Required Report - public distribution

**Date:** 9/1/2006

**GAIN Report Number:** MY6034

MY6034

**Malaysia**

**Poultry and Products**

**Annual**

**2006**

**Approved by:**

![](media/image1.wmf)Jonathan Gressel

U.S. Embassy, Kuala Lumpur

**Prepared by:**

Jacelyn Chang

**Report Highlights:**

The broiler production for Malaysia is projected to reach 922 thousand
metric tons, an increase of 2% from 2005. The projection is partly due
to the entrance of new broiler players in the market. The existing
balance of supply and demand has not favored the producers with ex-farm
prices lower than break-even. The market is also flooded with old stock
and smuggled poultry. Domestic per capita consumption has already
reached a saturation point and new export market needs to be built.
Imports of chicken meat in 2006 are estimated at 16,000 metric tons,
lower than 2005. Other than limited imports of chicken wings, Malaysia
generally uses import licensing to place a defector ban on chicken meat
imports, especially in times of surplus. Such use of import licensing
appears to be inconsistent with Malaysia's WTO obligations.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Kuala Lumpur \[MY1\]

\[MY\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Production 4](#production)

[Consumption 5](#consumption)

[Trade 6](#trade)

[Marketing Infrastructure/Channels 7](#marketing-infrastructurechannels)

[PSD for Poultry, Meat, Broiler 8](#psd-for-poultry-meat-broiler)

[Exports Trade Matrix for Poultry, Meat, Broiler
9](#exports-trade-matrix-for-poultry-meat-broiler)

[Imports Trade Matrix for Poultry, Meat, Broiler
10](#imports-trade-matrix-for-poultry-meat-broiler)

[Price Table for Poultry, Meat, Broiler
11](#price-table-for-poultry-meat-broiler)

# Executive Summary

Malaysia has one of the highest per capita consumption rates in the
world for chicken at 32 kg. Malaysia is self-sufficient in meeting the
country's demand for broiler meat. With the H5N1 outbreak in mid
February/March this year, the balance of supply and demand has not
favored the producers so far. The current ex-farm price is hovering on
the average of \$2.80/ kg (average) compared to RM3.7/kg in 2005.
According to industry sources, the market is flooded with frozen
chicken, not only the old stocks from the period of H5N1 outbreak when
the demand was low, but also from smuggling. Producers will eventually
need to scale down production. With the per capita consumption already
reaching saturation point at about 32 kilograms, new export markets need
to be built as well.

The best prospects for U.S. exporters will be in supplying day-old
chicks (DOC), broiler grandparent stock, frozen turkey/turkey parts and
frozen chicken parts. There are also limited opportunities for sales of
processed poultry meat.

Exchange rate: US1.00 = RM3.67

# Production

1\. Poultry meat - Broiler

\-- Breeding Stock (Broiler)

The Malaysian poultry sector relies solely on high quality exotic
grandparents breeds from the United States, Europe, Canada, and
Australia. According to a survey conducted by the Malaysian Department
of Veterinary Services (DVS), the standing parent-stock population was
estimated at 4.4 million birds in 2005, of which 58% are locally
produced. The remaining parent stock is imported mainly from the
Netherlands, Luxembourg, United Kingdom and United States.

There are five fully integrated and twenty-four non‑integrated
parent-stock breeder farms in the country. The Cobb and Ross are the
predominant breeds used, and account for 89 percent of the total parent
stock. Other breeds are Arbor Acres and Hubbard.

Broiler Meat

In 2005, the day-old chick production was about 462 million birds and is
projected to reach 480 million chicks in 2006. The weekly production
ranged from 8.35 million to 9.5 million chicks. The contribution by
integrators to the total day-old chick production was about 62%. They
were no day-old broiler chicks imported into the country.

There are about 2,500 broiler farms producing over 400 million birds.
The largest broiler operation can house about 300,000 broilers while
small ones house about 5,000 broilers in one farm. The productivity
measures are very close to global standards. The total chicken meat
production for Malaysia in 2005 was at 904 thousand metric tons and is
estimated to reach 922 thousand metric tons in 2006. The projection is
partly due to the entrance of new broiler players in the market.

2005 was a favorable year for the broiler industry. The RM4.00 ceiling
price (ex-farm) set by the government in October 2004 brought profit to
the industry. In West Malaysia, the average traded ex-farm price of
day-old chicks and live broilers was at RM1.48/per chick and RM3.7/kg
respectively. The average cost of production of broilers was at
RM3.17/kg. The balance in supply and demand has also contributed to the
profit.

Export of live broilers in 2005 was at 38 million birds, a 9% increase
compared to the previous year. Meanwhile, export of chicken meat dropped
to 2,590 metric tons from 3,780 metric tons. Singapore is the largest
export market for live poultry and poultry products from Malaysia.
However, industry sources believe that this is a far cry from the level
of imports before the H5NI outbreak in the Northeast of Peninsular
Malaysia in August 2004 and the State of Selangor and Perak in
February-March 2006. This is because Singapore has since looked to other
countries to meet the country's demand for chicken with the H5NI
outbreak in Malaysia. In addition, it is mandatory for meat and poultry
traders in wet markets in Singapore to have chillers, propelling the
growth of chilled and frozen chicken, thus affecting the demand for warm
poultry meat and therefore live birds.

With the H5N1 outbreak in mid February/March this year, the balance of
supply and demand has not favored the producers so far. The current
ex-farm price is hovering on the average of \$2.80/ kg (average)
compared to RM3.7/kg in 2005. According to industry sources, the market
is flooded with frozen chicken, not only the old stocks from the period
of H5N1 outbreak when the demand was low, but also from smuggling.
Producers will eventually need to scale down production. With the per
capita consumption already reaching saturation point at about 32
kilograms, new export markets need to be built as well.

The industry produces more than RM4 billion worth of broilers and eggs,
at farm gate prices annually. This industry is regarded as the most
successful segment of the livestock sector and perhaps has the highest
output value per worker in the agriculture sector. About 30 percent of
broilers are channeled through modern processing plants while the
remaining 60 percent sold as live or dressed birds in wet markets.

With the looming threat of Highly Pathogenic Avian Influenza (HPAI) in
the region and the potential negative impact in the poultry business,
Malaysia remains vigilant to fight the disease at all cost. Malaysia
tackled the H5N1 outbreaks (in 2004 and 2006) with confidence and was
declared freed of AI on June 21, 2006. With the recent outbreaks in
Indonesia and Thailand, Malaysia remains on high alert. The veterinary
authorities are still continuing its nationwide surveillance and chicken
farms are constantly checked for unusual deaths. Industry sources
indicated that the lack of manpower, such as surveillance officers, is a
worrying situation.

Porous borders between Malaysia and Thailand continue to pose a great
challenge to Malaysian authorities to fend off poultry smuggling. In
view of the upcoming Ramadhan holidays, foreign Indonesian workers are
expected to travel back to their villages to celebrate the religious
holidays. The surge in border traffic is a grave concern because
epidemiological evidences pointed to movement of infected poultry,
poultry products and pet birds into the country as the source of the
outbreaks.

# Consumption

Malaysia has one of the highest per capita consumption rates in the
world for chicken. Per capita consumption of chicken is reported at 32
kg. Chicken meat is the most popular and cheapest source of meat protein
among Malaysians, largely because there are no dietary prohibitions or
religious restrictions against chicken consumption.

Over the years, quick service restaurants (QSR) such as Kentucky Fried
Chicken (KFC), McDonald's, A&W, Kenny Rogers, Nando's Chickenland (a
South-African based chain) have propelled the growth of chicken
consumption in Malaysia.

Malaysian consumer today demands safe and high quality food at
reasonable price from the industry. They are very sensitive towards
issues arising out of health and halal matters.

It is important to note that the majority of the Muslim consumers will
not accept poultry products that are not certified halal by the
Malaysian religious authority. In recent years, quite a number of meat
and poultry products with questionable halal status have received wide
and negative publicity from the Malaysian media. The foodservice
industry only purchases halal certified poultry.

The Malaysian consumers are also price-sensitive and look for
value-for-money products. The poultry industry is increasingly
challenged to produce new innovative products at lower costs without
compromising on the quality.

# Trade

In 1983 the Government of Malaysia began limiting imports of frozen
chicken into Peninsular Malaysia by instituting import licensing. The
action was taken to protect domestic chicken producers, with the
justification that Malaysia is self-sufficient in broiler production.
The states of Sabah and Sarawak in East Malaysia implemented similar
restrictions on chicken imports in 1991. It also important to note that
the veterinary authorities in East Malaysia has autonomy in establishing
policies related to import and exports of poultry. Malaysia reserved the
right to implement a TRQ in the Uruguay Round, but has never done so.
The current use of import licensing to restrict imports appears to be
inconsistent with Malaysia's WTO obligations.

Chicken parts are imported periodically depending on local supply
situation. Some are shipped through Singapore for East Malaysian states
of Sabah and Sarawak. These imports mainly cater to the further
processing industry. In 2005, total imports of frozen chicken (parts)
were 17,000 metric tons. The major suppliers were the Netherlands (7226
metric tons) and Denmark (4622 metric tons), mainly wings and
mechanically de-boned chicken) MDM. The Department of Veterinary
Services (DVS) generally approved chicken wing imports due to their
popularity and short supply. The size of US chicken wings is considered
to too large for this market. Malaysia has yet to lift the ban on
poultry from Thailand and China.

The level of imports for 2006 is estimated to be at 16,000 metric tons,
down from 2005. With the current oversupply of chicken meat in the
market and the stagnant export market, domestic chicken is sufficient to
fill the raw materials needs of the processing industry. With the
impending US-Malaysia FTA negotiations, the local producers are anxious
on the prospect of the market opening-up to imports from U.S., hence
affecting their livelihood and competitiveness.

Malaysia has a robust further processing industry. Chicken frankfurters,
cocktail sausages, burgers and nuggets that were exclusively imported
before, are now locally produced. Major players, who are also
integrators, invest heavily on brand names for their further processed
products such as *Ayamas* (by Ayamas Food Corporation), *Ayam Dindings*
(Dindings Poultry), and *Farm's Best* (Sinmah Food Industries). Local
processed products command about 90% of the market and it is difficult
for imported processed products to compete on the basis of price.
However, there are some premium processed chicken products that have
found favors with chefs of international hotels and with consumers at
the upper income levels.

With Malaysian's aim to become a *halal* food hub, the poultry industry
is well positioned to supply *halal* processed poultry to other Islamic
countries and Muslim consumers worldwide. However, relatively high
chicken prices hurt Malaysia's competitiveness on the world market. Most
Malaysian approved foreign plants consist of abattoirs supplying raw
materials for manufacturing needs. Every two to three years, DVS and the
Islamic Development Department (JAKIM) inspect and approve U.S.
abattoirs and further processed plants for exports of *halal* products
to Malaysia. Accreditation of foreign plants for *halal* purposes has
become part and parcel of the Malaysian industry. However, the main
issue associated with *halal* inspection is the sudden disruption in
supply when the eligibility of the abattoirs or plants to supply *halal*
products is terminated immediately, based on the inspection results.

All turkey meat is imported. In 2005, imports of frozen whole turkey and
turkey parts were 260 metric tons. The United States is the dominant
supplier. Due to the business decisions of the two currently approved
turkey plants, which no longer plan on exporting whole turkey to
Malaysia, the market is not likely to have any turkeys for the festive
holidays this year. This posed a significant problem to the food service
trade since the demand for turkey is generally high during the
Thanksgiving and Christmas seasons. Various parties concerned are
currently working to address the situation.

# Marketing Infrastructure/Channels

About 70% of chickens in the country are sold in the wet markets as most
Malaysian consumers still believe freshly slaughtered chickens are
better than frozen ones. Although the local councils are enforcing
health laws to prohibit chicken slaughter in wet markets, it is a tough
battle. Some wholesalers arrange to slaughter the birds in designated
slaughterhouses and bring dressed chicken to the marketplace. The
remaining 30% of sales occur in modern supermarkets and mini markets as
well as numerous retail outlets operated by some of the integrated
poultry companies.

Further-processed products, both local and imported, are distributed to
wholesalers, supermarkets, hypermarkets, catering institutions,
restaurants and hotels. Integrators such as KFC Holdings, Dinding
Poultry and Sinmah Resources have their own marketing and distribution
arms. Since processed products are not subject to government price
controls, other integrators are moving into the business. Processed
products like nuggets and frankfurters come in colorful, attractive
packages to attract customers, especially children. Packages of one-kilo
and 340-grams are popular consumer sizes.

Currently, there is no import duty on poultry meat. Further processed
poultry attracts 20% tariff. Import permits from DVS are required for
all shipments of poultry products into the country.

All poultry shipments must be accompanied by import license (to be
applied by the importer before consignments sails), Veterinary Health
Certificate (signed or endorsed by a competent veterinary officer of
Animal and Plant Health Inspection Service), Meat Inspection Certificate
(endorsed by the meat inspector of Food Safety and Inspection Service)
and Halal Certificate (issued by the approved U.S. Islamic Centers for
that slaughterhouse). All meat must be properly labeled indicating
establishment number of the abattoir and packing plant; lot number, date
of production and *halal* slaughter. Since Malaysia has a large Muslim
population, all poultry products must be certified *halal* and must
originate from slaughterhouses that have been inspected and approved by
DVS and Malaysia Islamic Development Department (JAKIM).

In addition to certifying the plants for *halal* export, JAKIM will also
approve and appoint U.S. Islamic Centers to monitor and audit the
*halal* status of the approved plants and to issue halal certificates
for all export consignments. Halal approval is granted for specific
Islamic Centers to carry out and certify slaughter at an individual
plant. For this purpose, each individual plant has an approved Islamic
Center or multiple Islamic Centers authorized to issue the halal
certificate. Exporters are advised to check with the individual plant on
their authorized Islamic Centers. The Islamic Centers are duty-bound to
record all monitoring and auditing activities of the approved plants and
to submit these reports to JAKIM upon request. Guidelines on the
appointment of foreign Islamic organizations are found in JAKIM website
at <http://www.islam.gov.my/e-halal/glossary.php>.

Currently, there are 8 U.S. poultry facilities approved by the Malaysian
authorities. U.S. suppliers who are interested in exporting to Malaysia
should contact USA Poultry and Egg Export Council (USAPEEC) to
coordinate inspection visits by Malaysian authorities to approve their
facilities for *halal* exports to Malaysia.

# PSD for Poultry, Meat, Broiler

+-----------------+-------+--------+--------+-------+--------+-------+
| **PSD Table**   |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| **Country**     | **    |        |        |       |        |       |
|                 | Malay |        |        |       |        |       |
|                 | sia** |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| **Commodity**   | **Pou |        |        |       | (1000  |       |
|                 | ltry, |        |        |       | M      |       |
|                 | Meat, |        |        |       | T)(MIL |       |
|                 | Broi  |        |        |       | HEAD)  |       |
|                 | ler** |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
|                 | 2005  | R      | 2006   | Est   | 2007   | For   |
|                 |       | evised |        | imate |        | ecast |
+-----------------+-------+--------+--------+-------+--------+-------+
|                 | USDA  | Post   | USDA   | Post  | USDA   | Post  |
|                 | Off   | Es     | Of     | Est   | Of     | Est   |
|                 | icial | timate | ficial | imate | ficial | imate |
|                 | \[    |        | \      |       | \      |       |
|                 | Old\] | \      | [Old\] | \[    | [Old\] | \[    |
|                 |       | [New\] |        | New\] |        | New\] |
+-----------------+-------+--------+--------+-------+--------+-------+
| **Market Year   |       | 0      |        | 01    |        | 01    |
| Begin**         |       | 1/2005 |        | /2006 |        | /2007 |
+-----------------+-------+--------+--------+-------+--------+-------+
| Inventory       | 0     | 0      | 0      | 0     | 0      | 0     |
| (Reference)     |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| Slaughter       | 0     | 0      | 0      | 0     | 0      | 0     |
| (Reference)     |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| Beginning       | 0     | 0      | 0      | 0     | 0      | 0     |
| Stocks          |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| Production      | 896   | 904    | 920    | 922   | 0      | 931   |
+-----------------+-------+--------+--------+-------+--------+-------+
| Whole, Imports  | 0     | 0      | 0      | 0     | 0      | 0     |
+-----------------+-------+--------+--------+-------+--------+-------+
| Parts, Imports  | 20    | 17     | 23     | 16    | 0      | 17    |
+-----------------+-------+--------+--------+-------+--------+-------+
| Intra EC        | 0     | 0      | 0      | 0     | 0      | 0     |
| Imports         |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| Other Imports   | 0     | 0      | 0      | 0     | 0      | 0     |
+-----------------+-------+--------+--------+-------+--------+-------+
| TOTAL Imports   | 20    | 17     | 23     | 16    | 0      | 17    |
+-----------------+-------+--------+--------+-------+--------+-------+
| TOTAL SUPPLY    | 916   | 921    | 943    | 938   | 0      | 948   |
+-----------------+-------+--------+--------+-------+--------+-------+
| Whole, Exports  | 1     | 1      | 1      | 1     | 0      | 1     |
+-----------------+-------+--------+--------+-------+--------+-------+
| Parts, Exports  | 4     | 2      | 5      | 3     | 0      | 4     |
+-----------------+-------+--------+--------+-------+--------+-------+
| Intra EC        | 0     | 0      | 0      | 0     | 0      | 0     |
| Exports         |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| Other Exports   | 0     | 0      | 0      | 0     | 0      | 0     |
+-----------------+-------+--------+--------+-------+--------+-------+
| TOTAL Exports   | 5     | 3      | 6      | 4     | 0      | 5     |
+-----------------+-------+--------+--------+-------+--------+-------+
| Human           | 911   | 918    | 937    | 934   | 0      | 943   |
| Consumption     |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| Other Use,      | 0     | 0      | 0      | 0     | 0      | 0     |
| Losses          |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| Total Dom.      | 911   | 918    | 937    | 934   | 0      | 943   |
| Consumption     |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| TOTAL Use       | 916   | 921    | 943    | 938   | 0      | 948   |
+-----------------+-------+--------+--------+-------+--------+-------+
| Ending Stocks   | 0     | 0      | 0      | 0     | 0      | 0     |
+-----------------+-------+--------+--------+-------+--------+-------+
| TOTAL           | 916   | 921    | 943    | 938   | 0      | 948   |
| DISTRIBUTION    |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+
| Calendar Yr.    | 0     | 0      | 0      | 0     | 0      | 0     |
| Imp. from U.S.  |       |        |        |       |        |       |
+-----------------+-------+--------+--------+-------+--------+-------+

## Exports Trade Matrix for Poultry, Meat, Broiler

  -------------------- ------------------ ---------------- ---------------
  **Export Trade                                           
  Matrix**                                                 

  **Country**          Malaysia                            

  **Commodity**        Poultry, Meat,                      
                       Broiler                             

  Time Period          2005 Jan-Dec; 2006 Units:           Metric Ton
                       Jan-Apr                             

  Exports for:         2005                                **2006**

  U.S.                                    U.S.              

  Others                                  Others           

  Singapore            2500               Indonesia        2

  Brunei               88                 Nigeria          1

  Thailand             37                                   

  Indonesia            11                                   

  Philippines          3                                    

                                                            

                                                            

                                                            

                                                            

                                                            

  Total for Others     2639                                3

  Others not Listed                                         

  Grand Total          2639                                3
  -------------------- ------------------ ---------------- ---------------

## Imports Trade Matrix for Poultry, Meat, Broiler

  ------------------- ----------------- ------------------ ---------------
  **Import Trade                                           
  Matrix**                                                 

  **Country**         Malaysia                             

  **Commodity**       Poultry, Meat,                       
                      Broiler                              

  Time Period         2005 Jan-Dec;     Units:             Metric Ton
                      2006 Jan-Apr                         

  Imports for:        2005                                 **2006**

  U.S.                1707              U.S.               364

  Others                                Others             

  Netherlands         7226              Denmark            3050

  Denmark             4622              Netherlands        1764

  France              2787              France             673

  Germany             679               Germany            50

  United Kingdom      51                Dominica           38

  Dominica            27                United Kingdom     25

  New Zealand         26                India              24

                                                            

                                                            

                                                            

  Total for Others    15418                                5624

  Others not Listed                                         

  Grand Total         17125                                5988
  ------------------- ----------------- ------------------ ---------------

## Price Table for Poultry, Meat, Broiler

  ---------------------- ---------------- ------------------ -------------
  **Prices Table**                                           

  **Country**            Malaysia                            

  **Commodity**          Poultry, Meat,                      
                         Broiler                             

  Prices in              Ringgit          per uom            Kilogram

                                                             

  Year                   2005             2006               \% Change

  Jan                    4.5              3.3                -27%

  Feb                    4                3.3                -18%

  Mar                    4                3.3                -18%

  Apr                    4                3.15               -21%

  May                    4                4.1                2%

  Jun                    4                4.1                2%

  Jul                    4                3.15               -21%

  Aug                    4                3.7                -8%

  Sep                    4                                   -100%

  Oct                    4                                   -100%

  Nov                    3.9                                 -100%

  Dec                    4.5                                 -100%

                                                             

  Exchange Rate          3.67             Local Currency/US  
                                          \$                 

  Date of Quote          8/30/2006        MM/DD/YYYY         
  ---------------------- ---------------- ------------------ -------------

End-of-Report