U.S. Poultry: Industry at a Crossroads

1
U.S. Poultry Industry at a Crossroads

• James H. Sumner, President
• USA Poultry Egg Export Council
• Urner Barry 2002 Executive Conference

2
FACTThe U.S. Poultry Egg Industry has
Never Before been faced with the Number of Export
Challenges it faces Today!

3
Why Does Our Industry Face So Many Challenges?

4
Why Does Our Industry Face So Many Challenges?

• 1. The previous Administration did not give
  proper priority to defending our industry before
  foreign governments.

5
Why Does Our Industry Face So Many Challenges?

• The previous Administration did not give proper
  priority to defending our industry before foreign
  governments.
  
• -- Loss of the EU market is to blame for many
  of todays trade problems.

6
Why Does Our Industry Face So Many Challenges?

• The previous Administration did not give proper
  priority to defending our industry before foreign
  governments.
  
• Consumers growing distrust of government food
  safety efforts outside of U.S.

7
Why Does Our Industry Face So Many Challenges?

• The previous Administration did not give proper
  priority to defending our industry before foreign
  governments.
  
• Consumers growing distrust of government food
  safety efforts outside of U.S.
  
• -- Mad Cow disease
• -- Foot and Mouth disease
• -- Dioxin problems
• -- Animal Rights issues

8
Why Does Our Industry Face So Many Challenges?

• The previous Administration did not give proper
  priority to defending our industry before foreign
  governments.
  
• Consumers growing distrust of government food
  safety efforts outside of U.S.
  
• Foreign Consumers are overreacting
• -- Concern over antibiotics
• -- Concern over GMOs
• -- Enriched cages

9
Why Does Our Industry Face So Many Challenges?

• The previous Administration did not give proper
  priority to defending our industry.
  
• Consumers growing distrust of government food
  safety efforts outside of U.S.
  
• Foreign Consumers are overreacting
• Foreign Governments using issues as means to
  restrict trade
  
• -- EU issues
• -- Low Path AI

10
Trade Policy Issues Facing U.S. Poultry Industry

• European Union U.S. couldnt reach veterinary
  agreement in 1997, based primarily on use of
  anti-microbials (chlorine)
  
• South Africa -- Filed dumping charges against
  our industry on July 4, 1999
  
• Japan Ban over low pathogenic avian influenza.
  Now limiting to states only for 90 days may
  consider redefining fowl plague.
  
• Ukraine Ban since Jan. 1 citing antibiotics,
  growth promotants, chlorine
  
• Macedonia Import licenses issued based on
  ethnic origins (ethnic Albanians given preference)

11
Trade Policy Issues Facing U.S. Poultry Industry

• Macedonia Import licenses issued based on
  ethnic origins (ethnic Albanians given
  preference)
  
• Romania Considering 108 duty salmonella
  testing
  
• Kazakhstan Impose stoppage on March 29 -- No
  longer to accept Russian certificates
  
• Mexico Verification station law, postponed
  twice, effective June 1 (only 1 built).
  Considering dumping charges based on leg quarters
  flooding their market. Concern over full NAFTA
  implementation on Jan 1, 2003
• Panama Detaining shipments over low path AI
• Cuba Restricting imports from five states over
  AI.

12
Japanese Ban Timeline

•         November 9, 2001 Japan issues temporary
  ban on all US poultry products due to suspected
  IA outbreak in Connecticut.
  
•  
•         November 26, 2001 Japan lifts ban on US
  poultry.
  
•  
•         January 12, 2002 Japan bans all US
  poultry products for 90 days due to a low path AI
  outbreak in Pennsylvania.
  
•  
•         January 22, 2002 Japan lifts ban on US
  products except for the sates of Pennsylvania and
  Maine.
  
•  
•         March 18, 2002 Japan bans all US poultry
  products for 90 days due to low path AI outbreak
  in Virginia.
  
•  
•         March 29, 2002 Japan lifts ban on US
  poultry products except for the states of
  Pennsylvania, Maine, and Virginia.
  
• April 9, 2002 Japan bans all poultry products
  from the state of North Carolina for 90 days.

13
Dates for Export Resumption to Japan

•       Pennsylvania April 12, 2002
• -- Maine May 12, 2002
• -- Virginia to be determined
• -- North Carolina June 30, 2002

14
MAJOR CONSEQUENCES OF THE RUSSIAN BAN

• A massive anti-US poultry campaign was initiated
  by the Russian poultry producers and Ministry of
  Agriculture in printed press, on the radio and on
  TV.
• Consumers poll results as of April 8 over 76 of
  Russians support the ban, and 27 believed that
  US poultry is hazardous for human health.
  
• Sales volumes of US poultry have almost
  completely stalled, sales prices far below the
  cost.
  
• Russia ban was followed by more countries
• ? CONCLUSION The reputation of US poultry has
  been severely damaged but it can be restored by
  extensive promotional campaign including PR and
  advertising.

15
ANTI-US LOBBY Who are they?

• The Government the Ministry of Agriculture
• The Council of Federation Agro-Industrial
  Committee and Governors
  
• The State Duma the Agrarian Committee, the
  Agrarian Party, pro-presidential fractions
  
• Russian steel producers
• Big agricultural holdings
• Russian poultry producers

16
ANTI-US LOBBY The Ministry of Agriculture

• February-March 2001 temporary ban of US poultry
  transshipment via Europe for FMD reasons
  
• April 2001 Dankvert tried to initiate
  anti-dumping investigation against the US poultry
  imports
  
• June 2001 proposal on tariff quotas submitted to
  the State Duma
  
• October 2001 temporary ban on US poultry imports
  for anthrax reasons
  
• December 2001 proposal to increase import duty
  on poultry to 100
  
• March 2002 veterinary ban

17
ANTI-US LOBBY Council of Federation and Duma
Ivan Starikov - Chairman of the Council of
Federations Committee on Agricultural and Food
Supply Policy
Vladimir Plotnikov - Agricultural Committee Member
Victor Semyonov - Deputy Chairman, Committee on
Economic Policy and Entrepreneurship, former
Minister of Agriculture
Nikolai Kharitonov - Head of the Agro-industrial
Group (Party), Agricultural Committee Member
18
ANTI-US LOBBY Council of Federation and Duma
Alexander Chetverikov - Agrarian Committee
Member, President of AGROKHOLDING group of
companies

• Dumas Agrarian Committee developed resolution
  supporting the ban approved by vast majority of
  votes. The resolution urged the Ministry to stay
  firm and not give in to political pressure from
  the USA.
• Agrarian Committee is actively lobbying for the
  introduction of import tariff quotas on poultry
  imports.

19
ANTI-US LOBBY Russian steel industry

• Severstal
• Metalloinvest
• Alpha Group
• Unified Mechanic Systems
• Sibal
• Financial and investment groups

20
ANTI-US LOBBY big agricultural holdings

• AGROS Interros-Roskhleboprodukt,
  Rosptitseprodukt
  
• ZARYA-OGO Zlochevski, President of the Russian
  Grain Union, Head of Department of Food Market
  Regulation
  
• AGROKHOLDING (Duma Deputy Chetveriakov)
• STOILENSKAYA NIVA agricultural branch of
  Metalloinvest
  
• 3-5 more

21
ANTI-US LOBBY Russian Poultry Producers

• ROSPTITSESOYUZ
• Established in May 2001
• Over 140 members, representing over 75 of all
  Russian poultry meat and egg producers
  
• USAPEEC became a member in June 2001, but was
  expelled in January 2002
  
• On December 25, 2001, appealed to the government
  to introduce quotas on imports of poultry meat
  
• In February, started unprecedented PR campaign

22
ANTI-US LOBBY Russian Poultry Producers
Sergey Lisovsky

• Professional showman, advertising and media
  entrepreneur, Ph.D. in public relations
  
• Actively participated in Yelstins presidential
  campaign in 1998
  
• Was under investigation on two criminal cases
• In 2000, established Mosselprom broiler company
• Personal friend of Dankvert and Gordeyev
• In January 2002 elected to the RPU Board
• Developed, implemented the whole PR campaign

23
MEDIA COVERAGE OF THE BAN

• TV - Of a total of 10 programs 9 were very
  negative
  
• - USAPEEC and NCC were interviewed 3 times
• - Russian Poultry Union paid for 6 programs
• RADIO - 36 neutral reports, 12 very negative
• - 3 with USAPEEC participation
• - Russian Poultry Union paid for 2 programs
• Print - Of 978 publications, 60 negative and
  40 neutral
  
• - government and business oriented media
  published USAPEECs position based on
  facts and figures
  
• - RPU paid for 20-25 of negative reports
• - local administrations supported placing them
  for free

24
EVENTS CHRONOLOGY

• January 1 Ukraine bans US poultry imports
  because of the alleged use of antibiotics,
  stimulants and disinfectants. USAPEEC says
  accusations are ungrounded.
• January 28 Russian vet authorities rushed to
  attest to the high quality of US poultry.
  
• January 31 RPU decides to start a PR campaign
  against US poultry. USAPEEC excluded from the
  RPU.
  
• February
• Russian steel producers urge retailation for US
  duty increase
  
• MinAg appeals for tariff quotas on poultry
• Salmonella found in several US poultry meat
  shipments
  
• USAPEEC establishes online communication with the
  media

25
EVENTS CHRONOLOGY MARCH

• All media reported about the ban and its reasons
  use of antibiotics, growth promoters,
  disinfectants and preservatives
  
• USAPEEC starts outdoor ad campaign to counter the
  effect of ban
  
• Dankvert, Fisinin, Gordeyev and Minister of
  Health focus on the hazards of US poultry for
  human health
  
• The same sources started blaming the US for
  political pressure
  
• RPU starts massive PR attack in central and
  regional media
  
• RPU organizes a press conference repeating
  accusations against US poultry and assuring that
  the domestic producers can satisfy the demand in
  poultry meat in one or two year period
• USAPEEC updates its website several times a day,
  being heavily quoted by most popular business
  editions, radio and Internet

26
EVENTS CHRONOLOGY April

• US Ambassador and MinAg compromise to lift the
  ban on April 10
  
• Media coverage of the ban decreases, but local
  press write about related events, such as trip by
  Russian vets to inspect US poultry plants.
  
• MinAg insists on tariff quota system for imported
  poultry
  
• Dankvert accuses the US of violating the ban
• Russian veterinary team finds more and more
  reasons to extend the ban and provides more
  negative data for press
  
• Russian poultry producers blame USAPEEC for
  plans of discrediting Russian veterinary
  services and some officials and urge the
  government to examine USAPEEC activities in
  Russia
• U.S. poultry reported as source of 10,000
  illnesses in Kalingrad due to Salmonella

27
USAPEEC ACTIVITIES Media Contacts

• Despite certain USDA restrictions in commenting
  the ban-related issues, USAPEEC and YAR launched
  an extensive media campaign using all available
  resources and budgets.
• Number of negative materials in business and
  general (non-yellow) press and leading Internet
  news agencies was reduced to zero.
  
• Over 50 articles and reports quoted USAPEEC
  representatives. Three TV reels and three radio
  reports include interviews with USAPEEC
  officials.
• Daily media monitoring yields valuable
  information about the progress and prospects of
  negotiations over 160 articles, TV and radio
  reports were translated into English in March.

28
USAPEEC ACTIVITIES Web Site, www.usapeec.ru

• Over 40 new pages and over 240 information blocks
  were added to the Russian and English versions of
  the site.
  
• Web site became a primary source of information
  on the ban and the only vehicle to express the US
  position
  
• 205,459 hits registered in March

29
CONSUMERS ATTITUDES Before the Ban

• CONUMER RESEARCH
• In 2000 and 2001 USAPEEC conducted 3 consumer
  surveys evaluating consumer buying habits and
  attitude towards US poultry
  
• The campaigns covered over 7,000 people in 35
  largest cities, mostly housewives aged 25-60 with
  medium and low income
  
• 76 of respondents were buying US poultry on a
  regular basis and 59 of them preferred chicken
  leg quarters
  
• Concerns about safety and quality of US poultry
  did not prevent consumers from buying them
  
• Over 40 of the population mistrusted the Russian
  veterinary services

30
Consumers Attitudes Before the Ban
Question Do you agree that US chicken leg
quarters.
(1 strongly disagree, 5 strongly agree)
31

• RESPONSE USAPEEC proposals
• The Bush Leg Barbecue during the US-Russian
  summit in May at US Ambassador residence.
  
• A promotion campaign using Boris Yeltsin,
  ex-President of the Russian Federation as a
  spokesperson for US poultry. (not really a good
  idea)
• Organization of promotional events and
  advertising involving famous Russian athletes,
  including those currently residing in the USA.
  

32

• RESPONSE USAPEEC proposals
• Importers urge to start comprehensive PR and
  advertising activities aimed at refuting
  allegations against the US poultry, addressing
  the consumers concerns and stimulating the
  demand.
• Calculated approach essential declaring war on
  the Government can be suicidal for the future
  PR efforts to promote US poultry.
  
• The PR effort should be comprehensive and
  long-term.

33

• RESPONSE USAPEEC proposals (continued)
• For educational efforts, we should rely more on
  Russian rather than on US veterinary
  specialists
  
• Plain-language information campaign is essential
  to reassure older age, low-income Russians, the
  core buyers of US poultry, of its high quality
  
• Target audiences should be all strata of the
  population from government officials to ordinary
  people.
  
• Target media should include mostly popular TV,
  radio and press sources, such as federal TV and
  radio channels and yellow press print editions.
  
• Detailed veterinary information will be of little
  interest to consumers, but is needed for
  distribution to media
  

34

• RESPONSE USAPEEC proposals (continued)
• Advertising and PR budget should be increased to
  correspond to large-scale smear campaign against
  the US poultry. Importers ready to cover part of
  expenses
• Excessive praising of US poultry should be
  minimized, reports should be neutral and based on
  figures
  
• Modern poultry production facilities in the US
  should be more often featured in the media to
  prove the high quality of US poultry
  

35

• RESPONSE proposed statements for USDA
  dissemination
  
• All USDA FSIS Veterinarians and Food Inspectors
  are Federal employees paid by the US Government
  
• No injections of antibiotics in poultry occur
  except for therapeutic purposes in day-old
  chicks, which has been scientifically
  demonstrated to pose no human health risk
• Ingestion of antibiotics does not reduce the
  immune system
  
• The EU continues to use antibiotics for
  therapeutic purposes
  
• No credible scientific evidence has been
  presented that demonstrates superbugs have been
  developed from antibiotic usage in animals in the
  US
• Poultry produced in the USA is produced for both
  the domestic and foreign markets under the most
  stringent standards

36

• RESPONSE USDA positions (continued)
• Russian scientific literature and Government
  statistics have consistently referred to problems
  with Salmonella for over 20 years
  
• US poultry industry needs to be treated in an
  equal fashion to that of other foreign producers
  exporting to Russia as well as domestically
  produced Russian poultry
• The best way to eliminate the risk of Salmonella
  associated with any poultry meat is through
  proper handling and cooking
  
• All known antibiotics belong to a few known
  classes and the drugs within a class will usually
  cross-react with those in the same class
  
• It is false to suggest that one can overdose from
  antibiotics in poultry meat. The residues of
  antibiotics are so low as to be virtually zero
  from a food safety perspective

37

• RESPONSE USAPEEC proposal
• The purpose of the campaign
• Immediately counter the damage to the perception
  of US poultry in Russia caused by the ban and
  subsequent allegations against US poultry in the
  media
• Forge and maintain the favorable opinion of media
  and the public in general towards US poultry and
  its quality
  
• Try to avoid a counter offensive against US
  poultry by Russias authorities and domestic
  poultry producers lobby.
  

38

• RESPONSE USAPEEC proposal (continued)
• STAGE I IMMEDIATE RESPONSE.
• Help tackle most urgent tasks (stating USAPEECs
  position on the issue, refuting allegations and
  misunderstandings regarding US poultry imports,
  etc.).
• STAGE II BUILDING POULTRY IMAGE TO BOLSTER
  SALES.
  
• Following the lifting of the ban, appropriate PR
  activities will build on the positive effect of
  the resumption of imports, and highlight the
  clean veterinary record of US poultry
• Maximum emphasis on recovering and further
  building the volume of US poultry sales.
  
• STAGE III COUNTERING EFFORTS OF RUSSIAN POULTRY
  LOBBY.
  
• Offset broader efforts by the domestic poultry
  producers to hinder and eventually freeze out US
  poultry imports into Russia.

39

• RESPONSE USAPEEC proposal (continued)
• Target audiences and goals Consumers
• Media TV, radio, regional and yellow press,
  health publications
  
• Key message the US poultry coming to Russia
  after the ban is a safe food product, and meets
  all Russian veterinary and sanitary requirements
  
• Use reputable spokespersons (scientists, health
  authorities)
  
• Educate consumers on
• system of safety and quality control in the US
  which fully meets the requirements of the Russian
  and the US markets,
  
• benefits of poultry meat as the most affordable
  and high quality source of protein.

40

• RESPONSE USAPEEC proposal (continued)
• Target audiences and goals Media
• Media Internet, news releases, press
  conferences, media tours
  
• Key message If you need facts (about US poultry)
  youll get them ( from USAPEEC)
  
• Educate journalists on the high quality of US
  poultry products and safety standards and
  requirements applied to US poultry
  
• Maintain the image of USAPEEC Moscow office of an
  invaluable resource of objective information on
  the quality of US poultry.
  

41

• RESPONSE USAPEEC proposal (continued)
• Target audiences and goals government officials
  
  
• Media central and local TV, radio and print
  press are required
  
• Key message US poultry adds quality and
  inexpensive protein to the diet of Russian
  consumers / does not directly compete with
  domestic production / Russia will remain
  dependent on imports for many years
• The goal is to ensure that the Government does
  not impose quotas and local authorities do not
  impose restrictions on US poultry sales in their
  regions
• Consumer research is needed to get objective and
  irrefutable data
  

42

• RESPONSE USAPEEC proposal (continued)
• Target audiences and goals regional wholesalers
  
  
• Regional wholesalers are currently not buying the
  US chicken leg quarters from importers in fear of
  repressive measures of the local authorities
  
• Media TV, regional press, newsletter
• The goal is to reassure wholesalers that when
  imports resume, regional authorities will find it
  hard to restrict US poultry sales.
  

43

• RESPONSE USAPEEC proposal (continued)
• Proposed activities
• 1. Development and distribution of US poultry
  position statements
  
• Depending on the subject, statements for media
  will be issued by various entities (USAPEEC,
  USDA, FSIS, FDA, APHIS, selected poultry
  producers)
• Statements will be distributed to selected print,
  TV/radio and online media (total of about 100
  various media outlets)
  
• Duration 6-7 months
• Frequency no less than one statement per
  month
  

44

• RESPONSE USAPEEC proposal (continued)
• 2. Press-conferences
• Should clearly state the US poultry industrys
  position regarding the ban
  
• Recommended to be given by reputable US
  specialists on technical aspects of US poultry
  quality standards
  
• Should demonstrate that the U.S. industry is
  ready and willing to respond to specific
  technical concerns by Russias veterinary
  authorities
• Each press conference will attract 50-60
  journalists from business and general consumer
  Russian media and leading TV channels
  
• Frequency at least once a quarter
• Duration 1 year.

45

• RESPONSE USAPEEC proposal (continued)
• 3. Placement of US poultry promotional articles
  in the Russian consumer press
  
• Placement of well-argued promotional articles in
  leading general consumer and yellow consumer
  print editions
  
• Cost
• Development and placement of an article in
  general consumer editions
  
• Development and placement of an article in yellow
  consumer edition)
  
• Frequency 15 articles per month during the
  first four months after the ban 6 articles per
  month during the rest 8 months of the year
  
• Duration 12 18 months.

46

• RESPONSE USAPEEC proposal (continued)
• 4. Independent product sampling
• This activity will be implemented under the
  patronage of the Moscow Public Association of the
  Consumer Rights Protection
  
• Random samples of US, Russian, Brazilian and
  European poultry will be taken and tested
  according to SANPIN requirements
  
• The sample taking, testing and test results
  announcement will be implemented with the
  participation of the Russian media
  
• This activity will help to prove the safety of
  the US poultry with undeniable arguments

47

• RESPONSE USAPEEC proposal (continued)
• 5. Development and distribution of US Poultry
  Industry Highlights
  
• Electronic fact sheet distributed to Government
  and business oriented media and leading Russian
  Internet news agencies media
  
• The sheet will keep the journalists informed on
  the news related to US poultry industry
  implementation of new poultry standards, HACCP
  and quality control at the plants, and etc.
• Frequency once every two months
• Duration 12 months.

48

• RESPONSE USAPEEC proposal (continued)
• 6. Media tour to US poultry facilities.
• Goal contribute to better understanding of
  Russian media on how the US poultry industry
  works to maintain highest quality standards
  
• For the implementation of this activity a group
  of 10-12 journalists from the selected print
  media and 6-8 representatives of three leading
  Russian TV channels will be taken to the USA
• Their program will include official round-table
  meeting with the top US veterinary officials and
  tour of several US poultry facilities
  
• Duration 6 days.

49

• RESPONSE USAPEEC proposal (continued)
• 7. Placement of promotional articles in regional
  press
  
• Goals
• Address consumers concerns and convince them of
  safety and high quality of US poultry
  
• influence the position of local authorities
  towards US chicken leg quarters
  
• reassure the wholesalers of US poultry of safety
  to resume the purchases of the leg quarters from
  the importers
  
• Frequency 25 articles per month during first 5
  months, 10-12 articles per month during the
  following 7 months
  
• Duration 12 months

50

• RESPONSE USAPEEC proposal (continued)
• 8. TV and radio advertising
• Goal make a strong case in support of US poultry
  as a high-quality, nutritious product using the
  most popular media sources.
  
• TV and radio promotion campaign will involve
  development of TV reels with the interviews of
  the Russian nutrition and veterinary specialists
  and their placement in a number of programs
• Participation in the most popular TV health and
  culinary programs
  
• Reports with the footage of US poultry
  facilities, and etc.
  
• Media leading Russia-wide TV and radio
  channels
  
• Recommended duration 4-6 months.

51

• Proposed Budget to reach goal of resumption of
  US poultry imports and restoring the volumes to
  100 of the pre-ban volumes within 12 months.
  

52
Proposed Funding Sources for Russian Campaign

• Chicken Processors 2,000,000
• Turkey Processors 250,000
• U.S. Trading Companies 500,000
• Russian Importers/Traders 750,000
• Allied Industry (ports/carriers) 500,000
• Cold Storage 250,000
• Commodity Organizations (ASA) 50,000
• State Poultry Assns. 75,000
• U.S. Government 750,000
• _____________________________________
• TOTAL 5,125,000

53
USAPEECs Critical Challenges

• Ships awaiting offloading in St. Petersburg
• Reinstating 14 plants for alleged Salmonella
  violations/ criteria
  
• Lifting ban on 5 states for low-path Avian
  Influenza
  
• Resume issuance of Import Permits
• Restoring image of U.S. poultry industry
• High inventories in Russia (150,000 mt.) 20
  sales level
  
• Soaring inventories in U.S.
• Reciprocal impact in other markets
• Need for U.S. govt to counter Russian
  allegations
  
• Developing a revised U.S.-Russian Agreement that
  doesnt cripple our industry
  

54
Projected Broiler Industry Loss of Revenue
brought about by Russian Ban

• Based on price of leg quarters dropping from 25
  to 13 cents per pound
  
• For one week 25 million
• For one month 100 million
• For one year 1.2 billion over one year
• -- Dr. Paul Aho

55

• The US industry would immediately lose at least
  1 billion in top line revenue per year if that
  market were to disappear and perhaps as much as
  1,200,000,000 if leg quarter prices were to fall
  to 13 cents. The importance of the market goes
  far beyond the leg quarters sold to Russia, it
  directly effects long term viability of the US
  broiler industry itself. An extremely low leg
  quarter price would have the long-term effect of
  raising the price of breast meat (which would
  have to carry the revenues) which in turn could
  make the internal US breast meat market
  attractive to other countries. An extremely
  skewed price difference between leg quarters and
  breast meat inside the US is unsustainable in the
  long run. Other countries, most notably, Mexico
  and Brazil would begin providing the breast meat
  used in this country, -- Dr. Paul Aho, Feb.
  20, 2002

56
USAPEECs Working Around the Clock to Restore
Trade

• We have the support of the domestic
  organizations
  
• We have the full support of our members
• But we need the entire industrys support