How do markets respond to the Avian Influenza outbreaks? The differential impact on market participants: A Case study in Turkey

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Cory Tamsin Gallagher
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1 FAO Symposium: Market and Trade Dimensions of Avian Influenza Prevention and Control. 14 November 2006 Rome-Italy How do markets respond to the Avian Influenza outbreaks? The differential impact on market participants: A Case study in Turkey Prof.Dr. Cengiz Yalçın Ankara University Veterinary Faculty Department of Animal Health Economics and Management

2 Overview of Turkish Poultry Sector before the AI outbreak ( 2005): Place in the national economy (2005 statistics): Annual turnover of the poultry sector was around US$2,5-3billions. Approximately people works in poultry and its related sectors Production: Poultry meat production 1,062,000 tons/year 983,000 tons were commercial broiler and Turkey (93%) Average yearly growth rate between : 14.4% Table egg production: 9 billions (fluctuating between 7-12 billions across the years) Estimated Proportion of backyard poultry in the total poultry population: 3,1% Consumption: Turkish consumers mainly consume broiler meat and turkey in urban areas. Consumptions of other poultry meats are negligible. Broiler meat consumption 13 kg/person Consumption of spent hens and backyard poultry (estimated): 1kg/person Table egg consumption: 122 eggs/person (declining over the years). Export/Import 178 million eggs (124 millions table eggs)/17 millions breeding eggs Broiler: Negligable, but had a good potential to improve

3 Continued... Organizational Structure of the the Turkish Commercial Poultry Sectors Broiler and turkey Layers Type of integration Mainly vertical integrations Mainly horizontal integrations (cooperatives) Explanations Generally sectors 1 and 2 type Comprise: breeder units, hatcheries, feed mills and slaughterhouses Generally sectors 2 and 3 type Few vertically integrated firms recently Sizes of the operations in the Turkish poultry sector Average size of contracted Broiler farms 20,000 heads Proportion of layer farms >50,000 heads 65% Contribution of the largest 5 integrated 50% broiler firms to the total broiler production Contribution of the largest 15 integrated 80% broiler firms to the total broiler production

History of the AI Outbreak in Turkey The first outbreak: 05 th October 2005 in Balıkesir provice (quickly eradicated) The second outbreak: in 26 th December 2006 in Iğdır provice.

4 History of the AI Outbreak in Turkey The first outbreak: 05 th October 2005 in Balıkesir provice (quickly eradicated) The second outbreak: in 26 th December 2006 in Iğdır provice. Lasted 31 st of March The statistics related to the AI outbreaks in Turkey Total No of confirmed cases (30 in wild, 199 in backyard, 1 in commercial) 230 Total No of provinces with confirmed cases 53 Total No of birds dead from disease 6,510 Total No of birds culled 2,522,872 Total No of spent hens culled 13,500,000 Total No of Human cases (death in parenthesis) 12(4)

5 Government Measures on Combating and Prevention from the AI In the outbreak and surveillance zones: Stamping out all poultry Strict movement control Cleaning and disinfection of vehicles in outbreak areas Nationwide measures Increase of public awareness Banning wild birds hunting Prohibiting sales of live poultry (icluding spent hens) Establishing check points for the control of illegal movements Carrying out a serological surveys on backyard poultries, wild birds and commercial poultries. Strengthening veterinary diagnostic laboratories Improving cooperation amongst the Ministries (Agriculture,Internal Afairs,Health, Environment and Forestry)

6 Market impacts of the AI Outbreak in Turkey Data sources Type of information Broiler meat and table egg prices Broiler meat sales volumes Differential impacts of market participants (integrated firms, contracted broiler farms, layers, consumers) Other related industries (feed mills and veterinary product suppliers) Data source TURKSTAT Ankara Chambers of commerce, Preliminary results of the project Yalcin et al. (2006) Socio-economic Impacts of the Avian Influenza outbreaks the poultry sector, backyard poultry producers and consumers in Turkey The Feed Producers Association, The Veterinary Drug Suppliers Association

7 Market impacts of the AI Outbreak in Turkey: continued AI impacts on broiler prices Price (YTL/kg) 3,30 3,10 2,90 2,70 2,50 2,30 2,10 1,90 Jan Prices of broiler meats (real prices: Dec 2002=100) US$1=1,45YTL Feb Mar Apr May June July Aug Sep Oct Nov Dec Months Months Prices Index , , , , , , , , , , , , , , , , , , , , , ,

8 Market impacts of the AI Outbreak in Turkey: continued... AI impacts on sales volume of broiler meat Sales volumes (tonnes) Sales volume of broiler meat in the meat auction market in Ankara Jan Feb Mar Apr may June July Aug Months Sep Oct Nov Dec Months Sales (tonnes Index Source: Ankara Chamber of commerce

9 Market impacts of the AI Outbreak in Turkey: continued... AI impacts on prices of table egg Price (YTL) 0,150 0,140 0,130 0,120 0,110 0,100 0,090 0,080 0,070 0,060 Consumer prices of table eggs (real prices) Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Months Months Price Index , , , , , , , , , , , , , , , , , , , , , ,

10 Differential impacts of the AI in different market participants: continued Impacts of the AI on Integrated Broiler firms (3 firms: market share:25,4%) % Change during AI (01Oct Jan2006) % Change after AI (01Feb April2006) No of breeding hens Production of concentrated feed Capacity use of slaughterhouses Total enterprise incomes Exports of poultry products Broiler meats in the cold storages Interests paid for loan Unpacked broiler sales Number of contracted enterprises Capacity use in the contracted farms Payments of contracted producer (per kg meat) firms went to bankrupt, 4 of which were due to the AI crisis.

11 Differential impacts of the AI in different market participants: 2- Contracted broiler producers (117 farms) Impact of the AI Crisis on the contracted broiler producers (117 Producers) Before the AI (1Oct May2005 After the AI (1Oct May2006) Number of Broilers produced (heads) ,5 Number of cycle 3,9 2,7-29,5 Income from poutry production ,1 %change 3- Impacts of the AI on table egg producers (12 producers): Before AI During AI After AI % Chage During AI % Chage During AI Number of layer hens Average age at culling (weeks) Total debts Average income from the poultry business

12 Differential impacts of the AI in different market participants: continued Impacts of rural families (village/backyard producers) Livelihood, Nutrituon, and psychology of rural families (35% of the population) have been negatively affected by the AI outbreaks.

13 Differential impacts of the AI in different market participants: continued Consumer perceptions towards the crisis Results of Web Based Consumer survey on the Avian Influenza Number of respondent 189 % male 73 % Married 62 % University graduate 89 % of respondants stopped or reduced consumption of poutry products 68 % of respondants having sufficienf info about the AI 68 % of respondants considering the official information unreliable 24 % of respondants considering the info. at newspapers unreliable 40 % of respondents started consuming the products by March % of respondents started consuming the products by June % Increase in the branded products in broiler meat 12 % Increase in the branded products in table egg 25

14 Impacts of the AI in the related industries 1- Impacts of the AI on poultry feed mills: Change in the production of 50 Largest Poutry Feed Mill in Turkey Months %Change January ,9 February ,4 March ,7 April ,9 May ,7 June ,3 July ,0 August ,4 September ,9

15 Impacts of the AI in the related industries: continued Impacts of the AI on Veterinary drug and vaccine provides Sales of veterinary products to the poutry sector ( 000 YTL) Before the AI Crisis ( ) During the AI Crisis ( After the AI crisis ( ) % Change during AI % Change after AI Disenfectants Vaccines Drugs Vitamins Feed additives Total

16 Government compensation Type of support All taxes were postponed for 6 months Electricity bills postponed until the end of 2006 Loan with a lower interest rate Spent hens over 60 weeks-old were culled and paid 1.1 YTL for each. Birds in areas of quarantine and surveillance zones were culled, and compensation is paid Utilisation Mainly integrated firms Integrated firms and layers and few contracted broiler producers All commercials Layers Village backyard producers

17 Concluding Remarks (1) Summary of the impact of AI in Turkey 1) Overall: Only two month of panic has shown that, long lasting AI outbreaks causing human death would cause devastating effects on the poultry sector and its related industries (both upstream and downstream); consequently in the national economy as a whole. 2) The Integrated firms: Negatively affected during the outbreak periods, but have been quickly recovering. Several medium scale semi-integrated and integrated firms went to bankrupt. However, survivors are likely to become better off in the future. Firms invested in brand development have become better off. Collaborations amongst integrated firms are improved (establishment of Healthy Chicken Meat Platform by the largest 19 integrated firms). Industry increased their sales volumes in the rural markets

18 Concluding Remarks (2) 3) The Contracted broiler producers On average they lost 1 cycle. Most of them are operating now. Negative impacts on integrated firms are directly transferred to the contracted producers. The government tends to neglect them when supporting the industry. 4) The layers After culling of 13,5 million spent hens, most of the producers have not re-stocked due to the unclear picture in the market, Those producing eggs, expanding their sales in the rural areas and enjoying high egg prices. 5) Backyard producers Psychology, nutrition and income of rural families have been severely affected. They have not re-stocked yet. Therefore, the problems are still continue.

19 Concluding Remarks (3) Consumers: During the crisis, they lowered the protein intake, and paid higher price for the substitute protein sources (red meat and fish). But now, enjoying better quality and safer poultry products The Government Had a good experience on how to manage contagious animal diseases. Realised that media communication/management is the most important area in the management of contagious animal diseases.

AVIAN INFLUENZA (AI)

REPUBLIC OF TURKEY MINISTRY OF AGRICULTURE AND RURAL AFFAIRS GENERAL DIRECTORATE OF PROTECTION AND CONTROL AVIAN INFLUENZA (AI) SITUATION IN TURKEY AND LESSONS LEARNED By H. Haluk A KARO LU Section Director