Poultry sector plays to a strong market

Last year, the poultry industry was concerned that avian influenza would hit sales. This year, its concerns in the run-up to Christmas are somewhat different. It is hoping that consumers in the current economic climate, which has seen a turbulence not experienced for some time, will be willing to pay the prices required for the UK poultry industry to be sustainable. Following the campaign at the beginning of this year by TV chefs Jamie Oliver and Hugh Fearnley-Whittingstall to raise public concerns about animal welfare, it seemed this topic was high on retailers’ agendas. In October 2007, the Co-operative rolled out its initiative to sell all fresh primary chicken produced to its higher-welfare Elmwood standards or above and incorporate fresh plain chicken fillets and pieces. Tesco, however, while agreeing to stock more higher-welfare chicken, also showed that it was not prepared to be railroaded by the celebrity duo and slashed its standard chicken price to £1.99.

Meanwhile, in August this year, Sainsbury’s announced that it was going to double its range of higher-welfare chicken from 14% to a third of all birds produced – around 7.5m a year. While consumers appeared willing to support Oliver and Fearnley-Whittingstall, the subsequent freefall in the UK economy has seen many tighten their belts, as the spectre of job losses and energy costs loom. As a result, the premium tier of higher-welfare poultry has been losing out to standard ranges over the last couple of months. “We doubled the number of free-range and organic birds we were processing. But that seems to be tailing off,” says Peter King, of 2 Sisters Group. “We have seen more people moving down a tier towards Freedom Food-produced birds.”

While red meat has taken a bit of a hit, as consumers tighten their belts, chicken appears to be doing well, as it is seen as a versatile meat, despite being more expensive than a year ago. “The perception that there is something wrong with it in terms of welfare or quality, because it is cheap, is incorrect,” says King. “Retailers who sell chicken cheaply are often taking a hit on their margins. As long as the farmer and we, the processors, are able to cover our costs, we cannot dictate to the retailers what they do or don’t do.”

Good News

The good news is that the swing in the sterling/euro exchange rate has also seen less chicken imported into the country. This is welcome news for UK producers, who have been hard hit by spiralling energy costs and feed prices – although the latter has eased somewhat. “I wouldn’t say the industry is doing well, but neither would I say it is doing badly,” says Graham Jackman, who runs poultry wholesaler James Fortescue. “Prices are up 10% on last year. But then everything has gone up.”

Jackman says there are not many turkey breasts coming in from Europe, which has allowed the UK turkey trade to thrive. “Producers who were just Christmas producers are starting to produce catering birds throughout the year for the local pubs and restaurants. They are diversifying and becoming entrepreneurs,” he says. Likewise, he sees the traders at Smithfield are selling what they are producing. “They are not having to drop their prices,” says Jackman.

The real surprise appears to be that frozen poultry is fetching as much money, if not more, than fresh birds, because there are so few companies producing it compared with 20 years ago. But this does not mean the poultry industry can keep raising its prices. “You just have to look at Currys and Dixons, which are having to reduce the price of their electrical goods so they can get customers,” says Jackman. “We are lucky that the poultry industry has not had to do the same.”

Lifting Gloom

Charles Bourne, poultry board chairman for the National Farmers’ Union (NFU), believes the doom and gloom that pervaded the poultry sector following the spiralling feed prices last year, has lifted over the last three to four months. He has started chicken production and is on his third crop, after abandoning poultry production for a short while. Like Jackman, he believes the UK poultry industry is doing well, because imports are not flooding in due to the unfavourable exchange rate. “There is a shortage of British chicken and there appears to be no spare going, so it is fetching a fair price.”

That said, competition from the discounters like Aldi and Lidl and the credit crunch are resulting in retailers pushing producers for price reductions of between 17-18%.

They think because feed has come down that prices should come down automatically, which is unrealistic as they forget feed was bought at a higher price and that there should be a lag allowance for it,” says Bourne.

He believes that, by and large, if everyone is sensible and does not buy into price cuts, then the UK will have a profitable chicken industry for the next six months. “It is in the hands of the people who sell the chicken and whether they bow to pressure, as there is not enough chicken around.”

The turkey dealers are also making a reasonable living. Says Bourne: “They have told me nobody is quibbling with their prices. It looks like they are in for a good Christmas. The only ones who are feeling under pressure are the ones dealing with retailers.”

Legal Issues

Pricing aside, legislative issues remain a challenge, as the banks rein in borrowing. Bourne insists that while legislative issues are always a problem, they are that much worse when the industry is finding margins eroding, due to higher production costs. “The real objection is not to legislation but where the money is coming to pay for it,” he says. Bourne has invested in 120 windows in his sheds because he sees growing Freedom Food chickens as profitable and worth his while. “At this juncture it is even more important for the industry to be profitable, so it can self-finance,” he says.

The biggest financial headache in terms of legislation comes from the Integrated Pollution and Prevention Control (IPPC) measures. Peter Bradnock, chief executive of the British Poultry Council (BPC), and his colleagues have exerted considerable influence to ensure that the costs of these and inspections required are less onerous than originally envisaged. “We have been looking at IPPC and subsequent inspection of farms, along with how these annual fees can be reduced,” says Bradnock.

Originally, IPPC called for every farm to be visited twice a year by the Environment Agency (EA). But the BPC has now got the EA to agree that certain qualifying farms with certain qualifying scoring points, that are members of an assurance scheme, can have the auditor from that assurance scheme provide the EA with a data checklist, thus reducing costs. “If we have a person on the spot already auditing a farm, we are making best use of that resource and that principle has been agreed by the EA,” explains Bradnock.

More Issues

Another issue facing the poultry sector is the lowering of the threshold of IPPC, which would mean that more poultry keepers would have to comply with the measures.

The European Commission is proposing that the thresholds be lowered to include farmers who keep around 30,000 layer hens, 25,000 ducks or 11,500 turkeys.

This means that a huge number of farms would be brought into the IPPC threshold, which currently stands at 40,000 chickens. “In our view it will not add anything to environmental protection,” says Bradnock. “The amount of ammonia generated by these sites is very small compared to methane produced from other sources – even dairy cows and cattle.”

His organisation has made strong representations to a consultation paper from the European Commission and, in particular, to Defra ministers, who Bradnock says have heard the BPC’s overwhelming opposition to the proposals. “We hope it will not go through,” he says.

Gm Free Debate

The other issue dominating the poultry sector is GM-free soya, which the producers are finding more and more difficult to source. This is a particular bone of contention, as other livestock pigs and cattle can be fed GM soya, but poultry cannot. Bourne believes that rules should be relaxed to allow producers to use GM soya to birds produced to the economy or standard range. “We have to pay an extra 5p a chicken at farm level and 25p at pressed meat level,” he says.

Like many in the poultry industry, he cannot understand why he cannot feed his birds GM soya, when the rest of Europe does so. “People are quite happy to eat a Polish or Spanish chicken, which has been fed GM. So why can’t we? I don’t think even half of consumers realise that is the case.”

Bourne believes neither the retailers nor the politicians want to make the decision to allow poultry to be fed GM soya. “Everybody knows the decision has to be made, but nobody wants to be the first to do it. The retailers are saying, ‘If you make the decision and get found out, then we are not going to stand behind you’.”

He insists that the poultry industry should be given the go-ahead and, even if it is seen as bad news, it will be history in a day or two. Bourne can already see the headlines – for example, “GM soya fed to battery chickens for farmers’ profits” – but says that the consumer and retailers cannot have a “Rolls Royce for the price of a Mondeo”.

Bradnock concurs that the GM feed ingredient issue is coming closer to a force majeure, unless something is done about it. “We have a situation where supplies of non-GM soya at affordable levels are running out. EU production is only 22% self-sufficient and Brazil, from where we import our soya, is increasingly growing GM varieties, meaning that the non-GM type will not be available.”

He says UK farmers probably have another season’s supply. “Even last season there was a shortage, which resulted in farmers having to pay £30/t more to have identity-preserved non-GM and that’s increasingly difficult for companies to supply. We need retailers to look at the anomalies that exist between feeding GM feed to poultry and other species. If we don’t, we could see EU poultry production cut by 40%.”

Cost and feed availability aside, poultry producers are in a better position than they could have envisaged a year ago. Poultry sales, according to TNS Worldpanel, were up 6.6% up in the 52 weeks to 7 September, 2008. If this trend continues, then producers will have every reason to be celebrating Christmas and beyond.

Printer friendly version

Email this article to a friend

Bookmark this

---