With the free-range egg market nearing saturation, Jeremy Hunt looks at the key questions would-be new entrants should be asking
Take your time, do your homework and don’t commit yourself to anything until you have finance, planning approval and a signed contract with a packer.
That’s the advice being offered to newcomers by the gurus of the free-range egg industry as they urge those considering moving into the sector to “proceed with caution”.
John Retson, chairman of the British Free Range Egg Producers Association, admits there’s still plenty of interest from farmers considering new free-range ventures. But he warns that it is a sector of the poultry industry that is “nearing saturation point”.
Indeed, most packers have put a temporary halt to new contracts, until such time as the market can take more eggs.
“We’ve seen a lot of new free-range units set-up on the back of rural development grants and there’s still people out there keen to get into free-range eggs,” Mr Retson told Poultry World. “But we’re heading into a period of great change and the unchartered waters of post-2012 could be very difficult. Anyone determined to set-up a new enterprise must be well prepared for this period of uncertainty.”
Mr Retson is particularly concerned by the size of start-up flocks on which new producers are basing their costings and believes those with small numbers of birds could find themselves “extremely vulnerable” over the next three-to-four years.
“The number of birds required to establish a viable unit is, I believe, being underestimated. Too many units of 8-12,000 birds have been set-up when the minimum number should be more like 16,000. In my opinion those units with under 16,000 birds could find themselves severely disadvantaged as we move into the post-2012 era – a time when we could see returns from these units being undermined by packers imposing surcharges, triggered by low-volume collections.”
But for those determined to set-up new free-range businesses, Mr Retson insists that the first phone calls must be made to those who will ultimately buy the eggs and provide the income.
“And don’t just speak to one or two packers. Speak to as many as you can and make sure you get them to give you their overview of where the market is going. If you’re borrowing money you’ve got to know what payback you’re going to need to finance the investment. You must be absolutely clear about that.
“And while newcomers to the poultry sector may have a livestock background, they must make sure they’ve got a full understanding of how the poultry industry will be operating post-2012.”
Although BFREPA can provide guidance to new businesses, Mr Retson says those considering setting-up a free-range unit should also try to source as much independent advice as they can.
“There’s no shortage of people ready to provide information to newcomers about buildings, birds and equipment, in fact they’ll be swamped with it – but remember they want your business,” he says.
Going into free-range egg production with “rose-tinted spectacles” is how Stonegate’s agricultural director Richard Kempsey describes the attitude of some new producers who fail to fully evaluate every aspect of the business.
“There are some good opportunities in free-range egg production, but there’s also a need to be extremely cautious before making any financial commitment.
“There’s a strict plan that should be followed without deviation. Anyone considering moving into free-range eggs must ensure they have the right contract and the framework for a good working relationship before any other parts of the business are considered.
“It’s essential to look very closely at how much you’re intending to invest and what sort of gross margin that capital outlay is likely to generate. At that stage you can then go to the bank with some figures and if that stacks up – and only then – should any moves be made towards applying for planning permission.
“But even then there must be a degree of restraint. Until planning is approved nothing should be ordered. Only move on to ordering pullets and equipment once planning consent has been given,” says Mr Kempsey.
Project management is something he also feels is important to ensure the business meets its development targets, including necessary training for owners and staff.
“Independent consultancy for the new egg producer can be hard to find, which is why it’s essential to follow a strict plan if you are tackling the new venture on your own. There are consultants to help at the planning stage and packers too will offer a degree of hand-holding to new producers.”
But David Brass, who runs the award-winning Lakes Free Range Egg Company in Cumbria, is confident there are still plenty of long-term opportunities for new free-range egg producers. And while he is no longer offering new contracts, he is still dealing with a steady flow of enquiries from farmers looking to develop new units.
“Establishing a market for your eggs through a packer is fundamental to anyone moving into free-range eggs. As packers and producers, we offer a full support package to newcomers and are happy to have initial discussions with anyone who is still deliberating over the viability of setting up a free-range flock.
“With our field staff we can advise on the most suitable site for a new unit, help with planning applications, finance and sourcing birds – as well as acting as the packer. Going into free-range egg production isn’t without its pitfalls if newcomers fail to adhere to advice from the outset.”
At a set-up cost of around £25 per bird and a possible margin over feed of £7/bird, free-range eggs clearly continue to have an appeal to livestock farmers looking for a new income stream.
“When I look ahead at the figures post-2012 I can see a shortfall in UK production. So there should still be some good opportunities ahead for free-range egg production.”
Case Study – Steven Crabtree
North Yorkshire beef and sheep producer Steven Crabtree is hoping to move into free-range egg production on his farm on the Bolton Abbey estate near Skipton. The plans for the new shed have been drawn up which will initially house an 8000-bird flock with the intention of doubling production in the future.
With the shared enthusiasm of his son Simon, soon to return from Harper Adams University College before taking up a post at Clitheroe with meat wholesalers Dunbia, the free-range venture has the potential to provide a “good return” on investment.
“David Brass at The Lakes Free Range Egg Company has been with us all the way and even though we’re livestock producers we still had reservations about taking on a large flock of laying birds.
“The poultry sector is a very different area of production to either beef or sheep – both from the production and management side and marketing the end product. So we’ve taken things slowly and asked for as much advice as we could. It’ll certainly be a very steep learning curve. Even though it’s a “livestock” enterprise it would have been a lot harder going it alone from the outset.”