Poultry report: Birds in balance

While the spectres of spiralling food prices and avian flu are by no means forgotten, British poultry producers have regained some confidence over the past year. While the spectres of spiralling food prices and avian flu are by no means forgotten, British poultry producers have regained some confidence over the past year.

Poultry prices, which started to rise at the end of 2008, have remained stable and the falling value of the pound has boosted demand for British-reared birds. "The poultry industry has remained profitable by and large," says Charles Bourne, poultry board chairman for the National Farmers' Union (NFU). "Supply and demand are finally in kilter."

There has been some downward pressure on prices from retailers looking to regain margins, now that wheat prices have come down, but Bourne is confident that the currency crash will keep prices stable.

"As long as the pound stays down, imports will be expensive and people will want to buy British," he says. "There is competition for square feet among processors and that keeps prices at farm level up." The rising price of other proteins, such as beef and lamb, should also keep poultry prices up, adds Bourne.

Strong prices have given a much-needed boost to poultry producers, who were under enormous stress when feed prices rose dramatically in 2007. Bourne, who walked out of poultry production for a short time during the crisis, says farmers are starting to look to the future again. "They are a lot more optimistic and thinking of reinvesting. There is not a huge amount of money in it, but enough to keep optimism up," he says.

An EU decision over costly pollution legislation has also brought relief to the industry. In June, EU ministers reached a "political agreement" not to extend the scope of the Integrated Pollution Prevention and Control Directive (IPPC), sparing an estimated 230 poultry units from costs that would have put many out of business.

The decision followed 18 months of lobbying by the NFU and British Poultry Council (BPC), who argued that IPPC controls were originally intended for larger power stations and were not suitable for small poultry units.

"IPPC is the most comprehensive environmental regime we have seen by far, and the effects of these changes could be very serious, adding significant costs and burdens, especially to smaller poultry units," said NFU deputy president Meurig Raymond, after the decision was announced.

"The ministers have recognised that agriculture and horticulture are totally different to other businesses within IPPC. Most are small, family-run firms, with limited capacity to manage the broad nature of IPPC and what is needed to fulfil implementation and compliance."

Bourne says the EU decision will not save the industry huge amounts of money, but does mean that the pressure is off for some of the smaller free-range and organic producers. IPPC controls remain a financial headache for larger producers, but the BPC is working to ensure the costs of meeting the legislation are kept to a minimum.

Perhaps the biggest challenge now facing producers is the difficulty of sourcing GM-free soya. The rapid expansion of GM technology in soya-growing countries, such as the US, Brazil and Argentina, means that GM soya is increasingly scarce and expensive. "The premium for GM-free feed is up from £16 to £30. We use 20% soya in our rations, so you can imagine what cost that is to the industry," says Bourne.

The problem has been compounded by the EU's zero-tolerance policy on GM contamination, which has led to large shipments of GM-free soya being turned away from European ports as a result of small-scale contamination.

"We are in a situation now where soya exporters do not want to ship into the EU because of the strict rules," says Bourne. "A big problem is that the EU market is of less importance these days the Chinese will buy it if we don't, and suppliers have no appetite to bow to our pressure."

The situation is so bad that feed suppliers have warned they will not be able to guarantee GM-free feed from next season. Producers believe the only way forward is to start using GM feed again, but none of the retailers are willing to take a lead on the matter.

"We are talking to supermarkets about it, but no-one wants to be the first to accept birds fed on GM. Yet everyone realises it will happen eventually," says Bourne.

Consumer reactions are a big concern. Producers are worried that a change to GM feed would be picked up by campaign groups and used as a weapon against the industry. "Someone like Greenpeace will no doubt pick up on it and make an issue out of it, which will cause us a problem," says Bourne.

Peter King, PR executive of 2 Sisters Food Group, says the key to consumer acceptance will be addressing the lack of understanding over GM feed in poultry. "Every other protein and imports of chicken are fed on GM soya; it is only fresh British chicken that is GM-free," he says. "When you look at it that way, you can see it is an anomaly."

Contamination concern

Another challenge facing the industry is bacterial contamination of flocks. A recent Food Standards Agency (FSA) report revealed that more than 65% of poultry tested at retail level contained campylobacter, the most common bacterial cause of food poisoning, which is responsible for around 55,000 cases of illness in the UK every year.

Farmers are aware of the need to tackle campylobacter, but with no vaccine expected until at least 2015, there are no easy solutions. "If we really want to cure it tomorrow, we would have to start washing, but no one really wants chicken washed in chlorine, so some people are looking into citrus-based, organic washes.

There is also some work being done on a steam machine," explains Bourne. "There are no simple solutions, but the industry is not burying its head in the sand over it." He points out that the poultry industry has already successfully tackled levels of salmonella, which are down from 80% around eight years ago to just 6%.

Thankfully, the FSA findings on campylobacter appear to have had no impact on consumer demand, which has remained resilient in the recession. According to data from TNS Worldpanel, spend on poultry increased by 5.8% year-on-year in September 2009, driven by an 8% rise in spend on chicken, which remains the core of the poultry market.

One notable effect of tighter economic times, however, has been a drop in organic sales, which decreased by 23.6% year-on-year in September 2009. "Organic has come under pressure because of its affordability, understanding about the benefits of organic and competition with other specialist chicken tiers," says King.

The main competitors to organic are free-range and Freedom Food birds. Free-range sales have dropped back since the height of the Hugh-Fearnley Whittingstall campaign, but remained fairly stable this year, dropping by just 0.2% in the 52 weeks to September.

It is Freedom Food chicken that is really driving the specialist welfare sector, however. "Sales of 'higher welfare' poultry products, comprising organic, free-range and Freedom Foods, have increased in volume," says Matt Pullen, marketing director at Bernard Matthews Farms. "But the single driver of this growth is the Freedom Foods sector. Free-range and organic are in decline, which is an indication that consumers are watching where they spend their money."

Another impact of the recession has been a growth in demand for reformed, processed products and a move away from whole muscles. "Reformed chicken offers an alternative at an affordable price," says King. "We are focusing a lot of new product development on reformed chicken products, looking how we can hit price points for consumers."

There has also been a resurgence in demand for frozen poultry, particularly frozen breaded poultry, which is growing by 15% in value terms year-on-year. "This current growth has coincided with the recession and also with improved perceptions of frozen food," says Pullen. "Frozen breaded products offer families convenient and tasty food, which is also great value for money ideal in the current economic climate."

One interesting development is that more and more British poultry is being used for ready meals and processed products, a move that King attributes to the increasing competitiveness of home-grown birds. The use of British poultry for processed products will no doubt prove popular with consumers, for whom provenance is still an important consideration.

"Our research suggests that there are a growing number of consumers who still claim to look for British meat and local produce in store, as they wish to support British farming and to know where their food is coming from," says Pullen.

With consumers flocking to reformed and frozen poultry products, health has taken a bit of a back seat during the recession. Bernard Matthews Farms attempted to launch its Big Green Tick 'better for you' option within the frozen breaded poultry category earlier this year, but sales have disappointed so far.

"The premium required for this product and consumers' reluctance to try new lines during this economic climate meant the product did not succeed in the current market," explains Pullen. "However, we know there's a consumer need for healthier and lower-fat products and there is every chance that we will revisit the concept when the time is right."

Looking ahead, King expects continued growth across the sector next year. "Some are predicting that everyone will have a bit more money, so there may even be a swing back into specialist sales," he says.

Strong demand should keep prices up for producers, providing the value of the pound stays low. "Hopefully this will encourage more producers to invest and start building sheds again," says Bourne. "It's a good marketplace right now and long may that last."

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