Export subsidies for poultry meat have been suspended by the European Union Commission effective July 18, 2013, according to the August 20 edition of International Egg and Poultry Review from USDA’s Agricultural Marketing Service Poultry Program, which cited two Foreign Agricultural Service GAIN reports.

The commission said it was implementing Regulation 689/2013, which sets all poultry meat export refunds to zero. Export subsidies have been steadily reduced since 2012, falling from €325 per metric ton (19 U.S. cents per pound) on July 20, 2012 to €217 per metric ton (about 13 cents per pound) on October 19, 2012, and €108.5 per metric ton (6 U.S. cents per pound) on April 19, 2013.

Export subsidies for other meats, like pork and beef, had already been reduced to zero.  Export subsidies for arable crop products were terminated some time ago. It is the first time since the 1970s that the European Union has stopped all export subsidies on agricultural products, the report noted.

For the past few years, only exports of frozen whole broilers benefited of export subsidies, and only to specific countries, such as Commonwealth of Independent States (Ukraine, Belarus, Moldova, Russia, Georgia, Armenia, Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan); Angola; Saudi Arabia; Kuwait; Bahrain; Qatar; Oman; United Arab Emirates; Jordan; Yemen; Lebanon; Iraq; and Iran.

France is essentially the only EU exporter of frozen whole chicken to the above destinations. These exports represent about 30 percent of the French chicken production. In 2012, France exported 242,000 metric tons of frozen whole chicken valued at $441 million.

Only two French companies are exporting frozen whole broilers. The major one, DOUX, is under receivership after filing for bankruptcy in June 2012. It received € 55 million (U.S. $ 71.5 million) in refunds in 2012 out of a € 650 million ($845 million) in total sales and had expected to receive around € 25 million (U.S. $ 32.5 million) in refunds in 2013.

The other company, Tilly Sabco, is much more dependent on export refunds, having received € 19 million ($ 24.7 million) of EU support in 2012 out of € 136 million ($ 177 million) in total sales. Tilly Sabco had planned to receive € 4 million ($ 5.2 million) of EU refunds in 2013.

According to the EU’s analysis, the commission’s decision means that DOUX will probably need to reduce its annual expenses by at least €10 million ($13 million), mainly by not renewing purchases contracts with hundreds of farmers who supply the birds. Several slaughterhouses may also be at risk, with more than 2,000 jobs put in jeopardy. To protest the decision, Tilly Sabco has decided to temporarily suspend its operations and announced that it will take the commission’s decision to court. However, analysts believe that the action has little chance of success, since the decision is legal in regards to EU rules.

In the longer term, poultry analysts believe the impact of the end of export subsidies is somewhat exaggerated. The halving of those refunds in 2012 did not impact French broiler exports to Saudi Arabia or Yemen, and in early 2013 as well. French export prices to Saudi Arabia went up from $1,616 to $2,211 per metric ton FOB during the period and apparently did not impact rules. In the same 12-month period, Brazil FOB export price to Saudi Arabia went from $1,706 to $2,053 per metric ton.

French chicken exports are well suited to Middle Eastern markets, which require small birds, less than 1 kilogram/40 days old at slaughter. French exporters have a decades-long relationship with well established importers and distributors to the point that some Saudi chicken importers proposed to support the DOUX Company when it went bankrupt in 2012. So, overall, the end of the EU export subsidies will not eliminate French frozen chicken exports to the Middle East (a 10-to-15 percent decline should be the maximum) but will certainly further weaken these exporting companies, which are already facing severe financial strain and very low operating margins, the report noted.

The European Union initiated the export subsidies in the late 1960s as its Common Agricultural Policy was implemented. The subsidies, which the European Union calls refunds or restrictions, are paid to chicken producers to help overcome the internally high feed costs that result from the European Union’s grain and oilseed policy.