Jun 30 2014
Last month, the Australian Competition and Consumer Commission (ACCC) started proceedings in the Federal Court against the Australian Egg Corporation Limited (AECL) and a number of its directors, and two egg-producing companies. The consumer watchdog alleges that the organisations attempted to convince AECL-member egg producers to cull breeding hens and dispose of eggs to reduce the supply of eggs in the market. These allegations come at a time when egg farmers face fluctuating input costs and low margins. Profit received by poultry meat farmers, on the other hand, is higher and more stable.
Egg production in Australia has increased over the past five years, but is expected to drop over 2013-14 due to outbreaks of avian flu at a number of farms in New South Wales. Meanwhile, egg farmers have benefited from improved public perceptions of the health benefits of eggs. Campaigns developed to turn consumers against the belief that eggs are high in cholesterol have led to higher egg consumption. IBISWorld estimates that revenue for the egg farming industry will grow at an annualised 3.5% over the five years through 2013-14, to reach $575.6 million. That said, this growth figure is inflated by rapid growth in 2010-11 due to a recovery in output following the global financial crisis.
Egg farmers have little control over the prices they receive. While demand for free-range eggs has aided industry growth, a lack of legally binding standards for egg certification has caused confusion among consumers and limited the prices that free-range producers can charge. Furthermore, the dominance of private-label eggs at supermarkets has put downward pressure on the prices received by egg farmers. As a result, profit in the egg farming industry is generally low, though it has increased over the past five years due to tightening supply.
Poultry meat farmers receive higher profit margins than their egg-farming counterparts. The poultry meat farming industry is characterised by a large number of small farms, with the majority of industry products supplied to major poultry processors under contracts. Processors generally pay for the majority of input costs, such as feed and veterinary services, under the terms of these contracts. This means that profit margins are somewhat protected from rising input costs – which is not the case in the egg farming industry. Australia’s two largest poultry processors (Inghams Enterprises and Baiada Poultry) process over half of all chicken meat produced and consumed in Australia, which helps to stabilise the prices poultry meat farmers receive.
Revenue for both the egg farming and poultry meat farming industries is forecast to grow modestly over the next five years, with poultry meat farming growing at a slightly faster pace. Profit margins for egg farmers are expected to remain low as growth in revenue is outstripped by growth in feed prices. In contrast, as poultry meat farmers become more efficient, their profit margins are forecast to increase.