Shane Commentary

 

KFC Commits to Eliminate Common-Use Antibiotics

Apr 19, 2017

    

In an April 7th release, Kentucky Fried chicken announced that by the end of 2018, all chicken purchased by KFC U.S. will be raised without antibiotics important to human medicine (“common- use” antibiotics.)

KFC and its parent Yum! Brands is the last of the major chains to announce a ban which in effect follows FDA policy and mandatory compliance by the broiler industry.

 

Lena Brook, food policy advocate at the Natural Resources Defense Council, stated “The market is responding to consumer demand for better meat. This commitment from the nation’s most iconic fast food chicken chain will have a major impact on the way that birds are raised in the U.S. and in the fight against the growing epidemic of drug-resistant infections.”

For information, the decision will not have any “major impact on how birds are raised” since many broiler producers anticipated the 2017 FDA deadline and followed previously released Guidance documents. Common-use antibiotics are essentially disallowed for other than very specific therapeutic administration under strict veterinary control.

The quantitative impact of antibiotic use in broiler production on the emergence of drug-resistant organisms is questionable notwithstanding emerging knowledge based on advanced molecular analysis and epidemiologic evidence.

The majority of drug resistance in human populations results from inappropriate and over-administration of drugs by the medical profession. However, perception is reality and the industry has in large measure accepted the principle of relinquishing antibiotics for growth promotion and disease prevention on a routine basis in conformity with FDA rules.

Kevin Hochman president and Chief Concept Officer for KFC U.S. stated “Making this change was complex and took a lot of planning. It required close collaboration with more than 2,000 farmers, most of them family-owned and managed in more than a dozen U.S. states where they raise our chickens” This is at best a non-factual statement.  

KFC does not deal with farmers but purchases chicken products from a limited number of integrators who in turn agree to and conform to mutually agreed programs, since they own the flocks placed on contractors’ farms. These flocks receive Company feed and supervision and are harvested and processed to supply KFC and other QSRs.

It is evident that going forward the USDA will play a role in antibiotic-free broiler-raising programs through Process Verified Certification.

   
 

Yum! Brands CEO Forecasts Robotics and Automation in QSRs

Apr 19, 2017

    

Yum! Brands CEO, Greg Creed forecast that by the mid 2020’s, automation and robotics will be commonplace in QSRs.  He noted that affiliated brands, Pizza Hut, KFC and Taco Bell have established automated ordering kiosks in Shanghai, China and are even using robotic greeters.  Creed compared advances in automation in QSRs to the extensive use of robots in manufacturing.

  

His comments to CNBC follow recent initiatives to raise the rates paid to workers to a minimum of $15 per hour for unskilled work.  In view of the thin margins generated by QSRs, substantial increases in labor costs will force both in-store automation in addition to centralized food preparation in commissaries, trends which are already apparent. The alternative, as in Seattle WA. is the closure of stores.

The U.S. fast food industry was founded on manual labor provided by high-schoolers following a right-of-passage, learning responsibility, punctuality, and interaction with customers and supervisors before going on to college or a career.  Over the past three decades, especially in urban areas, QSR workers have represented an unskilled work force virtually tied into minimum wage occupations.

Chick-fil-A® is the outstanding exception with respect to remuneration, training, motivation and benefits. Since the chain is a private company with a unique philosophy and business model decisions were made by the founder, S. Truett Cathy and followed by his son Dan to invest in store associates. This luxury apparently eludes public-quoted companies in intense competition, which are required to demonstrate growth in earnings on a quarterly basis to maintain EPS and to pay dividends often at the expense of employees.

   
 

Reevaluation of Acceptance of GM in China

Apr 12, 2017

    

The China National Chemical Corporation, a parastatal entity, has completed their $43 billion acquisition of Syngenta AG of Switzerland.  Syngenta is a leading biotechnology company developing and distributing GM seeds.  Partly through ignorance but also institutional opposition, Chinese consumers are generally unwilling to embrace GM technology.  The justification for previous Government policy on GM lies in the low productivity of farms. 

  

Currently farmers in China can harvest 95 bushels of corn per acre equivalent to 6 metric tons per Ha.  The U.S. equivalent is 180 bushels per acre. Similar differences exist between the yield of soybeans in China (25 bushels per acre or 1,600 kg per Ha) compared to 52 bushels per acre in the U.S.

Simply put, if the yield of corn and soybeans were to be increased to levels approaching U.S. standards, the price of commodities would fall to the point where millions of small-scale farmers would be displaced resulting in social upheaval.  Accordingly the Government of China which plans all production has maintained a program of excluding GM seeds but cynically allows importation of GM grains for livestock and human consumption.

China National Chemical Corporation will have to integrate the technology of its acquisition into the agriculture of its nation as it will have to compete in the future with powerful competitors such as the combination of DuPont Company and Monsanto.  The national market for seeds in China is estimated at $17 billion according to an article by Brian Spegele in the March 27th edition of the Wall Street Journal.  Pressure to capitalize on their investment will force China to adopt GM grains.  A thaw in attitude was cited in the WSJ article with Zhang Taolin the Vice-Minister for Agriculture stating, “The Government believes GM is safe”.  Syngenta maintains that the Government of China which has funded GM research will adopt the technology for the domestic market in an attempt to upgrade productivity.

It is anticipated that the change in consumer attitude may take some time with Jian Wu, business director at DuPont of China criticizing the Government for “not educating the general public about the real benefits of GMO”.  Of specific interest in China is cultivation of GM soybeans to produce cooking oil which is in demand.

It would appear that China is in a position to learn from the mistakes of the European and U.S. biotechnology companies that identified farmers as their customers for GM seeds. In fact consumers at the end of the production chain represented the arbiters of acceptability.

   
 

Head-Only Stunner Developed in the Netherlands

Apr 12, 2017

    

Dutch Vision Solutions (DVS) has developed a head-only broiler stunner recently promoted in the form of an “infomercial” in an EU poultry periodical.  The purpose of the development program was to engineer a system which would allow recovery of stunned broilers within 30 seconds, apparently a requirement for some certifiers of halal slaughter and important for some export markets. 

The equipment developed by DVS was tested by a Wageningen University research team at a throughput of 13,500 birds per hour.  Stunning efficiency attained 95 percent with approximately 5 percent birds of birds showing a sensate reaction within 30 seconds after stunning.

  

A comparison shows that the capital cost of a head-only installation is approximately eight times the cost of a water-bath unit and according to the figures presented, enigmatically even more that a controlled atmosphere stunning installation.

The head-only stunner does not appear to have advantages over pulsed-DC stunning as installed in some plants in the U.S. or over the more conventional water-bath AC stunners.

Given the growing demand for controlled-atmosphere stunning as a welfare imperative, it is doubtful whether the system will be adopted in the U.S.  In any event, the head-only system still requires manual shackling which is considered a negative by advocates of bird welfare and the customers they advise. It is considered unacceptable that the head-only stunning system as tested, would allow five percent of broilers to pass conscious through the rotary blade or manual slaughterer.

The cost comparison presented in the form of a table in the article published in the EU periodical clearly overstates the cost of controlled atmosphere stunning especially with respect to labor, water usage and electricity. The comparison ignored fixed costs including depreciation and interest.

   
 

INVESTOR PRESSURE ON ANTIBIOTIC USE

Apr 5, 2017

    

A consortium of 71 investment firms is placing pressure on QSRs, restaurant chains and food manufacturers to source poultry free of antibiotics.

An organization termed the FIIR Initiative issued a statement noting “Investors are not immune to antibiotic resistance.  It is hard to put a monetary cost on antibiotics becoming useless but some estimate that it could lose $100 trillion from global economic output, creating an enormous financial and public health crisis”. 

  

This sentiment is in all probability drawn from the Report of a UK committee chaired by Lord O’Neill of Gatley in 2016.  The report projected that by 2050, antibiotic resistance if not checked could reduce world GDP by 2 percent.

Most of antibiotic resistance alluded to in the O’Neill Report relates to drug resistance in human populations associated with misuse of antibiotics leading to emergence of multi-drug resistant tuberculosis, MRSA and other pathogens including Klebsiella and Enterobacter.

Notwithstanding the weight of scientific and epidemiologic evidence concerning nosocomial drug resistance, there is a growing perception that livestock may be responsible for a proportion of the problem. Poultry producers can expect pressure to be directed by the investment community onto customers to eliminate antibiotics from their supply chains. As an alternative to “No Antibiotics Ever” programs some latitude may be extended to allow administration of antibiotics for therapeutic application under veterinary supervision.

It is estimated that 80 percent of companies approached by investors are working with suppliers to monitor and reduce antibiotic use.  Out of ten major chains including Brinker International, Darden Restaurants, Domino’s Pizza Group, McDonald’s Corporation, Restaurant Brands International and the Wendy’s Company among others, Yum! Brands was the only major chain that ignored requests to supply information on their antibiotic policy and intentions. From press reports Yum! Brands appears to be stonewalling the trend to antibiotic-free production.

   
 

Global Animal Partnership

Apr 5, 2017

    

During recent weeks, a number of relatively small QSRs have announced that they will adopt the standards of the Global Animal Partnership (GAP) with respect to sourcing animal products.

Quiznos is the latest entrant announcing their intention of adopting GAP standards by 2024 with respect to purchase of chicken. Since we have at least two recognized animal welfare certifying agencies in the U.S. it is questionable whether we require an additional burden.

  

Evaluation of the Global Animal Partnership website discloses that the organization was established in 2008 by John Mackey, co-CEO of Whole Foods Market.  He created a 5-Step® rating standard for the program which he considered would be appreciated by the demographic patronizing his supermarket chain.

What is informative is the composition of the Board of Directors which speaks for itself:

  • Wayne Pacelle, CEO/President, HSUS
  • Ben Goldsmith, Executive Director, FarmForward
  • Leah Garces, Director, Compassion in World Farming
  • Dan Probert, Former Executive Director, Country Natural Beef
  • Matthew Bershadker, President/CEO, ASPCA
  • AC. Gallo, President, Whole Foods Market
  • Paul Willis, Former Owner, Niman Ranch, now Willis Free-Range Pig Farm

Global Animal Partnership has created a series of welfare levels applying to broilers, hogs, beef cattle, turkeys, sheep, hens and bison. The standards at the two lower levels conform closely to the requirements of the American Humane Association but the stipulations for the higher rungs of the ladder are exceedingly onerous and disfavor intensive production. It is significant that GAP does not have a scientific advisory board providing input on the justification for welfare standards.

The GAP is unnecessary, duplicative and represents an extension of the ego of its founder. It was devised to lend credence to a combination of a whim at best or a cynical exercise in welfare    one-upmanship to benefit the image of Whole Foods Market.

   
 

U.S. REACTION TO INSPECTION IRREGULARITIES IN BRAZIL

Mar 29, 2017

    

Following press reports of alleged irregularities in inspection procedures and certification of raw beef and ready-to eat products emanating from specific plants in Brazil, the U.S. Department of

Agriculture has initiated a program of assaying consignments of raw beef imported from Brazil for the presence of pathogens. 

  

Meat exports from Brazil to China, the EU, and Chile have been restricted although South Korea has resumed imports. Approximately 30 percent of beef imports entering China emanate from Brazil followed by Australia with a 19 percent share and Argentina at 8 percent.

China has not imported beef from the U.S. since a single case of BSE, attributed to sporadic mutation, was diagnosed in 2003.  Alternative suppliers to China include Canada although it is evident that in the short term, prices for beef products will rise sharply in China.  In the intermediate term, Brazil should be able to satisfy importing nations that it has taken steps to resolve issues of improper inspection and possible adulteration, degrading their image in the export market.

   
 

ALL WE NEED NOW IS A TRADE WAR

Mar 22, 2017

    

An editorial in the February 10th edition of The Wall Street Journal lays out the reasons why moderation and diplomacy are required in our future relations with trading partners.

The need to reverse the adverse trade balance with our two NAFTA trading partners and to establish bilateral agreements with China, the UE, Japan and South Korea are self-evident.

  

It is ironic that states carried by President Donald J. Trump have the most too loose from disturbances in trade.  Poultry is ninth on the list in export commodities with respect to proportion of U.S. production at 17 percent with the pork exporting 23 percent of output. 

It is noted that our two NAFTA partners purchased $38 billion in agricultural produce annually.  An aggressive stance against China could invite retaliation and prejudice the $21 billion in U.S. shipments of agricultural products representing almost 15 percent of U.S. exports.

Given the high value of the U.S. Dollar, we are vulnerable to competition from nations with arable land, a suitable climate, relatively low labor costs, mechanization and other advantages.  Exports of broiler parts to Mexico and Canada are critical to maintaining balance in domestic supply and price stability.  The volume of broiler exports over the first eleven months of 2016 amounted to 2.7 million metric tons valued at $2.6 billion.  Mexico was the largest importer of broiler meat during November 2016 of 20 percent of volume and 17 percent of value.

Exports of turkey meat attained 240,000 metric tons valued at $540 million, with the top five importers of broiler parts representing 42 percent of volume.

CHICK-CITE endorses the views of The Wall Street Journal editorial which stated, “President Trump should consider reality before escalating on trade-and betraying the Farm Belt voters who are relying on him to bring growth and opportunity”.

   
 

Georgia University Researcher Develops New Approach to Suppress Ammonia

Mar 15, 2017

    

Using funding provided by USPOULTRY Dr. Woo Kim of the Department of Poultry Science, University of Georgia has developed a new approach to suppress elaboration of ammonia in litter. 

 

Project 687 entitled Effects of Nitrocompounds to Minimize Ammonia Emission in Broiler Litter represents a unique in-feed modality to reduce ammonia liberation from uric acid excreted by flocks.

Dr. Kim demonstrated that a number of nitrocompounds in vitro can inactivate the five enzymes required to convert uric acid to ammonia.  Nitropropanol and nitropropionic acid demonstrated the highest levels of reduction.  Supplementation of broiler diets with either nitroethanol or nitropropanol reduced uric acid degradation and ammonia production in broiler litter without affecting performance. The evaluation included measurement of ammonia volatilization, ammonia nitrogen, total nitrogen, and uric acid nitrogen in litter.

The report did not include any details as to the financial feasibility of the approach. Costs should be compared with the expense of currently available litter amendments to reduce ammonia production by acidification.

The most injurious effect of ammonia on the respiratory tract occurs after placement of chicks exposed to ammonia liberated from used litter beneath the thin covering of fresh wood shavings or other substrate. Obviously including an additive in feed during the pre-starter and starter periods would have little effect on the flock. 

Inclusion of the nitrocompounds in finisher and withdrawal feeds could conceivably reduce ammonia emission which would affect subsequent flocks with a beneficial effect on respiratory function and growth during the first two weeks of the following cycle.  Inclusion of the compounds in feed on a seasonal basis could also be an acceptable strategy especially during cold weather when ventilation rates are reduced to conserve heat.

   
 

Pathogens Influenced by Pollution

Mar 8, 2017

    

A study conducted at the University of Leicester examined the effect of atmospheric pollution on Staphylococcus aureus and Streptococcus pneumoniae both pathogens found in the respiratory tract.  The interdisciplinary team including geneticists, microbiologists and environmental scientists demonstrated that exposure to carbon and other pollutants changed colony characteristics of the bacteria and contributed to enhanced virulence.

  

Dr. Julie Morrissey of the University of Leicester noted, “The study shows that bacteria which cause respiratory infections are affected by air pollution, possibly increasing the risk of infection and the effectiveness of antibiotic treatment for these illnesses.”

Although the study is of significance to human epidemiologists, the results point to the deleterious effects of dust, ammonia and other pollutants in the environment of poultry houses.  We are aware that ammonia and extremely low levels of humidity affect the mucosa of the respiratory tract. 

There is an established association between suboptimal levels of ventilation and respiratory infection.  The studies conducted in the UK provide an understanding of how pollutants not only affect the sensitive tissues of the airways, lungs and airsacs but also that dust, ammonia and other contaminants may influence the pathogenicity of bacteria resulting in a synergistic effect.

   
 

CHICAGO INSTITUTE OF FOOD TECHNOLOGISTS HOSTS DEBATE ON GMOS

Mar 8, 2017

    

In mid-February, the Chicago Section of the Institute of Food Technologists hosted a debate on the merits of GM foods.  More than 170 Chicago-area food industry professionals attended, attesting to the significance of the topic.

According to a report in the IFT Weekly Newsletter, Dr. Benjamin Howard, Laboratory Director at Certified Laboratories noted that a pre-debate survey showed that two-thirds of the attendees were in favor of GM and slightly more believed that GM ingredients are ‘always or mostly safe’.  Approximately half of the respondents expressed the opinion that safety data relating to GM foods is not readily available to the public and private sectors to facilitate informed choice.

  

Dr. Sonny Gilbert Project Scientist with Cofactor Genomics firmly believes, as does much of the scientific community, that GMs are innocuous with respect to safety and are beneficial in terms of sustainability.  It is an undeniable reality that the FDA has approved the consumption of GM foods for two decades and with almost half a billion acres of GM crops planted worldwide in 2014.

Gilbert noted that GMs have become controversial because of lack of relevant information suitable for consumers.  Outstanding and beneficial innovations include bananas and rice modified to express high carotene content to avert blindness and pest-resistant crops which reduce the use of insecticides.

It is apparent that the Chicago section of the Institute of Food Technologists was not able to obtain a reputable scientist to debate from the opposing side.  Joel Warady, Sales and Marketing Officer of Enjoy Life Foods apparently delivered a message relating to consumer needs and the apparent benefits of his Company’s products and by extension, all GM-free foods.  Echoing the sentiments of opponents of GM technology, Warady stated, “I don’t know that GMOs are bad but I will challenge anyone who says they are good because there isn’t enough evidence”.  Despite being a partisan for non-GM, Warady clearly supported the contentions of Dr. Gilbert that consumers are under-informed.

Previously both EGG-CITE and CHICK-CITE have commented on the apparent inability of the major biotechnology companies to mount effective pro-GM campaigns using social media and mainstream print and video.  If companies profiting from GMO technology wish to expand their markets, they will have to become more innovative and consumer-oriented. The customers of biotechnology companies are effectively food manufacturers and consumers not farmers which appears to be the focus of their misdirected perspective. 

To dispel misinformation and engender confidence in GMOs, campaigns should involve a substantial investment in publicity, the use of spokespersons representing sports and entertainment and above all should be directed to millennials and their following generation.

   
 

Wendy’s Announces Move to Lower Live Weight

Mar 1, 2017

    

Wendy’s announced that it would in the future require a 20 percent lower live weight compared to current specifications.

Todd Penegor, president and CEO of Wendy’s stated “We are making this change because we have seen that smaller birds provide a big benefit for our customers who deserve to eat the most tender and juicy chicken.”

  

This statement belies fact.  The larger the bird the more mature the muscle.  Tenderness and juiciness are a function of stunning and post mortem electrostimulation or procedures before portioning.  Bird size has little to do with “tender and juicy” but may have profound impacts on live cost.

Unfortunately, in this market-oriented world, misconceptions and hype frequently conflict with reality, and suppliers are obliged to follow the specifications and apparent needs of their customers.

   
 

The U.S Poultry Industry -- Perspectives and the Future

Feb 22, 2017

Grady Fain

    

Guest Commentary by Grady Fain

When relevant and informative, CHICK-CITE posts Guest Commentaries of interest to Subscribers and Sponsors.

Grady Fain, Senior Vice President for Nutriad in the U.S. is generally positive with regard to 2017.

He projects steady prices for chicken and stable or slightly reduced feed costs.

For outreach to his friends and clients at the IPPE, Grady prepared a review of his perceptions of the State of the Industry and included forecasts for 2017

 

Introduction

As the U.S. is moving from a turbulent 2016 into a new year with an uncertain political outlook, it is important for the poultry industry to understand the various scenarios that may unfold in the near future and possible changes in global trade agreements, currency exchange rates, regulations and overall cost of production.

Using insights from industry experts within the Nutriad Group and input from consultants, several possible scenarios will shape the year ahead.

  

Political Scenario

The election of President Donald J. Trump, will most certainly bring changes in the overall trade and currency panorama. The outlines of some of those changes can already be seen in his first days in office. The US withdrawal from TPP will leave a vacuum to be filled by China. This nation will assume greater importance in Asia and the Pacific Rim. To compensate, the U.S. must establish bilateral trade deals with the Philippines, Malaysia, Indonesia and Thailand.

According to USDA, close to 18 percent of the total poultry production in U.S. is exported in the form of leg quarters an undifferentiated commodity. This makes the U.S. poultry industry extremely vulnerable to competition, currency fluctuation and escalation in value, trade negotiations and economic growth in importing markets.

The renegotiation of NAFTA will disturb current trade with Mexico and Canada. The threat to overtax Mexican products by 20%, might have a direct effect on bilateral trade. In 2015 Mexican poultry imports from the U.S. excluding eggs-reached over US$ 1 billion.

The devaluation of the Mexican Peso versus the US$ might benefit Mexican imports from countries such as Argentina, Chile and Brazil in comparison to the United States. In January 2017, the value of the peso fell almost 20 percent compared to January 2016.

Regulations and Welfare

The appointment of Scott Pruitt as head of the EPA and possible increased industry focused policies, including an easing of regulations imposed by the previous Administration, might have a positive impact on poultry producers. However, the consumer-driven requirements are still leading the way as retailers and QSRs select their suppliers.

The enigma currently faced by producers is to decide on which aspects of welfare should be followed. Any reduction in density, a move to smaller-scale operations and using non-GM ingredients will demand more land and resources, consequently negatively affecting sustainability.

The new Veterinary Feed Directive (VFD) will also have an impact on operation procedures and costs, as companies adjust to the withdrawal of antibiotics growth promoters and adapt to natural alternatives.

Export Restrictions and Avian Influenza

Avian Influenza outbreaks in many nations in Asia, Africa and the European Union will play an important role in trade of U.S. poultry.  According to USDA, the egg export forecast has increased by 30 million dozen eggs following the H5N6 AI outbreak in South Korea.

The dissemination of recombinant HPAI strains by migratory birds will alter trade patterns affecting the outlook for Asia, Europe and Africa. Even with strains such as H5N8 possibly being eradicated in the EU, and H5N6 being controlled in a few more months in South Korea and Japan, there will be considerable potential for re-introduction of these and other recombinant strains.

The dissemination of AI, and its endemic situation in wild birds, will have a long-term impact on global markets and trade. AI creates business risks for companies which will now be required to adjust their business models, intensifying biosecurity and interacting with Federal, State and local governments.

Commodities

The 2016 corn (maize) harvest is projected to break records in yield and total production, according to the January 2017 World Agricultural Supply and Demand Estimates (WASDE) Number 561.

For the current season the U.S has harvested 175.3 bu/acre or 11.2 m.tons/Ha representing an estimated crop of 15,148 milion bu. or 385 million m. tons, which would be among the largest U.S. corn crops on record.

The soybean crop will attain 4,307 million bu. (117 million m. tons) yielding 34.1 million tons of soybean meal for domestic use and 11.6 million tons for export.

Argentina and Brazil also follow a strong trend in growth and should reach record quantities for corn production due the prospect of favorable weather and heavy planting in anticipation of domestic demand. Brazil is estimating a harvest of 215 million tons of grains, comprising over 108 million tons of soybeans, up 8.7% over 2016. Argentina, even with recent reports of floods, is estimating 36 million tons of corn and 55 million tons of soybeans.

The elevated production numbers, combined with China’s high stock, will pressure the commodities prices in the national and global market. Overall prices should hold close to the current $3.58/bu ($140/m. ton) for corn and $10.32/bu ($378/m. ton) for soybeans.

The poultry market and forecast

U.S. ready-to cook broiler and turkey production for 2017 are forecast at 18.898 million m. tons and 2.782 million m. tons respectively. The forecasts for 2017 prices were increased slightly for broilers and lowered for turkey as projected by the USDA.

As of January 2017, broilers achieved a slight increase in price, reaching 87 cents per pound ($1.91/kg) with a forecast range for the year of 80 to 86 cents per pound for whole birds.

With over 309 million hens in lay and a per capita consumption of 268 eggs in either shell or processed form, profitability will be dampened by over-production. U.S. producers anticipate an annual output of 7,400 million dozen with prices at or above production cost following seasonal fluctuation in price.

   
 

Kuwait Bans U.S. Raw Poultry then Reverses Decision

Feb 22, 2017

    

Inexplicably and without any scientific justification the Government of Kuwait placed a ban on U.S.- origin raw poultry.  The action is believed to be in response to the isolation of avian influenza from a single mallard duck in Montana in January.

According to a USAPEEC February 9th release, Kuwait has not previously placed a restriction on imports as a result of isolating avian influenza virus from migratory or free living birds.

  

Apparently Kuwait on reflection followed the world Organization of Animal Health guidelines relating to isolation of AI virus from wildlife surveillance and accepted regionalization allowing shipments from the Northeast, Southeast and South Central production areas.

   
 

The Broiler Industry in China – Challenges in Transition

Feb 17, 2017

    

In a presentation at the 2017 IPPE Dr. Mark Lyons, VP of Alltech shared his observations and experiences based on his residence in China over the past three years. In an introduction to his comments on the poultry industries of China Dr. Lyons noted the changes in the structure of society during the past fifteen years.  One of the most significant developments has been the shift in population from rural areas to cities involving relocation of over 300 million citizens. 

  

There are now180 cities in China with a population exceeding that of Chicago.  Industrialization has elevated over 400 million from poverty.  Changes have resulted in profound economic consequences.  Since 2008, labor cost has increased by 62 percent, raw materials have soared by 70 percent and the real estate boom has increased the price of property by 60 percent. Advancing earning power has changed the economy of China from an exporter to a consumer market.

The four evident trends promoted by the Government include self-sufficiency, improvements in quality, increasing scale of production and protection of the environment.  Concurrent with a campaign against corruption, the Government is enforcing food safety, modernization of agriculture and reduction of population.

Changes in food production have resulted in intensification.  In the two decades preceding the turn of the century, there were approximately 20,000 feed mills in operation.  During the last ten years there has been a marked move to integration with 6,000 feed mills many of which are financially connected to pork or poultry producers.  It is estimated that by 2020 the trend will extend through the food chain with integration within clearly defined market segments.

It is estimated that 8.8 billion broilers were produced in China in 2015. Production and domestic consumption are almost in balance at 18.3 million metric tons.  It is anticipated that by 2022, production will rise to 20.5 million metric tons to satisfy demand.

Unlike the U.S. and the EU, China effectively has two parallel broiler industries comprising both conventional white-feathered hybrids and the traditional “yellow bird” segments representing a unique situation.  The “yellow broiler” still retains popularity based on perceptions of taste and compatibility with traditional dishes.  The yellow bird is slow-growing, requiring approximately 100 days to reach a live weight of four pounds. 

The premium for this product compensates for the high cost of production both with respect to housing and feed.  As ingredients increase in price, the traditional bird will offer a progressively lower return.  In addition, the yellow bird is incompatible with mechanized processing and portioning to comply with Western-style QSRs which are becoming more important outlets for poultry, especially in relation to the demand by active and younger consumers.

Medium-growth broiler strains, roughly equivalent to the emerging “slow growing” broilers in the EU, require approximately 70 to 75 days to achieve market weight. These strains represent a compromise between the traditional yellow bird and high-efficiency hybrid breeding stock adopted by integrators following the U.S. model.

The white-feathered broiler industry has been the subject of recent scandals relating to allegations of adulteration of product and excessive administration of antibiotics.  The effects of negative publicity in part promoted by the national press agency Xinhau had a significant detrimental impact on QSRs including McDonald’s and YUM! Operations then owned by U.S. –based multinationals.  These enterprises have recently been divested and are owned by consortia comprising national investment groups.

A second issue relating to the white-feathered broiler segment relates to the self-inflicted problem of a shortage of parent breeding stock.  Since the inception of integration and fast growing broilers, China has relied on importation and multiplication from grandparent stock, operated by joint-venture enterprises and franchisees. Following the outbreak of avian influenza in 2015, China placed an embargo on importation of all live poultry and eggs from the U.S.  This was entirely unjustified given the presence of endemic avian influenza of diverse strains in China. 

The action was contrary to principles of the World Organization of Animal Health.  Failure to allow importation of breeding stock extending to the present, must be regarded as a measure to force primary breeders to supply great-grandparent stock which would provide China with a higher degree of self-sufficiency.  The interruption in supply of breeding stock from the U.S. and part-reliance on Australasia and the EU since 2015, has resulted in a decline in output and a shortage in supply of parent-level flocks. 

The magnitude of the reduction can be judged by the fact that in 2013, 1.5 million grandparent packages were imported compared to approximately 600,000 in 2017.  Discrimination against white-feathered broilers is partly due to xenophobia and a presumed desire on the part of officialdom to protect the yellow bird sector.

In addition to the presence of avian influenza strains impacting broiler livability and growth, the H7N9 avian influenza strain is infectious to humans having close contact with poultry.  There have been numerous cases of avian influenza infection in workers and consumers. Periodically authorities close wet markets, the major source of poultry consumed in villages and some urban areas. Coincident with outbreaks, consumption drops markedly and concurrently prices fall below the cost of production.  It is estimated that H7N9 infection has resulted in a loss of  over $6 billion to the poultry meat industry in China since 2013

   
 

South African Poultry Workers Protest against Imports

Feb 15, 2017

    

According to a February 2nd report by Reuters unionized workers and management marched in the capital of Pretoria to protest chicken imports from the EU and Brazil. Union organizers have convinced their rank and file that poultry producers in exporting countries are “dumping” product at prices below the cost of production.

  

It is noteworthy that management of the major broiler companies are in fact supporting their unionized workers in protesting against imports.  RCL Foods (previously known to the World’s industry as Rainbow Chickens) has reduced production by 50 percent at its major processing complex in Hammarsdale in the province of KwaZulu-Natal idling 1,350 workers.  The major competitor to RCL, Astral Foods also ascribes low profitability in the industry to imports.

In 2015, the Government of South Africa agreed to import 65,000 tons of chicken from the U.S. although less than one-third of this quantity was imported. The South African industry has been impacted by increasing labor and utility costs, low productivity and above all exceptionally high ingredient prices arising from the 2015 drought. 

The South African International Trade and Administration Commission will investigate allegations by the domestic poultry industry represented by the South African Poultry Association that dumping by the EU and Brazil is responsible for the current crisis. This is a tactic to delay compliance with agreements and WTO regulations.

The basis of the problem is the gross mismanagement of the economy of South Africa including rampant corruption which has reduced purchasing power of consumers. The ruling African National Congress party and the government are faced with a dilemma.  Obviously, they have an imperative to protect jobs and respond to the demands of unions.  On the other hand, protein is becoming increasingly expensive and will soon emerge as a “chicken in every pot” political issue since the ANC and an unpopular President resist pressure from both the left and the right of the political spectrum.

   
 

UK Consumers Have High Intake of Acrylamide

Feb 15, 2017

    

The Total Diet Study conducted in the United Kingdom by the Food Standards Agency has determined that acrylamide intake is excessive.  This compound is found in many foods and is considered to be a potential carcinogen.  The highest concentrations are found in cookies, potatoes and snacks. 

 

In 2015, scientists affiliated to Simplot the largest U.S. producer of potatoes developed a gene-silenced cultivar which did not undergo bruising and also had a lower acrylamide content when fried.  Immediately the product received approval, McDonald’s Corporation announced that it would not use the potato in its meals effectively preventing commercialization of a potentially beneficial ingredient.

The “Innate” variety would obviate potential wastage of 400 million pounds of potatoes annually. There is an obvious difference between genetic modification involving transgenesis, the insertion of genes from a different species and the process of gene silencing which does not alter genetic composition but suppresses the expression of genes which encode for deleterious effects.

   
 

Supermarkets Emphasize Expansion and Job Opportunities

Feb 8, 2017

    

Supermarket chains are attempting to avoid a “Presidential Tweet” by preemptively announcing expanding job opportunities.  In a Reuters release dated January 23rd, Kroger announced that it would fill 10,000 permanent positions supplementing the existing 431,000 full and part-time employees.  The Kroger workforce increased by 12,000 in 2016.

Wal-Mart Stores Inc. will create an additional 10,000 jobs in the U.S.  Pizza Hut which has plans to expand to 8,500 stores in the U.S. over the “next few years” will need an additional 11,000 employees for delivery and operation of stores according to Kelly McCulloch director of Human Resources for Pizza Hut a Yum! Brands division.

  

The jobs created in supermarkets and QSRs will probably range from minimum wage to low middle- income. An unknown factor will be the policy of the Trump Administration with regard to starting salaries since the nominee for Secretary of Labor has indicated his opposition to mandatory Federal minimum wage rates. Andrew Puzder has considerable experience in the QSR industry as the CEO of CKE restaurants, the parent company of Hardee’s and Carl’s Jr.

The confirmation hearing of Mr. Puzder will take place before the Senate, Health, Education, Labor and Pensions Committee. Opponents will raise a number of issues and his confirmation will depend on the Republican majority on the Committee followed by simple majority vote in the Senate.

   
 

Epidemiologist Warns of Potential for Human Infection with Avian Influenza

Feb 8, 2017

    

Dr. Michael Osterholm, a distinguished epidemiologist at the University of Minnesota, has warned of the danger to the human populations from the emergence of numerous recombinant strains of avian influenza spread over wide geographic areas. 

Avian influenza strain H5N1 which emerged in the late 1990’s has infected humans but is only measured in the 100’s of cases despite many billion-person days of exposure of people in Asia and North Africa over two decades.

  

Dr. Ian MacKay at the University of Queensland, Australia noted the number of new strains identified in migratory birds and commercial flocks represents “by definition an increased risk to humans.”  He added “you have more exposure to more farmers more often and in greater numbers in many parts of the World so there has to be an increased risk of spillover to humans.”

Strain H7N9 which is endemic in poultry raised in China has been responsible for 900 diagnosed cases in humans since 2013.  This strain is associated with infection of workers in wet markets and their customers.

The emergence of H5N8 in at least 21 nations of the EU and in addition India, Israel, Bangladesh and Kuwait is of concern.  Despite the fact that this infection is confined to poultry, widespread dissemination of the virus among large populations of birds could result in a mutation creating the potential for a pandemic.

Experts in influenza have urged intensified surveillance, and control measures. 

It is axiomatic that workers on poultry farms and in processing plant should be effectively immunized against prevailing human strains of influenza to limit the possibility of a recombinant event. This theoretically possible should they come into contact with avian strains of influenza in flocks or plants while infected with a human-adapted strain. 

Free-range poultry represent a danger of introducing infection to large populations since non-confined flocks are exposed to virus shed by migratory birds.  Most veterinary regulatory authorities in areas where avian influenza virus is isolated from migratory birds have recommended or enforced containment of flocks in bird-proof barns.

   
 

CHIPOTLE JUMPS ON THE SLOW GROWING BANDWAGON

Feb 8, 2017

    

Previously CHICK-CITE has commented on the environmental impact of slow-growing strains and the obvious disconnect between the concept and sustainability.

Chipotle Mexican Grille has announced that it intends sourcing chicken from slow-growing strains by 2024. In addition Chipotle will impose lower biomass standards (6 pounds per foot2) and will require improved lighting enrichments in houses and controlled atmosphere stunning.

  

The net result of this strategy will be to increase the cost of chicken purchased by the company which will have a negative impact on earnings. At a recent investment conference, representatives of Chipotle Mexican Grille ascribed lower earnings to an increase in the cost of avocados among other ingredients.

Management appears to be investing in sentiment and non-quantifiable improvements in welfare which lower margins in order to increase patronage among their ever declining cohort of supporters.  Many regular customers have abandoned the chain or are disaffected as a result of the improper response to multiple outbreaks of food borne disease. Other frequenters of the restaurant chain have been lured by competitors offering superior meals at a lower cost. 

It is possible that Steve Els who has close ties to HSUS and to Compassion in World Farming is burnishing his welfare credentials thereby misusing his position as president and CEO of the Company to advance his personal image and standing at the expense of his Company and his Shareholders.

The target date of 2024 is so far in the future that the commitment to “slow-growing” broilers is somewhat vacuous.  The probabilities are extremely high that none of the existing founder-Board Members or senior management of Chipotle Mexican Grille will be around after the turn of the decade.

   






















 
Copyright 2017 Simon M. Shane