Noble Foods is promising price rises for what it says are its "top producers", but has warned of possible price cuts for those it deems to be underperforming.
A letter has gone out to free range egg producers outlining a two pence per dozen increase - but only for Noble's top 20 producers. The next 20 producers will receive a price rise of one pence per dozen. Some producers may be given notice of price cuts, based on the results of an annual audit of farms supplying the company.
Noble's plans were outlined in a letter sent to producers by the company's contract producer and farms director, Tom Willings. He said in the letter, "As we rolled out our revised audit regime, many asked why we placed such emphasis on the detail. I explained at the roadshows last autumn that my intention is to see that the best producers are rewarded," said Tom, who said that the audit on which the payments would be based would be completed by the end of October each year. These payments would remain in place for one year until the next audit had been carried out.
Whilst he spoke in the letter of wanting to reward the better producers, he also warned of possible penalties for producers whose results were below expectations.
"At the other end of the spectrum, where a combination of poor standards and/or contractual indiscretion results in abnormally low scores, we will reserve the right to reduce prices. Such draconian action would of course only happen following proper discussion, and I am pleased to say that today there are very few causes for concern."
"Furthermore, in the interest of acting in a fair manner, I intend to refresh our producer contracts such that any producer whose egg price is to reduce through this process alone (separate from the traditional market related price movements affecting all producers) will receive 28 days notification prior to any change, and during that four week period may opt to terminate supply to Noble by giving 90 days written notice. Outside of this 28 day window, terms would revert to the standard notice period."
Tom Willings said that the selection of top producers would not be based on audit score alone. It seems clear that producers who are deemed to have exceeded private egg sale agreements with the company will find themselves marked down.
"I wrote in an earlier letter this year of our gratitude of the patience shown by the vast majority in the wake of extreme wholesale market inflation prior to us delivering any egg price increase. We monitor forecast vs actual deliveries on a weekly basis, and though there may be several mitigating factors, through simple investigation we are able to identify where a few producers have decided to sell egg away in a manner not consistent with our supply agreement. At Noble we are determined to keep surpluses to a minimum. In a market where matching market supply and demand is so crucial, there is no room for a fair-weather approach to this indiscretion. Our audit premium will therefore take into account both measurements, creating a 'score' by multiplying audit score by eggs
received against forecast."
Tom spoke of "tremendously concerning times" at the moment because of record feed prices, unexplained growth in chick placings and a "pronounced shift in demand away from premium alternative eggs
into colony." He said there had never been a more important time to go the extra mile in support of top producers.
Tom said the company was still working hard to demonstrate to customers the need to reflect production costs in the price paid for eggs. Media coverage of this year's poor harvest and of the outlook for consumer price inflation was promising. In the meantime, Noble intended to protect the sustainability of its most valued producers.