Required Report - public distribution

**Date:** 1/30/2004

**GAIN Report Number:** HK4001

HK0000

**Hong Kong**

**Poultry and Products**

**Semi-Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Susan Scurlock Theiler

U.S. Consulate General, Hong Kong

**Prepared by:**

Caroline Yuen

**Report Highlights:**

U.S. chicken exports to Hong Kong in 2004 are expected to rise by 10
percent because the prevailing high chicken prices in Hong Kong are
expected to rise further thus providing an attractive market for U.S.
suppliers. The figure for 2004 retained imports of chicken products is
forecast to rebound to 2002 levels. Hong Kong has gradually recovered
from the devastating impact of SARS, and the economy is improving with
positive indicators. Traders are now more willing to source the
higher-priced U.S. products, but competition from Brazil will remain
strong. The outbreak of avian influenza virtually all over Asia in
January has so far missed Hong Kong, yet poultry markets are expected to
be impacted, in any case. The Hong Kong government has stepped up a
surveillance program on farms and wholesale and retail markets to
prevent any outbreak. Consumption so far has not been adversely
affected. (Post is not adjusting forecasts at this time to reflect any
potential impact from the Asia bird flu problem.)

Includes PSD Changes: Yes

Includes Trade Matrix: No

Semi-Annual Report

Hong Kong \[HK1\]

\[HK\]

Table of Contents

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

[Statistical Tables -- Plty, Meat, Chicken
4](#statistical-tables-plty-meat-chicken)

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

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

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

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

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

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

[Table 7: Chicken Re-exports by Major Destinations, Jan -- Nov
6](#table-7-chicken-re-exports-by-major-destinations-jan-nov)

[Table 8: Hong Kong Chicken Imports by Categories, Jan -- Nov
7](#table-8-hong-kong-chicken-imports-by-categories-jan-nov)

[Table 9: Hong Kong Chicken Re-exports by Categories, Jan -- Nov
7](#table-9-hong-kong-chicken-re-exports-by-categories-jan-nov)

[Table 10: Hong Kong Retained Chicken Products by Categories, Jan -- Nov
7](#table-10-hong-kong-retained-chicken-products-by-categories-jan-nov)

[Table 11: U.S. Chicken Exports to Hong Kong, Jan -- Nov
7](#table-11-u.s.-chicken-exports-to-hong-kong-jan-nov)

[Table 12: U.S. Chicken Exports to Hong Kong being Re-exported, Jan --
Nov
8](#table-12-u.s.-chicken-exports-to-hong-kong-being-re-exported-jan-nov)

[Table 13: Hong Kong's Retained Imports of U.S. Chicken Products, Jan --
Nov
8](#table-13-hong-kongs-retained-imports-of-u.s.-chicken-products-jan-nov)

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

[Production 9](#production)

[Consumption 9](#consumption)

[Trade 10](#trade)

[Policy Update 12](#policy-update)

# Situation and Outlook

The Hong Kong government has stepped up surveillance and monitoring of
the local chicken industry amid the rampant outbreaks of avian influenza
(a.i.) in Asia. Presently, Hong Kong has not detected any abnormal death
in birds caused by H5N1, except for one wild falcon found dead and
tested positive for H5N1. Consumption of freshly slaughtered chickens
actually has been higher than usual because of the Chinese New Year. The
January discovery of a.i. in China may impact supplies.

U.S. chicken exports to Hong Kong amounted to 142,306 MT in January --
November 2003, representing a 39 percent decline compared to the same
period in 2002. The major reason was the strong demand with resultant
higher prices for chicken products in the United States and other
markets, making U.S. suppliers reduce their supplies to Hong Kong.
Nonetheless, Hong Kong traders enjoyed greater profit margins last year
than previous years because of higher selling prices. Sales of U.S.
chicken paws to the Hong Kong and China markets have continued to
decline as most U.S. plants are no longer willing to pack paws for this
market due to new documentation requirement enforced by China.

Hong Kong's demand for U.S. chicken products is expected to remain high
in 2004 because of the wide variety of grades available and good
quality. The biggest challenge is the expensive price of U.S. products
and the reluctance of U.S. suppliers to sell to Hong Kong if prices are
not too attractive. Also, the availability of price competitive
Brazilian products poses a serious challenge for U.S. products.
Nonetheless, the Hong Kong dollar is pegged to the U.S. dollar. A
weakening U.S. currency implies that Hong Kong buyers pay higher prices
for products from third countries. This would then be a favorable factor
for U.S. products.

The outlook for Hong Kong's economy in 2004 is more promising than 2003
with more positive economic indicators and rising tourism. Consumption
of chicken products is expected to rebound 8 percent in 2004 going back
to the 2002 level after the devastating effect of SARS (Severe Atypical
Respiratory Syndrome) in 2003. With consumption expected to rise 8
percent, total imports are forecast to rise 12 percent, reaching 168,000
MT in 2004. U.S. products are also expected to rise 10 percent.

Hong Kong's re-exports of chicken products have not experienced any
major disruptions in 2003. However, traders are very concerned that
Mainland Chinese officials have recently stepped up their surveillance
checks in warehouses to make sure that imports have sufficient import
documentation. Such measures have encouraged buyers to place orders for
smaller volumes but more frequently in order to reduce losses in case
products are confiscated.

# Statistical Tables -- Plty, Meat, Chicken

# 

## PS&D Table

## 

+----------------------+-----+-----+-----+-----+-----+-----+-----+
| PSD Table            |     |     |     |     |     |     |     |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Country              | #   |     |     |     |     |     |     |
|                      | ### |     |     |     |     |     |     |
|                      | ##  |     |     |     |     |     |     |
|                      | Hon |     |     |     |     |     |     |
|                      | g K |     |     |     |     |     |     |
|                      | ong |     |     |     |     |     |     |
|                      |     |     |     |     |     |     |     |
|                      | Po  |     |     |     |     |     |     |
|                      | ult |     |     |     |     |     |     |
|                      | ry, |     |     |     |     |     |     |
|                      | Me  |     |     |     |     |     |     |
|                      | at, |     |     |     |     |     |     |
|                      | B   |     |     |     |     |     |     |
|                      | roi |     |     |     |     |     |     |
|                      | ler |     |     |     |     |     |     |
|                      |     |     |     |     |     |     |     |
|                      | (1  |     |     |     |     |     |     |
|                      | 000 |     |     |     |     |     |     |
|                      | M   |     |     |     |     |     |     |
|                      | T)( |     |     |     |     |     |     |
|                      | MIL |     |     |     |     |     |     |
|                      | HE  |     |     |     |     |     |     |
|                      | AD) |     |     |     |     |     |     |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Commodity            |     |     |     |     |     |     |     |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
|                      | 2   | R   | 2   | Es  | 2   | Fo  | UOM |
|                      | 002 | evi | 003 | tim | 004 | rec |     |
|                      |     | sed |     | ate |     | ast |     |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
|                      | U   | P   | U   | P   | U   | P   |     |
|                      | SDA | ost | SDA | ost | SDA | ost |     |
|                      | Of  | Es  | Of  | Es  | Of  | Es  |     |
|                      | fic | tim | fic | tim | fic | tim |     |
|                      | ial | ate | ial | ate | ial | ate |     |
|                      | \   | \   | \   | \   | \   | \   |     |
|                      | [Ol | [Ne | [Ol | [Ne | [Ol | [Ne |     |
|                      | d\] | w\] | d\] | w\] | d\] | w\] |     |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Market Year Begin    |     | 0   |     | 0   |     | 0   | M   |
|                      |     | 1/2 |     | 1/2 |     | 1/2 | M/Y |
|                      |     | 002 |     | 003 |     | 004 | YYY |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Inventory            | 2   | 2   | 2   | 2   | 0   | 0   | (   |
| (Reference)          |     |     |     |     |     |     | MIL |
|                      |     |     |     |     |     |     | HE  |
|                      |     |     |     |     |     |     | AD) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Slaughter            | 41  | 41  | 40  | 40  | 39  | 39  | (   |
| (Reference)          |     |     |     |     |     |     | MIL |
|                      |     |     |     |     |     |     | HE  |
|                      |     |     |     |     |     |     | AD) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Beginning Stocks     | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Production           | 61  | 61  | 60  | 60  | 58  | 59  | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Whole, Imports       | 36  | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Parts, Imports       | 128 | 195 | 170 | 150 | 175 | 168 | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Intra EC Imports     | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Other Imports        | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL Imports        | 164 | 195 | 170 | 150 | 175 | 168 | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL SUPPLY         | 225 | 256 | 230 | 210 | 233 | 227 | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Whole, Exports       | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Parts, Exports       | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Intra EC Exports     | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Other Exports        | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL Exports        | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Human Consumption    | 225 | 256 | 230 | 210 | 233 | 227 | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Other Use, Losses    | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Total Dom.           | 225 | 256 | 230 | 210 | 233 | 227 | (1  |
| Consumption          |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL Use            | 225 | 256 | 230 | 210 | 233 | 227 | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Ending Stocks        | 0   | 0   | 0   | 0   | 0   | 0   | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| TOTAL DISTRIBUTION   | 225 | 256 | 230 | 210 | 233 | 227 | (1  |
|                      |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+
| Calendar Yr. Imp.    | 68  | 68  | 70  | 42  | 73  | 46  | (1  |
| from U.S.            |     |     |     |     |     |     | 000 |
|                      |     |     |     |     |     |     | MT) |
+----------------------+-----+-----+-----+-----+-----+-----+-----+

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

Table 1: Production of Live Chicken

  ----------------- --------------- ------------ ------------- -------------
                    2001            2002         2003          03/02 %
                                                               change

  Local Supply      8,322,000       8,604,000    10,107,000    17%

  Import            41,032,126      32,884,727   30,373,450    -8%

  Total             49,354,126      41,488,727   40,480,450    -2%
  ----------------- --------------- ------------ ------------- -------------

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

  ----------------- ----------- -------- -------- -------- ----------------
  US\$/kg           1999        2000     2001     2002     2003 (Jan - Oct)

  Chicken (top      \$4.73      \$4.49   \$4.60   \$4.58   \$4.23
  grade)                                                   

  Duck (top grade)  \$3.18      \$2.89   \$2.80   \$2.71   \$2.59

  Beef (best        \$7.19      \$7.17   \$7.20   \$7.15   \$7.20
  quality)                                                 

  Beef (belly       \$5.42      \$5.34   \$5.36   \$5.35   \$5.44
  flesh)                                                   

  Pork (best cut)   \$5.32      \$4.87   \$4.54   \$4.26   \$4.10

  Pork Chop         \$6.42      \$5.92   \$5.58   \$5.18   \$4.90
  ----------------- ----------- -------- -------- -------- ----------------

Source: Hong Kong Census & Statistics Department

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

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

> Product Categories Weight HK\$ (US\$1 = HK\$7.75)

whole chicken wings (Brazil) 5 lbs 31

whole broiler legs (USA) 2 lbs 13

broiler drumsticks (USA) 2 lbs 13

boneless thigh meat (USA) 2 lbs 17

mid-joint wings (USA) 2 lbs 19

pork chop (Brazil) 2 lbs 24

boneless pork chop (Brazil) 1 lb 12

chuck (Brazil) 1 lb 17

knuckle (Brazil) 1 lb 16

fore shank (Brazil) 2 lb 23

short loin (Brazil) 1 lb 37

US Prime Ribeye 1 lb 78

short ribs (US) 2 lbs 52

rib fingers (US) 2.2 lbs 38

## Table 4: Hong Kong Chicken Imports in Value by Major Suppliers, Jan - Nov 

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

  Country      2001     2002       2003     2001     2002     2003     \- 03/02
                                                                       -

  \--The       414      365        322      100      100      100      -11.81
  World\--                                                             

  United       204      170        107      49.35    46.62    33.17    -37.25
  States                                                               

  Brazil       79       84         105      19.11    23.11    32.77    25.03

  China        48       49         53       11.63    13.47    16.53    8.21

  Thailand     20       16         18       4.89     4.3      5.58     14.3

  France       4        5          9        1.03     1.31     2.86     92.4

  United       17       10         8        4.06     2.82     2.63     -17.85
  Kingdom                                                              

  Canada       10       8          4        2.53     2.06     1.39     -40.66
  ------------ -------- ---------- -------- -------- -------- -------- --------

## Table 5: Hong Kong Chicken Imports in Quantity by Major Suppliers, Jan -- Nov

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

  Country       \- MT -   \- MT -   \- MT -   2001     2002    2003    \- 03/02
                2001      2002      2003                               -

  \--The        467,234   431,444   368,170   100%     100%    100%    -15%
  World\--                                                             

  United States 264,118   231,517   142,306   57%      54%     39%     -39%

  Brazil        83,789    97,556    123,047   18%      23%     33%     26%

  China         30,215    34,005    37,669    6%       8%      10%     11%

  Thailand      12,843    8,475     13,415    3%       2%      4%      58%

  United        21,286    14,177    12,364    5%       3%      3%      -13%
  Kingdom                                                              

  France        4,507     5,232     11,282    1%       1%      3%      116%

  Canada        14,167    10,770    6,626     3%       2%      2%      -38%
  ------------- --------- --------- --------- -------- ------- ------- --------

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

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

  Country             -/ KG - 2001   -/ KG - 2002  -/ KG - 2003  \- 03/02 -

  \--The World\--     0.89           0.85          0.87          2.35

  United States       0.77           0.73          0.75          2.74

  Brazil              0.94           0.86          0.86          0

  China               1.59           1.45          1.41          -2.76

  Thailand            1.58           1.85          1.34          -27.57

  United Kingdom      0.79           0.73          0.68          -6.85

  France              0.94           0.92          0.82          -10.87

  Canada              0.74           0.7           0.67          -4.29
  ------------------- -------------- ------------- ------------- ----------

## Table 7: Chicken Re-exports by Major Destinations, Jan -- Nov

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

  Country             \- MT - 2001   \- MT - 2002  \- MT - 2003  \- 03/02 -

  \--The World\--     298,378        275,078       231,105       -16%

  China               290,764        261,406       218,173       -17%

  Taiwan              0              54            5,926         10913%

  Macao               6,507          6,527         5,357         -18%

  Vietnam             908            6,930         1,001         -86%
  ------------------- -------------- ------------- ------------- ----------

## Table 8: Hong Kong Chicken Imports by Categories, Jan -- Nov

  -------------------- ------------- ------------- ------------- ----------
                                                                 \% change

  Description          \- MT - 2001  \- MT - 2002  \- MT - 2003  2-Mar

  **Total Chicken**    467,234       431,444       368,170       -15%

  chicken, whole       23,424        23,513        29,886        27%

  chicken wings        251,103       230,645       211,666       -8%

  chicken frozen cuts  165,564       145,904       96,279        -34%

                                                                 

  **chicken feet**     369,641       277,337       273,129       -2%

  (value in US\$       214           168           168           0%
  million)                                                       
  -------------------- ------------- ------------- ------------- ----------

## Table 9: Hong Kong Chicken Re-exports by Categories, Jan -- Nov

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

                       \- MT - 2001  \- MT - 2002 \- MT - 2003   \- 03/02
                                                                 -

  **Total Chicken**    298,378       275,078      231,105        -16%

  chicken, whole       546           472          4,631          881%

  chicken wings        169,013       166,588      151,273        -9%

  chicken frozen cuts  112,049       88,483       51,949         -41%

                                                                 

  **chicken feet**     320,751       243,720      239,140        -2%
  -------------------- ------------- ------------ -------------- ---------

## Table 10: Hong Kong Retained Chicken Products by Categories, Jan -- Nov

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

                     \- MT - 2001 \- MT -     \- MT - 2003  \- 03/02 -
                                  2002                      

  **Total Chicken**  168,855      156,366     137,065       -12%

  chicken, whole     22,878       23,041      25,255        10%

  chicken wings      82,090       64,056      60,392        -6%

  chicken frozen     53,515       57,421      44,330        -23%
  cuts                                                      

                                                            

  **chicken feet**   48,890       33,618      33,989        1%
  ------------------ ------------ ----------- ------------- --------------

## Table 11: U.S. Chicken Exports to Hong Kong, Jan -- Nov

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

                     \- MT - 2001 \- MT -     \- MT - 2003  \- 03/02 -
                                  2002                      

  **Total Chicken**  264,118      231,517     142,306       -39%

  chicken wings      114,189      102,061     65,712        -36%

  chicken frozen     134,127      111,430     62,285        -44%
  cuts                                                      

                                                            

  **chicken feet**   286,591      184,929     170,298       -8%

  (value in US\$     169          119         113           -5%
  million)                                                  
  ------------------ ------------ ----------- ------------- --------------

## Table 12: U.S. Chicken Exports to Hong Kong being Re-exported, Jan -- Nov

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

                     \- MT - 2001 \- MT -     \- MT - 2003  \- 03/02 -
                                  2002                      

  **Total Chicken**  199,281      174,858     103,540       -41%

  chicken wings      87,028       80,506      47,016        -42%

  chicken frozen     99,428       80,873      41,968        -48%
  cuts                                                      

                                                            

  **chicken feet**   256,599      169,586     156,156       -8%
  ------------------ ------------ ----------- ------------- --------------

## Table 13: Hong Kong's Retained Imports of U.S. Chicken Products, Jan -- Nov

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

                     \- MT - 2001 \- MT -     \- MT - 2003  \- 03/02 -
                                  2002                      

  **Total Chicken**  64,837       56,660      38,766        -32%

  chicken wings      27,161       21,555      18,696        -13%

  chicken frozen     34,699       30,557      20,317        -34%
  cuts                                                      

                                                            

  **chicken feet**   29,992       15,343      14,142        -8%
  ------------------ ------------ ----------- ------------- --------------

Source : World Trade Atlas

# Narrative on Supply and Demand, Policy & Marketing

## Production

In the light of recent H5N1 avian influenza outbreaks in Asia, the Hong
Kong government has stepped up its monitoring and surveillance efforts
to prevent another outbreak here such as occurred in 1997. A senior Hong
Kong government official said that the immediate risk of an outbreak of
avian flu in Hong Kong is low because Hong Kong has had a territory-wide
H5N1 vaccination and surveillance program in all local chicken farms
since June 2003. These are supplementary measures to prevent the
recurrence of an outbreak. The Hong Kong government has also reached an
agreement with Mainland Chinese authorities on the vaccination of
chickens for export to Hong Kong to ensure similar levels of protection
to both imported Mainland chickens and locally produced chickens.
Starting January 15 this year, imported chickens from China are
vaccinated as well.

Since the first outbreak of a bird flu crisis in late 1997, the Hong
Kong government has incessantly reviewed and enhanced its monitoring and
surveillance efforts to minimize the risk of recurrence of avian
influenza outbreaks. In addition to the vaccination program, markets are
cleaned on a regular basis to maintain good hygiene standards. All
transport cages and vehicles are required to be cleaned and disinfected
before being used for transporting chickens. Also, the government has
implemented two rest days per month since last March at retail outlets
to help break the viral cycle. To minimize the risk of having
influenza-like viruses crossing species barriers, there are guidelines
on segregating pigs and chickens. In short, all chicken farms are
required to meet strengthened bio-security requirements in order to have
their license successfully renewed.

The Hong Kong government has put in place an avian influenza
surveillance program covering local chicken farms, imported chickens,
the wholesale market and retail outlets. The surveillance program also
covers wild birds, waterfowl in recreational parks and pet birds in the
market.

Hong Kong also has a surveillance system for human influenza. Presently,
human influenza activity in Hong Kong remains within historical limits
and no H5N1 has been detected.

The total supply of live chickens in Hong Kong in 2003 decline about 2
percent because chilled chickens from China started to be exported to
Hong Kong after December 2002. Since chilled chickens are more
economical than live chickens, there has been a shift of consumption
from live slaughtered chickens to chilled chickens. This trend is
expected to continue in the coming years.

It is worth noting that local production of live chickens increased 17
percent in 2003. This is because local farms increased production within
their capacity to recover earlier investment costs to meet strengthened
bio-security measures. About 75 percent of the supply of live chickens
in Hong Kong comes from Mainland China, while the rest comes from local
farms. Locally raised chickens are about 1.9 Kg while imported chickens
are smaller with an average weight of 1.4 Kg.

## Consumption

## 

Despite the outbreaks of avian influenza reported in January in Asia,
the consumption of live-slaughtered chickens in Hong Kong has not been
adversely affected. January, on which the Chinese New Year falls, is the
peak season of the live chicken industry. The number of chickens sold at
the wholesale market recorded 240,000 on January 19, 2004, while an
average of 110,000 head of chickens is marketed in an ordinary day.

The Hong Kong government announced the temporary suspension of U.S. beef
products effective December 24, 2003, as a result of the BSE case
detected in the United States. There has not been any noticeable shift
of consumption from beef to chicken products. Hong Kong consumers have
not overreacted to the news. After all, Hong Kong Chinese consume more
chicken and pork than beef. Nonetheless, in the longer run if the stock
of U.S. beef runs out, and beef products from some other supplying
countries become too expensive, caterers may change their menus to more
chicken products.

In 2004, the consumption of chicken products is expected to be around
227 MT, which is about 8 percent higher than 2003 consumption, but
comparable to the 2002 level. Consumption of chicken products in the
catering industry was severely hit by SARS (Severe Atypical Respiratory
Syndrome) last year. The consumption level in 2004 should be fully
recovered and even better because of the bourgeoning tourist industry.
However, a very drastic jump in consumption is unlikely because Hong
Kong is a mature market. Caterers' increased use of chicken products, as
a result of expensive beef prices, and flourishing tourism are positive
factors but are not strong enough to impact chicken consumption
tremendously. The consumption of chicken products has been very constant
over the past years except in years when Hong Kong suffered from severe
bird flu crises.

Although the overall consumption is constant, there has been a
consistent change in pattern; consumers' preference for imports of
chilled whole chickens has been increasing (10 percent as shown in table
10), while that over live chickens has been declining (-2 percent in
table 1). Price is the primary reason for this gradual shift in
consumption preference. A chilled chicken imported from China is around
HK\$26 per piece. It is actually slaughtered in the early morning in
China and exported to Hong Kong for retail sale on the same day. In
contrast, a live chicken in wet markets costs around HK\$50 per piece.

Chilled chickens from China started to enter the Hong Kong market in
December 2002. Prices of live chickens have dropped since then in the
face of strong competition from price competitive chilled chickens. The
average retail price of freshly slaughtered chickens in 2002 was
HK\$4.60 while that in 2003 was \$4.23, representing a drop of 8 percent
(table 2).

## Trade

Retained Imports

Hong Kong's retained imports in 2004 should be higher than 2003. Three
factors will contribute to the increase. First, the influx of tourists
from China has been giving a robust boost to Hong Kong's catering
industry. As a result of a change in policy in Mainland China, more
Mainland Chinese are allowed to come to Hong Kong for tourism. Hong Kong
had 1.79 million visitor arrivals in December 2003, a growth of 7.4
percent over December 2002. Second, Hong Kong's economy is recovering
with positive indicators in the property market, stock market and
unemployment rate. The SARS impact dissipated. Third, Hong Kong has
imposed a temporary ban on U.S. beef since December 24. Beef prices of
supplies from other countries will probably rise. Although the market
does not see an immediate switch of consumption from beef to chicken,
there is such likelihood in the catering industry in the longer run when
existing stocks runs out.

During the first 6 months of 2003, retained imports declined 26 percent
comparing to January -- June 2002. However, the decline rate dropped to
12 percent between January - November 2002 and 2003, reflecting that
some of the positive factors mentioned above started to work in the
latter half of 2003 and are expected to continue into 2004.

Chicken Supplies from the United States and Other Countries

In 2004, U.S. chicken exports to Hong Kong may increase 10 to 15 percent
because the prevailing market prices in Hong Kong are high enough to
attract more U.S. supplies. The supply of U.S. products to Hong Kong has
not been sufficient to meet demand resulting in high prices. For
example, the current chicken paw price is around US\$0.68/lb, which is
considered a record high. With higher prices, the Hong Kong market is
more appealing to U.S. suppliers.

Because of short supplies of U.S. products in Hong Kong, U.S. chicken
exports to Hong Kong declined 39 percent between January -- November
2002 and 2003, U.S. products are well received in Hong Kong because of
good quality and packaging. However, there are challenges for U.S.
products. People in the industry explain many Hong Kong traders and
Mainland Chinese buyers cannot afford the high prices of U.S. products.
They would rather switch to Brazilian products. On the other hand, U.S.
suppliers do not want to sell to Hong Kong if they can sell their
products at higher prices in the domestic or other overseas markets. For
example, U.S. mid-joint wings cost US\$0.80/lb, and not many buyers are
willing to pay for such high prices when Brazilian products are selling
at US\$0.50/lb. Meanwhile, U.S. suppliers do not want to sell to Hong
Kong when prices go lower than US\$0.60/lb.

Brazilian products are very price competitive in Hong Kong. The market
share of Brazilian products jumped from 23 percent in 2002 to 33 percent
in 2003 (table 5), due mainly to price. The average price of U.S.
products increased 2.7 percent while that of Brazilian products remained
unchanged between 2002 and 2003. In addition, Brazilian products have
improved their quality and packaging over the past years. All these are
favorable reasons contributing to Hong Kong's increased imports from
Brazil.

Following the change of policy that allows chilled chicken products from
China to be exported to Hong Kong starting in December 2002, China is
the largest supplier of whole chickens to Hong Kong, occupying about 80
percent of the market sector. Their dominating share is expected to
continue in 2004. Hong Kong's importation of whole chickens increased 27
percent between January -- November 2002 and 2003. It is very likely
that there will be a double digit increase in 2004, given the fact that
Hong Kong consumers are getting more used to buying chilled/frozen whole
chickens instead of freshly slaughtered chickens.

Re-export

Hong Kong's re-export of chicken products to China has been very smooth,
with no major disruptions. Despite new requirements for FSIS health
certificate wording for chicken feet products to China, plant number
indicated on permits, and bilingual labeling since 2002, Hong Kong
traders managed to have products shipped to China through transport
companies. Also, more and more products are shipped directly to ports in
the northern part of China because of savings in transport and
transaction costs.

In December 2003 and January 2004, "transport fees" for shipments from
Hong Kong to the southern part of China have been rather low because
transport companies wanted to use up all the 2003 quota and "automatic
registration forms". Some ports in China allow 2003 permits and "auto
registration forms" to be utilized until the end of January 2004.
Certain ports in 2004 no longer accept 2003 permits and turn away
shipments with last year's permit. Some confusion occurred.
Consequently, these shipments have to turn to other ports. Because of
the urgency to use up all the remaining permits for last year, the
transport fee for chicken products in January was as low as RMB1,600/MT,
when the average price is around RMB2,000/MT. (US\$1.00 = 8.2 RMB)

In 2004, the demand for Hong Kong's chicken product re-exports in China
is expected to be strong. However, when Brazilian products are
available, buyers prefer to buy Brazilian products rather than U.S.
products because of price considerations.

An industry source revealed a possible trend in 2004 that buyers do not
tend to keep stocks. It is because Chinese officials have recently
stepped up measures to check warehouses confiscating products coming
into China without proper documents. To minimize loss, traders intend to
order more frequent but smaller volume shipments.

The Mainland Chinese government is aware that many Brazilian products
have gained access to the China market labeled as U.S. origin and is
having discussions with the Hong Kong authorities on this subject. It is
understood that Brazilian products are repackaged in Hong Kong as U.S.
products and then re-exported to China. (Currently Brazilian products
are allowed into the China market if they will undergo further
processing.) At this moment, it is unclear what action the Hong Kong
government can take to stop such practices in Hong Kong.

## Policy Update

As a result of the January H5 avian influenza outbreaks in South Korea,
Vietnam, Japan, Taiwan and Thailand, the Hong Kong government
temporarily suspended the importation of live birds and poultry meat
from these places on January 26.

Hong Kong does not import any live poultry from these countries except a
very small number of pet birds. These countries exported a total of
15,939 MT of chicken meat to Hong Kong in the first eleven months of
2003, representing only 4.3 percent of Hong Kong's total imports.
Therefore, the ban does not have any impact on Hong Kong's chicken meat
market.