Raw deal as margins squeezed
CHICKEN IS perhaps Britain‘s most popular meat, but are broiler producers getting a raw deal receiving an average net margin of less than 3p/bird?
Research shows margins are getting ever tighter and as legislation kicks in growers and processors face even higher costs.
In a detailed survey of broiler units in England, University of Exeter researcher Andrew Sheppard examined data from 56% of recorded broiler chickens produced in 2002.
It revealed an average cost of production of £1.13/bird while the amount paid was £1.16/bird. For free range, the return was higher at an average 24.5p/bird.
But this year’s high feed prices, up £20/t from 2002, have squeezed margins further.
Even though processors are paying an extra 3p/kg for chicken, net margins are 1.8p/bird down on 2002.
This means many more units are operating at a loss, said Sheppard.
In the supermarket, chicken is one of the most popular meats with consumers spending around £2.92bn on chicken-based products, with 88% being reared in the UK.
But UK producers only take home just £816m for their efforts, equating to 31.5% of retail turnover. Evidence also found that processors made even less profit than producers.
“When we started this study, a lot of producers told us of their concern that profit margins were too low to invest with confidence for the future. The economic results tell us why this is so,” he said
Despite this, Mr Sheppard still believes there is a future for UK chicken production despite pressure from imported chicken.
“However, the very small profit margins provide a powerful incentive for producers and processors to operate on an ever-greater scale, cutting out the smaller producers.”
But Charles Bourns, NFU Poultry Board chairman, pointed out those smaller producers can only scale up their business when they are making a profit.
“With a margin of 1.2p/bird, who is going to be able to borrow the cash needed to put up new sheds?”
Another concern is that the survey figure of 3p/bird is an average figure for England, masking regional differences.
Businesses tend to be faring a little better in the eastern, main grain producing counties than those in the West Country.
“This is clear at recent grower meetings the West Country, particularly with the recent cut in liveweight prices by some companies. Many broiler businesses are currently losing money, forcing some to consider pulling out of the industry.”
While this may sound bleak, he still believes the industry has a bright future, but there is going to be some pain in the short-term.
“It‘s just like the car industry, where it all looked like doom and gloom in the 1970s. But following a period of change, there is now a healthy industry in the UK.
Another positive move is the British Chicken campaign, which aims to get more consumers buying British. He also sees producers in the West Country continuing to be good at producing organic and free range poultry meat.
“It is a growing sector, ideal for smaller units which are below the IPPC threshold.”
“For those units having to pay for IPPC registration, the survey shows that it comes at a time when there is very little spare cash.
Peter Bradnock, chief executive of the British Poultry Council highlighted that the Environment Agency will be extracting many £millions in fees from poultry producers over the next year.
Mr Bradnock calls on the government to bear the narrow margins in mind when drafting future legislation. One such example is the hotly debated animal disease levy to help pay for compulsory slaughter compensation in future major disease outbreaks.
“It‘s difficult to see how these taxes can be funded by the broiler industry. It’s not a bottomless bucket of cash.”
DEFRA funded the questionnaire survey with support by the British Poultry Council and National Farmers Union.
The survey examined more than 100 units in England, with 2000 or more birds. The full report is available from the Centre for Rural Research, University of Exeter (01392 263843) or can be downloaded from their website (www.ex.ac.uk/crr).