Choose the chicken not the egg if you want to make money

Wednesday, 18 June, 2014

While egg farmers face fluctuating input costs and low margins, the profit received by poultry meat farmers is claimed to be higher and more stable according to a recent IBISWorld report.

Egg consumption is on the increase in Australia partly driven by the successful change in consumer perception about the relationship between egg consumption and high cholesterol. 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. This growth figure is inflated by rapid growth following the global financial crisis.

This growth is good news for egg farmers but the process farmers receive is under considerable downward pressure.

The lack of legally binding standards for egg certification is limiting the prices that free-range eggs can command and at the same time private-label eggs dominate supermarket sales further limiting profits to egg farmers.

The poultry meat market is dominated just two processors - Baiada Poultry and Inghams Enterprises. Even though the poultry meat farming industry is characterised by a large number of small farms, most of these enterprises are contracted to supply their poultry to the two major processors. Under the terms of these contracts, processors generally pay for the majority of input costs such as feed and veterinary services. This means that profit margins are somewhat protected from rising input costs.

These two major poultry processors process over half of all chicken meat produced and consumed in Australia, which helps to stabilise the prices poultry meat farmers receive. A circumstance not enjoyed by the egg producers.

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 in the market.

The IBISWorld report forecasts that revenue for both the egg farming and poultry meat farming industries will 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.

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