Voluntary Report - public distribution

**Date:** 2/7/2007

**GAIN Report Number:** CH7006

CH7006

**China, Peoples Republic of**

**Poultry and Products**

**Chicken Paw, Wing and Wing Tip Exports to China**

**2007**

**Approved by:**

![](media/image1.wmf)Maurice House

U.S. Embassy

**Prepared by:**

Casey Bean, Joseph Jacobson and Suzanne Ryan

**Report Highlights:**

Despite being China\'s single largest chicken paw supplier, the U.S.
poultry industry still faces many challenges that threaten its ability
to continue expanding or even maintaining its current export level. High
quality and higher profit margin product from Brazil and Argentina is an
increasingly attractive alternative to U.S. product. Meanwhile, U.S.
producers remain reluctant to modify their production lines to meet FSIS
standards and compete with Brazilian producers. Lingering concerns of
additional U.S. plant delistings, zero-tolerance salmonella standards,
and scant profits have discouraged investment, despite burgeoning
Chinese chicken paw demand. Nevertheless, until U.S. producers modify
production lines to improve quality, not only do they remain vulnerable
to supply increases from South American competition, they fail to
maximize their potential in exporting high-value poultry parts to a
growing market.

Includes PSD Changes: No

Includes Trade Matrix: No

Trade Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[China's Domestic Paw Production 3](#chinas-domestic-paw-production)

[Limited domestic supplies force China to import over 300,000 MT of paws
3](#limited-domestic-supplies-force-china-to-import-over-300000-mt-of-paws)

[Consumption Trends 4](#consumption-trends)

[Consumer preferences depend upon geographic location
4](#consumer-preferences-depend-upon-geographic-location)

[Trade 5](#trade)

[Processors reluctant to modify production lines to meet certification
requirements
5](#processors-reluctant-to-modify-production-lines-to-meet-certification-requirements)

[Elimination of "Hong Kong Standard" limits paw supply
6](#elimination-of-hong-kong-standard-limits-paw-supply)

[Processors risk financial losses due to China's "zero" tolerance for
pathogens
6](#processors-risk-financial-losses-due-to-chinas-zero-tolerance-for-pathogens)

[Changes in AQSIQ import permit issuance poses barrier to traders
7](#changes-in-aqsiq-import-permit-issuance-poses-barrier-to-traders)

[Pre-Inspection law and other measures "encourage" direct shipments to
China
7](#pre-inspection-law-and-other-measures-encourage-direct-shipments-to-china)

[E-Certification required as of March 3, 2007
8](#e-certification-required-as-of-march-3-2007)

[Paws account for over half of China's total poultry imports
8](#paws-account-for-over-half-of-chinas-total-poultry-imports)

[Wholesale price of paws has increased during past two years
11](#wholesale-price-of-paws-has-increased-during-past-two-years)

[U.S. faces market competition from Brazil and Argentina
12](#u.s.-faces-market-competition-from-brazil-and-argentina)

[Volume of U.S. paws imported through official channels increasing
13](#volume-of-u.s.-paws-imported-through-official-channels-increasing)

[Marketing 15](#marketing)

[Trade contributes decreased market share to product quality and
packaging
15](#trade-contributes-decreased-market-share-to-product-quality-and-packaging)

[Traders look for high-quality paws which meet their specific
requirements
16](#traders-look-for-high-quality-paws-which-meet-their-specific-requirements)

[Addition of grading system would bolster U.S. brand image
16](#__RefHeading___Toc158546716)

[Market Outlook 17](#market-outlook)

[Outlook and Opportunities to expand U.S. paw sales to China
17](#outlook-and-opportunities-to-expand-u.s.-paw-sales-to-china)

# Executive Summary

Although the United States is still the largest chicken paw, wing, and
wing-tip supplier to the Chinese market, many challenges, including
growing competition from Brazil and Argentina, threaten this position.
Strict port inspections by China's quarantine officials (CIQ), coupled
with the FSIS inspection mandate and reluctance by the U.S. industry to
invest in new production lines, have decreased the amount of product
available for export to China. Many U.S. producers remain hesitant to
invest in production line modifications as the result of slim profit
margins and uncertainty surrounding Chinese import regulations. These
factors have resulted in a supply deficit of inspected U.S. chicken paws
and are reported to have cost the poultry industry significant revenues.
Recent changes to AQSIQ's issuance of Meat Import Quarantine Permits
(MIQP) present new hurdles for traders importing U.S. product.

The consensus among Chinese traders is that despite U.S. paw, wing, and
wing-tip quality generally being high, issues like moisture content and
packaging are affecting the competitiveness of many U.S. products with
the major market competitor: Brazil. Though gradual improvement in U.S.
quality has been noted over recent years, persisting problems threaten
long-term U.S. market share.

Nevertheless, the fact remains that current chicken paw demand in China
exceeds supply, perhaps diminishing the perceived necessity of
investment. Since 400,000 chickens must be slaughtered to produce one,
25 MT container of paws, supply is not easily increased. Furthermore,
many industry analysts believe that the certification of additional
Brazilian plants will have little impact on U.S. exports since much of
that yet-to-be-certified product already makes its way into China
through grey-channels. Nevertheless, without investing in plant
infrastructure to improve quality, U.S. industry remains vulnerable to
losing market share and fails to maximize profits on high-value export
items.

# China's Domestic Paw Production

## Limited domestic supplies force China to import over 300,000 MT of paws

The majority of domestically produced paws are exported to Japan or
Korea, where processors are able to find more competitive pricing. Due
to insufficient domestic supply, China must import approximately 300,000
to 350,000 MT of chicken feet and paws annually. Chinese consumers also
prefer the size and meatiness of U.S. and Brazilian jumbo paws to
domestic product. Currently, domestic paw supply is less than 40 percent
of the U.S. supply in the Chinese market. Trade reports wholesale prices
are \$60 to \$100/MT higher than U.S. products of the same grade. The
wholesale price for imported chicken paws is \$1,500 to \$1,600/MT.

Most domestic broiler production is situated in the northern provinces
of China (e.g., Shandong and Henan). Domestic processors cite that
production costs, demand, and lack of profitability force them to
produce chicken feet rather than chicken paws. Northern provinces, with
a concentrated broiler production, tend to produce chicken feet, while
the southern provinces (e.g., Fujian, Guangdong, Zhejiang and Shanghai),
with less concentrated broiler production, tend to produce chicken paws.

The picture below illustrates the difference between a chicken paw
(left) and a chicken foot (right).

![](media/image2.jpeg){width="2.8333333333333335in" height="2.55in"}

# Consumption Trends

## 

## Consumer preferences depend upon geographic location

The peak chicken paw consumption season is typically during the warmer
months of April through October. During the fall and winter, the paw
market generally weakens and prices drop until warm weather reappears.

Imported chicken products primarily enter China through Shanghai and the
southeastern ports of Shenzhen and Guangzhou. While products entering
these ports are destined for all parts of China, approximately 50% has
an end destination in South China. Most premium jumbo paws are sold in
wholesale markets and eventually make their way into high-end
restaurants. Smaller paws, chicken wings, and wing tips, in addition to
being sold at wholesale markets, end up at wet markets and processing
plants, which use them in finished food products. Few importers are
willing to deal directly with supermarkets because of payment delays.

Each market accepts its own size of chicken paws, depending on the
consumption habits and living standards of its consumers. Suzhou,
Kunming and Guangzhou markets prefer larger-sized chicken paws while
Chongqing, Chengdu and Anhui markets only accept small to medium-sized
chicken paws.

The market for chicken feet is more varied than that of premium chicken
paws; larger chicken feet are sold to both wholesale and retail markets
and are more commonly used for family consumption (and in barbecue
stores), small feet are typically further cooked in processing plants.
Chinese consumers in the Northwest and Northeast tend to favor chicken
feet over chicken paws.

+-----------------+-----------------+-----------------+-----------------+
| Chicken Paw     |                 |                 |                 |
| Imports, by     |                 |                 |                 |
| province        |                 |                 |                 |
| 2005-2006       |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               |                 | J               |
|                 | anuary-December |                 | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | Quantity, MT    |                 | Percent Change  |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2005/06         |
+-----------------+-----------------+-----------------+-----------------+
| All Provinces   | 189,178.05      | 289,171.22      | 52.86           |
+-----------------+-----------------+-----------------+-----------------+
| Guangzhou       | 45,650.28       | 118,945.4       | 160.56          |
+-----------------+-----------------+-----------------+-----------------+
| Shenzhen        | 39,224.51       | 89,325.03       | 127.73          |
+-----------------+-----------------+-----------------+-----------------+
| Shanghai        | 65,138.02       | 42,089.35       | -35.38          |
+-----------------+-----------------+-----------------+-----------------+
| Huangpu         | 6,480.81        | 14,760.5        | 127.76          |
+-----------------+-----------------+-----------------+-----------------+
| Nanjing         | 8,823.28        | 10,863.22       | 23.12           |
+-----------------+-----------------+-----------------+-----------------+
| Qingdao         | 6,977.01        | 4,888.88        | -29.93          |
+-----------------+-----------------+-----------------+-----------------+
| Dalian          | 5,442.5         | 3,892.57        | -28.48          |
+-----------------+-----------------+-----------------+-----------------+
| Fuzhou          | 2,312.1         | 2,879.02        | 24.52           |
+-----------------+-----------------+-----------------+-----------------+
| Shantou         | 6,774.97        | 1,168.97        | -82.75          |
+-----------------+-----------------+-----------------+-----------------+
| Gongbei         | 2,084.51        | 184.54          | -91.15          |
+-----------------+-----------------+-----------------+-----------------+
| Tianjin         | 147.57          | 173.67          | 17.69           |
+-----------------+-----------------+-----------------+-----------------+
| Xiamen          | 122.5           | 0               | -100            |
+-----------------+-----------------+-----------------+-----------------+
| HS code:        |                 |                 |                 |
| 020714.22       |                 |                 |                 |
|                 |                 |                 |                 |
| Source: WTA     |                 |                 |                 |
| China Customs   |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+

# Trade

## Processors reluctant to modify production lines to meet certification requirements

Beginning Fall 2001, the People's Republic of China refused to import
chicken paws not baring the official USDA mark of inspection, "Inspected
for Wholesomeness by the U.S. Department of Agriculture," to better
ensure that product is free of disease and contaminants. Until recently,
USDA did not inspect chicken feet and paws; instead, they were
plant-graded. Switching to a USDA inspection system, however, was not
without its share of problems. When inspecting feet and paws, inspectors
inspect feet along with carcasses in order to make sure they are not
from diseased or condemnable birds. Since feet are separated from the
carcass before arriving at inspection stations, FSIS implemented a batch
inspection system that associated a batch of feet or paws with a group
or lot of carcasses processed within a certain period of time. However,
if one carcass within the lot is condemned, then the entire batch of
feet and paws also must be condemned. Further complicating matters is
inconsistency between USDA inspection personnel. It is estimated that
the current batch inspection system has led to yield decreases of
anywhere from 20-70 percent.

As a result of these regulatory changes, many U.S. producers decreased
or even shut down their paw production. Processors chose this route
because of the high cost required to modify the production line in order
to produce USDA FSIS inspected paws and their lack of confidence in the
U.S./China trading environment. Nevertheless, it is reported that more
producers are investing in plant upgrades that should increase the
exportable supply of chicken paws in 2007.

U.S. producers also worry about investing millions of dollars in
production line changes, only to have China restrict import flows and/or
resume suspending export eligibility for U.S. poultry plants because of
pathogen and residue violations, as it did to U.S. poultry plants during
2005. Though these suspensions were lifted following USDA-AQSIQ
technical discussions in early 2006, producers remain nervous about the
current zero tolerance salmonella policy on uncooked poultry.
Nevertheless, since April 2006, trade relations between the U.S. and
China have been positive, with no U.S. poultry plant delistings and few
trade disruptions. As a direct result of a USDA/AQSIQ Memorandum of
Cooperation and technical meetings to help resolve pathogen/residue
testing methods and standards, AQSIQ now allows up to 45-days for
investigation and corrective action rather than immediately delisting
plants.

## Elimination of "Hong Kong Standard" limits paw supply

The elimination of the "Hong Kong Standard" for chicken paws has lead to
a supply shortage of U.S. paws destined to the Chinese market. Effective
April 30, 2005, China unified the chicken paws standard for Hong Kong
and the Mainland by declaring them an "edible product". Previously,
chicken paws exported to Hong Kong could be certified as "not fit for
human consumption" to circumvent testing measures. As a result of the
new standard, the USDA's Food Safety and Inspection Service (FSIS) must
certify shipments by performing ante mortem and postmortem inspections.
Traders have indicated this new requirement has impacted both the volume
and price of U.S. chicken paw exports to China. Prior to the Hong Kong
Standard being removed, one U.S. producer regularly shipped more than
300 containers/month to China; today, this number has been reduced to
just 50/month.

## 

## Processors risk financial losses due to China's "zero" tolerance for pathogens

On January 1, 2006, China implemented a new national standard for fresh
and frozen poultry products, GB 16869-2005, replacing GB 16869-2000 (see
CH6001). The standard reinforces a "0" tolerance for the pathogens
Salmonella enteritidis and Escherichia coli O157:H7 on fresh and frozen
poultry products. The following chart is a translation of the microbial
requirements. Under Salmonella and O157:H7, "0/25g" means no pathogens
detected in five 25-gram samples.

+-----------------------+-----------------------+-----------------------+
| Microbial Test        |                       |                       |
| Requirements          |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Item                  | Index                 |                       |
+-----------------------+-----------------------+-----------------------+
|                       | Fresh Poultry         | Frozen Poultry        |
|                       | Products              | Products              |
+-----------------------+-----------------------+-----------------------+
| Total number of       | 1 X 10^6^             | 5 X 10^5^             |
| bacteria              |                       |                       |
+-----------------------+-----------------------+-----------------------+
| Coliform (MPN/100 g)  | 1 X 10^4^             | 5 X 10^3^             |
+-----------------------+-----------------------+-----------------------+
| ####### Salmonella    | 0/25 g^a^             | 0/25 g^a^             |
+-----------------------+-----------------------+-----------------------+
| *E. coli* O157:H7     | 0/25 g^a^             | 0/25 g^a^             |
+-----------------------+-----------------------+-----------------------+
| ^a^ 5 total samples   |                       |                       |
+-----------------------+-----------------------+-----------------------+

"Zero" tolerance (0/25g from 5 samples) on pathogens for imported
uncooked frozen poultry products is difficult if not impossible for
processors to meet. U.S. exporters and importers risk considerable
financial losses in rejected product and port fees if products fail
inspection at the China port CIQ based on this requirement. Besides
China's "zero" tolerance (0/25 g from 5 samples) on pathogens for
imported raw poultry products (explained in Post's 2006 semi-annual
poultry report CH6004), U.S. exporters should also pay attention to the
following items:

  ---------------------------------- ------------------------------------
  Item                               Maximum Level

  Clopidol                           0.01 (mg/kg)

  Moisture                           6 (percent)

  Lead                               0.2 (mg/kg)

  Mercury, meat                      0.05 (mg/kg)
  ---------------------------------- ------------------------------------

## 

The "zero" tolerance standard for pathogens on raw poultry will impact
all imported products. However, according to the trade, the lower
moisture tolerance (8 percent) will impact U.S. products more than
Brazilian products. Because most U.S. plants fail to air dry paws and
use ice cooling during processing and packaging, moisture content is
higher than Brazilian product, which uses air chilling.

## Changes in AQSIQ import permit issuance poses barrier to traders

Two permits are required to import chicken paws into the China market:
AQSIQ's Meat Import Quarantine Permit (MIQP) and the Automatic Import
Registration Form (ARF), issued by MOFCOM. Currently, there are around
200 MOFCOM accredited importers that are eligible for an ARF allocation,
which totals approximately 500,000 MT/year. This list is likely to
remain static or even diminish in number, since MOFCOM refuses to
certify new companies without extensive relevant experience and/or
credentials. MOFCOM has also indicated that the importer list is limited
to processors and traders, thus eliminating possible participation by
large retailers and other end-users. Any volume increases will therefore
come through established companies increasing import volumes. According
to MOFCOM, there is no predetermined trade volume limiting the issuance
of ARFs; virtually all traders who applied for an ARF in 2006 received
one. ARFs may be used once only.

After the trader gets these two permits, they have the right to take an
order with foreign suppliers. When the products arrive at port, China
Customs imposes taxes, and CIQ checks documents and carries out
quarantine inspections. Recently, AQSIQ reportedly implemented new
"administrative" policies on issuing import permits, which poses new
impediments to trade (see below).

According to the trade, AQSIQ will tighten-up its administration of
issuing MIQPs, which dictate the quantity an individual importer may
import. Under this new regulation, importers may not apply for a new
MIQP unless they have imported 75% or more of the quantity allotted on
the original permit. Furthermore, importers not fully exhausting their
previous year's MIQP cannot receive a new MIQP with an approved import
quantity exceeding the actual volume imported from the previous year.
New MIQPs are typically issued within one-month of application and are
valid for 6 months. However, even after approval, AQSIQ will not issue
new MIQPs until the entirety of the original permit has been used. The
volume for each import permit is set at 400 MT and importers are allowed
to make an application for a single item from one country only.

Traders complain that these new policies hurt them in two ways: by
limiting import volumes when the market is favorable; and, by forcing
them to use at least 75% of their MIQP when the market is unfavorable.
Most believe these policies are not in line with World Trade
Organization (WTO) regulations. AQSIQ has been re-evaluating and
accrediting additional eligible meat importers and began listing the
names of importers on its website September 1, 2006
([www.aqsiq.gov.cn](http://www.aqsiq.gov.cn/)). Because of the new
policy, traders may only do business with one supplier at a time and
cannot buy different items simultaneously.

FAS Beijing believes this measure will negatively impact poultry imports
by forcing traders to import when prices are not favorable in order to
meet the import requirement, raising costs. Furthermore, many eligible
importers do not actively trade. Traders holding unused MIQP's enter
into arbitrage by auctioning the MIQP to active importers unable to
secure additional MIQPs at that moment. In fact, many MIQP holders do
not actively import meat products and procure MIQPs primarily to sell
off as a business in itself. Currently, the cost of second-hand MIQPs
ranges from RMB 150-450/MT. In addition to creating higher consumer
costs, this additional cost may diminish the competitiveness of
direct-import poultry products vs. grey-channel products.

## Pre-Inspection law and other measures "encourage" direct shipments to China

Direct shipments to China's ports have been increasing since 2000 and
are forecast to increase again in 2007 due to stricter requirements
imposed by China to eliminate smuggling from Hong Kong. As of November
1, 2004, all meat re-exported to China through Hong Kong must be
pre-inspected by the China Hong Kong Inspection Company (CIC). Following
pre-inspection, containers are required to be moved from the entry port
to the CIC inspection place within 2 hours to prevent repacking or
re-labeling for smuggling. The inspection cost for one container is
approximately \$600. This extra cost and burden has shifted direct trade
up the coast to mainland ports, a trend that will likely continue in the
future.

Imported paws are subject to a fee of \$60/MT plus a 13 percent VAT
(value added tax). China's tariff reductions on poultry products have
increased trader profit margins on direct shipments, which will result
in less volume being transshipped from Hong Kong. According to the
trade, China's inspection officials are clearing more U.S. poultry
products in Shanghai ports than those held in Hong Kong ports.
Additionally, the trade believes increased transportation costs in
Shenzhen, new import regulations, and chicken feet certification
requirements have made costs of re-exporting to Hong Kong comparable to
direct shipments to China. China's pre-inspection fee alone is an
important cost factor that will continue to encourage direct shipments
to mainland China.

Effective May 2005, Hong Kong traders were made eligible consignees on
bills of lading and health certificates for China-bound shipments
transshipped through Hong Kong. Traders could import and stock paws in
Hong Kong and later look for mainland importers. Though this change made
Hong Kong re-exports more convenient, the general trend favors trade
shifting to direct shipments as it becomes less and less profitable to
ship through Hong Kong.

## E-Certification required as of March 3, 2007

Beginning March 3, 2007, China will require e-certification from U.S.
meat exporters in hopes of further limiting grey-channel importing. To
comply, U.S. plants must send an e-mail to AQSIQ (<h_cert@ciq.org.cn>)
with the date and certificate number for the purpose of verification of
shipments upon arrival for inspection in China.

The Chinese traders' responses to the effectiveness of this measure
ranges from skeptical to supportive. However, all importers stressed the
importance that plants ensure the information sent via e-mail is
identical in every way with that of the certificate itself to prevent
time-consuming and potentially expensive delays during CIQ inspection.
Importers unanimously expressed some degree of frustration with plants
making data-entry errors that cause confusion and hassles during
inspection.

## Paws account for over half of China's total poultry imports 

Despite domestic production increases, China's chicken paw supply lags
so far behind consumer demand that chicken paw imports account for 40
percent or more of China's total poultry imports. In the 2006, chicken
paw and wing tip/edible offal imports accounted for 40 percent of total
poultry imports to Mainland China and 44 percent of total poultry
imports to Hong Kong. As more processing plants are approved to export
frozen poultry to China and additional measures are taken to eliminate
gray channels, a greater percentage will be shipped directly to Mainland
Chinese ports.

## 

During 2006, chicken paw export volume to China and Hong Kong was
156,974.37 MT, or 40 percent of the total China-bound U.S. frozen
chicken cuts and edible offal (HS code 020714). This is an increase of
52.09 percent over 2005. The total value of 2006 chicken paw imports was
\$141,095,000, up 57.3 percent from 2005 and constituting nearly 48
percent of the total value of U.S. frozen chicken cuts and edible offal.

U.S. chicken wing imports in 2006, though less than chicken paws, were
still significant at 29,710 MT, a 51.9% increase over 2005. Total value
was \$20,620,000. In contrast to paws and wing tips, the U.S. market
absorbs significant quantities of wings, constricting supply. U.S. wings
also face tough competition from Brazil, whose producers "soldier" pack
chicken wings. Soldier packing, where wings are uniformly and tightly
placed in straight rows, creates a more aesthetically pleasing product
for consumers. Due to significantly higher U.S. labor costs, the trade
reports that adopting soldier-packing techniques will be economically
unfeasible.

U.S. exports of frozen chicken offal, not including feet, were 76,662.92
MT in 2006, up 44.18 percent from 2005. Total value was \$53,720,000.
Though the precise amount of individual meat products making up this
category is difficult to surmise, the bulk consisted of wing tips. Like
paws, U.S. wing tips will continue to be an important export to China.
Minimal U.S. domestic demand minimizes supply constraints and demand
remains strong.

Though U.S. export growth has been strong in recent years, this mostly
reflects the U.S. regaining market share lost on account of China's U.S.
poultry import ban following reports of avian influenza in 2003. During
this time, Brazilian and Argentine poultry exports to China increased
between 600 and 900 percent. As the result of a surge in Chinese
domestic production, U.S. market share fell precipitously from 96
percent in 2003 to just 46 percent in 2005. Nevertheless, the U.S. still
retains a commanding lead in poultry imports to China.

+-----------------+-----------------+-----------------+-----------------+
| China Chicken   |                 |                 |                 |
| Paw Imports, by |                 |                 |                 |
| country         |                 |                 |                 |
| 2005-2006       |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               |                 | J               |
|                 | anuary-December |                 | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | Quantity, MT    |                 | Percent Change  |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2006/05         |
+-----------------+-----------------+-----------------+-----------------+
| World           | 189,178.05      | 289,171.12      | 52.86           |
+-----------------+-----------------+-----------------+-----------------+
| United States   | 103,211.22      | 156,974.37      | 52.09           |
+-----------------+-----------------+-----------------+-----------------+
| Brazil          | 60,724.12       | 98,851.45       | 62.79           |
+-----------------+-----------------+-----------------+-----------------+
| Argentina       | 23,138.27       | 26,906.77       | 16.29           |
+-----------------+-----------------+-----------------+-----------------+
| Chile           | 2,034.21        | 6,438.53        | 216.51          |
+-----------------+-----------------+-----------------+-----------------+
| Thailand        | 22.98           | 0               | -100            |
+-----------------+-----------------+-----------------+-----------------+
| Canada          | 47.32           | 0               | -100            |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               |                 | J               |
|                 | anuary-December |                 | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | Value, U.S.     |                 | Percent Change  |
|                 | Dollars         |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2006/05         |
+-----------------+-----------------+-----------------+-----------------+
| World           | 160,712,168     | 252,655,028     | 57.21           |
+-----------------+-----------------+-----------------+-----------------+
| United States   | 89,691,253      | 141,094,678     | 57.31           |
+-----------------+-----------------+-----------------+-----------------+
| Brazil          | 51,170,275      | 81,858,776      | 59.97           |
+-----------------+-----------------+-----------------+-----------------+
| Argentina       | 18,200,714      | 24,565,942      | 34.97           |
+-----------------+-----------------+-----------------+-----------------+
| Chile           | 1,600,948       | 5,135,632       | 220.79          |
+-----------------+-----------------+-----------------+-----------------+
| Thailand        | 11,822          | 0               | -100            |
+-----------------+-----------------+-----------------+-----------------+
| Canada          | 37,156          | 0               | -100            |
+-----------------+-----------------+-----------------+-----------------+
| HS Code:        |                 |                 |                 |
| 020714.22       |                 |                 |                 |
|                 |                 |                 |                 |
| Source: WTA     |                 |                 |                 |
| China Customs   |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+

+-----------------+-----------------+-----------------+-----------------+
| China Chicken   |                 |                 |                 |
| Wing Imports,   |                 |                 |                 |
| by country      |                 |                 |                 |
| 2005-2006       |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               |                 | J               |
|                 | anuary-December |                 | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | Quantity, MT    |                 | Percent Change  |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2006/05         |
+-----------------+-----------------+-----------------+-----------------+
| World           | 61,014.69       | 57,878.27       | -5.14           |
+-----------------+-----------------+-----------------+-----------------+
| Brazil          | 41,228.48       | 29,710.98       | -27.94          |
+-----------------+-----------------+-----------------+-----------------+
| United States   | 15,634.06       | 23,754.24       | 51.94           |
+-----------------+-----------------+-----------------+-----------------+
| Chile           | 382.03          | 2,470.92        | 546.79          |
+-----------------+-----------------+-----------------+-----------------+
| France          | 1,654.29        | 1,259.91        | -23.84          |
+-----------------+-----------------+-----------------+-----------------+
| Argentina       | 967.69          | 682.23          | -29.5           |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               |                 | J               |
|                 | anuary-December |                 | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | Value, U.S.     |                 | Percent Change  |
|                 | Dollars         |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2006/05         |
+-----------------+-----------------+-----------------+-----------------+
| World           | 68,719,130      | 52,540,041      | -23.54          |
+-----------------+-----------------+-----------------+-----------------+
| Brazil          | 47,946,076      | 27,947,384      | -41.71          |
+-----------------+-----------------+-----------------+-----------------+
| United States   | 15,833,449      | 20,620,381      | 30.23           |
+-----------------+-----------------+-----------------+-----------------+
| Chile           | 307,443         | 1,946,366       | 533.08          |
+-----------------+-----------------+-----------------+-----------------+
| France          | 2,194,147       | 1,337,726       | -39.03          |
+-----------------+-----------------+-----------------+-----------------+
| Argentina       | 1,003,967       | 688,184         | -31.45          |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| HS Code:        |                 |                 |                 |
| 020714.22       |                 |                 |                 |
|                 |                 |                 |                 |
| Source: WTA     |                 |                 |                 |
| China Customs   |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+

+-----------------+-----------------+-----------------+-----------------+
| China Frozen    |                 |                 |                 |
| Edible Offal    |                 |                 |                 |
| Imports,        |                 |                 |                 |
| Excluding Paws, |                 |                 |                 |
| by country      |                 |                 |                 |
| 2005-2006       |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               |                 | J               |
|                 | anuary-December |                 | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | Quantity, MT    |                 | Percent Change  |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2006/05         |
+-----------------+-----------------+-----------------+-----------------+
| World           | 94,359.23       | 91,160.65       | -3.39           |
+-----------------+-----------------+-----------------+-----------------+
| United States   | 53,169.86       | 76,662.92       | 44.18           |
+-----------------+-----------------+-----------------+-----------------+
| Brazil          | 40,919.4        | 14,250.06       | -65.18          |
+-----------------+-----------------+-----------------+-----------------+
| Chile           | 85.76           | 134.85          | 57.24           |
+-----------------+-----------------+-----------------+-----------------+
| Argentina       | 82              | 112.82          | 37.58           |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               |                 | J               |
|                 | anuary-December |                 | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | Value, U.S.     |                 | Percent Change  |
|                 | Dollars         |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2006/05         |
+-----------------+-----------------+-----------------+-----------------+
| World           | 71,344,763      | 62,694,967      | -12.12          |
+-----------------+-----------------+-----------------+-----------------+
| United States   | 41,389,707      | 53,269,665      | 28.7            |
+-----------------+-----------------+-----------------+-----------------+
| Brazil          | 29,754,985      | 9,256,413       | -68.89          |
+-----------------+-----------------+-----------------+-----------------+
| Chile           | 6,258           | 84,954          | 35.75           |
+-----------------+-----------------+-----------------+-----------------+
| Argentina       | 57,321          | 83,935          | 46.43           |
+-----------------+-----------------+-----------------+-----------------+
|                 |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
| HS Code:        |                 |                 |                 |
| 020714.22       |                 |                 |                 |
|                 |                 |                 |                 |
| Source: WTA     |                 |                 |                 |
| China Customs   |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+

![](media/image7.wmf)

## 

## Wholesale price of paws has increased during past two years

The wholesale price of chicken paws has increased considerably over the
past two years, especially in recent months. Jumbo-sized chicken paws
reached between \$2,000 and \$2,400/MT in main markets with an average
price of \$1,600 to \$1,900/MT. Due to their better quality consistency
and lower moisture content, Brazilian products typically sold for
between RMB 1000-2000/MT higher than U.S. product. The trade believes
the wholesale price increase is primarily due to the short supply from
the United States and the increasingly stringent regulations regarding
the issuing of AQSIQ Meat Import Quarantine Permits, which limit trade
flows and force traders to buy product even when prices are high.

+-----------------+-----------------+-----------------+-----------------+
| Chicken Paw     |                 |                 |                 |
| Prices in       |                 |                 |                 |
| China, by       |                 |                 |                 |
| country         |                 |                 |                 |
| 2005-2006 (U.S. |                 |                 |                 |
| Dollars)        |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               | J               | J               |
|                 | anuary-December | anuary-December | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | \$/KG           | \$/KG           | Percent Change  |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2006/05         |
+-----------------+-----------------+-----------------+-----------------+
| World           | 0.85            | 0.87            | 2.35            |
+-----------------+-----------------+-----------------+-----------------+
| United States   | 0.87            | 0.9             | 3.45            |
+-----------------+-----------------+-----------------+-----------------+
| Brazil          | 0.84            | 0.83            | -1.19           |
+-----------------+-----------------+-----------------+-----------------+
| Argentina       | 0.79            | 0.91            | 15.19           |
+-----------------+-----------------+-----------------+-----------------+
| Chile           | 0.79            | 0.8             | 1.27            |
+-----------------+-----------------+-----------------+-----------------+
| Thailand        | 0.51            | 0               |                 |
+-----------------+-----------------+-----------------+-----------------+
| Canada          | 0.79            | 0               |                 |
+-----------------+-----------------+-----------------+-----------------+
| HS Code:        |                 |                 |                 |
| 020714.22       |                 |                 |                 |
|                 |                 |                 |                 |
| Source: WTA     |                 |                 |                 |
| China Customs   |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+

+-----------------+-----------------+-----------------+-----------------+
| China Chicken   |                 |                 |                 |
| Wing Prices, by |                 |                 |                 |
| country         |                 |                 |                 |
| 2005-2006 (U.S. |                 |                 |                 |
| Dollars)        |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               | J               | J               |
|                 | anuary-December | anuary-December | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | \$/KG           | \$/KG           | Percent Change  |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2006/05         |
+-----------------+-----------------+-----------------+-----------------+
| World           | 1.13            | 0.91            | -19.47          |
+-----------------+-----------------+-----------------+-----------------+
| Brazil          | 1.16            | 0.94            | -18.97          |
+-----------------+-----------------+-----------------+-----------------+
| United States   | 1.01            | 0.87            | -13.86          |
+-----------------+-----------------+-----------------+-----------------+
| Chile           | 0.8             | 0.79            | -1.25           |
+-----------------+-----------------+-----------------+-----------------+
| France          | 1.33            | 1.06            | -20.3           |
+-----------------+-----------------+-----------------+-----------------+
| Argentina       | 1.04            | 1.01            | -2.88           |
+-----------------+-----------------+-----------------+-----------------+
| HS Code:        |                 |                 |                 |
| 020714.22       |                 |                 |                 |
|                 |                 |                 |                 |
| Source: WTA     |                 |                 |                 |
| China Customs   |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+

+-----------------+-----------------+-----------------+-----------------+
| China Frozen    |                 |                 |                 |
| Edible Offal    |                 |                 |                 |
| Prices,         |                 |                 |                 |
| Excluding Paws, |                 |                 |                 |
| by country      |                 |                 |                 |
| 2005-2006 (U.S. |                 |                 |                 |
| Dollars)        |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+
|                 | J               | J               | J               |
|                 | anuary-December | anuary-December | anuary-December |
+-----------------+-----------------+-----------------+-----------------+
|                 | \$/KG           | \$/KG           | Percent Change  |
+-----------------+-----------------+-----------------+-----------------+
|                 | 2005            | 2006            | 2006/05         |
+-----------------+-----------------+-----------------+-----------------+
| World           | 0.76            | 0.69            | -9.21           |
+-----------------+-----------------+-----------------+-----------------+
| United States   | 0.78            | 0.69            | -11.54          |
+-----------------+-----------------+-----------------+-----------------+
| Brazil          | 0.73            | 0.65            | -10.96          |
+-----------------+-----------------+-----------------+-----------------+
| Chile           | 0.73            | 0.63            | -13.7           |
+-----------------+-----------------+-----------------+-----------------+
| Argentina       | 0.7             | 0.74            | 5.71            |
+-----------------+-----------------+-----------------+-----------------+
| HS Code:        |                 |                 |                 |
| 020714.22       |                 |                 |                 |
|                 |                 |                 |                 |
| Source: WTA     |                 |                 |                 |
| China Customs   |                 |                 |                 |
+-----------------+-----------------+-----------------+-----------------+

## U.S. faces market competition from Brazil and Argentina 

Despite increased wholesale and retail prices, paw demand has remained
nearly level. Many U.S. plants have yet to meet FSIS inspection
requirements, creating a paw supply shortage. Limited U.S. volume,
combined with the fact that Brazilian paws command higher wholesale
prices, have traders interested in purchasing paws from countries other
than the United States.

The United States' two primary chicken paw competitors in the Chinese
market are Brazil and Argentina. Though Brazil is the primary competitor
for big and medium-sized paws, Argentina is the primary competitor for
small-sized paws. Following the 2004 avian influenza outbreaks in the
United States, both Brazil and Argentina captured significant market
share. Despite only one Brazilian processing plant having officially
been certified to export to China, Brazilian paws make up about 70
percent of the paws available at the Suzhou market, one of the most
important paw markets in China. Most notable are the quality and
packaging differences between U.S. and Brazilian paws. Contrary to U.S.
producers, Brazil's tend to be more flexible in modifying production
lines to meet Chinese demands. Though much smaller than Brazil's
production base, Argentina's paw market is currently experiencing rapid
growth thanks to its price advantage over U.S. paws; on average,
Argentine paws are \$0.04/lb cheaper than U.S. paws. Nevertheless,
Argentina's chicken paw expansion rate is still considerable smaller
than that of the United States and Brazil.

According to traders\--and plainly visible at wholesale markets in
China\--other countries shipping paws to China include Chile, EU, Iran
and Turkey. Chile currently ships about 40 loads a month and is a market
the trade believes will continue to grow. The EU is a small producer and
ships very little product to China. The EU also exports more feet than
paws because the market offers processors more chance for profitability.
Compared with previous years, Iran has more chicken paws in the market,
shipping around 50 to 80 containers per month. Turkey has been shipping
around 100 containers per month.

## Volume of U.S. paws imported through official channels increasing

The trade believes that the majority of U.S. paws are inspected and
imported through the official channels. However, the trade also believes
that smaller U.S. plants may be shipping paws to the Philippines, Korea,
or Vietnam, with the paws eventually ending-up in the China market. Only
one Brazilian plant is currently approved to export to China, so the
trade believes that a majority of the Brazilian paws find their way into
the China market through the unofficial channels. Traders tell FAS
Beijing that as many as 24 Brazilian plants could be approved for
poultry export trade in 2007.

+-------------+-------------+-------------+-------------+-------------+
| Hong Kong   |             |             |             |             |
| Chicken Paw |             |             |             |             |
| Imports     |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Janua       |             |             |             |
|             | ry-December |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Quantity,   |             |             | Percent     |
|             | MT          |             |             | Change      |
+-------------+-------------+-------------+-------------+-------------+
|             | 2004        | 2005        | 2006        | 2006/05     |
+-------------+-------------+-------------+-------------+-------------+
| World       | 217169.53   | 184272.89   | 177294.97   | -3.79       |
+-------------+-------------+-------------+-------------+-------------+
| Brazil      | 53632.2     | 46129.44    | 111771.09   | 142.3       |
+-------------+-------------+-------------+-------------+-------------+
| United      | 120847.86   | 83729.24    | 28003.39    | -66.55      |
| States      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Argentina   | 2685.13     | 8340.92     | 16465.36    | 97.4        |
+-------------+-------------+-------------+-------------+-------------+
| Chile       | 6673.96     | 8355.93     | 7144.15     | -14.5       |
+-------------+-------------+-------------+-------------+-------------+
| Iran        | 9953.58     | 13653.08    | 3252.77     | -76.18      |
+-------------+-------------+-------------+-------------+-------------+
| United      | 1648.21     | 2905.74     | 2717.01     | -6.5        |
| Kingdom     |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Australia   | 1510.02     | 1393.35     | 1919.52     | 37.76       |
+-------------+-------------+-------------+-------------+-------------+
| Japan       | 32.48       | 898.3       | 1096.16     | 22.03       |
+-------------+-------------+-------------+-------------+-------------+
| France      | 356.63      | 1146.94     | 1072.98     | -6.45       |
+-------------+-------------+-------------+-------------+-------------+
| Poland      | 97.2        | 141.51      | 901.25      | 536.85      |
+-------------+-------------+-------------+-------------+-------------+
| Source:     |             |             |             |             |
| Hong Kong   |             |             |             |             |
| Census and  |             |             |             |             |
| Statistics  |             |             |             |             |
| Department  |             |             |             |             |
|             |             |             |             |             |
| HS code:    |             |             |             |             |
| 02021410    |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

+-------------+-------------+-------------+-------------+-------------+
| Hong Kong   |             |             |             |             |
| Chicken Paw |             |             |             |             |
| Re-Exports  |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Janua       |             |             |             |
|             | ry-December |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Quantity,   |             |             | Percent     |
|             | MT          |             |             | Change      |
+-------------+-------------+-------------+-------------+-------------+
|             | 2004        | 2005        | 2006        | 2006/05     |
+-------------+-------------+-------------+-------------+-------------+
| World       | 66574.72    | 97307.98    | 152799.97   | 57.03       |
+-------------+-------------+-------------+-------------+-------------+
| China       | 54514.84    | 68406.73    | 117086.95   | 71.16       |
+-------------+-------------+-------------+-------------+-------------+
| Taiwan      | 2349.99     | 27089.22    | 35288.47    | 30.27       |
+-------------+-------------+-------------+-------------+-------------+
| Macau       | 696.91      | 615.75      | 346.31      | -43.76      |
+-------------+-------------+-------------+-------------+-------------+
| Vietnam     | 8642.15     | 1193.13     | 72.01       | -93.96      |
+-------------+-------------+-------------+-------------+-------------+
| Malaysia    | 0           | 0           | 5.2         | 0           |
+-------------+-------------+-------------+-------------+-------------+
| Indonesia   | 3.79        | 3.14        | 1.04        | -66.88      |
+-------------+-------------+-------------+-------------+-------------+
| United      | 0           | 0           | 0           | 0.00        |
| States      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Source:     |             |             |             |             |
| Hong Kong   |             |             |             |             |
| Census and  |             |             |             |             |
| Statistics  |             |             |             |             |
| Department  |             |             |             |             |
|             |             |             |             |             |
| HS code:    |             |             |             |             |
| 02071410    |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

+-------------+-------------+-------------+-------------+-------------+
| Hong Kong   |             |             |             |             |
| Chicken     |             |             |             |             |
| Wing,       |             |             |             |             |
| Frozen,     |             |             |             |             |
| Imports     |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Janua       |             |             |             |
|             | ry-December |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Quantity,   |             |             | Percent     |
|             | MT          |             |             | Change      |
+-------------+-------------+-------------+-------------+-------------+
|             | 2004        | 2005        | 2006        | 2006/05     |
+-------------+-------------+-------------+-------------+-------------+
| World       | 178286.7    | 155916.62   | 193884.37   | 24.35       |
+-------------+-------------+-------------+-------------+-------------+
| Brazil      | 90284.08    | 87742.56    | 134437.24   | 53.22       |
+-------------+-------------+-------------+-------------+-------------+
| United      | 49095.42    | 29882.76    | 19167.46    | -35.86      |
| States      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Netherlands | 3122.15     | 3796.15     | 8665.18     | 128.26      |
+-------------+-------------+-------------+-------------+-------------+
| United      | 6351.17     | 7585.26     | 7671.49     | 1.14        |
| Kingdom     |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Canada      | 3802.95     | 3731.62     | 4891.31     | 31.08       |
+-------------+-------------+-------------+-------------+-------------+
| France      | 11729.02    | 8022.47     | 4824.28     | -39.87      |
+-------------+-------------+-------------+-------------+-------------+
| Chile       | 3750.9      | 2958.01     | 3684.15     | 24.55       |
+-------------+-------------+-------------+-------------+-------------+
| Source:     |             |             |             |             |
| Hong Kong   |             |             |             |             |
| Census and  |             |             |             |             |
| Statistics  |             |             |             |             |
| Department  |             |             |             |             |
|             |             |             |             |             |
| HS code:    |             |             |             |             |
| 02071410    |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

+-------------+-------------+-------------+-------------+-------------+
| Hong Kong   |             |             |             |             |
| Chicken     |             |             |             |             |
| Wings,      |             |             |             |             |
| Frozen,     |             |             |             |             |
| Re-Exports  |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Janua       |             |             |             |
|             | ry-December |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Quantity,   |             |             | Percent     |
|             | MT          |             |             | Change      |
+-------------+-------------+-------------+-------------+-------------+
|             | 2004        | 2005        | 2006        | 2006/05     |
+-------------+-------------+-------------+-------------+-------------+
| World       | 45206.9     | 62348.77    | 95821.6     | 53.69       |
+-------------+-------------+-------------+-------------+-------------+
| China       | 33398.39    | 30073.95    | 48353.99    | 60.78       |
+-------------+-------------+-------------+-------------+-------------+
| Taiwan      | 1205.22     | 29497.04    | 45419.82    | 53.98       |
+-------------+-------------+-------------+-------------+-------------+
| Macau       | 2123.55     | 2394.47     | 1986.86     | -17.02      |
+-------------+-------------+-------------+-------------+-------------+
| Vietnam     | 7779.69     | 372.47      | 53.05       | -85.76      |
+-------------+-------------+-------------+-------------+-------------+
| Indonesia   | 7.43        | 10.84       | 7.88        | -27.33      |
+-------------+-------------+-------------+-------------+-------------+
| United      | 99171       | 0           | 0           | 0           |
| States      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Source:     |             |             |             |             |
| Hong Kong   |             |             |             |             |
| Census and  |             |             |             |             |
| Statistics  |             |             |             |             |
| Department  |             |             |             |             |
|             |             |             |             |             |
| HS code:    |             |             |             |             |
| 02071410    |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

+-------------+-------------+-------------+-------------+-------------+
| Hong Kong   |             |             |             |             |
| Frozen      |             |             |             |             |
| Edible      |             |             |             |             |
| Chicken     |             |             |             |             |
| Offal,      |             |             |             |             |
| Except Feet |             |             |             |             |
| Imports     |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Janua       |             |             |             |
|             | ry-December |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Quantity,   |             |             | Percent     |
|             | MT          |             |             | Change      |
+-------------+-------------+-------------+-------------+-------------+
|             | 2004        | 2005        | 2006        | 2006/05     |
+-------------+-------------+-------------+-------------+-------------+
| World       | 13716.55    | 17411.44    | 30246.27    | 73.71       |
+-------------+-------------+-------------+-------------+-------------+
| Brazil      | 8773.67     | 12085.24    | 22405.39    | 85.39       |
+-------------+-------------+-------------+-------------+-------------+
| United      | 4298.24     | 4024.69     | 5718.8      | 42.09       |
| States      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Chile       | 250.27      | 347.64      | 1089.9      | 213.51      |
+-------------+-------------+-------------+-------------+-------------+
| China       | 134.61      | 218.83      | 560.38      | 156.08      |
+-------------+-------------+-------------+-------------+-------------+
| Argentina   | 0           | 213.38      | 107.79      | -49.48      |
+-------------+-------------+-------------+-------------+-------------+
| Netherlands | 0           | 132.5       | 101.41      | -23.46      |
+-------------+-------------+-------------+-------------+-------------+
| Belgium     | 0           | 77.87       | 78          | 0.17        |
+-------------+-------------+-------------+-------------+-------------+
| Source:     |             |             |             |             |
| Hong Kong   |             |             |             |             |
| Census and  |             |             |             |             |
| Statistics  |             |             |             |             |
| Department  |             |             |             |             |
|             |             |             |             |             |
| HS code:    |             |             |             |             |
| 02071410    |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

+-------------+-------------+-------------+-------------+-------------+
| Hong Kong   |             |             |             |             |
| Frozen      |             |             |             |             |
| Edible      |             |             |             |             |
| Chicken     |             |             |             |             |
| Offal,      |             |             |             |             |
| Except      |             |             |             |             |
| Feet,       |             |             |             |             |
| Re-Exports  |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Janua       |             |             |             |
|             | ry-December |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
|             | Quantity,   |             |             | Percent     |
|             | MT          |             |             | Change      |
+-------------+-------------+-------------+-------------+-------------+
|             | 2004        | 2005        | 2006        | 2006/05     |
+-------------+-------------+-------------+-------------+-------------+
| World       | 3554.39     | 9227.75     | 14996.48    | 62.52       |
+-------------+-------------+-------------+-------------+-------------+
| Taiwan      | 121.31      | 6414.78     | 9242.42     | 44.08       |
+-------------+-------------+-------------+-------------+-------------+
| China       | 2643.35     | 2732.06     | 5705.76     | 108.84      |
+-------------+-------------+-------------+-------------+-------------+
| Macau       | 2.91        | 67.94       | 48.31       | -28.89      |
+-------------+-------------+-------------+-------------+-------------+
| United      | 47.88       | 0           | 0           | 0           |
| States      |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Korea,      | 0           | 0           | 0           | 0           |
| South       |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Myanmar     | 52.01       | 0           | 0           | 0           |
+-------------+-------------+-------------+-------------+-------------+
| Vietnam     | 686.93      | 129.8       | 0           | -100        |
+-------------+-------------+-------------+-------------+-------------+
| Source:     |             |             |             |             |
| Hong Kong   |             |             |             |             |
| Census and  |             |             |             |             |
| Statistics  |             |             |             |             |
| Department  |             |             |             |             |
|             |             |             |             |             |
| HS code:    |             |             |             |             |
| 02071410    |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

# Marketing

## Trade contributes decreased market share to product quality and packaging

Characteristics such as "yellow paws" (occurring when the outer layer of
skin is not properly removed), undesirable package sizes, inflexibility
and carelessness with shipping methods, and excess package moisture may
drive buyers to look at purchasing from countries other than the United
States. According to traders, U.S. products carry significantly more
weight in the form of excess moisture or ice than Brazilian products;
U.S. paws generally have 5-6% moisture content, whereas Brazilian paws
have 1-2%. This is largely due to that fact that Brazilian paws are air
chilled. Most U.S. poultry is water chilled and machine packed. Apart
from quality concerns, the buyer is paying for the weight of the excess
moisture\--a costly and unwanted expense.

The following pictures demonstrate quality disparities in imported
chicken feet and paws.

![](media/image8.jpeg){width="2.6951388888888888in"
height="2.370138888888889in"}

The chicken paws on the right illustrate some of the problems poor
processing and packaging can create in product quality. Apart from
yellow skin and mangled paws, the package contains considerably more ice
than the package of chicken feet on the left.

## Traders look for high-quality paws which meet their specific requirements

Domestic traders prefer the following characteristics when purchasing
paws.

*Moisture:* Moisture no greater than 8 percent, a maximum based on
China's national standard. The trade reports that U.S. paws often have
higher moisture percentage compared with Brazilian products. U.S. plants
utilize ice cooling after harvest, while Brazilian plants utilize
air-cooling.

*Size of paws:* Large cities and wealthier consumers prefer U.S.
jumbo-sized chicken paws because they contain more meat. Medium-sized
Brazilian paws, typically 25 grams each, are well accepted by
lower-income consumers.

*Packaging:* Domestic traders prefer Brazil's hand "soldier" packing of
wings. The availability of paws and feet in in smaller bags compared
with U.S. packing in large bags is another advantage. Smaller bags are
easier and more convenient for supermarkets to use.

*Prices:* The paw market is an extremely price-driven market; both
traders and consumers are price sensitive. Brazil and Argentine paws
have cut into the U.S. market share because of their very competitive,
lower pricing coupled with their higher prices thanks to lower moisture
content and high quality, particularly in the case of Brazil.

*Color:* Lighter color paws are preferred.

[]{#__RefHeading___Toc158546716 .anchor}Addition of grading system would
bolster U.S. brand image

Traders tell Post that U.S. paws are often packaged without being
properly graded, leading to paws of all different sizes and qualities
packaged together. In contrast, both Brazil and Thailand have taken the
lead to combat this by implementing a certified system for grading feet
and paws. For example, grade "A" Brazilian feet are select product that
are uniform in size, have heavy meat content and specialized packaging.
Grade "B" paws have lower quality and are inferior in size. By not
grading U.S. chicken paws, U.S. producers are missing out on an
opportunity to brand U.S. chicken paws, allowing additional marketing
and pricing opportunities. Furthermore, the longer U.S. inconsistencies
are allowed to continue, the stronger the brand image of Brazilian grade
A products will grow.

![](media/image10.jpeg){width="3.5in" height="3.397222222222222in"}The
following picture depicts the type of size disparities that result from
a lack of grading system

# 

# Market Outlook 

## Outlook and Opportunities to expand U.S. paw sales to China

China's chicken paw supplies lag consumer demand, despite increases in
domestic paw production. At this time, China imports over 300,000 MT of
chicken paws annually, accounting for over half of China's total poultry
imports. This pattern will likely continue into the future as long as
the supply and demand gap exists.

Although the United States is still the largest chicken paw supplier to
the China market, many challenges, including increasingly strong
competition from Brazil and Argentina, threaten this position. Although
the U.S. industry would like to increase paw trade in China and
capitalize on increased wholesale prices, there are numerous challenges
that prevent them from doing so. Stricter port inspections by China's
quarantine officials, coupled with the FSIS inspection mandate and the
delay in the U.S. industry investing in new production lines, have
decreased the amount of product available for export to China. New
import regulations such the unified chicken paw health standard for
China and Hong Kong will continue to encourage trade shifting away from
Hong Kong with more direct shipments to Mainland China ports.

FAS Beijing believes that U.S. chicken paws will continue to lose market
share unless quality is improved so that it meets or exceeds that of our
major market competitors, Brazil and Argentina. While recognizing that
some adjustments, like hand packing are wholly unfeasible, industry
should especially consider finding a way to reduce package moisture
(especially ice), reduce product defects, and ship more consistent
product by implementing a paw grading system. Although the paw market is
price driven, China's booming economy and rapidly increasing rural and
urban incomes mean chicken paw demand, and prices, are likely to keep
growing. Industry should carefully consider investing in plant
improvements in order to: meet FSIS inspection mandates and increase
export volume; reduce moisture content to levels comparable or superior
to Brazilian product; and introduce a grading system to ensure uniform
quality of chicken paws. While supply limitations will likely ensure a
place for U.S. paws regardless, failure to both make improvements and
increase supply threatens the U.S.' current dominant market position.
Furthermore, with the increasing prices of chicken paws, U.S. industry
may be missing out on a prime opportunity to profit in this key sector
of China's rapidly growing high-value meat products market.