How cracks started to appear in UK’s booming free-range egg market

When Daniel Brown took up free-range egg farming in 2004, it was seen as “almost a bit hippie-ish. No one really thought about where eggs come from.”

For his family business in Suffolk in the east of England, however, the move was a shrewd one. Brown joined an ethical farming success story in which free-range flocks grew to account for more than two-thirds of eggs sold in stores.

But now cracks are emerging in Brown’s business model — and that of the whole sector. Shortages have forced supermarkets to ration eggs after prices paid to farmers failed to keep pace with production costs, prompting some producers to quit the industry or cut their flocks.

The crisis has hit free-range farms especially hard because they tend to be small, financially vulnerable businesses.

As inflation continues to climb and food industry logistics face intense strain, images of store shelves empty of eggs have become one of the most high-profile examples of a supply chain gone awry.

For Brown, the crunch has led to a six-figure overdraft, and while he has regained some ground from his arable crops and packing business, he continues to operate at a loss.

Free range has “gone from a niche product to the commodity everyone wants — but once things are commodities, retailers screw the price”, he said.

Supermarkets Aldi, Lidl, Asda, Morrison, Marks and Spencer, and Tesco have in recent weeks imposed caps on the number of boxes of eggs that customers can buy, while rival J Sainsbury this month sparked fury among farmers by temporarily importing Italian eggs.

With some egg farmers quitting the industry, the total UK flock of laying hens, which peaked at 44mn last year, has shrunk to about 38mn, according to the British Free Range Egg Producers Association.

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Less than half of the drop is down to the 2.9mn birds lost to avian flu in an outbreak that began in 2021, but the threat of influenza, and the cost of insuring against it, is another deterrent to farmers.

Retail prices for eggs rose 23.1 per cent year-on-year in October, according to government data, but costs have escalated far more sharply. Brown said chicken feed — which accounts for the majority of the cost of an egg, and is dependent on global grain markets — had fluctuated between £180 and £230 a tonne before soaring to £420 following Russia’s war on Ukraine. It has now pulled back to about £390.

Patrick Lynn, a free-range egg farmer from Nottinghamshire, said he faced an extra £40,000 bill for pullets, or young hens, for his next flock after cost pressures added £1 to the price of each one.

He now receives £118.8p from packers for a dozen eggs — a rise of more than 30 per cent since March, but not enough to cover costs.

“We have tightened our belts as far as we possibly can. A lot of farmers have been working for nothing or paying themselves well below the minimum wage over the past year just to keep going,” said Lynn. Among the hardest hit were recent entrants to the industry who had taken out loans to build chicken housing, he added.

Some producers have realised they can earn more by converting sheds to storage facilities or industrial units.

While small farms producing free-range eggs are vulnerable, eggs from caged birds are produced at scale by large companies that integrate farming with egg packing and are better equipped for financial shocks, said Robert Gooch, BFREPA chief executive.

Farmers supply eggs via packers including Noble Foods and LJ Fairburn, but they blame the squeeze on retailers.

Lynn said his eggs were sold to Tesco for a price that tracked the price of feed, making him better off than some rivals — but he is still facing losses because of rises in other costs such as energy and labour.

Gooch estimated that about 30 per cent of farmers had a feed tracker contract and noted that Tesco had “led the way”. But he said all contracts should operate on a “cost plus” basis, like those used in dairy farming, to factor in a broad mix of costs.

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Andrew Opie, director of food and sustainability at the British Retail Consortium, a trade body, said supermarkets “know they need to pay a sustainable price to egg farmers but are constrained by how much additional cost they can pass on to consumers during a cost of living crisis”.

But privately some retailers admit that aggressive pricing by discounters on basic goods such as eggs has kept retail prices relatively low across the board.

Clive Black, analyst at brokerage Shore Capital, said: “Many egg producers are under pressure and some are now giving up the ghost under the financial strain, which is compounding an already tight supply chain.”

He added that the crunch had been “driven by supermarkets, major food service chains and indeed food manufacturers that use egg as an ingredient”.

The National Farmers’ Union has urged ministers to investigate the egg supply chain and intervene to support producers.

The Department for Environment, Food & Rural Affairs said it understood “the difficulties that rising costs for feed and energy over the last year, combined with the bird flu outbreak, are causing for farmers and we are working with industry to monitor the egg market”. 

The pressure has called into question a target by major retailers to end the sale of eggs from caged hens by 2025. Production costs for free-range eggs are about 50 per cent higher than for those from caged birds, said Andrew Joret, chair of the British Egg Industry Council, a trade group.

But with Christmas a key season for egg sales, farmers said they expected shortages to continue until prices rose further and probably stretch into next spring, given the time lag for raising new laying hens.

“This is the tip of the iceberg of the pressure in the supply chain,” said David Exwood, NFU vice-president, adding that fruit and vegetable growers and pig farmers faced similarly precarious situations.

“We’re trying to highlight these issues, to get people engaged . . . before we get to empty shelves. Leaving it too late is not the answer.”