty-first Century: avian influenza and beyond, held 5 7 November 27, Bangkok, Thailand. Rome. FAPRI. 27. World Agricultural Outlook 27. Ames, Iowa, USA, Food and Agricultural Policy Research Institute, Iowa State University. (available at outlook27/text/outlookpub27.pdf). Feed International. 22. World feed panorama survey 21 data. Rockford, IL, USA. IATP. 25. WTO agreement on agriculture: a decade of dumping. Minneapolis, USA. The Institute for Agriculture and Trade Policy. (available at cfm?accountid=451&refid=48532).

8 8 Poultry in the 21 st Century IFA. International Fertilizer Industry Association Databank. (available at ifa/statistics/ifadata/data/world.xls). Naylor, L., Liska, A., Burke, M., Cassman, K., Falcon, W., Gaskell, J. & Rozelle, S. 27. Ripple effects of crop-based biofuels on global food security and the environment. Environment, 49(9): OECD. 27. PSE Database. OECD/FAO. 27 Agricultural outlook. Organization for Economic Co-operation and Development Publication No Paris/Rome. (available at dataoecd/6/1/ pdf). Schmidhuber, J. 26. Impact of an increased biomass use on agricultural markets, prices and food security: A longer-term perspective. Paper prepared for the International symposium of Notre Europe, Paris, November, 26. (available at NotreEurope.pdf). Smil, V. 24. Enriching the earth. Fritz Haber, Carl Bosch and the transformation of world food production. Cambridge, MA, USA, M.I.T. Press. U.S. Geological Survey. United States Geological Survey Data Series 14. (available at minerals.usgs.gov/ds/25/14/). USDA. United States Department of Agriculture data sets on meat price spreads. (available at Wise, T. 25. Identifying the real winners from U.S. agricultural policies. Global Development and Environment Institute Working Paper No. 5-7, Medford, MA, USA, Tufts University. (available at World Bank. 27. World Bank, commodity price data.