Egg packers react to market conditions

We need to ensure that expansion of free range production is carefully controlled to avoid creating a temporary imbalance of supply and demand says John Retson
We need to ensure that expansion of free range production is carefully controlled to avoid creating a temporary imbalance of supply and demand says John Retson

Some major packing companies have stopped taking on new producers because of the increased volume of egg on the market.

British Free Range Egg Producers Association chairman John Retson warned in last month’s Ranger that the industry needed to ensure that expansion of free range production was carefully controlled to avoid creating a temporary imbalance in supply and demand. Oaklands Farm Eggs blamed its recent 10p cut in producer prices on a big increase in the number of free range units. It said the market was "completely flooded" because of the increase in the number of new free range producers and warned that prices could be cut again in August or September unless production was brought under control.

Some industry leaders have now responded to the state of supply by halting new recruitment. Stonegate’s Richard Kempsey warned at last month’s Pig and Poultry Fair that the time was close when the doors would be closed to new producers. Stonegate has now closed the doors. Noble says it has stopped taking on new producers at the moment. And John Bowler has announced that he will not be issuing any new contracts to produce free range eggs for at least the next nine months unless market conditions change. He remains optimistic about the future, however. "I feel the free range market is here to stay and I feel the demand for free range eggs will continue to grow, but possibly not at the pace at which it has recently grown."

One packing company still taking on new producers at the moment is Fridays.

John Retson warned last month that the industry needed to be careful to prevent the growth in production outstripping the growth in demand. "We do not want to reach the point where there are too many eggs for the market," he said. "We all have to be very mindful. The figures we see from our own membership suggest a fantastic future for free range eggs, but we must not move ahead too fast. People don’t want to be putting bricks and mortar down without knowing that there is a market for their eggs. They need to speak to us and to packers before going ahead and putting in new production."

In three months time it could be completely different, but we are not looking to do anything with any new producers at the moment, syas Martin Troop of Noble Foods
In three months time it could be completely different, but we are not looking to do anything with any new producers at the moment, syas Martin Troop of Noble Foods

John Campbell of Glenrath Farms has been turning away new producers since the start of the year. He told the Ranger that he did not want to see free range egg prices depressed as a result of oversupply in the market.

Following his warning at the Pig and Poultry Fair, Richard Kempsey has now told us that Stonegate has decided to close off completely to new producers. "The only exception we see is Waitrose. We have got growth projections with them that are already in place and at some point we will have to open the books again to match their growth aspirations."

Richard said the market was currently in a state of over-supply. " You wouldn’t get the position that we find ourselves in if parcels of free range eggs were not being offered onto the wholesale market," he said. "It is a simple equation. There is X volume of egg coming into the market place in terms of production and there is only Y sales. The two do not match at the moment. There is an over-supply. It is just that simple. It is the supply and demand situation."

Noble has also told Ranger that new producers are not being recruited at the moment, although the company said that could change in time. "We are not taking on any new producers at the moment because there seems to be a lot of egg about," said Martin Troop. " It makes more sense to utilise that egg sensibly rather than encourage any new production at the moment. There will be expansion, we will continue to expand, but we have to be sensible. What we have to be mindful of is that, unfortunately, there are people who have encouraged production and that egg is in the market place, whether we want it or not."

He said, "In three months time it could be very different, but we are not looking to do anything with any new producers at the moment. We will be looking at the phasing of our current expansion plans. We think we will require extra egg going forward, but possibly not the same volume rate as we would have done say six months ago. That is in response to the egg that is out there in the market place."

Martin said that Noble would continue to monitor the situation, but the sooner the market was back in balance the better for everyone concerned.

Scottish producer John Campbell has been warning for some time about the dangers of an imbalance in supply and demand, and Dennis Surgenor, secretary of the Scottish Egg Producer Retailers’ Association, says that egg is now in a state of oversupply in Scotland. Dennis said that some people who had invested in new egg production units may not find the forecast profit they expected at the end of the laying year. The difficulties had been caused by a sharp rise in the size of the UK laying flock, particularly in the free-range sector, although politicians north of the border were hoping that the impending ban on conventional cages in the EU would bring the market back into balance.

John Bowler has taken the unusual step of publishing a statement via his company’s web site in which he talks about the need to restore balance to the egg market. He says in the statement, "I believe it is in the interest of everyone involved with the egg chain, i.e. egg producers, egg packers and supermarkets, to try and balance supply with demand. The consequences of under supply are as great as over supply because a shortage of free range eggs encourages imports and this is the last thing we want, whereas over supply usually leads to price drops," he says.

John Bowler clearly believes there is a fine line to be trod. "If the egg price drops to a level that is not sufficiently attractive to encourage new producers to cater for the long-term growing market, then this ultimately creates a long-term shortage. The supply to supermarkets can then become limited and prices begin to rise, sometimes to exceptionally high levels to attract new entrants and so these ups and downs of supply and demand continue to circle at different paces.

"We try to balance supply and demand; which is more difficult when supply and demand are growing fast. It’s a bit like trying to stop a car, the faster it goes, the more stopping distance you require and the more perilous it becomes. It’s not an easy task at the best of times and even more difficult in the times we have recently experienced."

He says that free range has done exceptionally well in recent years. "I feel this can be attributed to eggs being promoted as a super food, great for diets and one’s health. The recession can make eggs appear exceptional value for money and many of the battery eggs used in processed or liquid egg i.e. the ones used for catering, are being replaced with free range eggs. Alongside all of this, animal welfare issues continued to gain pace and so it all happened at once."

John is critical of some people who he believes have jumped on the free range bandwagon. "Sadly, a rapid rise in free range egg production attracts opportunists who want to earn a quick buck out of a rapidly growing market. Some jump into the market selling equipment, feed, pullets and recruit indiscriminately and load most, if not all, of their production onto the wholesale market, the export market or the price-sensitive market.

"They have a bonanza of a time making short-term money, some selling every egg into the free range market, which allows them to pay more for their eggs. The wholesale prices are usually higher than our prices. This is wonderful for them until the wholesale and export markets collapse and then they are left with eggs they cannot even give away, which ultimately drags down the whole market price. The worst case scenario usually results in these opportunists disappearing out of the market, leaving their contracted egg producers without a market and a poorly designed poultry unit with poor quality equipment," he says.

He is also critical of some egg producers. "Much of this over supply can be attributed not only to opportunists, but also to greedy egg producers with little business acumen who are desperate to screw the last few pence out of an already profitable market. They get their few extra pence and then take no interest whatsoever in endeavouring to understand if they are supplying a sustainable market. Farmers can sometimes be like sheep in that they can be each other’s worst enemy."

He says it is difficult to measure whether the current situation is a temporary blip caused by the usual summer decrease in demand or something more serious. "Give me another six months and I will feel far more confident in predicting the market situation. Regardless of the cause, I expect a price reduction - which should just cool things down to a more sensible level." Prices could drop even further, he says.

"We at Bowlers have acted quite responsibly in that our two egg buyers have only catered for the market they have firm sales for and have to date not dumped eggs onto the open market. Secondly, we have tried to set up new producers in financially viable situations, most applicants have been supported with cashflow projections etc – i.e. we have tried to only incur responsible borrowings. In addition to this, we have staggered relatively equally the supply of new producers coming onto the market. So, considering these three factors, I feel very proud of the responsible manner in which the Bowler organisation has conducted itself."

He says his company has decided to temporarily stop advertising for new recruits. Bowlers will not be issuing any new contracts to produce free range eggs for at least the next nine months, unless market conditions change.

"We will not be taking on any producers who are desperately seeking an outlet for their eggs at the last minute. However, we will be issuing contracts and submitting planning applications with no firm commitment to start up in production so that potential new entrants will be ready to go when market conditions improve. We will not be reneging on any contracts already issued. Our first loyalty lies with our existing producers, not new producers."

He says the industry should keep the current situation in perspective. "If another major retailer were to decide to use only free range eggs in their processed foods, this could absorb the surplus and possibly all of Bowlers’ production. We have not previously been in the position of having this supply base of free range eggs to enco