By John Friel
Contributing Writer

The lifting of China’s ban on poultry imports from the United States is the latest development in a roller coaster few years for the South Carolina poultry industry, and for those industries affected by poultry prices.

In recent times the sector has been rocked by the effects of the outbreak of avian flu, the subsequent international trade bans, volatility in the raw material costs of production including feed costs, and dramatic swings in price of the end product.

South Carolina is active in the production of broiler chicken, and the health of the industry plays an important role in the state’s economy. Charleston is an important export location for chicken meat, and fluctuations in the price of poultry have a direct effect on profit margins on the city’s restaurant trade.

Production and sales

Broilers are South Carolina’s top agricultural commodity, and accounted for 23.7% of state total farm receipts in 2003. The next four included products from greenhouses and nurseries, turkeys, tobacco and cattle.

This directly affects Charleston, since the poultry and products sector was the second largest agricultural export of the state, with $50.1 million of product exported in 2003. Only the tobacco sector exported more than this, though poultry exports comfortably exceeded those of wheat, soybeans and cotton, according to the U.S. Department of Agriculture.

Trade bans are significant, because a buoyant export market has driven the poultry industry’s long-term growth. Poultry is central to the operations of New Orleans Cold Storage and Warehousing Ltd., which has a presence in Charleston. 

According to Mark Blanchard, the company’s executive vice president, poultry accounts for around 60% of the firm’s business. 

The export of the meat has proved to be an excellent outlet for domestically undervalued chicken parts such as dark meat. The recent trade ban has affected sales.

“The increases in the company’s domestic chicken segment sales volumes for the 12 months of fiscal 2004 were partially offset by decreased international sales volumes due to import restrictions by various countries caused by the avian influenza outbreaks in the United States,” according to Tyson Foods Inc.’s fourth quarter and 2004 fiscal year results.

This cuts both ways however, as the poultry industry has benefited indirectly from cases of Mad Cow disease in beef.

The consequences of the discovery of avian flu in certain states, such as Delaware, have been widespread. Many countries imposed state-specific or, in the more extreme cases, national import bans on U.S. poultry. Currently, some have been lifted, but some still remain. China, for example, has recently announced that poultry produced after Nov. 9 will be allowed into the country.

Price forecasts

In addition to trade bans, dramatic swings in the price of poultry meat have been a key feature in the industry. In the Dec. 16 edition of “Livestock, Dairy and Poultry Outlook,” the USDA remarks, “With increases in production and growing amounts of product in cold storage, domestic broiler prices have declined. The November 12-city average for whole broilers was 68.1 cents [per] pound. This was still up 6 percent from the previous year, but prices have fallen around 14 cents a pound from where they were in June.”

An indication as to the shift in profitability, the USDA calculates the spread between the wholesale and retail broiler prices to have risen to 103.9 cents per retail pound, up from 75.6 cents in June 2004. They expect the 12-city broiler price to remain in the range of 70-75 cents per pound next year.

The restaurant trade

In the restaurant business, unlike the export business, it’s profit margins that get hit, rather than sales. Restaurants typically don’t change their prices in response to variations in the price of the product they buy, and instead absorb the difference in their earnings.

“It’s like any other product we buy,” says Tom Sponseller, president of the Hospitality Association of South Carolina. “It affects the profitability of each restaurant, depending on how much chicken they sell.”

Short-term fluctuations in the price of poultry are particularly unpleasant to restaurateurs since chicken now features so heavily in the American diet. Over the last 20 years, many consumers for health reasons have eaten chicken at the expense of red meat.

But some businesses are affected more, and some less, than others. “A lot [of restaurants] buy just the breast, but we always buy the whole chicken,” says Francois Rivalain, who owns Coco’s Café in Mount Pleasant. This brings down his cost of purchasing the meat. According to Rivalain, some restaurants have had trouble getting (chicken) breast meat. 

The higher prices came at an unfortunate time for the restaurant trade, since chicken was very much in demand, the consumer was put off beef by Mad Cow disease, and there was widespread concern over the price effects of a proposed tariff on shrimp from China and Vietnam.

But the price of chicken has now settled down, and if the USDA is right in their predictions, it will remain at more manageable levels for some time.

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