Required Report - public distribution

**Date:** 2/1/2006

**GAIN Report Number:** HK6001

HK0000

**Hong Kong**

**Poultry and Products**

**Semi-Annual Report**

**2006**

**Approved by:**

![](media/image1.wmf)David Wolf

U.S. Consulate General, Hong Kong

**Prepared by:**

Caroline Yuen

**Report Highlights:**

Hong Kong reported no cases of avian influenza (AI) in 2005. The U.S. in
2005 exported \$52 million of chicken products plus \$64 million of
chicken feet to Hong Kong. A challenge for U.S. poultry products
destined for Hong Kong in 2006 will be continuing competition,
especially price competitive products from Brazil. Also, Hong Kong's new
certification requirement for U.S. chicken feet has contributed to a
decline in U.S. export value in this market. However, Hong Kong
consumers have great confidence in U.S. products in terms of quality and
food safety. U.S. exports to Hong Kong is forecast to increase by 6
percent reaching 35,000 MT in 2006 (excluding chicken feet and
re-exports)

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Hong Kong \[HK1\]

\[HK\]

Table of Contents

[Situation and Outlook 3](#situation-and-outlook)

[Statistical Table -- Poultry, Meat, Chicken
4](#statistical-table-poultry-meat-chicken)

[PS & D Table 4](#ps-d-table)

[Table 1: Production of Live Chicken
5](#table-1-production-of-live-chicken)

[Table 2: Average Retail Prices of Chicken Relative to Pork and Beef
(freshly slaughtered)
5](#table-2-average-retail-prices-of-chicken-relative-to-pork-and-beef-freshly-slaughtered)

[Table 3: Average Retail Prices of Chicken Relative to Pork and Beef
(frozen) HK\$
5](#table-3-average-retail-prices-of-chicken-relative-to-pork-and-beef-frozen-hk)

[Table 4: Hong Kong Chicken Imports in Value by Major Suppliers
6](#table-4-hong-kong-chicken-imports-in-value-by-major-suppliers)

[Table 5: Hong Kong Chicken Imports in Quantity by Major Suppliers, MT
6](#table-5-hong-kong-chicken-imports-in-quantity-by-major-suppliers-mt)

[Table 6: Average C.I.F. Prices of Chicken Products by Major Suppliers
6](#table-6-average-c.i.f.-prices-of-chicken-products-by-major-suppliers)

[Table 7: Chicken Re-exports by Major Destinations
7](#table-7-chicken-re-exports-by-major-destinations)

[Table 8: Chicken Re-exports by Major Destinations, MT
7](#table-8-chicken-re-exports-by-major-destinations-mt)

[Table 9: Hong Kong Chicken Imports by Categories in Value, US\$ million
7](#table-9-hong-kong-chicken-imports-by-categories-in-value-us-million)

[Table 10: Hong Kong Chicken Imports by Categories in Volume, MT
7](#table-10-hong-kong-chicken-imports-by-categories-in-volume-mt)

[Table 11: Hong Kong Chicken Re-exports by Categories in Volume, MT
8](#table-11-hong-kong-chicken-re-exports-by-categories-in-volume-mt)

[Table 12: Hong Kong Retained Chicken Products by Categories, MT
8](#table-12-hong-kong-retained-chicken-products-by-categories-mt)

[Table 13: U.S. Chicken Exports to Hong Kong by Categories in Value,
US\$ million
8](#table-13-u.s.-chicken-exports-to-hong-kong-by-categories-in-value-us-million)

[Table 14: U.S. Chicken Exports to Hong Kong by Categories in Volume, MT
8](#table-14-u.s.-chicken-exports-to-hong-kong-by-categories-in-volume-mt)

[Table 15: U.S. Chicken Exports to Hong Kong being Re-exported, MT
9](#table-15-u.s.-chicken-exports-to-hong-kong-being-re-exported-mt)

[Table 16: Hong Kong's Retained Imports of U.S. Chicken Products, MT
9](#table-16-hong-kongs-retained-imports-of-u.s.-chicken-products-mt)

[Narrative on Supply and Demand, Policy & Marketing
9](#narrative-on-supply-and-demand-policy-marketing)

[Production 9](#production)

[Consumption 10](#consumption)

[Trade 11](#trade)

[Policy 14](#policy)

[Annex 3: Proposed Organization of Health, Welfare and Food Bureau after
Reorganization
17](#annex-3-proposed-organization-of-health-welfare-and-food-bureau-after-reorganization)

# Situation and Outlook

In 2005, Hong Kong had an import market of \$385 million worth of
chicken products, plus \$72 million worth of live chickens and \$137
million of chicken feet. About 26 percent and 51 percent respectively of
chicken products and chicken feet were re-exported.

Hong Kong's imports of chicken products in 2006 and beyond are predicted
to inevitably decline as a result of the trend of increasing direct
shipment to China. However, when re-exports are excluded, 2006 imports
are expected to rise slightly by 1 percent to 226,000 MT because Hong
Kong has been stocked with chicken products which have not been able to
be re-exported to China. (Because of AI outbreaks in China, some traders
voiced concern that demand for chicken products in China have been
reduced, and re-export trade to China as well as movement of chicken
shipments between provinces have not been smooth.)

In 2005, U.S. chicken products have not yet been able to recover from
its previous leading position of market share in Hong Kong despite the
government's lifting of its 3-month ban of U.S. poultry in April 2004.
The U.S. accounted for 33 percent (\$121 million) of the market share in
2003 but declined to 13 percent (\$52 million) in 2005. Brazilain
products have been extremely price competitive. One salient point is
that Hong Kong traders started to buy more expensive parts from Brazil
such as two-joint wings which are retained for domestic consumption. In
the past, the only most popular Brazilian parts were 3-joint wings which
were re-exported to China.

However, the U.S. is a non-AI infected area and Hong Kong consumers have
good confidence in U.S. products in terms of quality and food safety.
U.S. products are advantaged in this regard particularly when China
suffers from AI outbreaks. Therefore, U.S. exports to Hong Kong are
expected to rise by 6 percent amounting to 35,000 MT in 2006. U.S.
exported 33,000 MT of chicken products to Hong Kong in 2005 (excluding
chicken feet and re-exports).

Hong Kong's consumption of chicken rose 5 percent in 2005 after Hong
Kong banned chicken supplies from AI infected countries namely the U.S.
and China for a few months in 2004. Another reason for the increased
consumption is the fact that many products that should have been
re-exported to China are stuck in Hong Kong. In order to prevent total
loss, traders tend to dump the products in the local market.

Hong Kong's chicken consumption is closely linked to AI development in
China, which is a major supplier for live chickens and chicken products.
In November 2005, Hong Kong's chicken consumption plummeted
significantly resulting from the news of AI human infection cases in
China. The importation of both live chickens and chilled/frozen chickens
slid. However, the Hong Kong market has already digested the fact of
human infection AI cases in China. Given the impending Chinese new year
which is a typical peak season for chicken consumption, consumers'
confidence in chicken consumption has been largely recovered. The 2006
forecast is a modest rise of 1 percent, yet it could drop significantly
if AI outbreaks get more serious in China.

Hong Kong currently has banned imports of live birds and poultry
products from 14 countries including China because of reported AI cases.
Out of the 13 provinces/autonomous regions from China which are subject
to Hong Kong's import restriction, only Liaoning Province is a key
poultry supplying area for Hong Kong. About 14 percent of Hong Kong's
poultry imports from China came from Liaoning Province in 2005. However,
importers revealed that they are able to source substitutes from other
places such as Shandong Province with no difficulties. Imports from
China have declined since October 2005 and may well be attributed to
contracted demand rather than shortage of supply.

(Note: Two dead birds, Oriental Magpie Robin, found respectively on
January 10 and 26 in the sub-urban areas of Hong Kong were confirmed to
be H5N1 positive after a series of laboratory tests. As a safety
measure, the Hong Kong government carried out inspection of some 18
chicken farms within five kilometers of where the birds were found.
Surveillance of wild birds in the area has also been stepped up.
According to a Hong Kong spokesman, the existence of H5N1 virus in 2
dead birds might be an indication that the virus exists in the natural
environment in Hong Kong.)

# Statistical Table -- Poultry, Meat, Chicken

## PS & D Table

+--------------------+-----+-----+-----+-----+-----+-----+--------+
| **Commodity**      |     |     |     |     |     |     |        |
|                    |     |     |     |     |     |     |        |
| **Poultry, Meat,   |     |     |     |     |     |     |        |
| Broiler**          |     |     |     |     |     |     |        |
|                    |     |     |     |     |     |     |        |
| **(1000 MT)(MIL    |     |     |     |     |     |     |        |
| HEAD)**            |     |     |     |     |     |     |        |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
|                    | 2   | R   | 2   | Es  | 2   | Fo  | UOM    |
|                    | 004 | evi | 005 | tim | 006 | rec |        |
|                    |     | sed |     | ate |     | ast |        |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
|                    | U   | P   | U   | P   | U   | P   |        |
|                    | SDA | ost | SDA | ost | SDA | ost |        |
|                    | Of  | Es  | Of  | Es  | Of  | Es  |        |
|                    | fic | tim | fic | tim | fic | tim |        |
|                    | ial | ate | ial | ate | ial | ate |        |
|                    | \   | \   | \   | \   | \   | \   |        |
|                    | [Ol | [Ne | [Ol | [Ne | [Ol | [Ne |        |
|                    | d\] | w\] | d\] | w\] | d\] | w\] |        |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Market Year Begin  |     | 0   |     | 0   |     | 0   | M      |
|                    |     | 1/2 |     | 1/2 |     | 1/2 | M/YYYY |
|                    |     | 004 |     | 005 |     | 006 |        |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Inventory          | 2   | 2   | 2   | 3   | 2   | 2   | (MIL   |
| (Reference)        |     |     |     |     |     |     | HEAD)  |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Slaughter          | 17  | 17  | 22  | 22  | 22  | 22  | (MIL   |
| (Reference)        |     |     |     |     |     |     | HEAD)  |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Beginning Stocks   | 0   | 0   | 15  | 15  | 0   | 8   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Production         | 29  | 29  | 38  | 39  | 38  | 39  | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Whole, Imports     | 0   | 0   | 0   | 0   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Parts, Imports     | 244 | 244 | 230 | 224 | 246 | 226 | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Intra EC Imports   | 0   | 0   | 0   | 0   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Other Imports      | 0   | 0   | 0   | 0   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| TOTAL Imports      | 244 | 244 | 230 | 224 | 246 | 226 | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| TOTAL SUPPLY       | 273 | 273 | 283 | 278 | 284 | 273 | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Whole, Exports     | 0   | 0   | 0   | 0   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Parts, Exports     | 0   | 0   | 0   | 0   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Intra EC Exports   | 0   | 0   | 0   | 0   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Other Exports      | 0   | 0   | 0   | 0   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| TOTAL Exports      | 0   | 0   | 0   | 0   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Human Consumption  | 258 | 258 | 283 | 270 | 284 | 273 | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Other Use, Losses  | 0   | 0   | 0   | 0   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Total Dom.         | 258 | 258 | 283 | 270 | 284 | 273 | (1000  |
| Consumption        |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| TOTAL Use          | 258 | 258 | 283 | 270 | 284 | 273 | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Ending Stocks      | 15  | 15  | 0   | 8   | 0   | 0   | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| TOTAL DISTRIBUTION | 273 | 273 | 283 | 278 | 284 | 273 | (1000  |
|                    |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+
| Calendar Yr. Imp.  | 56  | 56  | 47  | 33  | 0   | 35  | (1000  |
| from U.S.          |     |     |     |     |     |     | MT)    |
+--------------------+-----+-----+-----+-----+-----+-----+--------+

Note: Re-exports are taken from Imports and Exports refer to domestic
exports. Slaughter (Reference) does not include the importation of live
chickens that are less than 185 grams. All figures above do not include
chicken feet/paws.

## Table 1: Production of Live Chicken

  ----------- ------------ ------------ ------------ ------------ ------------
  (Number)    2002         2003         2004         2005         05/04 %
                                                                  change

  Local       8,604,000    10,154,000   7,821,054    11,676,000   49%
  Supply                                                          

  Import      27,119,047   23,779,281   9,307,874    10,560,849   13%

  Total       35,723,047   33,933,281   17,128,928   22,236,849   30%
  ----------- ------------ ------------ ------------ ------------ ------------

Source : Hong Kong Agriculture, Fisheries and Conservation Department

## Table 2: Average Retail Prices of Chicken Relative to Pork and Beef (freshly slaughtered)

+-----------------+-------+-------+-------+-------+-------+----------+
| US\$/kg         | 2000  | 2001  | 2002  | 2003  | 2004  | 2005     |
|                 |       |       |       |       |       |          |
|                 |       |       |       |       |       | Jan --   |
|                 |       |       |       |       |       | Oct.     |
+-----------------+-------+-------+-------+-------+-------+----------+
| Chicken (top    | \     | \     | \     | \     | \     | \$5.62   |
| grade)          | $4.49 | $4.60 | $4.58 | $4.22 | $5.60 |          |
+-----------------+-------+-------+-------+-------+-------+----------+
| Beef (best      | \     | \     | \     | \$7.2 | \     | \$7.31   |
| quality)        | $7.17 | $7.20 | $7.15 |       | $7.17 |          |
+-----------------+-------+-------+-------+-------+-------+----------+
| Beef (belly     | \     | \     | \     | \     | \     | \$5.54   |
| flesh)          | $5.34 | $5.36 | $5.35 | $5.45 | $5.47 |          |
+-----------------+-------+-------+-------+-------+-------+----------+
| Pork (best cut) | \     | \     | \     | \     | \     | \$4.27   |
|                 | $4.87 | $4.54 | $4.26 | $4.10 | $4.03 |          |
+-----------------+-------+-------+-------+-------+-------+----------+
| Pork Chop       | \     | \     | \     | \     | \     | \$5.06   |
|                 | $5.92 | $5.58 | $5.18 | $4.89 | $4.82 |          |
+-----------------+-------+-------+-------+-------+-------+----------+

Source: Hong Kong Census & Statistics Department

Exchange Rate: US\$1=HK\$7.75

## Table 3: Average Retail Prices of Chicken Relative to Pork and Beef (frozen) HK\$

  ----------------------- ----------------------- -----------------------
  Product Categories      Origin                  Retail Price

  Chicken                                         

  Mid-joint wings         U.S.A.                  HK\$45.00/4 lbs

  Legs                    U.S.A.                  HK\$8.00/lb

  Drumstick               U.S.A.                  HK\$45.00/5 lbs

  Whole Wing              Brazil                  HK\$50.00/5 lbs

  Boneless Leg (Skin-on)  China                   HK\$50.00/2 kg

  Boneless Breast         China                   HK\$50.00/2 Kg
  (Skin-off)                                      

  Whole Chicken (1600 gm) Brazil                  HK\$27.00 each

  Whole Chicken (800 gm)  Brazil                  HK\$16.00 each

                                                  

  Beef                                            

  CAB Tenderloin          Canada                  HK\$128.00 /lb

  CAB Rib Eye             Canada                  HK\$128.00/lb

  CAB Striploin           Canada                  HK\$80/lb

  Tenderloin              New Zealand             HK\$48/lb

  Sirloin (P.S)           New Zealand             HK\$38/lb

  Rib Eye (P.S.)          New Zealand             HK\$48/lb

  Beef Finger             Canada                  HK\$24/lb

                                                  

  Pork                                            

  Loin                    Brazil                  HK\$17.60/lb

  Sparerib                Brazil                  HK\$17.60/lb

  Butt                    Brazil                  HK\$19.60/lb
  ----------------------- ----------------------- -----------------------

Source: A retailer

*(All the figures below include re-exports but exclude chicken feet)*

*(2005 figures are estimates based on Jan -- Nov statistics)*

## Table 4: Hong Kong Chicken Imports in Value by Major Suppliers

  ------------- ---------- ------- ------- -------- -------- -------- --------
                Millions                                     \% Share 
                of US                                                 
                Dollars                                               

  Country       2003       2004    2005    \%       2003     2004     2005
                                           change                     

                                                                      

  \--The        365        332     385     16%      100%     100%     100%
  World\--                                                            

  Brazil        120        133     151     14%      33%      40%      39%

  China         59         80      124     55%      16%      24%      32%

  United States 121        68      52      -24%     33%      20%      13%

  France        11         12      10      -12%     3%       3%       3%

  Thailand      20         11      13      17%      5%       3%       3%

  United        10         6       8       28%      3%       2%       2%
  Kingdom                                                             

  Canada        5          5       5       4%       1%       1%       1%
  ------------- ---------- ------- ------- -------- -------- -------- --------

## Table 5: Hong Kong Chicken Imports in Quantity by Major Suppliers, MT

## 

  ------------- --------- --------- --------- -------- -------- -------- --------
                                                                \% Share 

  Country       2003      2004      2005      \%       2003     2004     2005
                                              change                     

  \--The        409,950   310,676   303,035   -2%      100%     100%     100%
  World\--                                                               

  Brazil        136,751   123,972   118,046   -5%      33%      40%      39%

  United States 158,068   82,613    52,681    -36%     39%      27%      17%

  China         41,838    55,666    82,763    49%      10%      18%      27%

  France        13,464    11,796    8,425     -29%     3%       4%       3%

  United        13,627    6,535     7,445     14%      3%       2%       2%
  Kingdom                                                                

  Canada        7,404     6,319     6,641     5%       2%       2%       2%
  ------------- --------- --------- --------- -------- -------- -------- --------

##  

## Table 6: Average C.I.F. Prices of Chicken Products by Major Suppliers

  -------------- ------------- -------------- -------------- --------------
  Country        -/ KG - 2002  -/ KG - 2003   -/ KG - 2004   -/ KG 2005

  \--The         0.84          0.89           1.07           1.27
  World\--                                                   

  Brazil         0.86          0.88           1.07           1.28

  United States  0.73          0.76           0.82           0.98

  China          1.43          1.42           1.44           0.98

  France         0.91          0.85           0.98           1.21

  United Kingdom 0.72          0.71           0.95           1.06

  Canada         0.7           0.69           0.78           0.77

  Thailand       1.82          1.36           2.74           2.92
  -------------- ------------- -------------- -------------- --------------

## Table 7: Chicken Re-exports by Major Destinations

  ------------ ---------- -------- -------- -------- -------- -------- --------
               Millions                                       \% Share 
               of US                                                   
               Dollars                                                 

  Country      2003       2004     2005     \%       2003     2004     2005
                                            change                     

                                                                       

  \--The       187        58       78       34%      100%     100%     100%
  World\--                                                             

  China        174        43       37       -14%     93%      75%      48%

  Vietnam      1          7        0        -95%     0%       11%      0%

  Macau        7          6        7        22%      4%       10%      9%

  Taiwan       5          1        33       3088%    2%       2%       42%
  ------------ ---------- -------- -------- -------- -------- -------- --------

## Table 8: Chicken Re-exports by Major Destinations, MT

  ---------- ------ ---------- ---------- --------- -------- ------ ------- -------
                                                    \%              \%      
                                                    Change          Share   

  Country    2003              2004       2005      \- 05/04 2003   2004    2005
                                                    -                       

  \--The            255,890    66,675     78,988    18%      100%   100%    100%
  World\--                                                                  

  China             242,467    50,138     37,705    -25%     95%    75%     48%

  Vietnam           1,001      9,303      447       -95%     0%     14%     1%

  Macau             5,840      4,073      4,479     10%      2%     6%      6%

  Taiwan            5,926      1,963      36,274    1748%    2%     3%      46%
  ---------- ------ ---------- ---------- --------- -------- ------ ------- -------

## Table 9: Hong Kong Chicken Imports by Categories in Value, US\$ million

  ------------------- ------------ ------------- ------------- ------------
                      2003         2004          2005          \% change

  Chicken             365          332           385           16%

  chicken wings       194          169           183           8%

  chicken frozen cuts 93           72            82            13%

  chicken, whole      43           57            74            30%

                                                               

  chicken feet        191          152           137           -10%
  ------------------- ------------ ------------- ------------- ------------

## Table 10: Hong Kong Chicken Imports by Categories in Volume, MT

  ------------------- ------------ ------------- ------------- ------------
                      2003         2004          2005          \% change

  Total Chicken       409,950      310,676       303,035       -2%

  chicken wings       231,574      178,287       156,559       -12%

  chicken frozen cuts 110,907      66,971        67,417        1%

  chicken, whole      33,154       41,118        49,090        19%

                                                               

  chicken feet        301,837      217,170       188,415       -13%
  ------------------- ------------ ------------- ------------- ------------

## Table 11: Hong Kong Chicken Re-exports by Categories in Volume, MT

## 

  ------------------------ ---------- ---------- ---------- --------------
                           2003       2004       2005       \% change

  Chicken                  255,890    66,675     78,989     18%

  chicken wings            165,995    45,207     61,557     36%

  chicken frozen cuts      58,541     15,936     7,286      -54%

  chicken, whole           4,923      748        298        -60%

                                                            

  chicken feet             262,994    66,575     96,959     46%
  ------------------------ ---------- ---------- ---------- --------------

## Table 12: Hong Kong Retained Chicken Products by Categories, MT

## 

  ------------------- ------------ ------------- ------------- ------------
                      2003         2004          2005          \% change

  Chicken             154,061      244,000       224,046       -8%

  chicken wings       65,579       133,080       95,002        -29%

  chicken frozen cuts 52,366       51,035        60,131        18%

  chicken, whole      28,231       40,370        48,791        21%

                                                               

  chicken feet        38,843       150,595       91,455        -39%
  ------------------- ------------ ------------- ------------- ------------

## 

## Table 13: U.S. Chicken Exports to Hong Kong by Categories in Value, US\$ million

  ----------------------- ------------ ------------ ---------- -----------
                                                               

                          2003         2004         2005       \% change

  Chicken                 121          68           52         -31%

  chicken wings           57           39           31         -21%

  chicken frozen cuts     52           22           16         -28%

  chicken, whole          2            1            0          -60%

                                                               

  chicken feet            127          85           64         -25%
  ----------------------- ------------ ------------ ---------- -----------

## 

## Table 14: U.S. Chicken Exports to Hong Kong by Categories in Volume, MT

##  

  ---------------------- ------------ ----------- ---------- --------------
                         2003         2004        2005       \% change

  Chicken                158,068      82,613      52,680     -36%

  chicken wings          70,954       49,095      30,400     -38%

  chicken frozen cuts    71,260       26,767      17,252     -36%

  chicken, whole         2,457        844         295        -65%

                                                             

  chicken feet           186,724      120,848     87,290     -28%
  ---------------------- ------------ ----------- ---------- --------------

## Table 15: U.S. Chicken Exports to Hong Kong being Re-exported, MT

## 

  ------------------------ ---------- ---------- ---------- ---------------
                           2003       2004       2005       \% change

  Chicken                  114,911    26,822     19,222     -28%

  chicken wings            51,969     13,271     13,297     0%

  chicken frozen cuts      46,898     11,359     3,712      -67%

  chicken, whole           3,905      572        0          -100%

                                                            

  chicken feet             170,571    29,516     37,720     28%
  ------------------------ ---------- ---------- ---------- ---------------

## Table 16: Hong Kong's Retained Imports of U.S. Chicken Products, MT

##  

  --------------------- ----------- ----------- ---------- ----------------
                        2003        2004        2005       \% change

  Chicken               43,158      55,791      33,458     -40%

  chicken wings         18,985      35,824      17,103     -52%

  chicken frozen cuts   24,362      15,408      13,540     -12%

  chicken, whole        -1,448      272         295        8%

                                                           

  chicken feet          16,153      91,331      49,571     -46%
  --------------------- ----------- ----------- ---------- ----------------

Source : Hong Kong Census & Statistics Department

# Narrative on Supply and Demand, Policy & Marketing

## Production

Though there are outbreaks of Avian Influenza cases in various parts of
the world in the past few months, there have been no AI cases reported
in Hong Kong. The Hong Kong government early last year worked out a
contingency plan in response to outbreaks of avian influenza in poultry
in local farms and retail markets. The Hong Kong government restated
that the plan remained unchanged. In the event of two confirmed H5N1
cases in local poultry farms, the government will terminate all local
live poultry trade on a compulsory basis. Also, when there are two
confirmed H5N1 cases in retail markets, all live poultry in Hong Kong's
retail markets will be culled.

Hong Kong government officials have always said they have done as much
as they could to prevent AI. As such, there have not been any
significant changes in production policy since this last report. In view
of the mounting pressure of the risks of AI outbreaks, the Hong Kong
government nonetheless has made the following two changes in November
2005.

First, a free avian influenza vaccination program for backyard poultry
is offered. Second, the three duck farms remaining in Hong Kong are
required to have bird-proof facilities. Currently, there is compulsory
vaccination for all imported and local chickens and all chicken farms
are required to provide shed-proof facilities in order to prevent wild
bird droppings from contacting the stock.

When the government launched the farm-license buy-back scheme in August
last year, there were 147 farms with a 3.7 million chicken capacity
allowed. In the past five months, over 20 licenses were returned to the
government. About 120 farms are still in operation with a capacity of
3.2 million chickens. This is still far above the government's target of
reducing the number of chickens to 2 million by the end of 2005. It is
not known at this moment whether the government will take any measure to
cut the number to 2 million. However, the government has set August 2006
as the deadline for the voluntary license buy-back scheme, it is very
possible that many farmers would wait for the last minute before they
are willing to return the license and obtain the cash compensation.

The current production of chickens in Hong Kong has been very
consistent, amounting to approximately 60,000 head per day, with imports
and local farms each supplying 30,000 head. The government setting this
import limit is based on the rationale that the retail markets can
accommodate this amount and that overcrowded situations will give rise
to the risks of an AI outbreak.

Since Hong Kong banned importation of live chickens from China between
January and April, 2004, the production of live chickens (table 1) in
2005 increased by 30 percent over 2004. With the supply limit imposed by
the Hong Kong government, it is very unlikely that production in 2006
will rise. On the other hand, production will drop significantly in case
AI outbreaks in China become uncontrollable or spread to Guangdong
province, which supplies all Hong Kong's live chicken imports.

## Consumption

Hong Kong's consumption of chicken, particularly live chicken, plummeted
in mid November when news of human AI cases in China was widely reported
in Hong Kong. China supplies almost half of Hong Kong's total live
chicken consumption while the rest are supplied locally. The sporadic
outbreaks of AI cases in birds in various provinces of China did not
significantly impact Hong Kong consumers' confidence in chicken
consumption. The news of human infection, however, rocked the retail
market. The wholesale price of live chickens dropped tremendously from
the normal price of HK\$12/catty (US\$2.6/kg) to HK\$4/catty
(US\$0.87/kg). The market remained sluggish over 20 days. The market
gradually recovered towards the end of December. The current wholesale
price (January 2006) is around HK\$10/catty (US\$2.2/kg). The table
below shows that live chicken supplies began to decline in October but
dropped significantly in November. The decline in supplies was due to
consumer confidence.

Table : Hong Kong Live Chickens and Retained Chilled and Frozen Chicken
Products

  ------------------------- ------------ ------------ ------------ ------------ -----------
                            **Aug 2005** **Sept       **Oct 2005** **Nov 2005** **Nov/Sep
                                         2005**                                 %**

  Total Live Chicken        1,931,030    2,007,861    1,781,810    1,399,670    -30%
  Supplies (Number)                                                             

  Local Supplies (Number)   1,067,700    1,050,100    903,200      637,800      -39%

  Imports (Number)          863,330      957,761      878,610      761,870      -20%

                                                                                

                                                                                

  Retained Chicken          16,677,198   16,754,639   20,798,382   16,072,232   -4%
  (Retained) Kg                                                                 
  ------------------------- ------------ ------------ ------------ ------------ -----------

The retained chicken meat products also declined in November but not as
dramatically as the frozen chicken supplies. Brazil, China and the U.S.
are the three largest suppliers of frozen chicken products and Brazil
and U.S. are non-AI infected areas. Consumer confidence in frozen
chickens was not as negatively affected as in live chickens.

There were different factors at play regarding the consumption of frozen
chicken products. First, some restaurants have changed their menu from
chicken to other meats when HRI sectors considered consumers' AI
concern. Once menus are changed, it takes time to switch menus back
again to chicken. Second, the market was also affected by weak re-export
sales to China in the past few months. When products could not find
buyers in China, they became stuck and sold in Hong Kong at very
competitive prices. Third, high-end retail outlets selling premium
chicken meat products did not experience any significant decline in
retail sales of American chicken products. Fourth, in ordinary retail
outlets where the origin of frozen products is not well labeled, the
overall sales of chicken products declined.

Hong Kong's consumption of chicken products in 2006 is expected to show
modest rise, reaching 273 MT, provided that Hong Kong does not have any
AI cases. Hong Kong being a mature market should not experience any
drastic demand change for meats. (Chicken consumption in 2004 was about
5 percent lower than 2005. This was the result of Hong Kong's ban on
live chicken and chicken products from China and the U.S. in early 2004
because of AI cases, resulting in consumption at that time being
severely affected. )

However, the consumption, particularly live chicken, will depend very
much on the development of AI outbreaks in China. If the neighboring
province, Guangdong, has AI outbreaks, both supplies and confidence will
be adversely affected. Guangdong is the major supplying area for live
chickens and chilled whole chickens. Any AI outbreak there, according to
the existing policy, will lead to Hong Kong government's ban on chicken
product exports to the territory.

## Trade

Hong Kong had a chicken product market of over \$385 million (303,035
MT) in 2005, plus \$137 million (188,415 MT ) worth of chicken feet.

Change in Market Share

A significant point worth mentioning is Brazil's overtaking the U.S. as
the largest supplier for the second year since 2004. The U.S. exported
\$52 million of chicken products to Hong Kong in 2005, being the 3^rd^
largest supplier taking up 13 percent of the market share. It used to
take up 33 percent (\$121 million) in 2003 and was the leading chicken
meat supplier for the Hong Kong market. The Hong Kong government banned
U.S. chicken products between February 11 and April 30, 2004 because of
AI cases in the U.S. Since then, the Brazilian products greatly expanded
the market. Hong Kong importers have established new business
relationships with Brazilian exporters. Since the products are receptive
by their customers, many importers do not have a big incentive to stick
to U.S. products even after the lifting of the ban. Instead, importers
will compare the prices between U.S. and Brazilian products and offer
both choices to their customers. Because of the price discrepancy,
importers and end users very often will end up buying the price
competitive Brazilian products.

Brazil is particularly strong in mid-joint wings. Several years ago,
they largely supplied 3-joint wings which were primarily re-exported to
China. Traders like the soldier layer packing method and size guarantee
for Brazilian products. For example, Brazilian exporters are able to
guarantee 2-joint wings in a reasonable region of 35 gms. For the first
11 months of 2005, Hong Kong's imports of Brazilian chicken wings rose
by 18 percent reaching \$105 million. In contrast, U.S. exports of
chicken wings to Hong Kong dropped by 21 percent at a value of \$28
million.

Table 6 indicated that the average price of Brazilian products in 2005
rose by 45 percent compared to 2003. The increased average price
reflected the fact that Hong Kong traders bought more expensive parts
from Brazil than in the past and these more expensive parts very often
are retained for domestic consumption.

The Impact of the New Certification Requirement for Chicken Feet

Effective April 30, 2005, U.S. chicken feet exports to Hong Kong are
required to meet the same health certification as poultry meat. To meet
the new requirements, processing plants need to modify their plant
facilities in order to process chicken feet which are derived from birds
which have been given ante-mortem and post-mortem inspection. Since the
Hong Kong government has taken the "production date" as the cut-off
date, products exported to Hong Kong in May with production date prior
to April 30 were still eligible to be imported to Hong Kong without
complying with the new requirement.

The import figures between Jan -- May and June -- Nov are compared in
order to gauge the impact of the requirement change. The import figures
of U.S. chicken feet declined from 59,000 MT in January -- May 2005 to
21,000 MT in June -- November 2005, representing a decline of 64
percent. For other U.S. chicken products, the decline was recorded less
at 37 percent (Jan- May 30,000 MT; June -- November 19,000 MT). There
could be only two reasons that explained the bigger decline in chicken
feet. One is the change of certificate requirements. Another reason
could be the fact that China's demand for chicken feet products
slackened in the second half of the year. Since 51 percent of Hong
Kong's chicken feet products are re-exported while 26 percent of other
chicken products are re-exported, the change in demand in China would
have a bigger impact on Hong Kong's import of U.S. chicken feet than of
other U.S. chicken products.

  --------------------------- ------------------- ----------- -----------
                              January -- May 2005 June -- May \% change
                                                  2005        

  U.S. chicken feet exports   59,000 MT           21,000 MT   64%
  to HK                                                       

  Other U.S. chicken exports  30,000 MT           19,000 MT   37 %
  to HK                                                       
  --------------------------- ------------------- ----------- -----------

Increasing Direct Shipments to China

In the past few years, Hong Kong's imports of chicken products have been
decreasing. The major reason was the decreased re-export trade to China.
(See figures below). In recent years, China's import duty for chicken
products has been lowered. On the other hand, Hong Kong has expensive
terminal handling charges in addition to the pre-inspection process now
required by the China Inspection Co. in Hong Kong. As long as there are
no conspicuous savings through Hong Kong, traders tend to ship products
directly to China.

The importation of whole chicken is the only category exception that it
has increased over the years. Less than 1 percent of whole chicken
imports are re-exported. Almost all imports are retained for domestic
consumption. As such, the changed climate in re-export trade has not had
any impact on the importation of whole chickens. In fact, it has been
increasing steadily because the government has restricted the
importation of live chickens and chilled/frozen whole chicken imports
have been the substitutes for live chickens. China accounted for 91
percent of the market share in this product category. The chilled/frozen
whole chickens imported from China have heads and feet on, which are
different from other supplying countries.

The second figure below indicted that retained imports in 2004 surged
suddenly. In fact, this was due to the decline of re-exports to China
caused by China's ban on chicken products. Many products were retained
in Hong Kong as a result. In order to prevent total loss when products
fail to access China, traders tend to dump the products in Hong Kong.
While Hong Kong's consumption of chilled/frozen chickens are increasing
steadily, it should not experience such conspicuous jump in one year.

![](media/image2.wmf)

![](media/image3.wmf)

Note: Figures include chicken feet

Forecast for 2006

As the Hong Kong market is still stocked with chicken products, imports
in early 2006 will go slowly with a modest annual growth of about 1
percent in 2006, amounting to 226,000 MT. The U.S. will continue to face
strong competition from Brazilian products. However, Hong Kong consumers
have strong confidence in U.S. food products in terms of quality and
food safety. U.S. chicken products will be advantaged in this regard
under the increasing threat of AI problems in the region. As such, U.S.
product import is forecast to rise by 6 percent reaching 35,000 MT in
2006.

Given the trend in the past few years, Hong Kong's overall imports of
chicken products, including chicken feet and re-exports, are expected to
continue to decline. For products and certain destinations in China that
are still favorable for being re-exported through transport companies,
they will still come to Hong Kong first. However, these products going
to China may take various routings. For example, Vietnam and Taiwan were
favorable routing centers in 2004 and 2005 respectively. (Table 8)

## Policy

## 

Hong Kong has imposed restrictions on imports of live poultry and
poultry meat from countries where AI cases have been reported. As of
January 16, 2006 Hong Kong has restricted live poultry and poultry meat
from the following countries.

+-------------------------------+----------------+---------------------+
| Country/Places                | Date of Ban    | Import Volume       |
|                               |                | (Poultry)           |
+-------------------------------+----------------+---------------------+
| Cambodia                      | January 23,    | Nil                 |
|                               | 2004           |                     |
+-------------------------------+----------------+---------------------+
| Canada                        | November 21,   | Negligible          |
|                               | 2005           |                     |
| British Columbia              |                |                     |
+-------------------------------+----------------+---------------------+
| Croatia                       | October 22,    | Nil                 |
|                               | 2005           |                     |
+-------------------------------+----------------+---------------------+
| Democratic People's Republic  | March 29, 2005 | Nil                 |
| of Korea                      |                |                     |
+-------------------------------+----------------+---------------------+
| Indonesia                     | January 27,    | Nil                 |
|                               | 2004           |                     |
+-------------------------------+----------------+---------------------+
| Japan                         | January 29,    | Nil                 |
|                               | 2005           |                     |
| Ibaraki Prefecture            |                | Nil                 |
|                               | September 1,   |                     |
| Saitama Prefecture            | 2005           |                     |
+-------------------------------+----------------+---------------------+
| Kazakhstan                    | August 17,     | Nil                 |
|                               | 2005           |                     |
+-------------------------------+----------------+---------------------+
| Laos                          | January 27,    | Nil                 |
|                               | 2004           |                     |
+-------------------------------+----------------+---------------------+
| People's Republic of China    | July 6, 2004   | All these provinces |
|                               |                | exported none or    |
| Anhui Province                | Jan 10, 2006   | negligible amount   |
|                               |                | of poultry meat to  |
| Guizhou Province              | Nov12, 2005    | Hong Kong except    |
|                               |                | Liaoning Province.  |
| Hubei Province                | Oct 25 2005    | Between January 1   |
|                               |                | to October 25,      |
| Hunan Province                | Nov 21, 2005   | 2005, Hong Kong     |
|                               |                | imported 13,000 MT  |
| Inner Mongolia Autonomous     | Dec 15, 2005   | of poultry meat     |
| Region                        |                | from Liaoning       |
|                               | Nov 4, 2005    | Province or about   |
| Jiangxi Province              |                | 14% of China's      |
|                               | Nov 22, 2005   | import to Hong      |
| Liaoning Province             |                | Kong. The estimated |
|                               | Nov 19, 2005   | value was about     |
| Ningxia Autonomous Region     |                | \$18 million. None  |
|                               | Jan 4, 2006    | of these provinces  |
| Shanzi Province               |                | exported live       |
|                               | Aug 11, 2005   | poultry to Hong     |
| Sichuan Province              |                | Kong.               |
|                               | Nov 22, 2005   |                     |
| Tibet Autonomous Region       |                |                     |
|                               | Jun 8, 2005    |                     |
| Yunnam Province               |                |                     |
|                               |                |                     |
| Xinjiang Autonomous Region    |                |                     |
+-------------------------------+----------------+---------------------+
| Romania                       | Oct 18, 2005   | Nil                 |
+-------------------------------+----------------+---------------------+
| Russian Federation            | July 30, 2005  | Nil                 |
+-------------------------------+----------------+---------------------+
| Thailand                      | January 23,    | \$30 million (2003) |
|                               | 2004           |                     |
+-------------------------------+----------------+---------------------+
| Turkey                        | Oct 15, 2005   | \$12 million (2004) |
+-------------------------------+----------------+---------------------+
| Vietnam                       | Jan 13, 2004   | Nil                 |
+-------------------------------+----------------+---------------------+

Source: Hong Kong Census & Statistics Department

Hong Kong Food & Environmental Hygiene Department

Though Liaoning Province is one of the significant provinces exporting
chicken meat products to Hong Kong, Hong Kong traders have shifted their
sourcing to other provinces such as Shandong Province and supplies have
been sufficient. Nonetheless, imports from China have declined but the
reason was due to slackened demand in Hong Kong rather than reduced
supply in China.

Hong Kong's Imports of Chicken products from the World and China

  --------------- ------------ ------------ ------------ ------------ --------
  Country -       KG Aug 2005  KG Sep 2005  KG Oct 2005  KG Nov 2005  \%
                                                                      change

  \--The World\-- 26,063,049   25,986,092   30,519,857   24,459,816   -20%
  -                                                                   

  China -         7,605,410    8,217,887    8,081,418    6,231,369    -23%
  --------------- ------------ ------------ ------------ ------------ --------

Sources: Hong Kong Census & Statistics Department

Hong Kong allows the importation of cooked-processed poultry products
from AI infected countries. However, import consignments have to be
accompanied by health certificates stating that the products do not come
from AI infected zones.

Reorganization Plan for the Food Safety Regulatory Framework

The Hong Kong government has decided to reorganize the food regulatory
framework in Hong Kong by setting up two new departments called
Department of Food Safety, Inspection and Quarantine (DFSIQ) and
Department of Agriculture and Environmental Hygiene (DAEH). These two
departments will be under the policy bureau \-\-- Health Welfare and
Food Bureau. (See proposed organization charts in Annex 1, 2 & 3.)

FEHD's (Food and Environmental Hygiene Department) existing regulatory
functions over food, live food animal meats and slaughterhouse
management and AFCD's (Agriculture, Fisheries and Conservation
Department) existing functions over the inspection and quarantine of
imported non-food live animals, birds and plants, licensing of livestock
and mariculture farms, and regulation of pesticides to be transferred to
the new DFSIQ. The new DAEH will take up the operational
responsibilities to promote and facilitate the development of
agriculture and fisheries activities in Hong Kong and maintain
environmental hygiene. Also, the government is planning to set up a Food
Standard Committee consisting of experts and academics to enhance the
formulation and review of food safety standards. The purpose of the
re-organization is to set up a new department to regulate all matters
related to food safety.

The government aims to have the new DFSIQ set up by April 2006. Sources
revealed that the reorganization has encountered some resistance from
staff and the project may not be completed before the target date. As an
interim measure, the Hong Kong government intends to set up a Center for
Food Safety under the existing FEHD. The Controller of the Center will
be responsible for formulating and implementing all food safety
measures, leading high level negotiations, and liaison with mainland
China and overseas food authorities on food safety matters.

**Annex 1: Proposed Organization Structure of the Department of Food
Safety, Inspection and Quarantine**

![](media/image4.png){width="6.490277777777778in"
height="4.271527777777778in"}

Annex 2: Proposed Organization Structure of the Department of
Agriculture and Environmental Hygiene

![](media/image5.wmf){width="6.497222222222222in"
height="3.3256944444444443in"}

# Annex 3: Proposed Organization of Health, Welfare and Food Bureau after Reorganization 

![](media/image6.wmf){width="6.4944444444444445in" height="4.28125in"}