Some free range egg producers could find themselves paying nearly £4 per bird for pullets come the New Year.
Producers have already been hit by large increases in the cost of feed - largely driven by a surge in wheat prices - and those same increases are also hitting pullet rearers. They are not the only cost increases facing the rearers. The price of chicks is set to rise from January and the rearers are also bracing themselves for substantial increases in the price of vaccines. This combination of costs will continue to push up the price of pullets and pile more pressure on struggling egg producers.
In last month’s Ranger survey the quoted price for a pullet - an average price based on a 3,000-bird order for 16-week-old fully vaccinated pullets – stood at £3.86. At the start of this year the figure was £3.75 and in October last year it was £3.60. Steve Carlisle of Country Fresh Pullets believes that the figure for January 2011 is likely to be close to £4. The price for larger orders of between 12,000 and 16,000 pullets would be slightly less at £3.75 per bird.
With Tom Hind, the NFU’s head of economic and international affairs, warning that feed prices could rise by another £40 per tonne over the coming months, pressure on both producers’ direct feed costs and on pullet prices is likely to continue growing. Steve Carlisle says increased fed prices have already had a significant impact.
"Rearing food has gone up over the year by between £40 and £50 per tonne," said Steve. "If you take £40 that equates to 24p per pullet. You cannot bend those numbers. Every £10 per tonne of movement in the cost of feed is six pence per pullet on the cost of production. That is a standard figure. So if it goes up £40 that is 24p on a pullet," said Steve, who said that the increases were unavoidable costs.
He said his company had also been notified by two hatcheries so far that the price of chicks would be increasing in January. "They are looking for between three and five pence. If you add the 24 pence for feed to three pence for chicks you are up to 27 pence. That is a factual increasing cost of production you cannot do anything about. They are not here yet but from January the chicks will cost more. The food is here and with us now, and if you really want to depress yourself the vaccine manufacturers are talking about substantial increases." He said the vaccine manufacturers were looking at increases ranging from six per cent to 20 per cent, adding still more to the cost of producing pullets. "There could well be significant increases in vaccine prices," he said. "You are looking at two to three pence on a pullet as a result of vaccine costs. And the vaccine costs will affect the hatcheries as well."
Nick Bailey of Joice and Hill said his company had tried to absorb rising costs as much as possible but had now been forced to move and chick prices would increase from January 1 next year. He said that the increases would be in line with the figures indicated by Steve Carlisle – between three pence and five pence.
"We are taking the costs on the chin at the moment, but we are having to draw a line in the sand and say ’Look we have got to pass these costs on’. To be honest we have not had a negative reaction from many people because everybody is exposed to the same costs" said Nick. "They know their feed bills are up so they know that everybody else’s feed bills are up."
He said that as well as the increased feed costs there were the vaccine costs, energy costs and also things like currency costs. "We pay for our breeding stock in Euros. That kind of thing has an effect as well."
Nick said the industry needed to build bigger margins into the supply chain in order to bring some kind of stability to prices. "It is quite hard to go to your customers and say your price is going up because they are feeling the squeeze and they are experiencing the same lag because when feed prices went up their producer price didn’t go up straight away. You can understand that."
He said, "I just think for the industry as a whole we need to build in bigger margins all the way through the chain because you get these fluctuations. We need to pass on genuine cost increases and that is what we are doing by increasing chick prices, but if we had a little more margin across the chain everyone would be a little more comfortable about absorbing these cost increases for a time until we can see this is going to be the long term cost basis for the coming 12 months.
None of the margins we have in our value chain are big enough to cope with those variations. Free range just got into being a comfortable margin for the free range producer and then they go into over-production, hit higher feed costs at the same time and that completely wipes it out."
One of the key suppliers of poultry vaccines in the UK is Intervet/Schering-Plough Animal Health. It told Ranger that it had been absorbing increased costs for some time to help customers, but now needed to pass some of those costs on.
The company’s poultry director, David Schofield, said, "We are currently talking with our customers and advising them of any price changes that may apply to them. We would expect that these changes will be passed on to egg producers in the near future if they impact the cost of pullets or other medicines they buy.
"During the past year we have managed to absorb a number of rises in manufacturing costs. We took this decision to support customers and their efforts to maintain economic production. Regrettably we do now need to pass on a proportion of these increases. By limiting the full impact of our increased costs we hope to demonstrate further our long-term commitment to all of our UK customers."
David Schofield said he was keen to emphasise that the company continued to invest substantially in vaccine research, new manufacturing techniques and improvements in supply chain logistics.
"Our continuing priority is to ensure that we are in a position to support all our UK clients with the best available products and support, and enable them to manage health programmes as economically and effectively as possible," he said.
Apart from the pullet rearer’s own fee, the three main costs of producing pullets are the chicks, the feed and the vaccines. With prices for all three increasing, it seems inevitable that the price of the pullets will also increase.
