Eggs prices rise as cage farmers embark on $200 mln upgrade to meet welfare code

Thursday 15th May 2014

The cost of battery farmed eggs in New Zealand is on the rise as farmers begin converting to new welfare code compliant cages, a change estimated to cost the industry as much as $200 million.

Egg prices have risen 5.5 percent in the past year, according to Statistics New Zealand, an increase that the Egg Producers Federation (EPF) says is in part driven by changes made under the 2012 Animal Welfare (Layer Hens) Act, which requires hens to be housed in larger, 'colony' cages. The government has estimated the changes will drive up egg prices by 10 percent to 14 percent and the EPF says it will cost its members $150 million to $200 million.

"It's a sizeable sum of money across a relatively limited number of players and our understanding is the majority of current cage farmers will move to colony," Michael Brooks, executive director of EPF told BusinessDesk. There are currently 118 cage egg farms across New Zealand, making up about 83 percent of the egg market and the changes mean a "fundamental restructuring" of the industry, he said.

The legislated shift to colony cages gives hens 750 square centimetres of space each, up from the current minimum of 550 sq cm, and more humane touches such as a scratching pad, perches and space for nesting.

Farmers say in addition to the cost of new equipment and rehousing their hens, colony cages were also less efficient than current cages and take up more space.

"There's no way around the fact that colony is a more expensive method of producing eggs than cage," said Hamish Sutherland, general manager at Farmer Browns, which has begun to shift to the new cages. "As colony gets a bit more volume in it and it becomes more mainstream we might see that premium over cage come back a bit."

Supermarkets take 50 percent of total eggs produced, with the rest going to industrial food manufacturers, cafes and bakeries. In supermarkets cage eggs still make up 75 percent of sales, as consumers seek out the cheapest option, he said.

"Wellingtonians might be happy to pay $18 for eggs benedict, but in Tokoroa it's fried eggs and bacon on toast for 10 bucks - they don't give a toss if its free range, they just want a big feed before they're out cutting down the pine trees," Sutherland said

Over the past three months, a dozen cage eggs on average cost $3.67, while a dozen colony laid eggs cost $4.67, and free range eggs were on average $7.20, he said, citing industry data.

The shift to colony cages is staggered, with 40 percent of the industry required to change over by 2018. But with the average cycle of a laying hen about 18 months it is a tight timeframe for many farmers.

For some farmers the change won't be worth it and EPF's Brooks expects about 8 percent of egg farmers to shut down operations once the 2022 deadline rolls around.

"While there might be a few less it will still be a very competitive industry and while there's people going out there are other people coming in," Brooks said.

Across the Tasman supermarket chain Woolworths, which owns Countdown in New Zealand, has vowed to rid its shelves of cage eggs by 2018, as well as no longer using them as ingredients in its own branded products. Rival grocery chain, Coles, has also adopted a cage-free policy for its own branded eggs but still stocks the cheaper alternative.

Another element pushing up the price of eggs was gains in the cost of feed which makes up about 65 percent to 75 percent of the cost of an egg, Brooks said. Over the last five years the price of New Zealand feed wheat has climbed about 50 percent, with the most recent price at $430 per tonne.

There had been some export pick up for New Zealand eggs, as Australian exporters were impacted by disease, markets like Papua New Guinea had opened up "a little bit for New Zealand," Brooks said.

BusinessDesk.co.nz

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