The spread of the virus in domestic poultry in the UK has heightened public fears about safety. Tesco, the UK's biggest retailer, has previously said its poultry sales fell five per cent when the first UK case was confirmed in the wild duck last month.
Consumption of poultry meat has dropped by more than half in some EU states, with 300,000 tonnes now in storage across the bloc, according to EU estimates.
Last week Grampian Country Food Group said it would cut production at its plant in Banff, leading to a loss of about 80 jobs, or one-third of the company's workforce.
The Grampian plant will become a portion only site, said Alasdair Cox, the company's spokesperson.
"The UK chicken industry is experiencing poor trading conditions and strong competition supplying both the retail and manufacturing market with fresh chicken," he said. "In order to sustain our business, the decision has been taken to remove the primary processing function and whole bird packing at the Banff site."
Meanwhile the UK's National Farmers Union (NFU) has called for an increase in poultry prices by about eight per cent. The NFU warns that the British chicken industry, worth £3 billion at retail, and the strongest in Europe, will not survive in the current climate.
Over the last few years farmers have experienced continuous downward price pressure whilst input costs like energy and labour have increased, the NFU stated.
"The British chicken industry has been a great success story," said Peter Kendall, NFU president. "It has grown year on year with consumer demand and produces an excellent product, promoted by the industry. However, as the product price is squeezed and input costs soar, the farmer is left with little over the cost of production. This means the industry cannot modernise and invest and I'm sorry to say it may mean farmers going out of business with an obvious impact for long term supply."
The industry has another regulatory cost looming on the horizon, the NFU noted, pointing to the new Integrated Pollution Prevention and Control Regulations (IPPC).
The IPPC legislation aims to prevent and control emissions to air, land and water, and to address energy efficiency, the consumption of raw materials, noise and site restoration.
"The industry has also been involved in the development of the new IPPC legislation for poultry farms," the NFU stated. "But the introduction of these new regulations at this delicate time for the industry could mean the end for many producers. We are therefore asking for a delayed implementation of the IPPC, or at least for the costs to be mitigated and any charges or fees waived."
As an example of industry losses, the NFU says a medium-sized poultry farmer rearing 200,000 birds producing 400,000 kg, could face a loss of 6.2p per kg. This equates to a loss of almost £25,000 per flock every year. A chicken farmer typically rears about six flocks per year.
Chicken accounts for about one third of total meat production in the UK, of which six per cent is free range and three per cent is organic. Both markets are on the increase, the NFU stated.
In early May avian influenza, or bird flu, was found in chickens on two poultry farms near Dereham, Norfolk. The strain was H7N3, a milder form of the highly pathogenic H5N1 virus now hitting flocks across the world and responsible for human deaths.
The poultry flocks affected in the UK were kept outdoors. UK authorities have so far resisted calls to bring domestic poultry indoors for fear they may become infected with H5N1 via wild bird populations.
H7 does not transmit easily from human to human. In almost all cases of human H7 infection to date, the virus, in both low and high pathogenic forms, has only caused a mild disease.
Scientists worldwide are worried that the H5N1 form of the virus, which can be transmitted from poultry to humans, may mutate so that it can be transmitted from human to human and start a influenza pandemic.
Since the beginning of the recent avian flu crisis, consumption of poultry and eggs has fallen dramatically in some member states, leading to a sharp reduction in prices. In some countries, such as Italy, demand has fallen by up to 70 per cent, drastically lowering poultry farmers' incomes.
The UN Food and Agriculture Organisation (FAO) reported that recent avian influenza outbreaks in Europe, the Middle East and Africa have caused dramatic swings in poultry consumption, increased trade bans and sharp price declines. The UN agency expects poultry consumption shocks this year in many countries.
"A steady erosion of previously expected gains in per caput poultry consumption will likely push down global poultry consumption in 2006, currently estimated at 81.8 million tonnes, nearly three million tonnes lower than the previous 2006 estimate of 84.6 million tonnes," stated FAO commodity specialist Nancy Morgan.
According to the FAO report consumption shocks are ranging from a dramatic 70 per cent decline in Italy in mid-February to 20 per cent in France and 10 per cent in northern Europe.
The crisis has also affected the $42 billion dollar feed sector in Europe, with demand losses estimated at up to 40 per cent in some countries, the FAO stated.
About 200 people have caught the disease and 113 have died worldwide since its onset in Asia in 2003, according to the World Health Organisation.