Feature: Price pressures hit free-range egg producers

By Michael Barker

Profitability in the free-range egg sector is under severe pressure as high feed prices and low returns leave producers demanding change

It’s been a year of weather-driven misery for many farmers across the agricultural spectrum, but in the free-range egg sector in particular tensions are at breaking point as producers struggle with profitability and a mismatched supply-demand balance.

The scorching summer might have brought joy to the sun-starved British public, but in the parched wheat fields volumes were badly hit, leading to a knock-on effect throughout the supply chain. AHDB figures show that the wheat price rose from £143/t at the turn of the year to a high of £194/t on 7 August, and while it has dropped back a little since, prices were still at a troublingly high £176/t in September.

That in turn has led to feed prices rising to a five-year high of £240-270/t, according to the British Free Range Egg Producers’ Association (BFREPA), which says an immediate price rise is needed to avoid financial devastation across the sector.

The consequences of a drought-like summer are just a part of what is a complex jigsaw though, as supply and demand have fallen out of sync, driven by an influx of opportunistic farmers eyeing pots of gold at the end of the free-range rainbow. “There’s a surplus of medium and small eggs because of the expansion going on,” explains BFREPA chief executive Robert Gooch. “There’s quite a lot of small young flocks coming through the system, which is putting downward pressure on the market. It’s a difficult situation producers find themselves in; they have been getting lots of messages from the supply chain and consumers that free-range eggs are in demand and required, and now they find that they might have been persuaded to put up sheds when they weren’t needed at this stage.”

Indeed, Defra statistics lift the lid on how, despite the growing popularity of free range, the price has declined noticeably since 2015. In the second quarter of 2018, the average farmgate free-range egg price was 81.3p per dozen, down from 98.4p three years ago, a 17 per cent decline. Some 53 per cent of eggs produced in the latest three-month period were free range, with the vast majority of the rest produced in enriched cages. That’s a substantial increase on the 44 per cent seen just three years ago.

Retail shelf prices, meanwhile, have remained largely unchanged: a dozen large free-range eggs currently cost anything from £1.75 in Aldi to £2.25 in Sainsbury’s, with most stores settling around the £1.85 mark for own-label product.

Gooch isn’t specifically blaming farmers for switching to free range – he says they are being filled with misleading messages in the media and higher up the supply chain suggesting free range is a panacea – but he does say that packers and retailers need to take responsibility for the number of contracts they are dishing out to new entrants in particular. “There are lots of milk, beef and sheep producers who are looking at free-range eggs as a new enterprise that they are told promises better margins,” he says. “But it’s not immune to the price problems other sectors have. There’s no super money to be made in free-range eggs compared to other sectors, and a lot of farmers are going into it without a guaranteed price.”

Putting further meat on the bones, BFREPA analysis reveals that in the current market farmers are losing substantial amounts that threaten not just the viability of their businesses but also their livelihoods. Producers are on average losing 50p a bird if they have paid for all of their investments, but that rises to an eye-watering £4.50 per hen for those who still have to cover finance and depreciation of investments. That would mean a clearly unsustainable £72,000 loss for a farmer with an average flock of 16,000 birds.

It’s a theme that NFU poultry board chairman Tom Wornham, who echoes calls for higher returns, expands upon. “Farmers are putting up millions of pounds worth of units to only repay the value of the asset,” he points out. “They don’t, over a period, accumulate enough to be able to rebuild with the profits they make.”

Citing environmentalist and TV presenter Chris Packham’s newly launched People’s Manifesto for Wildlife, which has the support of independent experts and scientists, Wornham says there is a disconnect between people’s apparent love for wildlife and their actual shopping habits. “Paying a pound for a dozen eggs or £3 for a chicken doesn’t make me feel confident that people do actually care about their environment or animal welfare when they’re quite happy to pay £4.50 for a pint of beer of £6 for a glass of wine,” he points out. “Egg production takes big investment in infrastructure, you need long-term secure contracts with your packer or retailer, and there’s just not that kind of confidence. Everyone wants to take their margin out and they don’t really want to leave anything with the farmers.”

To remedy the situation, BFREPA has two main asks of packers and retailers. The first is that they offer feed-tracker contracts, that’s to say commitments that the returns to farmers will move depending on the price of feed, a situation that already exists in the broiler and pig sectors. Sources say Tesco has begun offering farmers, via supplier Noble Foods, the option of a feed-tracker deal, although Noble declined to comment on the current price pressure when approached by Poultry Business.

The second thing is a simple price rise: Gooch wants a return to the £1 a dozen mark of three years ago, which would be enough to cover the increase in feed costs and inject stability back into the production sector.

If that doesn’t happen, then there could be harsh consequences at the farm gate. Gooch says he knows of a couple of producers who are already pulling out, while Blackdown Hills Westcountry Eggs ceased trading in July. The Somerset-based business, which supplied free-range eggs to retailers and restaurants, blamed commercial pressures and a tough market for its demise.

And just surviving isn’t going to be good enough, particularly if there’s a longer-term switch towards free-range that requires a mass investment in infrastructure. “In 2012 the industry invested £400m in the enriched cage system,” points out Wornham. “The farmers did that and complied, and only six years on all the supermarkets are saying they don’t want enriched systems, they want free range. Farmers bring social benefits, feed a growing population and have to balance the environment, and eggs are an extremely good source of protein, grown in a small area with minimal effect on the environment.”

With an industry made up of many small suppliers, the free-range egg sector hasn’t been able to co-ordinate itself to secure better prices up to this point. The influx of new players has added to a mixture of small, independent producers who are not directly aligned to a packer or retailer, meaning supply chain relationships are not as close as in other sectors. But the mood is shifting, and there’s now a concerted push to achieve a more sustainable contract model and secure the future for one of the most important staples of the UK shopping basket.






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