Can egg producers avoid another boom to bust?

Free range egg producers are being warned that the current boom in producer prices could be followed by another bust unless the egg industry exerts greater control over production.

A mini-price war seems to have broken out amongst packers since the introduction of the European Union’s ban on conventional cages led to a shortage of eggs across the United Kingdom and Europe. A seven pence per dozen increase in producer prices by Fridays was followed by a 10 pence increase from Noble.

Fridays responded with another 10 pence increase and other packers have also been increasing the prices they pay to producers. The rises have led to a surge in demand for pullets and that has raised fears of another unsustainable round of expansion in free range production.

"The recent increases have got people with empty sheds putting birds back in," said Olivia Potter of Potters Poultry. "The concern is that there will be boom and then bust again in six to eight months unless the packers control it. We are seeing a huge uplift in demand for pullets."

Olivia’s concerns were echoed by Steve Carlyle at Country Fresh Pullets, who said, "We seem to have learned nothing from the last 18 months we have just been through. Everyone wants to expand." Everyone wanted pullets, said Steve, "both free range and colony, and this time we will not have the battery cage ban to pull us out of the mire. Not long ago producers were suicidal. Now they all want pullets again."

Free range egg producers have been running up losses for months because of a combination of low producer prices and high feed costs. Much of the blame for the crisis was laid at the door of major packers for allowing free range production to expand to the point where there were simply too many free range eggs on the market.

The introduction of the EU conventional cage ban in January has resulted in a shortage of eggs - although the shortage is in colony eggs.

Free range producers are currently benefiting from a shortage in the rest of the egg market, although free range is still in oversupply, as John Retson, chairman of the British Free Range Egg Producers’ Association (BFREPA), pointed out.

"The truth of it is we are still over-producing in free range," said John. "The danger is now that we could see new production going in because of the shortages and these price increases and by the end of the year we will be in a mess again. The egg industry has got to be very cautious and control expansion."

John pointed to the latest statistics released by Defra on chick placings as a possible indication of trouble ahead. After a series of falls in recent months, the figure for February showed an increase of 11 per cent over the same month last year.

The number of commercial layer chicks placed in February this year was 2.8 million, compared with 2.5 million in February 2011. The moving total had fallen to 31.7 million in January. In February the figure was up to 32 million.

The number of layer eggs set is also increasing again following some significant falls. In December the figure was down by 31 per cent on the same month the previous year, from 8.3 million to 5.7 million.

In January this year the number was down by two per cent on January the previous year, but the trend was reversed in February. The number of layer eggs set in UK hatcheries in that month was up by 11 per cent on February last year, from 5.6 million to 6.2 million. The moving total was up to 92.2 million in February from 91.5 million in January.

John Retson is concerned about the latest chick placing figures. "We are still producing more free range eggs than the consumer wants and if this trend is continued in March, April and May we are going to see the problems start to arise for the Christmas market. By the beginning of 2013 we will be in a very difficult marketing position. This should be a very serious warning to free range egg producers." John said, "If people start filling up sheds that have been shut down or even building new sheds that would be very irresponsible."

In announcing their latest price increase to producers, Fridays made clear that it was colony egg that was driving up prices for free range producers. Operations manager Martin Flegg said in a letter to producers, "The egg market has been driven up by a lack of availability of colony eggs. This was predicted last year and we had hoped that it might have impacted sooner. But it seems that there is now some intent in Europe to catch up with the few member states such as the UK who are compliant."

The letter confirmed that free range was still in oversupply, although the level of overproduction was less than before. However, the reduction of oversupply in free range was the result of colony shortages.

"The free range egg market is less oversupplied than previous due to other packers cascading free range eggs into colony along with supermarket promotions and some producers delaying restocking their pullets.

"To date we have only had success in raising colony eggs prices to supermarkets. Therefore our producer price increase is temporarily supported almost entirely by this. We hope free range selling price will rise soon."

John Retson said that in difficult economic times many consumers had less disposable income. Many would save money by buying value eggs. Retail figures for January this year showed free range down three per cent and cage up 10 per cent. The last thing that the industry needed now was for producers to start building new free range sheds.