Bird flu and global poultry supply chain impact

An article in the Wall Street Journal (March 22, 2017) titled “Bird-Flu Outbreak Brings Pain for Poultry Producers in Asia”, describes the emerging cases of H7N9 bird flu in China, with over 140 human deaths in China this year alone, and its impact. Poultry farmers in China are dumping product so that prices have dropped 13% and imports 24%.  But markets in South Korea have seem price increases due to low supplies. With China banning US imports over avian flu concerns, Thailand is expected to benefit from China market growth, with Chinese imports expected to grow by 10%, making it the second largest importer of poultry (Mexico is the largest).  How should US poultry producers manage the volatility caused avian flu ? With large stocks culled across the world (30 million in South Korea alone), how should producers plan their chicken inventory to optimize performance ?

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26 Responses to Bird flu and global poultry supply chain impact

  1. Sean Michael says:

    Producers can get ahead of the volatility of poultry by first analyzing their process capacities and the various activities involved with their production. They need to analyze their throughput and understand any potential bottlenecks that exist in the process of production so that they understand what their caps and lims are. Taking it a step further, historical data will give them a good idea of typical seasonal demand which could help set different baselines throughout the year allowing them to plan production well in advance. When out-of-norm situations occur such as the Bird Flu, understanding their normal flow rate will give them the agility to adapt to these types of situations. This will help producers respond more efficiently to these unpredictable events allowing them to better serve the market (and the company) whether the cause results in a demand-constrained or a supply-constrained situation.

    Producers should also understand their inventory turnover rate and the time it takes to produce poultry. This alone could help improve healthy stock as well because culled poultry will be produced at the optimal point which would be at the healthiest point in the process. Understanding the time to fulfill/produce poultry will allow the producers to optimize their process capacity keeping inventory turnover high at the most optimal point in time.

  2. Michael Morad says:

    According to Poultry Science, approximately 7 billion day-old male chicks are culled per year in the egg industry globally. That is an incredibly sad thing to begin with, but from a producer’s perspective that is a ton of wasted effort and resources. In order to optimize performance of their farms these producers must work with scientists to eliminate such waste by detecting the sex of the embryo earlier in the process. It would be even better if all embryos could be scientifically engineered to be female so no culling of male chicks would be needed at all.

    US poultry producers should manage the volatility caused by the avian flu by carefully managing their processes. By monitoring demand and capacity real-time or fairly often they can identify bottlenecks quickly and ensure there are minimal disruptions in the production cycles. This will allow them to move resources around and keep the farm’s output at optimal levels. In addition to this close management of the process the producers may choose to have multiple redundant process setups in place but segregated so if one area is impacted and needs to be shut down the other production lines that are separate and segregated can remain intact and continue to produce as to not completely shut down all operations. This would require tight controls of equipment, people and inventory to ensure that no production areas can be co-mingled or cross contaminated.

  3. Bryan Corbin says:

    US Producers and processors might look at this-type event as an opportunity to start managing demand. Depending on what is happening with substitute products (pork, turkey, and beef to a certain extent) this may allow US producers to imply supply constraints based on eliminating unsafe imports from China. With supply constrained they could consider an opportunity to increase prices.

    Regardless of their ability to drive market prices up, they will need a clear understanding of demand to work back through their systems. Additionally, advances in technology are needed to try to ‘manage’ the sex of the chickens that are born so that the system isn’t designed to create inefficiency, i.e. need to cull males regardless of demand. Or, more practically in the short-term, the industry could reconsider systems that eliminate the need for two types of chickens (one for meat and one for eggs). In this case we would be able to reduce the number of variables and more effectively use all products coming out of the system, essentially designing the need to cull males of the egg laying breed out of the process. Fewer variables should enable the system to adapt quickly to changes in demand and eliminate much of the bottleneck risk.

  4. Tony Merlie says:

    Because China has banned imports from the US, the impact on US producers is demand-constrained. Market demand decrease should have an impact on the flow rate of poultry through the system, by reducing it to match demand. HOWEVER, the impact of the avian flu, is an unanticipated disruption to inventory that will severely limit process capacity. In this case, this would be addressed by maintaining a safety inventory of birds.

    The key being able to adapt to movement in demand/supply-constraints is to have a thorough understanding of the flow rate of poultry through the process and the average amount of time that birds would be ready for processing. Producers should have a pretty decent understanding of “normal” demand, and maintaining safety inventory would at least allow demand to met in periods when that demand greatly increases. This does come with a degree of risk that production exceeds demand.

  5. Jason Meridew says:

    Because of the reduced demand from China, US poultry producers should begin to decrease there new production (not sure of the correct term for poultry). It would seem as though this is a temporary change in demand from China and you expect Avaian Bird Flu risks to decrease over time so US poultry producers should not reduce they capacity. They should, however, decrease their workflow over the near term. Additionally it may be smart to build some excess inventory (buffer) if the belief is that embargo is temporary so that US poultry producers can react quickly when China cancels the embargo.

  6. Brett Damisch says:

    With the United States demand for exporting poultry decreasing, farmers should act quickly. As raising poultry is not something that may be stopped immediately, the farmers must be proactive. They need to insure that they reduce the production and hold onto the idle assets. As the avian bird flu epidemic will eventually clear, they want to be able to act quickly and begin producing at maximum levels again. I assume that it is possible to remove eggs from the hatcheries on an as needed basis so that they may manage this. The US Poultry association should provide ample advice in regards to forecasting other markets as well. U.S. farmers do need to be careful as they do not want to overproduce and infiltrate the US market, driving down the market price for poultry.

  7. Vish Thottingal says:

    This is a situation of demand shock. A ban by Chinese on the import of US poultry is something the industry wouldn’t have anticipated. In the interim US would have additional pile of finished goods inventory. The effect of the ban is a direct reduction in the total demand for US chickens. With demand constraints there are few things which the US poultry industry can do
    – Re-assess the current inventory and make a revised projection of forecasts
    – In the new Demand constraints, the flow rate would be much less than the bottleneck capacity and utilization wouldn’t be a problem instead the problem would be handling the interim excess capacity
    – Livestock’s typical lifespan is six to eight weeks, so one must take a decision on the excess WIP livestock’s – an ethical dilemma would be on what to do on the excess WIP which are 0 to 3 weeks processed. For forecast of six weeks and beyond they would need to reduce the flow rate right from incubation (input).
    US poultry producers are tightly integrated with their suppliers (poultry farmers). Demand uncertainty of this kind are of high risk as producers wouldn’t want to reduce the production to such an extent that when the ban is lifted they have challenges meeting the new demand at least for the first six weeks.

  8. Amy Phillip says:

    With the demand for US poultry decreased, the poultry farmers need to focus on techniques to minimize the avian flu effects within their stock to capitalize on their assets of healthy birds.
    The price for healthy birds will be increased while the demand from the US has declined specifically from the imports to other countries.
    The US needs to focus on getting a healthy population of birds by preventing unhealthy conditions on farms through insect control and rodent control.
    Healthy stock is the key to changing the dynamic in the market.

  9. Allan McNear says:

    I feel US poultry producers should reduce their capacity and manage more closely to the demand of the markets. More emphasis could be placed on focusing efforts to invest more in R&D to better understand how to mitigate the losses and support poultry businesses across the globe.

    The numbers are astounding and it appears that there is no way to currently eliminate or even root-cause the problem. In reading a few articles, a portion of the problem appears to stem from poor conditions and when this occurs the disease spreads rapidly through rodents, birds, soil, and people. Collaboration with poultry farms in efforts to establish very strict processes may help in the long term for all companies that produce and sell poultry.

  10. Jennifer Cline says:

    The volatility in demand should be managed by optimizing the agility of the production process, for an ability to ramp output up or down quickly, as spikes due to avian flu occur. Maintaining capacity is important, as the demand can increase back again post flu outbreaks. With an agile process, that capacity can than be used when demand increases again. Given the world-wide culling, inventory should be managed around the expected seasonality to the demand in general, as well as the seasonal alignment to outbreaks. For example, as outbreaks are more likely to occur in colder weather, increasing inventory leading up to cold seasons to cover demand during that time. In combination, reduce production and inventory during the cold seasons when outbreaks are more prevalent.

  11. Jason Jackson says:

    As I believe turkey is a natural substitute to chicken, I believe this would be a good time for US poultry farmers to begin looking at their demand (as it will decrease) and begin to weigh the possible opportunities to enter into different markets due to this volatility. If you’re beginning to gain capacity, the turkey market could be a suitable alternative for them to enter. I would continue to monitor the health situation and begin to look for leading indicators that the outbreak is either ceasing or ramping back up again. These indicators can be used by the Chicken producers to manage their operations and optimize their capacities efficiencies. The WHO (World Health Organization) should be able to provide the Chicken producers and their associated Farming Associations this ample information to make the decisions timely.

  12. Dan Halverstadt says:

    This can be a real market opportunity for forward-thinking poultry producers. Producers that have created and maintained a strong bio-security can lead the way in the market. While initial inventories will be affected, long-term poultry has a worldwide demand and staying focused on having good projections going forward will be critical.

    Additionally, find other markets such as South Korea that have suffered low supplies. Having agile distribution channels to move access inventory to highest demand locations can stop any loss leaders. Any type of a disaster is an opportunity for those that are prepared.

  13. Ken Kibler says:

    The World Heath Organization (WHO) says that this type of disease is of concern because most people run the risk of becoming very ill, but they don’t believe it to be transmitted easily from person to person.
    The US poultry market must take a very aggressive position to show measurable corrective action towards containment and identification of the avian flu source. I believe they must reduce supply in order to restore confidence within the globe market. According to market analysts, this market correction will be a two to three year time line.
    The demand for poultry seems to continue to be on the rise world wide. In order to maintain a more constant supply, I believe the US will need to help lead the way with implementing more sanitary practices at smaller producers and open markets globally. The world has a great demand for our poultry this in turn gives us much incentive to help with distribution.

  14. Neha Purohit says:

    For the US poultry producers, the bottleneck is the excess of inventory. If China would have stopped imports, it means they have inventory which can be sold. Below points can reduce the impact of a bottleneck by :
    1. US poultry producers can sell the inventory in other countries. In Latin America and Europe region, the large stocks could sell.
    2. US poultry producers can work with different consumers such as McDonald’s, KFC and others which will increase the demand.
    3. The producers can plan to reduce the capacity to meet the current, lower demand.
    Meanwhile, the poultry producers across the world should start thinking re-engineering to avoid avian flu — the fundamental thinking and radical redesign to achieve dramatic improvement in cost, service and quality. The producers can include the testing of the inventories to eliminate avian flu risk. It will change the processes for the producers(companies) and will help in constant supply. In the market, the demand for chicken will increase.

  15. Paul Mukherjee says:

    A couple cases of avian influenza were confirmed on poultry farms in Missouri and Texas. These are low-pathogenic strains, which means the birds don’t show any outward signs. The good thing about these latest findings of “bird flu” is these cases were discovered in routine testing in the two states, so the warning system is working.
    The spread of bird flu would represent a financial blow for operators because it would kill birds or require flocks to be culled, and it would trigger more import bans from other countries. Health officials said the risk of avian influenza spreading to people or making food unsafe was extremely remote. US producers carefully manages their inventory and customer demands and follow certain steps like 1) The U.S. poultry industry maintains rigorous health and safety standards, including routine monitoring for avian influenza, 2) consumers are reminded to handle raw poultry hygienically and cook all poultry and poultry products (including eggs) thoroughly before eating.

    A few years ago, antibiotic-free poultry was considered a niche market for the type of consumer that shops at Whole Foods Market. Today, major fast food chains, mainstream retailers and even schools are offering chicken raised without antibiotics.Perdue has been one of the leading mainstream poultry producers embracing antibiotic-free production. US Should focus on organic and non-antibiotic poultry inventories which has a huge demand globally. They should improved management and disease control which can have a substantial impact on household economies.

  16. Jennie Killian says:

    In order for poultry producers to plan appropriately for production demand, they have to be thinking about 7-8 weeks ahead, since this is the approximate timeline for chickens to be ready for slaughter. They would also have to account for the percentage of shrinkage, since not all birds will survive to slaughter. Since we are dealing with a demand constraint, and a surplus of chickens are now available for sale, I think we can look at a few different options:
    1. Determine the cost benefit for vaccinating the chicken population against bird flu. Then they would be protected against future market pressures.
    2. Require fees to be paid for chickens at the time of initiation of production (hatching?) so they will not lose all of the costs associated with production.
    3. Prepare a contingency plan for birds that do not sell-freezing options? discount prices? animal food production?

  17. Andrew Tigulis says:

    While the macroeconomic impact is expected to be relatively limited, there is no doubt that the microeconomic impact will be very severe in the areas where poultry farming is the main source of
    livelihood. In most countries, poultry farming tends to be concentrated in a number of areas. In these areas, farming income and rural consumption will be severely affected over a substantial duration, probably lasting at least 6-9 months as a result of massive culling of chickens. Direct income support measures might be required in a first phase. Once the epidemic is brought under control, assistance is likely to be required for restocking and investment in enhanced preventive sanitary measures. Any indirect impact the epidemic might have on food prices would also disproportionately affect consumption by lower-income earners. These microeconomic impacts are difficult to evaluate without data from household surveys in the affected areas. Small-area surveys focusing on a limited number of households to better understand and assess the impact of the epidemic on poorer households are desirable.

  18. Nathan Pennington says:

    The impact on the areas that depend on poultry farming are going to have to adjust their way of living. If you have two choices. Life or death, it is a no-brainer that people will choose life so that will mean some legitimate economic adjustments need to be made especially for the Chinese in this case. Once the bird flu is under control then some measures can be taken in considering the reintroduction of a healthier organic poultry alternative. Everyone would be effected so the demand for chicken inventory would be severely hampered as would profits of poultry distributors and businesses. Again, what is more important? Money or life? Producers should plan their future chicken inventory processes and delivery based on long-term, detrimental effects on the populace. They may lose their business as distributors and business owners. Find another form of business to make a living with. These are the hard facts, especially when it comes to something as major as an epidemic. There would certainly be a high surplus of chickens and a much lower demand but what good are contaminated chickens. They will have to be done away with. The biggest logistical concern for the suppliers as well as the populace is how did the strain begin, where did it come from and how can it be eradicated. There will be huge economic profits lost regardless.

  19. Brian long says:

    If there is reason to believe that a farmer or the production of poultry has been infected with the H7N9 flu then everything must stop. It starts at the front of the line with the farmers who would need to cull all poultry. Farmers could setup isolation areas to start production again. At the processing level everything needs to be scrapped and cleaned, all the way through. When farmers can assure flu free poultry production can start back up and inventories can be renewed. I think there would just have to be an acceptance of downtime and losses. To help protect from this in the future producers should find a way to isolate inventories so there is no way of spreading the flu. It would be expensive to implement but if there was a problem you may be able to save the remaining inventory and supply product.

  20. bernardinm says:

    In case of infection by the flu, the whole production should be stopped/destroyed. The real issue is how often are people willing to test, since if there is no contamination at a certain point in time, it still doesn’t guarantee the same state of things at a later point. Surely it is costly, but at the other end there are people’s lives at risk through endemic spreading of the disease. Just like for the pharma industry, there should be a monitoring of the processed food chain, in terms of quality, because dumping what could be non contaminated food only based on a fear/suspicion is a waste. This could be an opportunity to improve or multiply the way the poultry meat is being inspected. But we all know that in regard to the enormous quantity, these tests are always sample-based.

    How can we guarantee that out of Thailand there never will be contaminated poultry? It is clearly a political choice. If we were more curious about what is coming from the first producer Mexico, then I could understand the level of concern, in the sense that their product have a more global impact and exposure due to their dominant position on the market, but China’s fear here seem directed exclusively toward the US producers. Conspiration theory aside, we observe the Korean way of doing things: they are so convinced that the food already arrived was safe, that it creates a raise in price due to shortage of supply. If China with a billion plus people get their supply from Thailand, I don’t see why Korea couldn’t do the same, unless they have biased economical preference about who their suppliers should be. In a fair market, this should open a new door for market entrants, allowing them to profit by the vacuum created (allegedly) by contaminated US poultry, which in the article was merely a “concern” and not an established fact.
    To avoid culling the chicken unnecessarily, you need to establish a traceability of the poultry arrival, in parallel to the development of the disease. You cannot fight the irrationality of people fear, if someone merely thinks your poultry could be a vector of disease, the only answer should be to stick to the fact (tests results) which doesn’t seem to be the route used in this case, If there is really an issue with food, it cannot be a whole country having infected food all at once, so traceability would be my proposed solution.

  21. Tyler Le Roy says:

    The H7N9 bird flu epidemic has caused extreme volatility in the poultry industry where both the supply (bird culling) and demand (fear of contamination) supply curves have changed drastically in a very short time. In places like China, this as reduced/eliminated imports and reduced prices drastically. In order for US poultry producers to manage this volatility, they need to have a very diverse marketing portfolio to handle regional volatility. They also need to rely much more heavily on forecasting methods (such as demand for substitutes) to predict accurate demand curves within the various regions. They need to put significant resources into preventing contamination of their poultry with the bird flu, clearly communicating the confidence level to the customer, as well as educating the customer about proper cooking techniques to prevent sickness. This educating should help keep the demand curves at a more stable level.

    • David says:

      Due to the epidemic, demand has decreased in all markets, but with assurances of better testing and cleaner environments demand will move back to normal levels relatively quickly. Something that American producers are accomplishing, is catching these kinds of situations early on and removing the infected livestock from the population reducing further issues. So their processes are working, presumably better than those in China. Now with the increased demand from China, one would assume that Mexico will do their best to meet the demand of China, potentially leaving local demand for poultry unsatisfied. In this instance the excess product left for the US producers by the Chinese ceasing further US imports, could be utilized to meet demand in these other countries that also have increased demand due to the shortages of the Chinese markets.

  22. Maya Devakiamma says:

    Market demand for US poultry produce has gone down due to Avian Flu concerns. The market is volatile, as China and South Korea are seeking poultry trade from other countries whereas Iraq is backing away from EU and importing poultry from the US instead. Since global demand has gone down the production quantity shall be adjusted temporarily for the Implied Utilization. Alternatively, new markets and products with fully cooked chicken shall be explored and sell the excess quantity that is currently being produced.

    Regaining trust by retaining quality and preventing future incidents is critical for US farmers to regain market confidence. Production processes should be changed/optimized to produce healthy stock, with process steps for built-in quality and preventive measures, which would possibly introduce new bottlenecks in the production process. US producers shall focus on understanding the inventory turnover, flow rate, bottlenecks with the new/improved process and plan production capacity to match the demand. Since the demand is volatile, adjusting production capacity according to the changing demand is essential.

    Once the bird flu concerns subside, demand for US poultry will increase, and with improved quality, there would be additional global demand. Producers will have to plan poultry production capacity according to the new demand and plan to adjust the capacity of bottlenecks according to the changing demand.

  23. Vinutha Ram says:

    Avian flu is a negative externality imposing a demand constraint on US poultry producers. Given the limited lifespan of the product and the (hopefully) temporary nature of the unexpected drop in demand, US poultry producers should react with caution. They need to have sufficient inventory to be able to ramp up production when this event is past and can look to historical data to determine this “safe zone”. However, if there is any evidence of a producer’s stock being infected, ceasing production may be the best way to go.

    In the long term, raising substitutes for chicken (turkey) offer a viable alternative given that most of the infrastructure set up required is already in place.

    Recent scientific improvements to detect the gender of a fertilized egg before hatching are becoming more popular. Using technology to improve production processes is one way to optimize performance and adopting this technology may help poultry producers become more efficient with planning inventory and reducing unnecessary culling.

  24. My reading of the summary was a bit different. I tried to refer to the original article but since it required subscription, i could not read the same. Therefore here are my two cents –
    There is a shortage of supply for chicks in Asia, yes China has put a stop to imports from US but rest of Asia, and Mexico are open for business. This gives an advantage to US poultry producers as market demand has grown. I am also assuming that US poultry farmers have put effective measures in place to prevent H7N9. US producers should increase production in the short run to provide for the shortage. However there is one concern, prices have dropped because people fear infected poultry therefore they are not buying poultry

  25. Thus additional marketing efforts are required to pass the message that this is H7N9 free poultry coming directly from the US. Additionally there should be supply and demand matching to ensure product supply catches up to demand

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