Don’t count your chickens before they hatch: The impact of US-China international trade relations on the Georgia chicken industry

Earlier this year, Yuxi city seized 19 tons of smuggled chicken feet[1], a popular dish or snack in China. China was the largest US export market for chicken and chicken parts in the late 2000’s and the demand has since created a black market for the product. Chicken feet are a very desirable export for the chicken industry; they can be sold for a high price in China and almost worthless elsewhere. The poultry industry is low margin and chicken feet are a big driver of profitability; Carlos Ayala, VP of International at Perdue Farms, says that without chicken feet, many chicken companies would be out of business[2].

Georgia, the largest chicken producing state in the US, has increasingly felt the impact of isolationism on international trade policies on its largest segment in agriculture; the poultry industry and related industries provide Georgia with over 104,000 jobs[3]. China “was a $750 million market just a few years ago, and now it’s essentially zero. It was one of our most important markets,” says Jim Sumner, president of the USA Poultry and Egg Export Council[4].

In 2009, China implemented tariffs of over 100% on chicken from the US, supposedly in response to complaints from Chinese chicken farmers, who claimed the U.S. was selling the chicken feet into China at below-market cost[5]. However, the tariff has widely been interpreted as a response to the US 35% tariffs on Chinese tires[6]. Jim Sumner argued last year that US chicken farmers were the innocent victims in this political fight, “Unfortunately, U.S. poultry is a big target, and we have simply gotten caught in the cross fire”[7]. In January 2015, China banned poultry and parts from the US because of detection of high pathogenic avian influenza. As an update, in 2017, a trade agreement between the US and China allows Chinese companies to export cooked poultry products and import liquified natural gas from America in exchange for allowing credit rating services and beef in China, a move that the US poultry industry hopes opens the Chinese poultry market in the future[8]. From the fluctuations in the below chart, it’s clear that Georgia needs to proactively address this trend.

Georgia has taken measures on its own. Poultry companies have challenged the Chinese trade barriers to the World Trade Organization twice[9]. Georgia is also home to the USA Poultry & Egg Export Council and the Council has evolved from a promotional organization to one that focuses more attention on government policies affecting trade[10]. As a longer-term strategy, since 2009, Georgia has also focused on building trade and political relationships with China. In his seven years at Georgia’s Department of Economic Development, Commissioner Pat Wilson has been to China 16 times[11], Georgia Governor Nathan Deal traveled to China in 2011 and 2013, Atlanta Mayor Kasim Reed led a trade mission to China in 2012[12]. As a sign that they are successful in these efforts, in 2014, Georgia was the only U.S. state invited to showcase a garden at the 2014 Qingdao International Horticultural Exposition[13]. Governor Nathan Deal has even proposed in his budget for fiscal year 2018 funding for economic development outreach in China[14].

I believe that Georgia must do more to influence US national politics to combat these trade issues while also investing by expanding poultry business into China directly. On the political front, for example, a one-woman stand by representative Rosa DeLauro, Democrat of Connecticut, whose home state is not a stronghold for the poultry industry, was holding up the 2017 deal to allow Chinese cooked chicken from entering the US, a deal that many believe is crucial to China opening its market for US exports[15]. This, from a Georgian perspective, is unacceptable, and building the political clout to prevent this is necessary. In the longer term, Georgia should consider partnering with China to develop the chicken industry within China, rather than focusing on operations in the US and then exporting to China. This will help reduce political risk in international trade.

In conclusion, the potential isolationist movement in the US poses a risk to Georgia’s chicken industry via trade war. Although Georgia has invested in developing economic and political ties with China, it needs to also focus on politics within the US system and moving more of its supply chain operations directly into China to mitigate political risk. Can constituents of these industries and this state play a larger role in the political trade decisions that are being made at a national level? (797 words)

[1] http://www.top-news.top/news-12964434.html

[2] http://freakonomics.com/2011/12/09/the-economics-of-chicken-feet-and-other-parts/

[3] http://www.caes.uga.edu/content/dam/caes-website/departments/poultry-science/documents/2016-Georgia-Poultry-Facts.pdf

[4] https://www.npr.org/sections/thesalt/2017/05/12/528139468/chinese-chicken-is-headed-to-america-but-its-really-all-about-beef

[5] https://www.theatlantic.com/international/archive/2011/12/high-stakes-us-and-chinas-fight-over-chicken-feet/334089/

[6] https://www.theatlantic.com/international/archive/2011/12/high-stakes-us-and-chinas-fight-over-chicken-feet/334089/

[7] https://www.theatlantic.com/international/archive/2011/12/high-stakes-us-and-chinas-fight-over-chicken-feet/334089/

[8] https://www.nytimes.com/2017/05/11/business/us-china-trade-deals.html

[9] https://www.cnbc.com/2017/08/14/china-us-trade-talks-chicken-feet-and-poultry-industry-are-compromise.html

[10]  http://atlantaforward.blog.ajc.com/2015/03/18/poultry-a-key-georgia-export/

[11] https://www.marketplace.org/2017/02/21/world/georgia-sees-good-relationship-china-one-key-its-economic-future

[12] http://www.georgia.org/wp-content/uploads/2013/09/Georgia-China-Connection-2016.pdf

[13] http://www.georgia.org/wp-content/uploads/2013/09/Georgia-China-Connection-2016.pdf

[14] https://www.wabe.org/how-us-china-trade-war-could-affect-georgia/

[15] https://www.cnbc.com/2017/08/14/china-us-trade-talks-chicken-feet-and-poultry-industry-are-compromise.html

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12 thoughts on “Don’t count your chickens before they hatch: The impact of US-China international trade relations on the Georgia chicken industry

  1. Thanks for identifying a case of extreme supply-demand imbalance and using it well to illustrate the effect of trade war at the local level in the U.S. Without any background in trade, I wonder if one solution would be to engineer a supply chain such that the raw chicken feet exported from the US can be semi-processed in another Asian country (that’s conveniently located on the transportation route from the US to China) and re-export these processed chicken feet to China to get around the current trade war seemingly specific to US – China. Or Georgia can invite a Chinese company to set up chicken feet processing facility in the US and become that company’s main supplier of raw materials (my underlying assumption here is that the Chinese government will more likely to compromise on chicken trade laws if a Chinese company can greatly benefit from this arrangement).

  2. I had no idea chicken feet was such a popular snack and portion of the US poultry market’s revenue! It appears that Georgia is on the right track by trying to work with China and maintain a political relationship while combatting the growing isolationism of the US. However, I agree that it is not enough. In order to truly resolve the growing poultry concerns you outlined, Georgia must do more to influence US national politics. That said, how much influence do you think Georgia really has compared to some of the other 49 states? It seems in today’s political state, individual state and market concerns do not seem to be as much of a priority as many less critical topics that have come up on Capitol Hill. This is further shown by your example involving Rosa DeLaura. How can Georgia and other states with high stakes in other countries influence the highly volatile US political landscape?

  3. Thanks for the essay and nostalgic picture! While most people in the US might not understand, as a Chinese I have to say chicken feet are among my favorite snacks. The US consumed ~9 billion chickens each year, which means ~18 billion chicken feet would be wasted if not exported to countries like China at low price. Thanks to the cultural difference in food, the supply and demand imbalance passed low cost down to Chinese consumers like me to enjoy chicken feet at affordable price.

    While it’s absolutely solid to look at how bilateral relationships in international trade impact a particular industry, it’s also worth investigating the broader international trade context. In fact, China imported a total of ~126,500 tons of chicken feet in 2016, of which ~84% comes from Brazil, Argentina and Chile, while the US only accounted for ~15%. In thinking about bilateral trade dynamics (or wars), it would be helpful to consider how much negotiation power the US poultry industry has on Chinese markets, and vice versa. So in that sense, it seems to me that Georgia poultry industry’s best play would be to collaborate with other states or other industries that have a higher stake in China to lobby a better position under US’ isolationism trend.

    Reference:
    https://www.qianzhan.com/analyst/detail/220/170824-434f65b8.html

  4. Interesting – I had no idea the interest in chicken feet as a snack, but my sense tells me this is a part of the bird I’m willing to part with, especially if its for the good of the poultry industry. I also find it fascinating to see an example of how a U.S. state is stepping up to fill a gap in what should be the nation’s relationship. Considering that Georgia’s electoral votes have gone to a Republican candidate the last 6 elections, including the most recent for Trump, I have to wonder if this is a good opportunity to show how trade isolationism actually harms a material contingent of the state – its 104K poultry workers – and bring better context to issues that may seem an abstraction to many Georgia voters.

  5. Thank you for the delightful topic and shining a light on how interesting the Meat Supply Chain actually is, where carcasses are often shipped around the world in order to maximize their utilization – as local consumer tastes rarely value each part of an animal equally.

    You highlight a couple of important points about isolationism and trade wars more broadly, 1) Trade Wars are fought by politicians representing nations but the Impacts are felt extremely in concentrated areas (in this case, Georgia) 2) Trade wars are irrational – and span sectors, the “Tit-for-tat” dynamics between China and the US make it very difficult for the Georgia Poultry Industry to respond because the problem initially came from “fowl play” over tariffs in the Tyre Industry.

    It may be that Georgia don’t have a happy ending here –Chicken feet are clearly a visible and culturally relevant industry to China, perhaps conceding to China on Chicken feet means more access in another “bigger” industry, which means more to the US economy?

  6. Very interesting, I had no idea how critical China was to the poultry industry in the US. I have to disagree with your recommendation to develop the chicken industry in China. From the perspective of the Georgian farmer, this is likely to harm their ability to offload valuable chicken feet to China. I would suggest focusing their effort on trying to bring down trade barriers to keep the chicken flowing.

  7. As the chicken industry marshals its lobbying power at both a national and state level to combat these trade issues, I think it will be interesting to see if and how they try to involve upstream and downstream supply chain entities. On the “upstream” side, some of the most powerful lobbying organizations in the US support the corn and pharmaceutical industries, both of which have firm interests in a healthy US poultry industry. As a specific example, the Boehringer Animal Health business, which can be considered #3 globally, is headquartered in Duluth, GA after the German Boehringer acquired the highly attractive AH company Merial from Sanofi in an asset swap, and benefits greatly from servicing local poultry contracts in both GA and other parts of the Southeast United states. The major consumers of US poultry, such as grocery and fast food chains, also are known for deploying significant capital towards advertising and lobbying. Due to the current state of political regulation in the US, fighting for change requires a lot of money, and Georgia farmers could benefit from developing alliances and joint-action plans with the many entities that they exist in symbiosis with.

  8. Georgia’s politically proactive efforts to address the economics of ‘the chicken feet’ issue, is commendable. To this, I think, ‘more of the same.’ They are on a good track as evidenced by the 2014 showcase at the Qingdao International Horticultural Exposition that you mention. Unfortunately, I believe their efforts will be overshadowed by the politics at a federal level. Under Trump’s tenure, I would be surprised to see another garden invitation! Therefore, my recommendation would be for the Georgian politicians to not only focus their efforts on engaging with the Chinese government but also on convincing the politicians on Capitol Hill. If they can get momentum on a federal level, I think their likelihood of success will rise.

  9. @MZ-Hammer, In my experience, any dependence on politics or trade decisions by government for your business case is unlikely to be lasting so that’s not where I would recommend they focus their efforts. I’m also not sure that your proposal for Georgia’s poultry companies to move their supply chain operations to China will solve the trade policies or actually the problem. I think moving poultry production operations to China would just mean that there are now other chicken parts not saleable in China because they grow enough chicken there to consume the other chicken parts (breast, thighs, etc) – China has a very mature poultry industry itself, and is home to one of the top 5 largest poultry companies in the World.

    As you rightly note, the issue for the typical Georgia poultry company is: how can it extract value from all the excess poultry feet that it produces but is unable to sell in the US, and now China due to the restrictive trade policies… In my previous line of work, I looked into the alternative uses of unutilized / waste products from slaughterhouses, and learned about the very lucrative, high margin (60-80% EBITDA margin) waste rendering industry. A rendering plant uses offals, bones, hooves, hides, etc and other parts not consumed in certain markets including chicken feet in many markets, to produce meat and bonemeal, which is in turn used in the production of industrial animal feed on farms and pet food. Perhaps Georgia poultry companies can sell this excess to offtakers in the waste rendering industry. One issue I can see with this approach though is that they are unlikely to command as high a price than the human consumption needs in China, but, they certainly have the capacity to pay more than you may think.

  10. Well, this is not your everyday market that comes top of mind – I love that you one of your references is Freakonomics! I agree with Lauren that it is very interesting the way in which Georgia takes such an active role in international trade relations with China. It will be interesting to monitor how the Trump Administration balances a belief in increasing state rights with the growing trend of isolationism. This industry appears to be a win-win for the US and China. The US, and particularly Georgia, receives economic growth and job creation while China enables its consumers to enjoy a much-treasured delicacy. Since the inauguration, the Trump Administration has appeared to soften its tone towards China and appears interested in working on areas of common interest, though so much unpredictability exists [1]. I also agree with Tom Richardson that the US should not help to develop the Chinese poultry industry, but rather should push to grow the Georgia poultry industry via China and even look at other products that the US could export to China.

    [1] Kausikan, Bilahari. “Asia in the Trump Era.” Foreign Affairs, vol. 96, no. 3, June 2017, pp. 146–153., http://www.foreignaffairs.com/reviews/review-essay/2017-04-17/asia-trump-era

  11. Thank you for this excellent article. I very much like Chi’s idea to arrange the trade such that the American chicken feet can be re-processed in another country nearby and the intermediary country can export the volume to China. I would be very curious to see if such an arrangement is feasible.

    One question comes to my mind: is there a way for the U.S to collectively share the cost now placed on Georgia? Supposedly there would be states that benefit from this trade war between Trump and Beijing, whether they are the manufacturing-heavy Rust Belt states or mid-west states that competed against Chinese agriculture products. If Washington can somehow arrange a tax mechanism where the winner states subsidize Georgia, this might be more equitable and help Georgia withstand this challenging period.

    Another minor solution for Georgia is to export the feet to other countries for the time being. No other country will match the China market in terms of import volume, but China is certainly not the only country enjoying the taste of chicken feet. Chicken feet is one of the most popular snacks that people pair with alcohol in my home country Korea. (It is also known to be good for your skin, believe it or not!) It looks like a number of other Asian countries nearby consume chicken feet, so Georgia could potentially channel some of its volume to those markets to minimize the loss.

  12. Great article, MZ Hammer. You bring to light a fascinating industry that has become a casualty in the nationalism fight. The driver of this issue, the Chinese tire tarrifs that Obama put in place that you highlighted, had effectively no positive impact on US tire manufacturing — the tire manufacturers in China simply moved production to other Asian countries and effectively no U.S. tire manufacturing jobs were created as a result of such a tariff. I think Georgia has a big argument it could raise here — why push nationalistic policies that do not help the industry in question and only hurt others? Great read, Mr. Hammer! – Jane

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