24 June 2018 | Online since 2003

5 June 2018

Chief Executive Comment - June 2018

The Pig and Poultry Show was a great event, with plenty of buzz around free-range. My worry is that there was far too much buzz: everyone seems to be assuming that free range is set for massive expansion due to the retailer led initiative to go cage-free from 2025.

I was amazed to see that this was the working assumption at the Producer Forum events held on both days of the show, leading to a number of diversifying livestock producers leaving the Forums with the idea of putting up a new free range shed. Indeed, most of the enquiries that I dealt with on the BFREPA stand at the event where from new entrants, rather than existing producer members.
We need to get the facts straight to protect ourselves from chronic oversupply and a price crash if it is not already too late.  This is why the BFREPA Sustainability Fund commissioned a study last year on: ‘The impact of Buyers’s intentions to purchase on non-cage eggs from 2025’. The ADAS report has been well covered in the Ranger since then, but it would seem that we need to re-iterate some important facts and impacts that came out of the study:
FACT 1: 46% of eggs produced are for food service and processing, and these will continue to be largely produced from enriched cage production systems. There will be plenty of colony egg production after 2025 to cater for these markets. 
FACT 2: 54% of eggs are produced for retail, and this is the market affected by the non-cage initiative
FACT 3: Within the retail sector, only 6 retailers so far plan to go cage-free from 2025, which accounts for 67% of retail eggs (and this is only for their own label offering; enriched cage brands will still be sold)
FACT 4: Only 35% of the retail eggs sold are enriched cage, accounting for 4.3m cases from these 6 retailers (in 2017)
FACT 5: As a result, the cage-free initiative only affects 12.6% of total egg production (4.3m out of a total of 34.1m cases in 2017). Indeed the figure is now probably less than 10%, as total production has risen since last year and the share of enriched cage eggs sold is falling.
FACT 6: Free range is currently growing at 10% per year, so replacing 10-12% of production SHOULD NOT BE A PROBLEM without encouraging any more new entrants or expansion because of the 2025 retailer initiative.
Of course, this assumes that Barn production will never take off and replace enriched cage eggs. I do not believe this to be correct and, more importantly, it would be bad news for free range if it was correct. 
The research results that came out from ADAS interviews is that retailers need to offer a value egg. As we should all know by now, some consumers are only able or willing to buy the cheapest product and retailers need to make sure that they can service this market (or someone else will). ‘Big barn’ production, as practiced across most of the rest of Europe (Austria, Germany, Holland and Sweden are all around 65%-70% barn production) can produce a value egg cheaper than free range. 
Former Chairman Myles Thomas and I looked at some big barn sites in the Netherlands three years ago, as guests of Vencomatic, which had around 250-300k birds in a shed (over 3 floors), and the producers/managers of those sites told us that their costs were as low as colony. 
I have heard many producer-packers say that the costs for barn are similar to free range, and as a result, there would be no benefit in having an alternative system to free range. But this is not what I heard in Holland. Big barn producers there admitted that hens were harder to manage than in an enriched cage system, but they saw big barn replacing enriched as a value egg in their markets. Since then, I know that the biggest UK egg retailer has been over to look at the big barn system and wants it to replace its enriched cage offer from 2025.
Naturally this retailer’s producer-packers are not enthusiastic. Having just invested in enriched colony cages, the last thing they want to do is to have to strip out those systems and re-invest into a barn system. Particularly as the welfare NGOs are likely to switch their attacks onto barn systems as soon the change is made.
Their reluctance is understandable, and retailers are facing heavy resistance. What some integrated producer-packers would prefer is a two-tier free-range system so that they don’t have to invest into barn. This would be bad news for both current free range and organic systems, as it would inevitably lead to more confusion in the market in differentiating between current free range and organic with a new tier of free range.
BFREPA has been resisting a differentiation between, for example, single and multi-tier production or Freedom Food and non-Freedom food assured production, for some time. It is vitally important that consumers remain confident about the free range and organic egg offerings on the retailers’ shelves, and with the multitude of brands that already exist, another segmentation of the market can only harm the whole sector.
The argument used by the two-tier free-range exponents is also about consumer confusion, saying that barn is only 2-3% of UK production and as a result consumer don’t know what barn is and won’t buy it. That does not make sense to me at all: consumers currently buying a value colony egg don’t care what the production system is, as long as it is cheap. If they did care, they would buy free range!
Changing the ‘value’ own label egg on retailers’ shelves from colony to barn would not make the slightest difference to these consumers; I doubt that they would even be aware of the change. A value egg is a value egg and that it is their only decision-making criterion (despite sometimes claiming otherwise). If some consumers are desperate for a colony egg, there will be some branded product available on the shelf anyway.
So for the sake of our industry, lets get real and accept that barn is coming. Embrace it, explain the facts to your neighbours and friends,  and hopefully we’ll still have a premium product for many years to come.