Egg prices: Supermarkets accused of displaying a 'criminal' lack of understanding

For months, egg producers have been having sleepless nights over feed prices; yet still it seems that the supermarkets have failed to grasp the full extent of the problems that the industry is currently trying to contend with. How can retailers fail to

appreciate the gravity of the situation, when the stark economic facts of the feed price crisis are known by all?

That is the question that producers are asking; and in the absence of any meaningful response – in the form of a realistic increase in the price of eggs paid to the producer – there is

a real risk that producers' confidence in the future will be destroyed, leaving the industry in tatters.

With the increase in feed prices driving up costs right across the

industry, the primary producer is suffering most, simply because the price he receives for his eggs has not risen in proportion to the price he is currently paying out for feed, and therefore no longer reflects the true cost of production. Readers will recall Tom Vesey's comments on the feed price crisis in the August edition of The Ranger, and his update on the situation earlier this month is as follows: "Since then the price of my feed has risen by £50 per ton and yet, to date, I have received no

increase in the price of my eggs.

BFREPA has produced up to date costings which show that all

producers are currently losing over £2.00 per bird. This is not

sustainable."

ANAYLSIS OF INCREASED COSTS

BFREPA's latest breakdown of the operating budget for a flock of 12,000 birds over a 58-week cycle is based on feed costs of £225/ton, and on this basis, feed accounts for well over 50 per cent of total production costs (feed costs = 47.2p per dozen eggs,

total production costs = 85.98p per dozen eggs, feed costs as a

percentage of total = 55%). And this is not the whole story, because increases incurred by other parts of the industry will also be filtered down to the producer, although the impact

may not be felt until he buys his next flock and finds that pullet prices have risen.

Steve Carlyle, of Lloyds Animal Feeds, had calculated how the additional costs mount up at each stage of the flock's lifecycle. Earlier this month he summarised the position as follows:

"Every £5 movement in feed prices to the producer results in an increase in production costs of 1p per dozen. So far this year we are looking at increases in excess of £60, and prices

are still going up. That represents a cost increase of 12p per dozen.

"Then there's the extra cost of rearing the pullets. A £10 movement in feed puts 6p on the cost of a pullet. This

has resulted in an increase in the year to date of 25p per pullet, i.e. a further 1p per dozen. "Add to that another 4p increase in chick price, plus other costs, and we already need an increase of 15p per dozen just to stand still." Since Steve

gave us these figures, prices have spiralled still higher.

INCREASE NEEDED TO RESTORE THE DIFFERENTIAL

In order for the producer to net an increase of 15p a dozen, the price on the shelves could have to go up by significantly more – perhaps by three or four times as much – because traditionally supermarkets have a policy of linking prices to profits. Thus,

it can happen that only a proportion of the retail price increase is passed on to the producer. In the present circumstances producers may well find it hard to see how the supermarkets would justify keeping any of the increase, since this price rise is not going to result in any increase in profits for the producer –

at best, it will restore the income/expenditure differential and

bring their profit margin back to its former level. It is the producer who has had to meet extra production costs, and will continue to have to do so; there has been no increase in the

supermarkets' overheads.

Tom Vesey sums up the frustration of producers when he says: "All we're asking for is a price that enables us to produce eggs and gives us a fair return. If, in the future, costs decrease

then so will the price of eggs, and that is simple economics. But when costs increase then prices must keep pace to allow producers to survive."

There may at last be a glimmer of light at the end of the tunnel. As this issue of The Ranger goes to press, two of the major retailers have implemented significant retail increases, believed to be in the region of 10p on the shelf price of a six pack and between 15p and 20p on the dozen; however, negotiations are still

ongoing and the final details are not yet known. Geoff Cooper, of Noble Foods, commented: "We are delighted to see there are significant increases in retail prices. These moves give us the confidence that retailers have recognised the need for improved producer returns."

PRODUCERS CANCELLING PULLET ORDERS

Some may feel that this recognition is long overdue. Already there are reports of producers cancelling pullet orders and dropping out of the market, and many more will be thinking very carefully before placing their next flock on order. Geoff Cooper

said: "Many of our producers are understandably concerned about their current returns and decisions regarding new flocks are particularly difficult in the current climate.

However, I am confident we will see returns improved to sustainable levels in the near future "Producers must be able to make sustainable returns, because we need them to be in a position where they can invest in order to grow in the future."

Tom Vesey has calculated that it will cost him the best part of £50,000 to restock his 16,000 bird house. "I just have time to cancel them, and I am very tempted. I will save the cost of

the pullets, let the building for storage and enjoy an easy year while the present situation continues. There is absolutely no incentive for me to embark on another 13 months round

of seven days a week drudgery.

Already other producers are cancelling their birds, and I don't blame them." If the Chairman of BFREPA is talking about cancelling his next flock, it really is time for the retailers to face up to the reality of the situation and realise not what the consequences might be, but what they will be, unless something is done quickly to restore profitability for the producer.

Already there has been talk of egg rationing in the run-up to Christmas, traditionally the time of year when egg sales increase dramatically, by as much as 50%. An egg shortage now would be disastrous when demand is high, and in particular, demand for

British Free Range eggs. As Tom points out, we have up to now been

in a period of growth for Free Range eggs. The marketing efforts of the Free Range industry and the quality assurances provided by the Lion Code have succeeded in raising customer awareness and winning consumer confidence. Customers feel comfortable buying British Free Range because they like the fact that they

are buying into high standards of animal welfare and getting a

wholesome, nutritional product with low food miles. With the message being reinforced by other sectors of British farming, these values have become important to consumers, so that today's consumer is far less inclined to buy on price alone. All this

makes the retailers' apparent reluctance to assist Free Range

producers even harder to understand, as it appears to contradict their own best marketing interests.

"I believe that consumers do want to buy British," asserts Tom. "However, there really will be a shortage of British Free Range eggs soon unless the price rises very dramatically.

Unlike the dairy industry, we work from crop to crop and so do not have the problem of selling cows in a depressed market. The drop in supply of eggs could occur very quickly –

and it won't be made up by imports, for the enormous rise in wheat and soya prices is worldwide.

REPERCUSSIONS ACROSS THE INDUSTRY

The vast majority of large producers are entirely dependent on the

outcome of price negotiations between<