Egg producers need more money. Would cost of production contracts help or hinder them?
How can egg producers turn their fortunes around? Last summer, many producers were losing 40p per dozen, according to the British Free Range Producers Association (BFREPA). The national flock is down to a low of 34 million as producers leave the industry, and avian influenza has left many others questioning whether it’s worth continuing.
Defra figures show the number of eggs packed during the third quarter of 2022 was 9.6% down year on year. The issue has reached the general public thanks to the egg shortages in many shops. There has been much talk of emulating the dairy sector, which in 2007 in the midst of a torrid time for the industry, negotiated contracts that took into account the fluctuating cost of feed and other inputs.
Could this model work for the egg sector? That was the topic of discussion at the first of a series of roadshows held by BFREPA at Diss on the Norfolk Suffolk border on January 26. There was a lively discussion and some disagreement about whether contracts linked to the cost of production would ultimately benefit or hinder beleaguered producers.
Robert Gooch, chief executive of BFREPA, made the case that such contracts would be a good outcome for producers.
ADAS had been commissioned to produce an analysis of the cost of production on an average layer unit, which based on the overall membership of BFREPA was a 32,000 multi-deck unit. According to the analysis, at current prices, the average producer is losing 10.27p per dozen eggs, and £2.87 per bird housed.
Federica Monte of ADAS explained the consultancy had based its sums on 335 eggs per bird housed to 76 weeks; a feed consumption per gram per bird per day of 126; mortality of 8%; and a capital investment per bird of £42. Costs to producers in the calculations included labour, electricity, veterinary and medicine costs, clean down, litter, enrichments, pest control, water, insurance, dead bird disposal and disinfectants.
With egg shortages in most supermarkets and national attention focused on egg producers, now was the time to negotiate, Gooch said. Some producers were very unhappy about how the average costs had been calculated, arguing the figures bore little relation to their business. Others argued they did not want to share their costs in order to create more accurate figures because they feared they would be used against them in future negotiations.
“The whole point of costings is to get them to feed into contracts,” said Gooch. “We want to avoid the nightmare of last summer and losing 40p per dozen.”
“Ten years ago the dairy industry was in the same position and there was a supply chain review. Dairy prices now follow costs, just like broiler prices follow the costs. Eggs don’t – and it’s because our contracts are a mess.”
Gooch also urged producers in the room to be more assertive negotiators with their packers. “We – too much – are takers of what is given and we don’t negotiate enough. Producers must learn to negotiate or walk
away.”
He gave the example of a group of producers in the West Country, which were offered a deal,
and decided together to walk. “The packer had to think again,” he said.
Several types of possible contract were discussed, including variable price, fixed price, feed tracker, cost of production tracker, and bed & breakfast. Again there was disagreement from producers in the audience, with some making the case that the need for contracts like this reflected poorly on packers.
Others were sceptical about the idea of feed trackers overall. One producer argued that some packers who also produced their own feed artificially suppressed the cost of their feed in order to suppress the price paid to producers. He argued market supply and demand was the only way forward.
Some in attendance argued that supply and demand was the best way forward, with packers having to pay more when eggs were in short supply. “The problem comes when you decouple supply and demand,” said one.
Others said though that when a certain percentage of the industry was on a feed tracker, other producers not on those contracts suffered more. “You’re never going to get the feast if you’re on a feed tracker”.
“If cost of production is guaranteed, what’s to stop anyone coming in and flooding the market again?” said one producer. “We need genuine supply and demand. That way the price will go up when there are shortages.”
Others raised doubts about this, arguing there was a ceiling on the cost that consumers were prepared to pay. “There are shortages in supermarkets, but if you look at the shelves there are still plenty of speciality eggs available,” he said. “The reality is people will not pay £4.50 a dozen. So there is a limit.”
But Gooch said the industry needed more protection. “In tough times the feed tracker pays better.”
And he suggested packers could manipulate the market by bringing in more producers anyway. “There is no disincentive for the packers to get more producers to bring the price down. You’ve all been shafted in your time. Admit it!”
The discussion continued by looking at the best length of contract for producers. There was largely agreement that one flock was the best level of commitment, rather than longer contracts requiring four of five flocks’ notice to leave.
BFREPA will now continue its roadshow with dates around the country throughout February and March before deciding how to proceed. If you would like to attend one of the roadshows you can register via the BFREPA website.
