Public AdministrationWritten evidence submitted by the National Farmers’ Union (NFU) (Eggs follow up 3)
EFRA COMMITTEE FOLLOW UP ON THE IMPLEMENTATION OF THE WELFARE OF LAYING HENS DIRECTIVE
1. The NFU has 55,000 farming members in England and Wales. In addition we have 41,000 countryside members with an interest in farming and the countryside.
Compliance with the Directive
2. On the 1 January 2012 there were 14 Member States that were not compliant with the Welfare of Laying Hens Directive (WLHD) and still had hens in battery cages. These were Belgium, Bulgaria, Cyprus, France, Greece, Hungary, Italy, Latvia, Netherlands, Malta, Poland, Portugal, Romania and Spain. The UK was fully compliant as of the 13 February 2012. According to the European Commission as of the 16 March there were still 12 non-compliant Member States and around 49 million non-compliant hens.
Action taken by the Commission
3. The Commission requested that all non-compliant Member States submit action plans that laid out clearly how each Member State would reach full compliance by July 2012. In addition they requested that these action plans respect the requirements of the “gentleman’s agreement” which had been discussed prior to the deadline. The agreement stipulated that eggs from battery cages could only go for processing in the Member State of origin and could not be exported. It also stated that all such egg products created could only be used in food products or industrial products manufactured within the Member state of origin. The agreement does however confirm that once produced in the state of origin the food or industrial products can then be exported.
4. The Commission has been proactively trying to accelerate compliance across Europe. All non-compliant Member States have been sent formal infraction letters and their action plans are being reviewed on a monthly basis at the Standing Committee on the Food Chain and Animal Health. The Food and Veterinary Office missions for 2012 are also being targeted at the non-compliant Member States.
Market Situation
5. Current estimations are that egg production across the EU is down by 10–15%. The Commission had been predicting a 2.5% decrease in shell egg production across the EU due to a cutback in chick placings following two years of over production. However the biggest influence in terms of reduction of supply across Europe has undoubtedly been the WLHD. Certain Member State Governments have taken a much harder line than was expected and have clamped down on non-compliant production. For example, Spain, traditionally a net exporter of eggs and egg products has culled around 8 million hens reducing its production by 20%.
6. This sudden change in supply and subsequent shortage of legally produced enriched cage eggs had a significant effect on the wholesale market that operates on a supply and demand basis (see Annex 1). For eggs and egg products, prices reached an all-time high during February, with reports of increases over 200%. Indications are that wholesale prices have now peaked, although they still remain high.
7. The UK retail egg market has not been as significantly affected by the enriched cage egg shortage as the wholesale market for three main reasons. Firstly the retail market operates on a contracted basis along the supply chain from producer to retailer; secondly around 50% of the eggs at retail level are free range and finally all the major UK retailers require shell eggs to carry the British Lion mark.
Market Situation for UK Egg Producers
8. The £400 million invested by UK egg producers in new enriched colony cages has been well documented. However the investment made by free range egg producers on the lead up to 1 January 2012 should not be overlooked. This growth in the free range market lead by both this legislative change and market demand has resulted in free range production accounting for nearly 50% of the market.
9. All UK egg producers have been operating below the cost of production during the last 18–24 months, amidst a background of rising costs, low egg prices and oversupply (see Annex 2). The shortage of enriched cage eggs and subsequent tightening of the market has given rise to much needed price increases to producers. The prices being paid by retailers to the packers have moved upward allowing for money to be passed down the chain. However it should be noted that these price increases do not reflect the high prices being seen on the wholesale egg market.
Supply for Food Manufacturers
10. The effect of the current egg shortage on food manufacturers and other users of eggs and egg products have been well reported. Many of these companies will have been purchasing cage egg on the wholesale market, which as discussed above is subject to supply and demand. Whilst we understand and acknowledge the situation the food manufacturers and egg processors are currently in they were fully aware of the legislative changes coming into force and the potential this had to affect the market.
11. The NFU wrote to food manufacturers, food service companies, restaurant chains and trade associations representing those bodies in November asking about their sourcing polices come January 1 2012. The BEIC also ran an advertising campaign targeting food manufacturers encouraging them to secure their supply ahead of the deadline. NFU members have reported that they contacted food manufacturers during 2011 offering contracts for eggs for 2012 which were turned down. While some companies took contingency steps many did not suggesting that these companies felt there would be enough egg available and that they would continue to purchase on the wholesale market. There have also been reports of egg suppliers failing to supply or asking for unsustainable price increases. However the feedback from our members suggests they are looking after their regular customers to ensure continued long term relationships.
Conclusion
12. It is not in the long-term interests of British egg producers to see irreparable damage done to the UK food manufacturing sector, however we do believe that the current market circumstances are unique and likely to be a short-term concern. The egg market must be left to operate and right itself. There should be no relaxation of the stance being taken by the Commission in terms of enforcing the legislation. There are quotas in place to allow the import of eggs from third countries which could be used by food manufacturers and egg processors as a temporary measure.
13. British egg producers have made genuine financial and professional commitments to delivering what customers and consumers want in terms of higher welfare egg production and that commitment should be recognised by purchasers of both egg and egg product and should not be undermined. The medium to long-term solution must surely be for users of egg and egg products to look into building long-term sustainable supply chains for egg products produced in the UK.
Annex 1
GRAPH SHOWING THE INTERACTION BETWEEN EGG SUPPLY AND WHOLESALE PRICE*
Annex 2
GRAPH SHOWING AVERAGE FREE RANGE LAYER FEED COSTS AGAINST AVERAGE PACKER TO PRODUCER PRICE PER DOZEN FREE RANGE EGGS
April 2012