Noble chief executive Peter Thornton was subjected to a grilling by angry producers during a question and answer session at the association’s annual conference.
His appearance at the event came closely on the heels of recent cuts in the price paid for producers’ eggs, and although the packing company boss did provide some cheer for farmers with the announcement that Noble would be offering free salmonella insurance from January, he was left in no doubt about the frustration felt by producers as a result of the price drop.
Complaints that egg producers were not making a profit at the new rate and that the cut in the price paid to them had not been matched by falling prices in the supermarkets were fired at Peter, who sought to explain why the reduction had been introduced. He also outlined his vision for improving returns to farmers in the future through the launch of a new national brand selling at a premium price.
Peter said he had been under pressure from retailers to reduce prices ever since he took up his position with Noble in May. "I was under real pressure almost from day one. They were keen to bring prices down as quickly as possible but we tried very hard to ensure there was a lag." He said the company had in the past worked very hard to push prices up and had done so on the back of feed prices. Feed prices had started to fall in May or June, however, and eventually a decision had to be taken to reduce egg prices. He said feed prices had fallen from a peak of £2.35 to the low £1.90s and an average of 7p per dozen was an appropriate reduction.
One member of the association said it was unrealistic for an independent producer to spend all his time trawling the spot markets for the best feed prices, but Peter Thornton said the figures he quoted were taken from 70 to 80 month ahead contract producers with the company. "Our own company farms in October seem to be making a return. I am not saying everybody is doing so and I am not saying those who are are making enough. I know people have been disappointed with the price reduction," said Peter, who said he accepted he had to find a way of ensuring that value was more evenly distributed down the chain.
He was asked by one member why there had been no reduction in the retail price of eggs despite the cut in prices paid to producers. The member said it seemed that supermarkets were simply pocketing the difference. Peter said he had been surprised that there had been no fall in retail prices, "but I cannot control retail prices," he said. "It is a profitable category for retailers, although I have no doubt that their mix is suffering as more people buy more value eggs. Maybe they are cross funding. I can understand why you would be surprised that the price reduction has not followed through to consumers but I cannot control that. The more credible way ahead for me is trying to build value in the chain as much as I can."
He said that in the new year Noble would be launching a new national brand which would sell at a 15 to 20 per cent premium and this would be supported by national television advertising. "In the next two to three years I hope we can cement a premium in the category and start to distribute value better around the supply chain." He said he hoped the brand could become the Cathedral City of eggs - a reference to his time at Dairy Crest. He said the turnover of the Cathedral City brand had been taken from £10 million to £110 million. The new free range egg brand would be available nationally and would hopefully provide value for everybody rather than just a few.
He said the industry spent a lot of time being internally focused and was not necessarily offering consumers what they wanted. He said free range eggs were in danger of becoming every bit as much of a commodity as cage eggs. There was a danger that they could lose their value added position and the industry needed to find ways of retaining and building value. He said Noble was in the best position to do that.
A Welsh producer told Peter that his 12,000 bird unit was simply not making money - and that was not financially justified. He said there was a hope and expectation that existing producers would take on more bids as a result of the change in external stocking densities in order to meet a potential shortage of eggs caused by the conventional cage ban. He would certainly not be expanding given current financial circumstances and he could see that packers would have difficulty persuading others to expand unless they could see a reasonable return on their investment. Peter Thornton said he accepted that was something he had to address.
The Noble chief executive was also tackled about the role of Michael Kent and his possible overseas interests. He said he spoke to Michael Kent regularly to take advantage of his knowledge of the egg industry but he insisted that Noble fully intended to service the business with UK eggs. He said one of the early things he had done after taking up his position at Noble was to end what he said was "an anomaly" of importing French eggs for one of the company’s customers.
Peter was asked by the association’s new vice chairman, John Retson, whether now that wheat prices were as low as they could go he could give a guarantee that there would not be "another savage cut" early next year. He said he could not give any assurance about future prices, although he said he was quite confident that he could hold the market where it was at the moment. "I personally don’t see January being a problem and I hope that will be the month when we see long term feed
deals unwind a bit."
He said his job was to keep the market high and if he could do so he would. He said he didn’t think anyone could have done any better on price increases than his predecessor, but said it was in everyone’s interest to have a firm market. "There is nothing worse than a sliding market. Our job is to add value. It will not happen overnight and it will take investment, but that is the way we have to go and that is what we are aiming to do."
