European Union and, especially, South African chicken producers are missing out on "somewhat improving" conditions in the world poultry industry thanks to a lack of discipline over output, which is undermining pricing power.

The outlook for poultry producers in most countries "may improve" thanks to the pullback in feed costs and the elevated prices of competitor meats such as beef and poultry, Rabobank said, viewing outlooks in the former Soviet Union as particularly rosy.

The "positive" outlook for Russian producers reflects their priority in state agricultural support programmes, besides the "favourable market positioning" of chicken compared with rival meats.

In Ukraine, besides "ongoing high margins and a good local supply situation", producers faced a boost from the start of exports to the European Union, expected in the current quarter.

'Reconsider production levels'

However, Rabobank, a major agricultural lender, was less upbeat over the EU itself, where "performance worsened throughout 2012", and producer need "to reconsider production levels in the next few months" to regain pricing power.

"The EU poultry industry has been hit by a year of further increasing feed prices, and its inability to pass these higher prices to customers," with broiler prices falling in the last three months of 2012, by 2% quarter on quarter, compared with recoveries in some other markets, such as the US.

Indeed, producers in many eastern European countries, such as Poland and Romania, besides the Netherlands, were growing output at a time when pressure from the animal rights movement has dented demand in Germany, whose own poultry groups have been forced to seek new markets.

France and the UK have been top targets, seeing "imports significantly increasing" in recent months, a "trend expected to continue" although the weak pound may be putting some drag on shipments to Britain.

'Major difficulty'

And the bank was even more downbeat on prospects for South Africa's industry, which "keeps operating under very challenging market conditions".

While feed prices have risen by nearly 20% over the past year, prices of frozen broiler chickens have risen by only 2%, undermined by weak economic conditions, and competition from rising imports from Europe and Latin America.

While prices of fresh chicken have done better, this segment has contracted to a niche market, accounting for only 5.5% of sales last year, from 20% in 2008.

"South Africa's historically-high domestic supply levels and imports, together with more price-sensitive local customers, have become a major difficulty for the industry to turn in positive profits," Rabobank said, noting weaker profits at domestic companies such as Astral Foods and Rainbow Chicken.

Example to follow

Brazil's market offered a better example of how to manage the poultry sector conditions, with producers slowing output by 3% last year to 12.6m tonnes.

"As a result, domestic prices for whole fresh poultry began to bounce back in the second quarter, and ended up averaging values 7% higher year on year.

"Margins for poultry companies in Brazil seem to be hovering at levels well above the beginning of 2012."