24 November 2017 | Online since 2003

12 June 2017

Market excesses may lead to ‘casualties’ says leading packer


Noble Foods trader Kevin Griffen has warned of casualties in the egg industry over the next year because supplies of free range eggs are outstripping demand.

"The market is awash with free range egg at the moment," said Kevin, who said he had seen evidence of free range being cascaded into enriched cage because of the oversupply in the free range sector. "On the wholesale market you can get free range eggs for 76 pence for a dozen mediums," he said. "Within the next year there will be casualties. There will be people who have to get out of the job."

The state of the market has brought downward pressure on producer prices. Kevin said that, as older contracts were coming to an end with Noble, new contracts were being offered with lower producer prices. Oaklands Farm Eggs is believed to be reducing producer prices by about five pence a dozen, and the Ranger has been told that the company has been inviting some producers to depopulate early, although Elwyn Griffiths would not confirm this.

"We discuss all matters privately with our producers," said Elwyn in a statement. "They are all treated individually, as they all have different needs. If they wish to discuss this with anyone that is fine by us," he said.

"One fact that cannot be denied is that buyers will always accept lower prices, like farmers, if offered to them; this is why packers wish to gain new business at lower prices, with all the increases in cost post Brexit - feed being the main issue. The cost of production and packing will be at an all time high.

"Sustainable supply chain is continually spoken about but, if cheap egg is available, this is rarely acted upon. You cannot blame a buyer for taking cheaper prices if offered to them. However, as with 'horsegate' and other scenarios, if something looks too good to be true, it often is too good to be true.

"The relentless growth of 32,000 bird units must be worrying to free range producers," he said.

The Ranger also understands that some Noble and Bowler producers have also received price reductions of between four and five pence.

The latest packing station figures released by the Department for Environment, Food and Rural Affairs (Defra) show that supplies of free range eggs increased significantly in the first quarter of 2017. Packing stations handled 3.53 million cases of free range eggs in the first three months of the year - an increase of 8.38 per cent on the 3.26 million cases packed in the same period the previous year. Numbers have increased by just over 19 per cent in two years. In the first quarter of 2015 the number of free range eggs passing through UK packing stations was 2.96 million cases.

The latest figures for chick placings, which show data for April this year, reveal a slight fall in numbers compared with the same month in 2016. United Kingdom commercial layer chick placings were down by 1.3 per cent to 3.4 million chicks. However, the same report shows that the number of commercial layer eggs set in UK hatcheries in April was up by 12 per cent compared with April last year.

Kevin Griffen said that all the news about how healthy eggs were to eat had been very good for the industry. "It couldn't have been better," said Kevin. "Everything we say about eggs at the moment is touched with gold." But he said the industry still faced the commercial realities of supply and demand. He said that if there were too many eggs on the market then producers would inevitably receive less for their eggs.

"I was with a buyer from a foodservice company yesterday," he said. "He was able to get a dozen mediums for 76 pence. We are seeing this all around the country - the oversupply situation. And it is now impacting on the colony market as well because people are cascading free range egg into colony."

The packing station figures released by Defra for the first quarter of 2017 illustrated how egg prices had been hit. The average UK farm gate price for free range eggs during the first three months of the year was 84.3 pence, which was 3.1 per cent lower than the same period in 2016. The average price in the first three months of last year was 87 pence. Cage egg producers suffered a bigger fall. The average farm gate price was down by 4.26 per cent, from 56.4 pence in the first three months of 2016 to 54 pence in January to March 2017. The decrease for all eggs was 2.4 per cent, suggesting that producers of organic and barn eggs fared better on price, although separate figures are not provided in the Defra statistical release.

Kevin Griffen said Noble Foods had more production coming on stream over the next 18 months but he said this increased production was always planned to fulfil contracts. "We plan it to meet retail commitments we have got," he said. "If anything, as a company we have been slightly behind the situation for a while."

He said he was concerned that others may be increasing production without having contracts in place. "Retail is good but probably not as good as a lot of people anticipated," he said.

Kevin said that, with the free range market in surplus and prices falling, some producers would probably end up losing money. And some of them would inevitably decide to leave the industry because of the effect of supply and demand.

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