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Bird flu fear hits local profits

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The Atlanta Journal-Constitution

Published on: 05/10/06

Avian influenza may not have hit North America, but fears of the virus abroad have already inflicted severe financial damage to the U.S. poultry industry — a multibillion-dollar business in Georgia, the heart of chicken country.

Atlanta-based Gold Kist on Tuesday became the latest poultry processing company to report a steep slide in second-quarter earnings in its chicken business, citing consumer bird flu concerns abroad. Gold Kist reported a loss of $16.2 million, as compared with profit of $38.7 million in the second quarter last year.

“A drop in consumption in export markets due to avian influenza concerns contributed to greater domestic supply and lower prices,” said Gold Kist CEO John Bekkers.

Two other major poultry processors with operations in Georgia — Tyson Foods and Pilgrim’s Pride — said their chicken business for the latest quarter was hurt by bird flu fears in other countries. The three leading processing companies have taken a hit on Wall Street, with share prices for each hitting 52-week lows in April.

And Atlanta-based Popeyes and Church’s Chicken restaurant chains have seen sales drop in some foreign markets.

Poultry has a $13.5 billion annual impact in Georgia, the country’s biggest broiler-producing state, with 4,000 farms and 57,700 direct industry jobs across the state.

production, but have not resorted to layoffs.

Health authorities say the H5N1 strain of avian flu that has ravaged wild birds and poultry flocks abroad has infected 207 people since 2003, killing 115. Nearly all of the victims are believed to have contracted the disease from close contact with poultry. Even though authorities stress that properly cooked chicken is safe to eat, fears have apparently caused demand for chicken to nose-dive in affected countries.

As reports of avian flu spread through Eastern Europe and Asia, consumption of chicken dropped. In Russia — a big market for chicken exports — the downturn was 25 percent to 30 percent, said Toby Moore of the USA Poultry & Egg Export Council, based in Stone Mountain.

“Russia is our largest market,” he said. “It’s our 800-pound gorilla.’’

Moore blamed consumer concerns for driving down consumption where bird flu has been detected. “It’s a story that won’t go away — like two or three years ago, with the shark attacks in Florida.”

December exports for the chicken industry were down almost 30 percent, according to the Washington-based National Chicken Council.

The drop in consumption abroad has had a ripple effect, driving down prices abroad and helping to cause an oversupply of chicken in the United States, according to industry experts. Recent wholesale chicken prices have dropped by more than 10 percent, though U.S. shoppers haven’t seen a similar drop at the supermarket, experts say.

If the weakened chicken demand continues throughout 2006, it would cost producers more than $1.7 billion — about $260 million of that impact in Georgia, said John McKissick of the University of Georgia’s Center for Agribusiness and Economic Development.

Paul Aho, a Connecticut-based consultant who follows the industry, said continuing bird flu concerns may cause some processing plants to close.

“Every piece of chicken is lower in price,” Aho said.

Fearing U.S. consumer reaction, the poultry industry braced for Tuesday’s airing of the ABC-TV movie “Fatal Contact: Bird Flu in America,” a fictional flu pandemic.

As the network promoted the movie, the U.S. Department of Agriculture sent public service announcements to TV and radio stations to counteract public angst over chicken, a $36 billion industry nationally.

The USDA said it had planned the ads for months, but industry experts said the timing was not coincidental. “I’m sure they put it out to counter what fears came out of that movie,’’ said Don Dalton, president of the Tucker-based trade group, the U.S. Poultry & Egg Association. The ads emphasize that poultry is safe to eat with proper cooking and handling.

The Georgia Poultry Federation, meanwhile, says avian influenza has sparked an unprecedented public education campaign by the industry. Its message: There are substantial firewalls against an outbreak in a commercial chicken flock.

Dalton, of the U.S. Poultry & Egg Association, said the poultry industry “is more concerned about what the consumer is thinking, rather than an actual outbreak’’ in a flock, which can be contained and eradicated.

Big processing companies have much at stake in the battle over perceptions.

Arkansas-based Tyson Foods, the No. 1 chicken processing company — which employs 3,400 in Georgia — reported a decrease in its second-quarter operating income from its chicken business, citing, in part, the avian flu worries internationally. The second-leading company, Texas-based Pilgrim’s Pride, linked its second-quarter loss to decreased export demand for chicken, along with higher inventory and lower prices.

Alicia Thompson, spokeswoman for Atlanta-based Popeyes Chicken and Biscuits, said bird flu fears affected sales in Jordan and Indonesia, though business there has rebounded.

“Any market with avian flu outbreak, with every restaurant serving chicken, has had an impact,’’ Thompson said. Atlanta-based Church’s Chicken also saw sales fall at Indonesia outlets before rebounding. Farnaz Wallace, chief marketing officer for Church’s, said that if avian flu is discovered in the United States, a sales dip may be inevitable for all chicken companies. “But I’m confident it will bounce back,’’ Wallace said.

Chick-fil-A, also based in Atlanta, has no international restaurants, but, like other chicken restaurant companies and poultry processors, nevertheless is monitoring avian flu developments and has formed a task force to draw contingency plans, said spokesman Don Perry.

Posted by loni on 05/10 at 12:10 PM in Blogging

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