Analysis: fighting for a better deal for egg producers

By Rachael Porter

Free-range egg producers are being offered the opportunity to air their views on packer contracts, as well as the chance to strike a fairer deal, thanks to an initiative by the British Free Range Egg Producers Association.

BFREPA plans to develop a model egg pricing contract, follow consultation with contract law specialists and the wider free-range egg producing industry.

“We want to launch a model contract, in early 2019, for members and packers to ensure fairness and to restore confidence to free range egg producers and throughout the sector,” says BFREPA’s chief executive Robert Gooch.

The announcement followed a tough summer when the farmgate price of free range eggs fell due to an oversupply and drought conditions increased feed bills by 50% for some producers.

Speaking at the organisation’s annual conference back in October, he said that many of the contracts he had seen from producers ‘aren’t worth the paper they are written on’. And he also asked BFREPA members to send him copies of their contracts so terms could be assessed by specialist contract lawyers.

“I have since sent 12 different contracts, passed to me by members, to a firm of solicitors that specialise in contract law. And I’m now waiting for their feedback on these contracts – their fairness and legality. They will compare them to other contracts from other sectors – both agricultural and non-agricultural. We’re looking for an impartial and professional view on these contracts,” Gooch told Poultry Business in early November.

He was expecting a report back from the solicitors regarding the fairness of the contracts by mid-November. “It will be interesting to get their perspective and to see how they believe these packer contracts compare with others, for example, from the dairy sector.”

Armed with this information, the BFREPA will then circulate the findings throughout the poultry industry – egg producers, packers and retailers. “We also want their feedback and input. That will then allow us to draw up a range of ‘model’ contracts for the industry.”

He adds that supply contracts are the foundation of most free-range egg producing businesses. “But it is alarming to see so many examples with no reference to the price producers will be paid for their product.”

Current feedback from members is that many contracts are far from fair. Very few will stipulate a price and Gooch is also aware of packers changing prices, with little or no notice, which leaves producers frustrated and, often, in financial difficulty.

“Producers also report that some contracts also make it extremely difficult, if not impossible, to move to a different packer if they are dissatisfied with their current contract.

“This exercise is, in part, to give these producers a voice. Many are too afraid to speak out about what they see as unfair contracts. They will get in touch with us and talk about the difficulties that they are having. But then they go quiet.

Gooch understands that the stakes are high. “Many producers have significant back borrowings to loan repayments to meet. And for some, losing their contract and their livelihood could also mean losing their homes. So the risks of speaking out, publicly or even sometimes in closed circles, are just too great.

“We think that driving an open and informed discussion about packer contracts, with all sections of the food chain, will give them a voice to air their concerns as part of the wider industry and, hopefully, with also serve to rectify any imbalances and strike a fairer deal.”

With new entrants building their first sheds and existing businesses expanding,Gooch says  it is vital that all producers should have what he calls ‘rock-solid’ agreements in place.

“A clear commitment to egg price for the duration of the contract, or terms linked to the fluctuating price of feed, will be key components,” he says.

Many contracts don’t stipulate a price, but simply state that the price paid will vary according to market conditions. Others will stipulate a breaking price that’s around a third or a quarter of the market price. “But that’s clearly not good enough. Producers need a price to financially plan, manage, and maintain sustainable businesses.”

Other elements to be examined will be notice periods and procedures for the transfer of accreditation scheme rights at the end of contract. “We have members coming to us to say that the notice periods are so long that when they do give notice, the packer makes life uncomfortable for them for the remainder of their contract.”

“And we’ve also heard reports that even when producers do leave and move to another packer that there can be an issue with the transfer of their Lion Code accreditation and number. So that can also cause a delay and make things difficult.”

Some contracts have a price that’s linked to feed price and, again, a minimum egg price or base price is agreed “But we’ve also heard of packers who have reduced the base price, even though it’s in a signed contract, with little or no notice.

“This leaves the producer, once again, in a difficult position. It’s also a breach of contract, or so we believe. The producer can either take it on the chin or take legal advice. This is costly and can also be risky. Yet more ‘risk’ is being shouldered by the producers and we’d like to see this balance redressed a little more in their favour. That’s only fair.” Gooch believes that feed tracker contracts are a step forward for the industry. They allow producers to protect their margins – often essential to service bank loans. “If the feed price goes up, then so does the price paid for the end product. This is fair and offers some price security and protects producer margins. I’d like to see more contracts like this offered to producers.”

Many tracker contracts are linked to the purchase of pullets and/or feed from the packer, and he says that he’d like to see greater transparency with these transactions. “We have many disgruntled members who have agreements with packers to source pullets and feed direct from them. Prices have been agreed, verbally, but the true cost has been much higher. So transparency and openness are key here. As well as improved producer awareness of how some of these contracts are drawn up and what they actually mean would help too.”

Transparency also applies to retailers too. Many will pay packers more for eggs if, for example, feed prices rise and producer margins come under increased pressure. “They want to secure their egg supply and will pay packers more for their eggs, with the understanding that this will be passed back down the supply chain to the egg producer. But this doesn’t always happen.”

Gooch says that a good example of where this producer/packer/retailer relationship works well is the Tesco Noble Feed Tracker contract. “Is the price of feed rises, producers receive more for their eggs to ease the squeeze on margins. This is a similar set up to many dairy contracts that retailers have  with their suppliers. There’s an understanding that, in turn, their producers will be supported. A similar outlook has to be the way forward for the free-range egg sector.”

BFREPA should have the situation reviewed – with input from contract lawyers, producers, packers and retailers – by the end of 2018. “We’ll ensure that the industry in well informed of our findings and our plans for model contracts directly and through the agricultural and business press and media,” says Gooch.

“And we’re looking at early 2019 to launch our model contracts, which we hope that many packers and retailers will adopt as a guideline for ensuring that producers get a fairer deal and that free-range egg production remains a viable and sustainable enterprise.

“I’m hoping that more retailers will encourage their packers to adopt one of our model contracts. It would be a significant step forward for the industry and bring free-range egg contracts in line with some of the other livestock sectors.”

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