Poultry Ban Continues
Russia's ban on U.S. poultry imports continued into its second week on Sunday, and yesterday
afternoon, the U.S. Dept. of Agriculture reported that talks to resolve
the issue had made little progress. Russia imposed the ban on March
10th, alleging safety concerns. However, many observers believe that
the restriction was prompted, at least in part, by the recent American
decision to impose tariffs on imported steel.
At another level, the ban has
also been seen as an effort to reduce reliance on U.S. poultry--which
costs less than locally produced poultry and has long been popular with
Russian consumers--and boost Russia's own growing local industry.
Whatever the causes, the ban
is having an immediate impact on Wayne Farms, which exports roughly 12%
of its leg quarters to Russia--a fairly significant slice of business.
Nevertheless, Wayne Farms Vice President Steve Kernen notes that the
company's actual sales to Russia are significantly less than the
industry average. He estimates that U.S. producers typically export
about 25% to 30% of their leg quarters (about 7% of total production)
to Russia, and says that some companies export a significantly higher
percentage.
Overall, U.S. chicken
producers shipped 1.1 million metric tons of chicken to Russian
customers last year, and accounted for 57% of U.S. agricultural exports
to the former Soviet Union.
Without the Russian sales,
the leg quarters will inevitably have to be sold on the U.S. market.
"You'll probably see them featured in supermarkets next month," says
Steve, who notes that their price has fallen by about 50% as a result
of the ban.
Export Sales Manager Ruth
Blackstock says the dispute will probably not be resolved until mid to
late April, and notes that a similar ban lasted for several months in
1996. At that time, U.S. poultry companies invited Russian officials to
visit plants throughout the United States, while teams of Russian and
American experts examined the issue and negotiated a veterinary
agreement specifying safety standards for U.S. poultry imports. A
similar U.S. team, including Wayne Farms' Mike Robach, was recently
formed to assist in the current negotiations.
U.S. poultry producers would
nonetheless prefer to avoid reopening the 1996 agreement, since it
already ensures extremely high standards of quality and safety. "We
already have a protocol in place from 1996," says Ruth. "Unfortunately,
the people who negotiated the agreement are no longer in power, and the
current Russian agriculture department seems mainly interested in
protecting the local industry."
Steve Kernen adds that the
Russians can block poultry imports today and still meet current demand
thanks to high levels of inventory. It's also spring, a time of year
when consumption typically goes down. "They can go a few months using
up existing inventory, without buying anything, and without creating a
shortage in the local market. This makes it a very natural time for
them to impose a ban."
In the end, the current
dispute is also the result of global overproduction and excess supply,
including supply from Russia's own fledgling industry, from rising
producers like Brazil, and from the United States. U.S. poultry
producers, Steve notes, have steadily increased production over the
years, and, in contrast with beef and pork producers, have never
experienced periods of retrenchment or contracting supply. At the same
time, domestic U.S. consumption has leveled off and, for the most part,
has remained limited to white meat.
The result, of course, is
that there's "a lot of chicken out there" (especially dark meat) and
this makes the U.S. industry even more dependent on Russia than it was
in 1996. "The trade dispute is ultimately an outgrowth of oversupply.
The solution is for us to control our production levels," says Steve,
"and this will require an industry-wide effort."