Egg farm profitability
There is considerable market volatility that makes long term profitability challenging to manage.
Egg farm profitability has not been advanced significantly in the last 12 months. The drought in the Eastern states has had a devastating impact on the agricultural sector, including the egg industry. 2019 was the second year of comprehensive drought with severe drought conditions present for much longer in regions such as central Queensland.
The key impact of drought is felt by egg farmers in the cost of feed. Feed grain represents 65 percent of the variable cost of running an egg farm and with harvest volumes well below capacity, prices have almost doubled. This cost increase has predominantly been borne by egg farmers.
As eggs are a staple food item, there is considerable retail pressure to maintain their affordability by keeping prices low, and the market power enjoyed by the major supermarket chains has ensured that this was possible. The outcome is that it has not been possible to pass through the cost increases arising from the drought.
This dynamic represents a major challenge for the egg industry going forward. Ensuring the sustainability of the industry requires a long term view, and the preparedness to make investments to both maintain standards and improve.
This is very difficult when the money isn’t there and confidence in the future is undermined by circumstances beyond the control of egg farmers. That said, droughts are not new and the economic resilience required to withstand this period has been an aspect of farming for some time.
A more positive aspect of egg farm profitability is the extent to which the industry has grown. Despite the drought, the egg industry increased capacity in the last twelve months with egg consumption per capita increasing from 245 eggs per person per year to 247. This translates to 17.2 millions eggs consumed each day and demonstrates that:
- Consumer demand remains strong
- The long term trend of consumption growth is likely to continue
- Industry will need to be economically viable to ensure investments in egg production capacity are made to meet this demand
Long term planning and resilience is necessary to overcome fluctuating egg farm and industry profitability.
Egg farmers face substantial risks in operating their businesses. While the market is volume driven with relatively low margins, the risk of supply or demand disruption arising from incidents at an individual business or industry level is real and must be managed.
Risk arises in a range of contexts from minor to catastrophic. While market risks are regularly realised as customers move business around, the loss of a major customer can be a huge impact where an egg farm has expanded capacity to meet that customers needs, including through borrowed funds.
Production risks such as biosecurity can give rise to challenges that are capable of being resolved, such as a production disease in a flock that is treatable. In extreme circumstances, they can also threaten
the viability of the whole business.
A good example of this is the Salmonella Enteritidis incidents that occurred in early 2019. For those farms impacted, the outcome was devastating as swift action by authorities required flocks to be euthanised to protect public health. The flock is the key asset of an egg farming business and for some egg farms this was catastrophic, forcing them to exit the industry.
The Sustainability Framework process has forced the industry to engage on how risks can be better managed. This is not a natural process as most management steps have taken place at an individual farm level and are confidential to each business.
In response, the industry has invested in tools to assist egg farming businesses to manage risk. This takes the form of an egg farmer self‑assessment sustainability tool which has been developed to focus egg farmers on key business risks, provide an assessment framework and identify actions to avoid or mitigate risks.
Often the action required will be quite obvious to identify and difficult to implement due to conflicting pressures. The sustainability assessment tool is intended to guide the thinking of egg farmers so that through their own analysis in their own circumstances, the benefits of action to mitigate risks become clearer.
The egg industry has also invested in a new virtual reality biosecurity awareness experience that gets farm workers to identify biosecurity risks as they perform crucial tasks on an animated, virtual farm. By creating a standardised training platform, all farm workers are assessed equally and directed to the best available resources where improvement is needed.
Some of the required tasks include disinfecting a vehicle, walking through a laying shed looking for potential contaminants, and changing clothing and footwear at different entry points around the farm.