By Michael Barker
Britain might not be direct participants in the Middle East conflict, but the collateral damage is putting great strain on the country’s poultry sector
After years of debilitating supply chain shocks, from the Covid pandemic to the Ukraine war, conflict in the Middle East is something nobody wanted.
The unpredictable nature of the conflict, with military threats and outbreaks of violence interspersed with talk of ceasefires and resolution, is bringing considerable uncertainty in the food supply chain, adding cost and complication at every step.
While the UK may not be a direct participant in the war, the impact is nevertheless being felt by the farming community on these shores. As the NFU notes, with 20% of the world’s oil and gas shipments and a fifth of global ammonia and urea supplies passing through the Strait of Hormuz, there has already been significant economic damage from the conflict and it is putting farmers under immense pressure.
NFU Poultry Board chair Will Raw said: “Poultry businesses are heavily reliant on energy to ensure they can run efficiently and optimise bird welfare. We need to provide heat for young birds and regulate temperatures to keep our birds comfortable. It’s not something we can just switch off.
“This means that every time gas or oil prices surge, we feel the cost impacts immediately. Alongside this, the increasing costs of haulage are also impacting the sector as specialist bird movements are critical. While these cost spikes are unlikely to be passed on to the consumer with an ongoing cost-of-living crisis, they could drastically undermine farm business profitability at a time when the UK poultry sector already faces a multitude of challenges.
“It’s vital the government and supply chain work together to build better resilience so we can withstand global shocks and continue to produce high-quality poultry meat and eggs for the nation.”
Broilers under pressure
The British Poultry Council has sounded the alarm on the conflict’s impact, warning that the situation has already triggered a chain reaction of supply disruption and cost pressures that could drive up production costs and, ultimately, food prices for UK consumers.
The effective closure of the Strait of Hormuz has disrupted the flow of key inputs including oil, gas, fertiliser and essential feed components, resulting in knock-on impacts that are placing the sector under strain. Poultry industry leaders have called on the government to recognise the scale of the risk to domestic food production, engage closely with the sector, and take coordinated action to address mounting supply chain pressures.
Going into more detail, the BPC notes that energy and fuel inflation will increase costs across every link in the supply chain, with the price rise of liquified petroleum gas (LPG) – used for heating poultry sheds – being a particular vulnerability. “For poultry meat production there is increasing uncertainty over the supply of key vitamins, minerals and essential amino acids which are vital for health and welfare,” the trade body added. “Industry leaders have stated that micronutrient suppliers are unwilling to sign contracts as they cannot guarantee delivery. The stark reality is that if birds are not given adequate nutrition, the same as humans, their health and welfare will be affected. This will mean less poultry on supermarket shelves as supply is inhibited.”
A related concern is the flow of animal medicines, with any shortages representing a further threat to bird welfare. Coming on top of the ongoing battle against avian flu, it’s another hugely unwelcome stressor on producers.
There are broader impacts across the wider supply chain too. Around one-third of the global fertiliser trade passes through the affected region, and nutrient production is heavily reliant on natural gas. Disruption to both supply and production has driven fertiliser prices sharply higher, which is expected to increase feed costs, and soy-based inputs in particular.
“Taken together, these factors are creating sustained upward pressure on the cost of poultry production,” the BPC says. “While some increases may be absorbed by the industry, others will inevitably have to be passed on to consumers.”
Impact on eggs
Many of the issues facing broiler producers are the same as for those supplying the egg market. In a detailed analysis of the impact, the British Free Range Egg Producers’ Association (BFREPA) agreed that it isn’t just oil that has leapt in value, but liquified natural gas (LNG) and refined oil products, all of which filter into fuel, electricity and industrial costs. Then there’s urea, sulphur, ammonia and phosphate, with price shocks in fertiliser having a significant bearing on yield and planting.
A 30% increase in fertiliser – which is roughly half the variable cost of producing grain – could be enough to obliterate farm margins. But playing devil’s advocate, BFREPA posed the question of whether chicken manure might also enjoy an uptick in perceived value if synthetic fertilisers rise in price.
That sliver of light aside, it’s a nervous time. “For egg producers, these pressures rarely sit in isolation. Feed, energy, pullet rearing, transport and packaging are all exposed to the same inflationary forces, meaning cost increases tend to stack rather than offset,” the trade body warned.
All eyes are on when and by how much prices start to shift. BFREPA noted that as of mid-March, grain prices had only edged up by £3-5/t since the outbreak of war, with high global supplies and five-year high global wheat stocks keeping a lid on inflation. In oilseed prices such as rape and soy, the crude oil market plays a stronger hand. With high crude oil prices comes higher demand for biofuels, using soya oil. Lagging behind the crude market, soybean prices rise, dragging with it the price for rapeseed oil.
Feed markets are already beginning to reflect that shift, BFREPA warned. “One feed specialist reports that while overall compound feed has risen by around £10.70/t over the past month, the biggest movement has come from soya, increasing from £300/t ex-docks to £330/t,” it said. “At typical layer inclusion rates of around 15%, that alone adds approximately £4.50/t to feed costs, with vegetable oils also rising by more than £100/t.
“Markets have since softened slightly on the back of tentative diplomatic signals, underlining just how volatile and sentiment-driven current pricing remains. Against sharply rising fertiliser and energy costs, that imbalance risks further squeezing arable margins and pushing additional cost into compound feed prices for egg producers.”
Logistics is another important part of the picture, and affects everything from feed to plastic packaging. Whether it’s ships on the sea or lorries on the road, there’s additional cost at every stage of the process. “Goods destined for the Middle East that are deferred or cancelled could create a surplus that undermines the manufacturers’ attempts to recover their cost inflation in stable markets,” BFEPA says. “Supply of egg cartons, for example, is notoriously challenging. There are very few suppliers, each demanding ever-longer lead times and with decreasing flexibility.”
The broader picture
While short-term shocks in isolation are one thing, the Iran situation is exacerbating existing long-term problems of resilience in domestic production, and frustratingly comes at a time when consumer demand for poultry is increasing by two to four per cent every year.
The BPC points out that planning barriers continue to limit growth, while imports – which have already risen by 7% year-on-year and are produced to lower standards – are already being relied upon to plug the gap. The trade association and other industry leaders are urging the government to get the agri-food sector around the table to discuss the risks posed to UK food security and form a plan for addressing these mounting supply chain pressures.
“Global events are once again challenging the resilience of our domestic food production,” says BPC chief executive Richard Griffiths. “With chicken as half the meat this nation eats, we take our role seriously in ensuring people can access affordable food. The promise by government of a sector growth plan for poultry takes on a new urgency and we call on ministers to accelerate its delivery.”
BFREPA warns that when consumers are cash strapped, retailers “get the knives out, with each other, and with their suppliers”. “The egg industry needs to beware,” it adds.
When governments apply pressure to businesses to protect the public against exploitative price gouging in the face of world events, retailers can lean on suppliers to swallow higher costs almost as a moral duty. “Weaker suppliers bend and a knock-on effect throughout the market may follow,” it states. “If there’s a drop of blood in the water, the supermarket buyers will pick up the scent.”
Amid a tidal wave of uncertainty, the only thing that can be said for sure is that an end to the conflict cannot come soon enough.