Two major packers have raised producer prices following lobbying by the British Free Range Egg Producers’ Association, and others may follow.
BFREPA chairman John Retson wrote to packers to highlight the severe hardship hitting free range egg producers and subsequently met packing company representatives to press the case for increased producer prices. Some packers had cut prices by more than 16 pence per dozen in recent weeks. With feed costs up by the equivalent of six pence per dozen, many producers found themselves 22 pence per dozen worse off, leading to fears that some individuals could be driven out of business.
Both Noble and Fridays have now announced increases to help compensate producers for the increased feed costs, and John Retson says the move is good news. "I welcome the increases because the prices were simply unsustainable. The prices we have been running with represented a loss of more than £3 per pullet. That is just unsustainable so I am pleased that packers are responding to what is happening with the feed price."
Following the meeting with John Retson, Noble announced that it was increasing prices by six pence. Martin Troop said the company was "working positively with BFREPA, recognising the serious impact rising feed prices are having on producers."
Fridays has also moved to increase its prices, saying that it, too, was responding to increases in the cost of feed. "We are trying to look after the producers we have got. They are having a tough time," said Martin Flegg, although he said that the state of the market for egg had not changed. "There is still too much egg around."
Recent reductions in the price paid to egg producers have been blamed on over-supply. That has been caused by the large number of new entrants to free range egg production. Some months ago John Retson called on the industry to take more control over the expansion of free range. Packers have since been closing their books to new producers.
Although Martin Flegg said the market was still over-supplied he said Fridays felt it needed to increase prices at the moment because of the cost of feed. "We think it is the responsible thing to do," said Martin, who said that prices had been increased across first grade categories by eight pence, with the exception of small eggs.
The price for small eggs has increased by four pence. Stonegate had not announced any increase when the Ranger went to press, but Richard Kempsey said a price rise was under consideration. "We are incredibly aware of what is the vice on the industry in terms of the low returns and increasing feed prices."
Another packer currently considering a price increase is Birch Grove Eggs – even though the company did not previously reduce producer prices like the major packers. Tony Burgess, who runs the business together with his wife Gwen, said, "I am looking to see if I can increase prices because the feed has gone up by £50 a tonne. I am trying to see how sustainable my prices are currently for producers. I feel a social obligation to keep them in profit. I am trying to see if I can eke out more money for them." In the regular price surveys conducted by BFREPA, Birch Grove Eggs consistently emerges as a leading payer.
Tony is critical of the way leading packers have dealt with producers in recent months. He says that the market has been difficult, but he lays much of the blame for the difficulties at the door of the majors.
"There is so much surplus egg flying around. I speak to Central Egg on a weekly basis and last week they said there were three artic loads of free range egg touring the country just trying to offload them," he said. "My biggest bone of contention is that the major packers have not had a sustainable plan of growth. I lay the blame firmly at their doorstep for this."
He said they had failed to control the volume of new egg supply entering the market. He said they had offered too many producer contracts too quickly.
"It’s not rocket science to work out demand. If they had just done their calculations a bit better and increased their volumes in a slower way we would have all been fine," he said. "There is not a single producer in the UK who started up independently and just said ’I’m going to produce eggs and try to find a market.’ They have all gone to a packer to produce eggs for them. Packers are letting producers down big time at the moment."
Tony also criticised some free range producers. "Some producers have gone in far too big, completely ignorant of the market, quite arrogant in their outlook and that is causing problems as well."
Tony said he would like to see a restriction on free range size set at 6,000 birds. "I know that would upset the apple cart, but when you see multi-tiers of 32,000 that is not conventional free range at all. Over the next few months I am going to be pushing for a different prefix for a smaller flock because we can’t compare like for like. Consumers will certainly be keener to buy eggs from smaller flocks," he said.
Tony said the outlook may well change with the approach of 2012 and the EU ban on conventional cages, but that may come too late for some producers. "Perhaps in 12 months from now we might be singing a different tune when we get nearer to the 2012 cut-off date, but how many producers will be left by then because of the cost of feed. There is going to be nothing in it for the producer with some of the major packer prices that are being paid."
Tony and Gwen Burgess have 3,000 of their own layers. They take eggs from another five producers who have a total of 23,000 hens and all the eggs go to independent retailers and caterers.
Tony says there is no problem selling the egg to those customers; the problem is with the surplus egg that all packers inevitably carry.
"We all produce a surplus, and it is the surplus that is causing the problem at the moment. Every packer is in a surplus situation throughout the year but seconds are worth nothing at the moment.
I know it’s a long way down the line before you try to sell your surplus egg as a second. I used to be able to pass them through the trade, but there is so much cheap egg out there at the moment that it is not happening," he said.
Despite the difficulty in moving surplus egg, Tony believes he has a responsibility to support his free range egg producers. "I have a social conscience and I can’t go to my producers with this new feed price and the existing egg price. The figures are not going to balance out," said Tony.
"If I want to sustain supply over the next few years I have got to keep my producers in profitability." He said that would mean cutting his own margins, but that was something he was prepared to do. "I am prepared to bite the bullet for a year to sustain supply."
Tony said that under his contract that came to an end in September he was paying £179 per tonne for feed. His new contract priced the feed at £232 per tonne. "That digs deeply into the profitability of a unit," said Tony, who said he was praying the Australian wheat harvest would be good and that the price would start to fall again.
He was, however, critical about the effect that traders were having in driving the price of wheat so high. "It’s immoral that city traders are trading in a food product at a time of shortage. There has got to be some legislation. We will never achieve sustainable growth in any form of agriculture whilst city traders have got their claws on the product.
There has been a fantastic crop of soya, but that has gone up as well because of trading." He said there were plenty of wheat reserves around the world despite the difficulties in Russia and there was no need for such huge increases in the price.
Traders were having a damaging effect on the price of feed and that had a ripple effect up the whole market chain, he said. The effect was being felt particularly severely by free range egg producers.
