Per Reuters, stricter regulations may be enforced in the meat processing hub, Arkansas, after the U.S. Department of Agriculture (USDA) confirmed that avian influenza H5N2 has been detected in a commercial turkey flock in the region.     

Arkansas is the third-largest turkey producer in the U.S. as well as the headquarters of meat processor Tyson Foods Inc. (TSN - Analyst Report). Stricter regulations are expected to minimize international trade disruptions that have resulted from a ban on U.S. poultry imports in various countries.

Arkansas is working with the USDA to create new rules for commercial poultry producers and owners to prevent a widespread outbreak of the flu. Bird flu is highly contagious in nature and infects the entire flock very quickly.

The new rule will reportedly determine the number of times a poultry farm must test negative for a bird flu test before quarantine is lifted from it. Also, movement will be restricted within poultry farms inside a 10 km radius around the quarantined farm.

Last week, the USDA confirmed that the same strain of virus found in two commercial turkey flocks in Missouri has also been found in Arkansas. In fact, over the last two months, there have been several confirmed cases of bird flu in poultries in Minnesota, Oregon, Washington, Idaho and California. This prompted Japan, Philippines, Taiwan, Singapore and Nicaragua to restrict the import of U.S. poultry. Nevertheless, the USDA stated that no human infections have been identified so far.  

The Downside Scenario

The avian flu outbreak could prove detrimental to meat producers like Tyson Foods, Sanderson Farms Inc. (SAFM - Snapshot Report), Pilgrims Pride Corporation (PPC - Snapshot Report) and Hormel Foods Corp. (HRL - Analyst Report) which largely depend on the chicken segment for revenue generation. Sanderson Farms has already barred outsiders from entering the farms in the region to prevent any contagion.

Rising number of such incidents might induce U.S. consumers to reduce the consumption of poultry meat.

Lower consumption coupled with regulatory restriction could affect exports of the U.S. meat companies’ products that have significant presence in the international market. Tyson, which distributes its products in Canada, Central America, China, the European Union, Japan, Mexico, Middle East, South Korea, Russia, Taiwan and Vietnam, is likely to witness lower exports in the upcoming months.