Talk of over supply of free range eggs

Free range eggs are either in an over supply or an under supply situation, it is very rare that supply and demand are level.

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.

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.

The free range job has, over the last few years, experienced an exceptional run. 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.

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.

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.

We are coming into a time of egg surplus and it’s difficult to understand and measure in the short-term if this 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.

So, I expect prices to drop and I cannot say if this will be a temporary or permanent position, it may even come about that prices drop even further. It’s virtually impossible at this stage to calculate what is going to happen to egg prices in the future.

Well, this may come as a shock to some of you, however it’s no shock to many in the trade because I have seen it all before and on so many occasions in the past. I feel it may be a surprise for some because egg prices have been so stable for such a long period of time. I came through the Salmonella scare when you couldn't give eggs away, it was so bad that I witnessed grown adults crying. I even knew one guy who committed suicide. The other most disastrous situation was when free range egg prices dropped 12p per dozen. During both situations it looked like the end of the world, but it wasn't long before both situations reversed themselves.

The immediate effect of low egg prices is that it normally knocks out the inefficient producers and those who do not have their finances soundly structured. Also, many producers with older units and no borrowings can stand down their units and not restock until prices have recovered.

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. Also we have not built massive 32,000 bird units, (our average shed size is 12,000 birds) which can stretch egg producers finances to extremes and such vast quantities quickly swamp the market.

In addition to this, we have also staggered relatively equally the supply of new producers coming onto the market. So, considering these factors, I feel very proud of the responsible manner in which the Bowler organisation has conducted itself.

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. I feel there will be some ups and downs with prices as demand and supply balance each other and I feel there is a long-term future for the producers who are efficient and for those who manage their finances correctly.

New enquirers about free range production make me smile because they become so concerned about the current prices whereas most will not be coming into production for at least a year, even if they sign up today. My advice to them is keep going, get your planning permission and then review the situation once you have your planning permission and before you make a firm commitment to proceed any further.

Some may say that they wished that they had never come into the job, others say they wished they had never expanded. My response to this is that with a price decrease you will possibly discover that the margins are higher than when you came into the job and expansion can be a life-saver when egg prices fall.

To sum up: I would say this is nothing new, it is nothing unexpected and it is important not to get your view of it out of 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 encourage such a policy.

Concentrate on perfecting your production, closely monitor your finances and avoid gossip like the plague. Finally, be aware of people in the trade, existing egg producers and, more importantly, farmers who are not free range egg producers who speak negatively to unnecessarily wind you up!

We, as a company, have made the decision to temporarily stop advertising for new recruits. However, we will still be holding open days, organising site visits and issuing free range agreements to those people who are interested in becoming free range egg producers in the future.

We will also be submitting planning applications but we will not be making any firm commitments as to when new producers will be offered build contracts once planning has been successful. We do however guarantee that if you have signed an agreement and have been successful obtaining planning you will be the first to be offered a build contract once the market conditions are suitable.

The process of signing an agreement and obtaining planning permission takes, on average, 9 months and the market may have completely changed again during this time. If not you would not wish to enter into a market which is not secure anyway.

If any company is currently recruiting Free Range egg producers at the moment then they are most probably doing our industry a great injustice, and I feel it may be prudent to investigate such claims in detail before getting involved!

We will not be reneging on any contracts already issued. Our first loyalty lies with our existing producers, not new producers.

Yours sincerely

John Bowler