BFREPA chairman John Retson believes that the imbalance in the free range egg market may not improve until late in the year. And with feed prices expected to remain high, he fears that some producers could be forced out of the business unless they see a significant increase in the price they receive for their eggs.
John says he has seen no evidence to change his view that it will be the final quarter of the year before the current oversupply in the egg market is brought under control. "I also cannot see any chinks at all in the wheat prices," said John. "That is driven by the futures price for November 2011 and Spring 2012. They are seriously strong at £170 a tonne, so we are looking at oversupply in the egg market, exceptionally strong feed prices – and I can’t see that changing much. And we are still saddled with the worry of avian influenza and the worry of salmonella over and above these very high costs which are showing that producers are suffering more than £5 a bird net loss."
John said he was very concerned about the prospects for BFREPA members in the year ahead. "My deep concern is that many of our members will not sit this out. These are some of the worst trading conditions we have ever seen," said John, who said that the repercussions of the dioxin scare in Germany could also impact on the UK market. He said consumption in Germany had dropped as a result of the scare. "Where are these eggs going to go? Into the liquid egg market? It is already flooded because of the oversupply situation in the UK."
John has written to the major supermarkets explaining the problems facing egg producers and asking for an increase in the price paid for eggs to offset the huge increases in costs hitting farmers. John told the Ranger, "What we are saying to the retailers is that we realise that there are too many eggs, but the situation is so dire that if they do not protect their supply it is not going to be there. People are going to go out of production. We are pleading with the retailers to try to protect the supply."
John said that he hoped with the ban on conventional cages in the EU at the start of next year and the reduced internal stocking density of nine birds per square metre coming into force for longstanding free range egg producers, the balance of the market could be better in a year’s time. But he fears that 2011 could be a very difficult year for free range egg producers.
Rob Newbery, the National Farmers Union’s chief poultry adviser, is also concerned about increased costs for egg producers.
"Wherever you look producers are struggling because of input costs, and the price they are receiving from the market is not covering them. The priority for the NFU is raising the profile of that with retailers, food services, with anyone out there. We will be saying that eggs are just going to have to be a bit more expensive now. You are just going to have to accept that and pay for it or there will not be a British industry to support you."
The huge rises in the cost of feed have been largely driven by big increases in the price of wheat and Rob says those increases are not simply a blip. "What we are seeing is a new higher plateau which is about 25 per cent above where it was. That is just something that the world needs to get used to, I think. My feeling, and what I am hearing from economists here at the NFU and other people involved, is that it is not just a spike. There is a spike, but this also represents a new wheat price plateau. The average wheat price is not going to be £100 a tonne any more; it is going to be more like £150. There will be a higher plateau and from there we will see peaks and troughs."
Another issue impacting on feed costs has been the requirement by supermarkets that the poultry sector use only non-GM feed – a restriction that is not imposed upon other farming sectors and one that is estimated to cost the equivalent of about two pence on a dozen eggs. Rob Newbery has in the past voiced his concern about the requirement and he repeated his view that it was an unnecessary cost. However, he warned that if supermarkets did eventually remove the requirement they might only do so for certain categories of production and free range might not be one of them.
"It’s a tricky one because all the supermarkets say they are looking at how they may move away from non-GM, but they say they can’t do it alone and no-one wants to be the first. They also say they wouldn’t do it with all their ranges. They would probably only do it with their value ranges, their standard ranges. If that was the case we might never see a shift away on free range eggs. It is something to bear in mind because where they are looking at it they are not looking across the whole range."
Despite his note of caution for free range on the issue of non-GM feed, Rob was more optimistic that the current state of oversupply in the free range egg market would improve with the introduction of the EU ban on conventional cages. He said the volume of cage production in the United Kingdom would be reduced, leaving an opening for free range eggs to take its place.
He said that current conventional cage producers would not be allowed by the Government to continue producing in conventional cages once the ban came into force at the beginning of next year. "They are not all going to be going into free range and they are not all going to be able to afford to convert to enriched colony. Some of those guys are moving to enriched colony - I know independents who have put enriched colonies in, but there are not going to be many. The enriched colony investment is going to be for people with a firm retail contract. If you know that for the next 10, 15, 20 years you are going to have a contract with one of the big packers for one of the big retailers to sell shell eggs then you can afford to spend £25 a bird place on a big new enriched colony unit."
Rob said he was sure that the cage egg industry was going to be smaller than it was now. There would not be 14 million birds in enriched colony cages; the number would be more like 12 million or possibly as low as 10 million. There would be surplus demand in the market place that could be made up by free range.
"Everyone always said that it was going to be a rough ride in 2011 because of this artificial change in the market place. That is not going to happen smoothly. No matter how much warning there is, there is not going to be a smooth transition. We are now in that rough period," said Rob, but he said that some of the slack in the free range market would be taken up when conventional cages were "turned off" as a result of the EU ban.
Challenging times
Egg industry leaders both at home and abroad see the European Union’s ban on conventional cages as one of the biggest challenge facing the industry in the year ahead.
The ban is due to come into force at the end of 2011 and although egg producers here in the United Kingdom and in some other parts of the EU have made the investment necessary to comply with the new rules it is estimated that 29 per cent of the EU’s egg production will fail to meet the deadline.
Andrew Parker, chairman of the British Egg Industry Council, says the new cage legislation will be both a challenge and an opportunity. "The BEIC Lion Code has already stipulated no eggs from conventional cages may carry the Lion mark from January 1 next year," he said. "The challenge will, therefore, be how the new laws are interpreted both by Brussels and by other EU member countries. He said it was essential that only eggs and egg products produced to the new standards were exported to the United Kingdom.
As we reported in last month’s Ranger, the BEIC is running a major publicity campaign through 2011, targeting food service operators, retailers and food manufacturers to ensure that they are fully informed of the changes that will be taking place in the egg industry – and to point out the food safety benefits of British Lion eggs.
The BEIC says the recent dioxin scare in Germany has again underlined the importance of the Lion Code. "This is not the first instance of dioxin contamination emanating from the continent and greater scrutiny of all imports must be implemented. The UK egg industry has invested heavily in ensuring the safety of its product and it is quite simply wrong that products that do not reach the same standards can be imported. Of course the Lion Code is the consumer’s safeguard for British eggs and I expect the products manufacturers, through Lion egg products processors, to now capitalise on this," said Andrew Parker.
He said that another major challenge facing egg producers, as well as other sectors of agriculture, in the coming year would be the ever-rising cost of raw materials. "From fuel to feed, we are seeing significant increases," he said. "This is going to continue to have a major impact on the cost of production, which is already showing a cost increase of 15 pence per dozen since last summer. In addition, a decision on genetic modification will most probably be required."
On a more positive note, he said there were great opportunities for marketing eggs. The challenges of cholesterol and salmonella had now been well and truly addressed. For many years the Government, health groups and even consumers had shied away from eggs, in many cases demonising them for one reason or another, but in recent times the industry had been able to persuade all its detractors that eggs were back in fashion and Lion’s 2011 marketing would capitalise on this.
This year’s consumer campaign theme is ’’Meals in Minutes’, which will see the development of a new web site, as well as editorial recipe features in the consumer media, featuring celebrity chef Gizzi Erskine. There will be specific activity later in the year to target mums and slimmers. Andrew Parker said that for everyone, young or old, male or female, there were very good reasons for eating eggs and the Lion campaigns would give some of these groups specific reasons to eat eggs.
"Our goal this year is twofold – to ensure that consumers continue to eat eggs and to ensure that UK producers are not disadvantaged by the Welfare of Laying Hens Directive. With this in mind, our marketing campaign will give consumers dozens of reasons to pick eggs, while our trade campaign will remind the retailers, manufacturers and food service operators of their legal and moral obligations."
Julian Madeley, director general of the international egg commission also pointed to the importance of the forthcoming ban on conventional cages in the European Union, but he said that 2011 would also be a year when the largest buyers of eggs worldwide started to demand that suppliers provide details of their Corporate and Social Responsibility (CSR) programmes. He said that CSR could cover many areas, from what you do as an individual looking after your livestock, environment and local community, to what the industry does on a national and international level about resource use and charitable programs.
He said that whilst animal welfare legislation had been driven by activists and then EU legislators over the past ten years or more, the CSR agenda was now being driven by the multiple retailers and major food processors. "Have you noticed the recent rush for supermarkets to establish their credentials in relation to sustainable fishing," he said.
Julian said that retailers and food processors had joined forces to create the Consumer Goods Forum, a global trade body which pushed a common agenda across the world. Their current focus was CSR, he said, and the seriousness of this issue could be seen by the calibre of people committed to delivering visible outcomes - Sir Terry Leahy of Tesco and Paul Polman, the CEO of Unilever.
"The overwhelming message at the 2010 Consumer Goods Forum (CGF) Global Summit, the forum for chief executives of all the major worldwide food retailers and processors (Walmart, Tesco, Pepsi etc) was that from June 2011, these major egg purchasers, would be challenging their supply chain to deliver on CSR," said Julian. "The good news is that I believe that CSR is already an integral part of the people who are our industry. Many people who have grown up in rural communities instinctively know that looking after your family, livestock and land is fundamentally important, as is helping neighbours in times of need. CSR programs can start as a natural extension of these core beliefs."
Julian said that this was an area where the IEC had already been working to provide a common structure for each country and egg business to build their CSR program around. The IEC believed that egg farmers cared about producing the highest quality, safest product, our environment, providing choice, the welfare of our hens and feeding our growing population.
"The egg industry has a great story to tell, whether that be that our industry donated over 70 million eggs to people in need to coincide with World Egg Day last year, or that our carbon footprint is the lowest of any livestock sector, including dairy. We provide a high quality safe product to our customers and give them a choice. At a global level eggs have a lead role to play in helping to feed the hungry, as world population grows to 9 billion people by 2050. This is most true in developing areas where eggs provide the highest quality protein at low cost. The egg has already been recognised as having a key role by organisations as diverse as the Gates Foundation and the United Nations Food and Agriculture Organisation in Rome," said Julian.
He said the industry needed to work hard on the issue of CSR to promote all the excellent work that already happened in a co-ordinated and professional way, but it was an issue where egg farmers could be proud that they naturally played a leading role.
