August 1, 2012

Feed prices in 2012/2013 could cost UK poultry producers GBP440 million (US$689 million) more than last year as a result of the hot and dry weather conditions in the Northern Hemisphere,  making it difficult for UK's poultry supply chain to absorb expected feed price increases, unless retailers increase price.

Feed, largely wheat and soy, makes up around 60% of the production costs for poultry and eggs, and with spot prices having reached GBP226 (US$354) per tonne and the wheat futures market showing a March 2013 contract price high of GBP197 (US$308.50) per tonne, there is only one way production costs can go: up.

"We have a very robust poultry industry, which has invested to improve efficiency, but these are monumental price rises we are talking about," British Poultry Council chief executive, Peter Bradnock says. "You can't absorb the kind of price rises we are talking about through greater efficiency - it's impossible"

Bradnock admitted the US$689 million figure is "conservative", given that it did not factor in the spot price market. However, he said it wouldn't be until the autumn, when more detail is known about the 2012/2013 harvest, that more accurate figures would be available. He was also reluctant to predict what the rises could mean for the price of poultry and eggs on-shelf.

In a letter to the main retailers, the BPC, NFU and the British Egg Industry Council warned of the rising costs. It reads: "The year ahead will constitute a continued challenge to our supply-side costs and the poultry supply chain has worked hard to manage the unprecedented levels of volatility that have characterised agricultural markets since 2007.

"It is in all our interests to maintain long-term sustainable chains. We ask that you reflect the fundamental change in commodity prices that will impact poultry industry costs when in pricing considerations and promotional schedules for the year ahead."

With retailers involved in an aggressive pricing war, some may be tempted to look overseas for produce. However, analysts warned that there will be "no hiding place" from the rises.

"The prices will go up around the world and there is no hiding place. "The price rises have been caused by drought in Europe, the US and the Black Seas region, which UK producers are heavily reliant on for feed. This has coincided with a delayed harvest in the UK due to wet conditions.

"There is a nervousness around the quantity and quality of feed that will be available this year," said Clarkson. "It might not be affecting producers today, but it will when they start negotiating their contracts."