With profits squeezed like never before, could we be facing an exodus of broiler growers (and supermarket shortages) like that seen in the egg sector?
When 2 Sisters announced its plan to close its processing plant in Llangefni, there was an immediate backlash from politicians and unions. Around 730 jobs will be lost, if as expected, the closure goes ahead at the end of the consultation period in March.
The plant needs an estimated £20 million spent to bring it up to date and make it viable, a source from 2 Sisters told PB; money it doesn’t have. The company’s latest published accounts covering the year to July 31 2021 show a £95.5m loss.
But the planned closure is just a symptom of a far bigger problem. Lack of profitability throughout the whole chicken supply chain is reaching crunch point, and the closure of the plant could be just the start.
In April, the energy price cap will be lifted. Energy intensive businesses will continue to receive support from the Government, but in a decision branded ‘astonishing’ by one poultry processing plant manager, farms are not included in this.
The department of Business, Energy and Industrial Strategy (BEIS) told Poultry Business the reason for excluding farms was simple. “These types of businesses do not meet the threshold for the Energy and Trade Intensive Industries sector, the sector had to be in the top 20th percentile for energy intensity and top 40th percentile for trade intensity in the UK.”
There is now a very real risk some farms will follow the example of egg producers and decide to pack it all in, according to some within the industry. “The chicken sector is about a year behind the egg industry,” says Edward Calcott, broiler and turkey producer, and an analyst for Andersons Farm Consultancy.
Calcott says he has spoken to producers who will soon be paying up to 75p/kwh. “It is really difficult, because it has tripled, quadrupled what it was two years ago and the margins haven’t increased to reflect that increase in energy costs.”
The decision about whether to continue will hinge for some on whether or not they have a bank loan to service. “If you do, you will be stuck on the hamster wheel of having to keep ploughing on.”
For those without debt, April may well be the tipping point. “I wouldn’t be at all surprised if some producers keep units empty. The broilers are lagging about a year behind the egg producers. It is pretty dire to be honest,” Calcott adds.
One producer who can vouch for this is south-west broiler grower Jamie Hatch. Over the past two years, his electricity costs have increased from 15p/kwh to 63.99p/kwh. On his farm, that equates to £68,000 per year on electricity, increasing to just short of £250,000.
“Thankfully the current government support has reduced the horrific impact short term. However, this will increase in April to an unsustainable level unless we are recognised as being part of the processing of poultry meat process [and are therefore eligible for the higher level of support],” says Hatch.
He says he is extremely concerned about the increase that is about to hit farms across the country. “We have a Prime Minister who publicly states ‘Farming is vital to our rural economy and communities’ and then we find ourselves excluded from energy support at the very, and most vital, time that we need it. I do not believe this is Rishi Sunak’s intention, however it is a situation facing us from April onwards and the clock is ticking down fast,” he adds. “Government needs to recognise that growers play a major role within the processing of poultry meat.”
In the absence of ongoing government support, the only solution is to be paid more, he says. “Ten pence per kilo on live weight would allow many issues within our industry to be addressed,” says Hatch. This works out at around an additional 23p per live bird.
The shortages on shelves of not just eggs but in recent weeks, salads, has highlighted the fragile state of UK supply chains, which have been pushed to breaking point in recent years. Hatch points out chicken is incredibly cheap for consumers to buy compared to some other common items.
“A large retailer is currently selling a medium whole chicken for £2.99 at the same time as a Costa coffee latte, cappuccino or flat white is retailing for £3.45. Ten pence a kilo price rise would increase that same medium chicken to £3.14,” says Hatch.
“The average price for a pint of beer in London last year was £5.99 and yet chicken is cheaper in relative terms than it was 20 years ago, this is not sustainable.”
Echoing Hatch, Calcott says the simple solution is for retailers to cough up. “The obvious thing is pay more.” But for producers, there are very few ways to directly get this message across. “There is no-one to speak to,” Calcott says.
“We speak to the integrated companies we work with and they are just the middle man. There is no communication down the supply chain, there is no-one to say, OK your costs have gone up, how much more do you need? There is no acknowledgement that costs have gone up and they need to provide a little more support. There is no communication at all.
“They just don’t seem interested. It is a race to the bottom and farmers now are being squeezed so hard. I did some research the other day: we could let the shed out as an industrial unit and make twice as much from chicken farming and not have to lift a finger.”
A senior manager within one of the major poultry integrators told PB the industry is “in crisis mode”. He says many producers who supply his company are in “closure territory. Producers are telling me ‘we are not making any money, we are losing a fortune’. We need a price increase in April. I am being bombarded with calls and texts. I’ve never known it like this.” To break even, producers need at least an extra 4p per kilo, he adds. “There is too much chicken in UK, and we are not charging enough.”
What the changes mean for farms
From 1 April 2023 to 31 March 2024, eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill and a unit discount of up to £19.61/MWh applied to their electricity bill, except for those benefiting from lower energy prices.
A substantially higher level of support will be provided to businesses in sectors identified as being the most energy and trade intensive – predominately manufacturing industries. A long standing category associated with higher energy usage; these firms are often less able to pass through cost to their customers due to international competition.
Businesses in scope will receive a gas and electricity bill discount based on a supported price which will be capped by a maximum unit discount of £40.0/MWh for gas and £89.1/MWh for electricity.