June 3, 2011

The Philippine egg industry - Cracking under pressure

An eFeedLink Exclusive
As if being cursed, the egg industry in the Philippines must be under some bad spell; for three years in a row, the sector never seemed to recover from the same cycle of problems -low market prices, supply glut, high production costs and weather-induced headaches.

This year, farmers are again facing the same predicament of depressed farmgate prices but higher production costs due to price spikes in oil and feed grains.

Greg San Diego of the National Federation of Egg Producers of the Philippines blames the sector's dismal state on one thing: weakening purchasing power. "Due to hard times, Filipinos are reducing their expenses on food because that's the easiest thing to cut back on their monthly expenditures. They prioritise other necessities first - electricity, water and house rentals - and what's left is for food. The bad thing is there's not much left for food," he says.

While this predicament is also being shared by other livestock industries, San Diego cannot help but worry that the egg sector may not be able to overcome the circumstances anymore. "With oil and food prices rising, sadly excluding egg, I just hope that we can still cope, but we've come to face the reality that it's all about survival now."

Egg figures

Figures from the Bureau of Agricultural Statistics show that egg production for the first quarter of 2011 went up by 4.94% due to increases in number of flocks in Central Luzon, CALABARZON (Cavite, Laguna, Batangas, Rizal and Quezon), Western Visayas, Northern Mindanao and Davao Region. According to BAS, the higher egg-laying efficiency ratio of layers due to favourable weather conditions also contributed to the growth. BAS also noted an increase in prices by 5.72% from last year due to higher production and prices.

However, the BAS figures, particularly the increase in prices, may be in contrast if it is to be based by San Diego's observations. In a recent survey conducted by his group, egg prices in the markets are hovering from PHP4.80-PHP5.20 (US$0.11-US$0.12) per piece while farmgate costs remained at PHP3.20 (US$0.07) since the beginning of the 2011. San Diego laments that while retailers may jack up their prices anytime (wherein eggs may reach to as high as PHP8 (US$0.19) per piece depending on size), farmgate egg prices are unlikely to pick up.  "We cannot increase our prices immediately because that would automatically translate to higher prices in the market. But clearly there is a distortion in prices because retail prices may go up at any point while farmgate prices remain unchanged. The government doesn't want us to increase our prices but we do not have the control once the eggs are in the market already. So we are suggesting a retail price for the egg so we both could benefit."
With this situation, San Diego explains it is not only the farmers who are on the losing end but also the consumers. "The fluctuation of prices does not reflect on the retail costs. If the government wants us to lower our prices, yet retail prices remain high and sadly, we are not the only ones who suffer but also the Filipino buyers who are also bleeding dry."
Previously, when egg prices are low, farmers go into early culling or slaughtering of layer birds at a premature period to ease production losses. However this time, prices have not really picked up and San Diego again points out to deteriorating buying power. "I think that's the best reason why egg prices have not gone up. Consumers do not put food as a top priority anymore."

The spike in feed and oil prices, and lately, in electricity, have added more headaches to the already burdened sector. Coconut oil for instance has soared to PHP100 (US$2.31) in January this year as against PHP44 from last year. Of late, its lowest price was at PHP84 (US$1.94), still a far cry from the average of PHP444 (US$10.28). As of end-April this year, corn prices are averaging PHP13 (US$0.30) a kilo, still high from the PHP11 (US$0.25) registered on the same period last year. Despite the presence of alternative feeds such as cassava, San Diego says these have limiting factors in a bird's nutritional needs.

Fuel prices are now priced at PHP45-PHP61 (US$1.04-US$1.41) per litre, against last year's PHP29-PHP40 (US$0.67-US$0.93) while electricity's generation charge is up by 20.13 centavos a kilowatt-hour to PHP5.0474 (US$0.1168) per kwh. This means that a power consumption of 200 kwh will entail an additional PHP40.26 (US$0.93) in their bills while a 300 kwh consumption can expect a PHP60.39 (US$1.40) jump in their electricity fees.

"We have now overtaken Japan as the nation with the highest electricity rate," laments San Diego.

Another brewing problem is the proposed wage hike of PHP13 (US$0.30) daily. Although this may seem small, San Diego says that it is not feasible at the moment what with the rising costs of necessities. "It would be okay if wages are increased because that would hopefully mean more food consumption. However, it would be a huge problem for small operators because everything is increasing. If that happens, expect a lot of companies or farms to close. I think the government should carefully study the proposal because both parties will suffer if these are not properly implemented."

All these factors have heavily pummelled small farmers who are only relying on market forces. If no intervention is made, it is inevitable that a lot of farms may shut down its operations.

Climate and trade

Last year's intense heat due to El Niño phenomenon had some farms invest on a new type of ventilation called the cool cell system. However, with electricity and oil prices soaring, these farms have stopped using them, reveals San Diego. "It was really ideal particularly during the hot climate where birds do not eat or they die from heat stroke. The cool temperature would actually help them attain production efficiency but they cannot offset their selling prices with the soaring electricity rates."

Export may seem an option to prevent help farmers sell their eggs but San Diego dismisses it. "It is very expensive to export. Our neighbouring countries are brown egg consumers and we are white egg producers. So it is likely that we are only the market for white eggs in the region."

The country imports processed eggs such as frozen and powdered and this may be a viable alternative for egg farmers but San Diego shuns the idea. "There used to be a project wherein a processing plant in Batangas was supposed to be constructed to process eggs. But our market for processed eggs is too small, only a few restaurants and huge pastry chains are the ones buying it."

Amid the woes, San Diego is hoping that the industry can still endure all the difficulties. "Our production is efficient, we can meet the world's standards but we are aiming for good prices and that farmers and retailers will cooperate with each other. It's really been a tough time for us but we can only hope for the better."

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