Welfare costs add to competition in global market

High production costs mean that European egg producers already struggle to compete on price internationally. But changes to import tariffs or exchange rates could leave Europe’s egg producers priced out of their own markets too, a report has found.

Egg production in Europe is among the most expensive in the world, largely because legislation requires higher welfare, better food safety and more environmental protection, says the report.

Although some third countries are beginning to introduce better standards, and trade negotiators are looking for further concessions to introduce more balance, many countries have little impetus for improvements to hen welfare.

There is also an active movement to reduce import tariffs on eggs and egg products from non-EU countries, as a result of the ongoing WTO Round and Mercosur trade talks.

EUWEP, the EU trade association for egg packers, traders and processors, therefore commissioned a report which found that changes to exchange rates, combined with a drop in import tariffs, could result in foreign eggs and powdered eggs becoming even more competitive.

Wageningen University, which produced the report, first researched the production costs of shell eggs and the processing cost of whole egg powder in seven main EU countries. It then compared these with the USA, Argentina and India – which are the main exporters of egg products to the EU – and Ukraine, which has the potential to become a major exporter of fresh eggs.

PRODUCTION COSTS

Prices were collected on feed, pullets, investment in housing and cages, labour, energy and waste disposal.

Costs were then converted into euros, using the average exchange rate in 2010. Transport costs were based on the eggs being taken to Frankfurt, Germany.

The report found that the European egg producer in 2012 spends 15% of his budget on costs directly relating to EU legislation, up from 8.8% in 2010. The increase is in complying with the welfare of laying hens directive, which increases production costs by 6.6%. Ammonia emissions have also had to be reduced, while supplies of EU-approved GMO feed have become less available, further increasing costs.

Argentina, India and Ukraine have no specific animal welfare legislation, while the USA only has a series of voluntary guidelines, including provisions for increased space and standards for beak trimming.

Average EU egg production costs were higher than every other country studied (see graph). This is not just because of welfare, but also higher labour, the cost of pullets, energy and waste disposal. Production costs in the USA and Argentina are 25% and 28% lower respectively.

Importing fresh eggs from the USA or Argentina is not practical – but it is from Ukraine, a country that is close enough to Europe to become a major competitor in the European shell egg market.

Eggs produced in Ukraine cost 17c/kg less than the EU average. Not only does Ukraine pay less for feed, but it can also source cheaper production materials and labour. Ukraine also gains relatively high revenue from spent hens, further reducing effective production costs.

TARIFF CUTS

The report then tested three scenarios with the gathered data, to explore the result of lower import taxes, lower exchange rates, or both

Lower exchange rates on their own would have no real impact on competitiveness. But a 50% drop in the import tariff would mean that Ukraine could almost compete on shell eggs within the EU. If both scenarios were combined, Ukraine would occupy a very competitive position in Frankfurt, even after the cost of transporting the fresh eggs was added.

Because of its longer shelf life and transportability, importing whole egg powder is viable from markets further afield.

The cost of processing whole egg powder in Argentina, India and Ukraine, for example, are significantly lower than within the EU. Import tariffs insulate the European market from competition with whole egg powder imports.

Even in 2010, the report found, non-EU egg powder imports were not significantly more expensive, even with the import tariffs in place. In 2012, with the additional cost of the welfare directive, Argentinean whole egg powder costs the same to produce and import to the EU as the average cost of European production.

But a 50% drop in import duty and a 10% lower exchange rate would make it cheaper to import eggs from all of the non-EU countries examined.

In this scenario, whole egg powder would be 16% less expensive from India and 20% less from Argentina, posing a massive threat to the European egg industry.