Rising egg prices have led to a growing number of producers looking to expand in recent weeks, despite a series of challenges impacting the sector.
Egg producers have faced major challenges over the past year which has led to a significant shortage in supply with producers pulling out of production.
However, as a result of this, the egg price has been rising since the autumn and has begun to stimulate interest in expansion.
This month the British Free Range Egg Producers Association (BFREPA) free range egg price increased to 132.82p per dozen compared to 122.08 last month, an increase of over 10p per dozen.
Whilst the last 6 months have seen a remarkable rise of over 30p per dozen, with the free range egg price having stood at just 101.1p per dozen in September 2022.
Building
Adam Langley is sales director for Powell & Co who are one of the UK’s leading manufacturers of commercial poultry housing.
He said that more producers are making enquiries about putting up new buildings: “Over the past month we have definitely seen more activity, particularly within the free range sector.
"A number of producers who had plans for expansion when the egg market began struggling put their jobs on hold. Those producers are now coming back to us and looking to put units in”.
“Low egg prices, twinned with high costs of energy, feed and raw materials had persuaded producers to be patient before putting new sheds in.
"However, now that the situation is starting to stabilise people are feeling more comfortable with expanding”, Mr Langley explained.
“Producers are starting to realise that raw material prices are not going to drop back to the levels they were at in 2019 and are thinking of the long term future of their businesses.
"Planning permission that may have been granted needs to be acted upon before it runs out, whilst producers want to invest for their future”.
He added: “The majority of people making enquiries are producers who already have units in place and are looking to expand.
"We have seen a variety of demand for 16k, 32k, and even some 64k capacity buildings, however those building the smaller units have been putting them in with the potential to expand easily in the future”.
He added that: “It has been important for us to adapt as a business over the last couple of years in order to remain at the forefront of our industry.
"We have continued to focus on after care for the producer once units are in place; recently that has meant a greater focus on issues such as avian influenza (AI).
"Being able to evolve has enabled us to remain competitive in what is a turbulent industry”.
Equipment
Adam Dye from equipment supplier Newquip said that he has also seen more enquiries over recent weeks but that these are largely tentative as producers look to see where build costs got to against the current egg price.
He said: “The expansion into production has been quite reserved due to recent poor prices of eggs alongside high feed, labour, and power costs. This has resulted in levels of production dropping as the industry has no longer been sustainable”.
“The shortage of eggs caused by people leaving the industry or production sites closing has now moved us into an undersupply situation with retailers scrambling to ensure they have product on their shelves and therefore prices are increasing to both packers and producers”.
“Existing producers have largely invested at times when the capital required per bird and financing costs were much lower. This should allow them to achieve good levels of return as they are able to renegotiate contracts”.
He continued: “The level of capital required and cost of borrowings required to stimulate new investment is going to put further upwards pressure on the egg price and hopefully allow existing produces and packers to recoup the monies lost over recent times and strengthen the industry for the future”.
Andrew Grainger, from fellow equipment supplier Vencomatic UK, explained that he had seen a greater number of enquiries and suggested that the majority of these have come from existing producers looking to expand.
He said: “We have seen an increase in inquiries from established producers looking to expand and optimise their operations. We are observing this trend with larger poultry farms and believe that 32,000- bird houses may become an industry minimum.”
“Changes in contracts between retail chains have provided new business opportunities for some packers, which are then expanding to meet their increased demand.
"New developments in technology, such as the Meggsius range, have enabled the use precision farming which required less labour and empowers our customers. We believe Meggsius will be the future of the industry”.
Pullets
Steve Carlyle from Country Fresh Pullets said that he has seen the return of a strong demand for pullets as producers look to fill the shortfall in eggs.
“The industry is in a very different position to this time last year, with producers currently seeing the best margins they have seen in a long time.
"Many people with empty spaces who stopped production when the egg price dropped too low are coming back to us with orders. There is certainly very strong demand for pullets at the moment”.
“We are looking for new entrants and more business, but it is important that the industry gets off of this current rollercoaster of boom and bust in order for it to be sustainable going forward”.
Sustainability
Jeff Vergerson, chairman of the British Egg Association, believes that the current shortage in supply has created the ideal opportunity to make the industry more sustainable for the future.
He said: “As an industry we now have a golden opportunity to get a meaningful long-term relationship with the retailers.
"It has been a very long time since egg supply has been this tight and we have had the chance to get costings accepted by all parties in the supply chain”.
“Ultimately the boom and bust system that we have at the moment needs to be replaced by a more sustainable supply chain.
"The industry needs to get packers and retailers on board and agree a method by which costs can be accepted”.
He continued: “Previously I don’t think costings have been accepted by retailers and packers, but now they are starting to realise that producers cannot continue to operate with prices as they have been.
"Any group or committee that would be set up with all parts of the supply chain should use a neutral body such as ADAS for its costings and would ultimately require good will from all parts in order to achieve success”.
Scott Lapthorne of Newlands Farm Eggs, a family run packer operating across the south west, agreed that now is an important period for the industry to maintain the balance of supply and demand.
He said: “We are in a position at the moment where the egg shortage has pushed prices back to where they need to be for producers.
"However, it is very important that the industry does not now increase production to the extent that the balance of supply and demand tips again”.
“There is certainly a need for more production, however there are more constraints on producers who are looking to expand, such as raw material prices which have stayed high and challenges around planning permission requiring more control of air quality”.
“It is the responsibility of the producer and the packer to have a sensible conversation and only invest in what is needed. We currently have a good healthy market; the important thing is to make that sustainable and maintain confidence among producers”.
He added: “With agriculture being an ageing industry, people are looking to invest for future generations but for that to be worthwhile it is important that the egg industry is sustainable.
"When producers are investing in sheds they are also investing in people and the future generations of their businesses”.
Planning
The increase in producers considering expansion appears only to have developed in recent weeks.
Specialist agricultural and rural planning consultants, Ian Pick Associates said last month that they saw a drastic decline in the number of planning applications received in 2022.
Ian Pick advised that “At the start of this year, I have seen the lowest number of applications for free-range egg housing than I have seen during 17 years of being in this business”.
Ian put this down to the poor egg price in 2022 whilst costs were going up across the board for producers: “Production was just not making the margins required.
"Simply put, as we all know, supermarkets are paying less than the cost of production. We have seen many farmers get their fingers burned”.
He noted that the other aspect making it more challenging for producers to expand is the cost of building, “which has all but doubled”.
“Brexit, the war in Ukraine and inflation have all led to phenomenal increases” he added.
“Hefty increases in the cost of steel, wood, equipment and concrete have huge impacts on build costs”.
