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21/08/2008 10:08:30
Sales slump hits organic egg producer price
A slowdown in the retail demand for organic eggs has led to Noble Foods slashing its producer price.
According to the packer, not only has sales growth in the sector fell short of predicted levels following the shortage in the market three years ago but sales are now in decline leading to Noble carrying a large surplus with associated costly downgrading. "We have a growing problem on our hands that needs to be addressed in a responsible way," said Sales and Contract Supplies Director Geoff Cooper in a letter to the company's producers.
And Noble's analysis of market conditions is backed up by the latest sales data from TNS. This shows a 4.1 per cent decline in sales over the twelve month period to 13 July 2008. And it is a trend that appears to be worsening, with the twelve week period ending the same date showing a 7.1 per cent drop and sales in the four week period to that date down by 13.0 per cent on the same period last year.
In an effort to address its growing surplus, Noble has already switched three of its company-owned organic farms back to free range production and has also approached contracted producers stocked at nine birds per metre to see if they are prepared to make a similar switch to free range production, "where our forecast indicates this product will be well utilised going forward", says Noble.
But this has not been enough to address the current surplus and the packer took the "difficult decision" to reduce producer prices by 9p a dozen across the top three grades for farms stocked at nine birds per square metre and 4p for those farms stocked to the new rules of six birds per metre with a 3,000 bird maximum flock size.
"We understand this is a challenging time to reduce the prices we pay you for your eggs but we have no alternative but to share the burden that the market is currently enduring," Mr Cooper told producers. "We have taken a long look at the margin being made and we believe this move will still ensure producers are making adequate returns going forward, based on known costs.
"Whilst the market is facing a tough time we still believe there is a long term demand for organic eggs and for those producers already meeting the 2010 standards we believe this move will secure your future returns."
South-east based packer Fridays followed Noble in reducing organic prices, coming down 9p/doz on Very Large, Large and Medium for those suppliers stocked at nine birds, while the UK's second largest packer, Stonegate, has maintained its producer price.
"The majority of our organic eggs are produced to Soil Association standards and this market has been less affected by a downturn in sales," Stonegate Divisional Director Richard Kempsey told the Ranger. "However, we are keeping producer prices under review in light of market conditions but will try very hard to maintain margins for producers who have faced an alarming increase in costs over the last twelve months, particularly when it comes to sourcing the small and specialised batches of pullets required under the scheme."
Free range sales
In contrast to the organic market, free range sales continue to show healthy growth. TNS data for the twelve month period ending 13 July 2008 reveals year-on-year growth of 8.7 per cent, whilst the latest twelve week and four week periods are showing a growth of 13.2 and 17.7 per cent respectively, presumably as cost-conscious organic customers trade down to free range.
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According to the packer, not only has sales growth in the sector fell short of predicted levels following the shortage in the market three years ago but sales are now in decline leading to Noble carrying a large surplus with associated costly downgrading. "We have a growing problem on our hands that needs to be addressed in a responsible way," said Sales and Contract Supplies Director Geoff Cooper in a letter to the company's producers.
And Noble's analysis of market conditions is backed up by the latest sales data from TNS. This shows a 4.1 per cent decline in sales over the twelve month period to 13 July 2008. And it is a trend that appears to be worsening, with the twelve week period ending the same date showing a 7.1 per cent drop and sales in the four week period to that date down by 13.0 per cent on the same period last year.
In an effort to address its growing surplus, Noble has already switched three of its company-owned organic farms back to free range production and has also approached contracted producers stocked at nine birds per metre to see if they are prepared to make a similar switch to free range production, "where our forecast indicates this product will be well utilised going forward", says Noble.
But this has not been enough to address the current surplus and the packer took the "difficult decision" to reduce producer prices by 9p a dozen across the top three grades for farms stocked at nine birds per square metre and 4p for those farms stocked to the new rules of six birds per metre with a 3,000 bird maximum flock size.
"We understand this is a challenging time to reduce the prices we pay you for your eggs but we have no alternative but to share the burden that the market is currently enduring," Mr Cooper told producers. "We have taken a long look at the margin being made and we believe this move will still ensure producers are making adequate returns going forward, based on known costs.
"Whilst the market is facing a tough time we still believe there is a long term demand for organic eggs and for those producers already meeting the 2010 standards we believe this move will secure your future returns."
South-east based packer Fridays followed Noble in reducing organic prices, coming down 9p/doz on Very Large, Large and Medium for those suppliers stocked at nine birds, while the UK's second largest packer, Stonegate, has maintained its producer price.
"The majority of our organic eggs are produced to Soil Association standards and this market has been less affected by a downturn in sales," Stonegate Divisional Director Richard Kempsey told the Ranger. "However, we are keeping producer prices under review in light of market conditions but will try very hard to maintain margins for producers who have faced an alarming increase in costs over the last twelve months, particularly when it comes to sourcing the small and specialised batches of pullets required under the scheme."
Free range sales
In contrast to the organic market, free range sales continue to show healthy growth. TNS data for the twelve month period ending 13 July 2008 reveals year-on-year growth of 8.7 per cent, whilst the latest twelve week and four week periods are showing a growth of 13.2 and 17.7 per cent respectively, presumably as cost-conscious organic customers trade down to free range.
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