Three years on from major retailers committing to cage-free egg production by 2025, the industry still has a lot of unanswered questions over where to focus future investment – free range or barn?
Uncertainty over the costs of producing barn eggs compared to free range, changing commitments from retailers, and a lack of clarity on price points between the two production systems means that it’s difficult for producers to make well-informed investment decisions.
A forthcoming report, commissioned by the British Free Range Egg Producers Association (BFREPA) and produced by Jason Gittins, technical director for livestock at ADAS, will attempt to answer some of these questions and provide clarity for producers, packers and retailers.
Changing retailer commitments
BFREPA commissioned a similar report in 2017, shortly after the cage-free announcement by retailers, which made clear that there would need to be significant expansion in barn production, and some free range expansion, to meet the need this commitment.
However, since then there have been several changes in the sector.
“In 2017 the majority of retailers made a commitment to cage-free egg production by 2025, but did not specify whether replacement eggs would be barn or free range,” explains Jason, who also authored the 2017 report.
“Morrisons has recently committed to retailing only free range shell eggs, and for all egg products used as ingredients in its own-brand food to be free range by 2025. Sainsbury’s, which in 2017 suggested it would stock a mix of free range and barn produced shell eggs, has now committed to free range only.
“Other retailers are still considering their options for cage egg replacement, while Waitrose already has a free range-only egg policy.”
Need for clarity
“Many in the egg industry have assumed that colony eggs will be substituted entirely by free range,” says Robert Gooch. “However, we question this assumption. Our understanding is that some retailers do want to offer a value or entry-level egg at a lower price point than free range. This will require an expansion in barn production to meet demand.
“Despite the forecasted egg consumption figures and predicted mix of barn and free range requirements in our 2017 report, there has been a significant expansion in free range capacity over the past three years. This has led to oversupply in the market and lower prices, pushing some smaller free range producers out of business.”
The new Lion standard barn production system, published in February 2020 lacks detail on the cost of barn production under the new standard, whether converting current enriched cage units, or building new, purpose-built units.
There is also no clarity on whether barn eggs produced using the new Lion standard will provide sufficient discount on free range production costs to make it attractive to both producers and consumers of those barn eggs.
According to BFREPA, this is the main reason for commissioning this report. “We need clarity on the costs, potential market opportunity, and retail value for barn eggs, to enable my members’ businesses to make more informed decisions on where to invest or diversify,” says Gooch.
Gittins explains that when the 2017 report was published, it was working on the assumption of about 35.5million total laying hens in the UK. By the end of 2019 it was around 42.3m laying hens, an increase of 6.8m.
“The vast majority of this expansion has been in free range, with a small amount in barn,” he says.
The 2017 report looked in detail at how many additional free range hen places would be required for a potential 5%, 10% and 15% uplift in free range egg sales across the six retailers that had confirmed their commitments for 2025. These increases amounted to an additional 1.8, 2.7, and 3.8m hen places respectively.
Data confirms Gittins’ suggestion that there has been significant expansion in free range since 2017.
In January 2018 free range capacity was just over 23m hen places, with just over 21m birds housed.
By January 2020 that capacity had increased by 4m bird places to 27m, and the number of birds housed has increased by 5m, taking the total to 26m birds housed. The figures remain similar at March 2020.
The current data suggests that there has already been sufficient expansion to cover the maximum 15% uplift required proposed in the 2017 report.
However, Gittins points out that the report in 2017 used the assumptions from retailer commitments at the time.
“There is a need to update the forecast for free range, barn and cage production requirements from 2025 with current knowledge, including published industry size figures, egg consumption data, retailer commitments, and Defra data,” he says.
The report’s authors will work with existing barn and free range producers to understand the likely difference in production costs for each system, including the cost of conversion.
The producer view
John Warne, of Merlin Eggs in Dulverton, West Somerset has found that producing speciality free range eggs for a niche market has helped his business ride the highs and lows of the recent oversupply.
Warne, who is a BFREPA Council member, supplies Stonegate with speciality and standard free range eggs from his thee, 3,000-bird mobile houses.
He thinks that the 2025 commitment to cage-free eggs by retailers has put some producers into a spin.
“Suddenly everyone thinks that there is going to be a shortage of free range eggs because of the switch from enriched cage. Producers are putting up new sheds and hoping to cash in on the potential increase in free range egg requirement. But this oversupply has driven the price down and that’s bad for everyone,” he says.
“The enriched cage system will still exist after 2025, and I believe we need a range of egg values, including an economy egg, so that there’s a bottom in the market.”
Warne’s shift to niche market production seems to be paying off.
Two of his houses were recently switched from British Blacktails to Old Cotswold Legbars, producing blue-shelled eggs for Stonegate’s Clarence Court brand. He expects to switch his remaining shed to either Old Cotswold Legbars, or Burford Browns in the near future, thereby producing 100% speciality eggs.
Warne says that the Old Cotswold Legbars are harder to manage, and costlier to purchase and feed than British Blacktails, but the egg price premium is worth it.
“They can take up to three months to get going, and once at 90% production they will start dropping off quite quickly. You get fewer eggs over the lifetime of the flock, but even so, we are making more money. Prices for the Old Cotswold Legbars average £1.70 per dozen eggs, compared to £1.10 for the Blacktails,” says Warne.
“The higher cost of feed was a concern for us, but we are on a feed tracker contract with Stonegate, so that has definitely helped us ride out the recent price volatility.
Warne has not been asked by Stonegate to prepare to increase production yet. He says: “We don’t have the space to expand with additional houses or install larger units even if we were asked. Our land is at capacity.
“However, improving genetics is going to allow us to keep flocks going for longer, which means more value, and eggs, out of each bird. We are certainly looking to delay depletion from 72 weeks to 76-80 weeks in the future.
“We’re really pleased with the speciality breeds we’re using now. We’ve developed a system that works, and its paying. It will certainly help the business remain viable, while the general increase in free range production affects prices in the uncertain run-up to 2025,” concludes Warne.