Market hit by free range imports
Wide-spread surpluses have led to a cut in price for cage, barn, free range and organic egg producers.
The optimism last month surrounding retail sales has rapidly evaporated and packers blame the latest price cut on the cost of disposing of surplus eggs coupled with downward competitive pressure on retail prices.
But the most worrying development is the news that free range eggs are now being imported from Europe and finding a home in the UK’s egg processing sector, causing “considerable turmoil” according to one packer.
Managing director of Deans Foods, David Tromans, says the move is being driven by food manufacturing companies seeking to take out costs under relentless pressure from the retailers.
Mr Tromans is predicting the market should be back in balance by the autumn but meanwhile he says Deans would continue with its policy of taking birds out of company-owned cage sites at 66 weeks old and shut down older units. The packer plans to have closed in excess of 1 million bird places by the end of next year.
Deans dropped their free range and organic price by around 2p a dozen. Stonegate moved the following week, saying “to remain competitive we are left with absolutely no choice but to follow in reducing our own free range and organic pricing”.
But the packer is continuing to skew the price to support its producers who are stocking at nine birds per square metre and “have a different costing model”, as first reported in the Ranger in February. Their price came down around 2p while those stocking above nine birds saw 2.5p a dozen knocked off. This now widens the gap between the two groups to 1.5p/dozen
Stonegate continue to blame the poor market conditions on over-expansion in the free range and organic sector and have been repeatedly warning of the consequences since July last year. “The situation continues to haunt us and has resulted in extremely difficult trading conditions in both the retail and wholesale markets,” wrote the packer in a letter to producers. “It is in all our interests that the general free range market does not continue to pull in increased production.”
David Tromans acknowledged that the news would not be welcomed by producers and said: “We are well aware of the financial pressure this move causes and will seek to recover the situation as soon as the market allows.”
BFREPA chairman Tom Vesey said it was essential that prices were restored because producers were not in a position to sustain a prolonged period of poor returns.
“This is the fourth cut in less than twelve months and it is now seriously eating into margins,” said Tom.
“While we accept that some of that reduction has reflected falling feed prices this now goes far beyond that.”
BFREPA estimates that, taking into account feed and pullet costs, the current price being paid to producers has now slipped back four pence a dozen in real terms. And it doesn’t stop there.
“While feed and pullets are the two biggest inputs, we mustn’t lose sight of the fact that other costs are spiralling, particularly fuel and electricity,” said Tom, warning that future supply volumes were now at risk.
“We appreciate the packers are under intense pressure from the retailers but those retailers also need to realise that if they want supplies of free range eggs to meet their predicted growth then it’s no good paying producers 63 pence a dozen.”
