By Lisandra Paraguassu and Roberto Samora BRASILIA (Reuters) -Brazil's poultry industry is reeling from the country's first bird flu outbreak on a commercial farm, but officials hope China and other major consumers will soon loosen countrywide bans on importing Brazil's chicken. If the world's largest chicken exporter can contain the outbreak in Brazil's southernmost state, then China could follow the example of Japan, Saudi Arabia and the United Arab Emirates to limit bans to only that state's chicken, government officials said. "Since global demand is very strong, it's likely that there will soon be some flexibility," said Luis Rua, international secretary at Brazil's Agriculture Ministry. "We are doing our part to quickly share information so things aren't suspended for long." Brazil's chicken exports account for more than 35% of the global trade, making a nationwide ban painful not just for Brazilian farmers but also major importers. Brazil provides over half of China's chicken imports, Brazilian Agriculture Minister Carlos Favaro said, with much of the rest coming from the United States. A devastating U.S. bird flu outbreak and wider trade tensions with Washington have limited Chinese appetite for American poultry. China now blocks poultry from more than 40 U.S. states over bird flu, according to U.S. government data. Brazilian farmers are also counting on warm relations between President Luiz Inacio Lula da Silva and Chinese President Xi Jinping to ease the poultry trade ban. Renan Augusto Araujo, a senior market analyst at S&P Global Commodity Insights, said the outbreak threatened to reduce Brazilian chicken exports by 10% to 20%, depending on how quickly the outbreak is contained and consumers loosen trade bans. The Brazilian state of Rio Grande do Sul, where the outbreak was flagged on Friday, is the country's No. 3 chicken producer and had already suspended exports to China due to an isolated outbreak of Newcastle Disease last year. "If there is no evidence (of bird flu) in any other region of the country, it could indeed trigger a wave of flexibility and these countries could continue to buy from Brazil, except for the region of Rio Grande do Sul," Favaro said. The European Union and South Korea are among other major importers who have banned Brazilian chicken. SPREAD COULD WORSEN OUTLOOK In the event of a wider bird flu outbreak spreading across Brazil, as it did in the United States, officials and analysts said outlooks could get dimmer. That scenario would raise U.S. hopes for China to ease restrictions on American poultry. Under a Phase 1 trade agreement China signed with U.S. President Donald Trump during his first term in 2020, China is supposed to lift statewide bans on U.S. poultry 90 days after states eliminate bird flu from infected farms. However, China has kept bans in place longer than it had agreed in that deal, said Greg Tyler, CEO of the USA Poultry and Egg Export Council industry group. "If Brazil is out of that market for 60 days, China is going to need the product," Tyler said. "Hopefully that may push them, along with the fact that we're having the trade negotiations with the Chinese right now, to try to move them back to abiding by that regionalization agreement." Tyler noted that China's automatic suspension of Brazil imports for 60 days is already more lenient than its agreement with the United States. "They're getting a better deal than we are," he said. (Reporting by Lisandra Paraguassu in Brasilia and Roberto Samora in Sao PauloAdditional reporting by Oliver Griffin in Sao Paulo and Tom Polansek in ChicagoEditing by Brad Haynes and Rod Nickel)
