Feed price increases erode egg producer margins

Free-range egg producers are calling for a farmgate price increase as the cost of feed continues to spiral.

Heatwaves affecting many of Europe’s major wheat-growing nations have hit crop yields, leaving egg producers to pick up the bill.

See also: Free-range egg sector at risk from ‘unsustainable’ growth

Average producers with a medium-sized flock of 16,000 hens have seen feed costs increase by £40,000, translating to a 50% price rise when buying feed at £270/t.

The current situation is unsustainable, according to Robert Gooch, chief executive of the British Free-Range Egg Producers Association. “Free-range egg producers have been exposed to huge levels of volatility caused by this hot, dry weather,” he said.  

Margins eroded 

“Last month we saw tough market conditions drive a major business with 17 producers out of business and I fear there will be more.  

“Every time the price of feed rises, the small margin producers make is eroded and it doesn’t take much to turn profit into loss.”

Producer prices had fallen by 25% to 82.7p/doz in the past three years, while the producer price to feed price ratio was at its lowest level for more than four years, according the latest Poultry World statistics.  

Feed-linked contracts key

Mr Gooch added that a price rise is desperately needed in the short term, but retailers must help prevent a repeat of the situation by offering contracts that link the price of feed with the price of eggs.

Farmers Weekly understands Tesco used to offer a contract aligned to feed prices, which has been discontinued to new suppliers, while Sainsbury’s packers were in line with input costs – but these are not passed on to producers.

“Retailers must ensure producers have the option of a contract under which the price of feed is reflected in the price they receive for their product,” added Mr Gooch.  

“When the feed price drops, so does the price they pay for eggs, and vice-versa. “Some retailers and their packers should be applauded for successfully implementing these contracts, but it needs to be offered across the board like it is in the broiler and pig sectors.”

With feed prices set to rise throughout the winter, Mr Gooch added that smaller producers accounting for about 10% of UK free-range egg production could go out of business if the situation did not improve now.