2120 final report.pdf - Agra CEAS Consulting

Study on thesocio-economic implicationsof the various systems tokeep laying hensContract SANCO/2003/SPC.2003258Final Report forThe European CommissionSubmitted byAgra CEAS Consulting Ltd.Telephone: *44 (0)1233 812181Fax: *44 (0)1233 813309E-mail: info@ceasc.comhttp://www.ceasc.com/2120/BDB/December 2004

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSContentsS1. EXECUTIVE SUMMARY ...........................................................................................................................V1. INTRODUCTION............................................................................................................................................. 12. EGG PRODUCTION ....................................................................................................................................... 32.1. THE STRUCTURE OF THE EU EGG INDUSTRY ................................................................................................. 32.1.1. Production............................................................................................................................................ 32.1.2. Egg industry ....................................................................................................................................... 152.2. EGG PRODUCTION SYSTEMS IN USE............................................................................................................. 182.3. TECHNICAL DATA ....................................................................................................................................... 192.3.1. Calculating technical data ................................................................................................................. 192.3.2. Member State data.............................................................................................................................. 212.3.3. Weighted average EU data................................................................................................................. 282.4. PRODUCTION COSTS.................................................................................................................................... 312.4.1. Calculating production costs.............................................................................................................. 312.4.2. Member State data.............................................................................................................................. 332.4.3. Weighted average EU cost data ......................................................................................................... 442.5. PRODUCER GROSS MARGINS ....................................................................................................................... 462.5.1. Calculating gross margins ................................................................................................................. 463. EGG MARKETS............................................................................................................................................. 553.1. MARKET SHARE OF EGGS PRODUCED UNDER ALTERNATIVE SYSTEMS ........................................................ 624. TRADE............................................................................................................................................................. 655. THIRD COUNTRIES..................................................................................................................................... 775.1. OVERVIEW.................................................................................................................................................. 775.2. DISCUSSION OF TECHNICAL FACTORS ......................................................................................................... 785.3. DISCUSSION OF VARIABLE COSTS................................................................................................................ 786. THE SOCIO-ECONOMIC IMPACT OF DIRECTIVE 1999/74/EC......................................................... 816.1. IMPLEMENTATION TO DATE ........................................................................................................................ 816.2. EXPECTED IMPLEMENTATION ..................................................................................................................... 816.3. IMPACT ON THE INDUSTRY.......................................................................................................................... 827. ECONOMIC IMPACT OF POTENTIAL CHANGES AFFECTING THE EGG SECTOR .................. 877.1. EQUILIBRIUM DISPLACEMENT MODELS: AN OVERVIEW.............................................................................. 877.1.1. EDM Model Specification .................................................................................................................. 897.1.2. Data parameters and elasticities........................................................................................................ 907.2. SCENARIO RESULTS .................................................................................................................................... 917.2.1. Production costs................................................................................................................................. 917.2.2. Demand structure............................................................................................................................... 947.2.3. Trade flows......................................................................................................................................... 987.2.4. Combined Scenarios........................................................................................................................... 997.3. SUMMARY ................................................................................................................................................ 104APPENDIX 1: MEMBER STATE REPORTS............................................................................................... 107i

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSAPPENDIX 2: THIRD COUNTRY REPORTS............................................................................................. 331APPENDIX 3: TECHNICAL DESCRIPTION OF THE MODEL .............................................................. 399ii

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSAcknowledgementsThe authors would like to thank the project Steering Group for their advice and assistance incarrying out this research. It would not have been possible to conduct this project without the helpof members of the egg industry, representatives from other interested organisations andgovernments throughout the EU and in the third countries considered. This assistance was greatlyappreciated by the authors.The authors would also like to thank Xueyan Zhao (Monash University) for providing her SHAZAMcomputer code used to run her EDMs and Kelvin Balcombe (Imperial College) for his help inpreparing GAUSS code to run the models employed in this research.iii

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSS1. Executive summaryThis study assesses the socio-economic impact of Directive 1999/74/EC and in particular thepotential implications of the 2012 ban on traditional caged production. It has been conducted in linewith the Terms of Reference of a contract issued to Agra CEAS Consulting in late 2003.The study was conducted in the period October 2003 to December 2004 1 and involved extensivedesk as well as field research in all EU-15 Member States as well as in five third countries (Brazil,India, Mexico, Ukraine and the United States). Limited additional research was also undertaken inrespect of Poland and Switzerland. During the first phase of the research data was collected on thestructure of the egg production sector in each EU-15 Member State, the main operators and levels ofconcentration in the sector, costs of production by type of production system as well as trade andmarket demand.Similar differences are apparent in the type of egg production systems which prevail. While thetraditional battery cage remains the predominant production system across the EU accounting forover 85% of laying hen places (apart from Sweden where national legislation has banned the use ofsuch cages), in some Member States (e.g. Austria, Denmark, Ireland, Netherlands, Sweden and theUK) alternative non-cage systems now account for a substantial (in Sweden’s case over 50%) share ofoutput. This is in marked contrast to the position in the third countries reviewed where, apart fromthe voluntary adoption of limited animal welfare improvements in the US, almost all commercialoutput takes place in battery cages with space allowances per bird often below the 550 cm 2 currentlyused in the EU.The evidence collected during this stage highlights the fact that due to their differing historicalevolution and legislative frameworks, production structures and the prevalence of particularproduction systems varies widely between Member States. Thus some Member States (e.g.Germany, UK, Netherlands and France) show a high degree of vertical integration along the chainfrom producer to packer to processor. These Member States will also generally tend to haverelatively large production units (as do Italy and Spain) while in other Member States productionunits tend to be more fragmented and less integrated (e.g. Austria, Greece, Ireland, Portugal).In terms of production costs there are also significant variations between Member States, but moreimportantly between different production systems. Thus the traditional battery cage which hasevolved over the past three decades has a substantial advantage in cost terms over alternative noncagesystems (barn, free range, organic) largely due to lower labour, land and feed requirements.Little evidence on costs for commercial production from enriched cages as required by Directive1999/74/EC is as yet available, but the limited evidence obtained from producers with experience of1 The study therefore commenced before the ten new Member States entered the Community on 1 May, 2004 and consequently a fullindustry profile is not presented for each of these countries.v

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSboth systems suggests that the enriched cage system will not operate at a significant costdisadvantage to the traditional battery cage.Overall and per capita consumption of eggs in the EU-15 has been rising since the mid-1990s and perhead use now stands at some 14.2 kg egg per year. The bulk of eggs in all markets are sold as shelleggs via the food retailing sector, but as consumer food purchasing and usage have shifted, increasingproportions of egg output are delivered to the consumer via food service (catering) outlets as well asin the form of processed products. The EU-15 as a whole produces just over 100% of its domesticegg requirements and is a marginal net exporter of eggs. Imports are limited by border protection inthe form of duties on shell eggs and processed products. This picture is not expected to changesignificantly within the EU-25 as most of the ten new Member States are also net exporters of eggsand egg products.A review of progress towards the 2012 ban on unenriched cage production indicates that to datelimited progress has been made in that most producers are awaiting the outcome of the review ofthe Directive in 2005. Thus, with the already noted exception of Sweden, there is only limitedproduction in enriched cages which are thought to be the most likely production system traditionalbattery cage producers would move towards in the first instance. The sector takes the view that thewidespread adoption of this system, or a move to alternative systems, will not occur much beforethe 2012 deadline. They also take the view that the ban on unenriched cages will acceleraterestructuring in the sector as older producers will no longer be willing to invest in new installations,particularly if current border protection is not maintained and lower cost eggs, and especially eggproducts, enter the market on a more competitive basis. Retailers generally took the view that therewas unlikely to be a large demand led shift towards eggs from non-caged outlets in the medium-term,although it was noted that surveys of consumers do suggest that at present there may be unrealisedpotential in this regard.These potential socio-economic impacts were tested through the construction of an econometricmodel of the EU-25 egg sector which analysed the economic impact of a range of alternativescenarios for the sector. The scenarios tested include changes in costs deriving from a shift inproduction system or other factors, reductions in border protection and changes in the type of eggsbeing demanded. The extensive range of scenarios for change reviewed provide a useful guide to thedirection and magnitudes of potential producer and consumer losses and gains as well as the tradeoffsinvolved in relation to a range of policy and market development possibilities. The results are aswould be expected a priori in that, for example, there are overall economic gains to consumers froma liberalisation of trade, but substantial losses for producers.Specifically as regards the assessment of the likely impact of an increase in costs as might occur ifthere were to be a shift into alternative egg production systems as a result of the implementation ofthe battery cage ban mandated for 2012 under Regulation 1999/74, the model indicates that for a20% increase in such costs, which is the magnitude of percentage increase in terms of variable costproducers are likely to face as a result of switching to free range production (slightly more than halfvi

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSthis (12%) for barn production), the industry will potentially suffer a loss of producer surplus of €315million (EU-15) and €354 million (EU-25). However, many producers are likely to switch to enrichedcage production which will entail a smaller increase in production costs and will therefore mitigatethis loss to some extent. It should also be noted that under this scenario as costs increase quantitiesimported increase (by up to between 3-4% for a 20% increase in feed costs). This does not, however,significantly affect the overall scenario results because the quantity of eggs currently traded is verysmall in relation to the size of the overall egg market.In this context it should be borne in mind that these estimations of producer and consumer surplusmeasure only market effects and do not take into account the potentially much larger non-marketbenefits that society derives from improved animal welfare.vii

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS1. IntroductionAccording to Article 10 of Directive 1999/74/EC the Commission is expected to present a report onthe various systems for keeping laying hens outlined in the Directive taking into account the socioeconomicimpact. In order to prepare for this report Directorate-General Health and ConsumerProtection (DG SANCO) awarded this contract to study the issues involved to Agra CEASConsulting in October 2003.The research programme was split into two stages. The first stage provides an analysis of the currentsituation in the EU 2 egg sector and in particular comments on progress to date and possibleimplications of a move towards implementation of the ban on unenriched cages in line with ChapterII, Article 5.2 of the Directive. It also provides a detailed overview of the production costs andproduction systems in place in the EU and a number of third countries. The second stage uses anEU-wide sector model to provide an assessment of the likely socio-economic impact of a range ofscenarios for the sector when the prohibition on production in unenriched cage systems applies from1 January 2012. It should be noted that this research is not intended to address or make anyjudgement on the welfare aspects of the different systems of keeping laying hens, nor does it addressthe veterinary and human health issues arising from these different systems. This document presentsour report on both stages of this research as specified in the terms of reference.The research for this project has been conducted by Dr. Dylan Bradley and Conrad Caspari of AgraCEAS in conjunction with Pedro Serrano and Isabel Ribeiro of AgroGes in Portugal, LolaLyberopoulos of Hypodomi in Greece, Laura Berende-Verhoeven in the Netherlands and Lynn Daftof Promar International in the United States, Arina Korchmaryov in the Ukraine and WieslawLopaciuk in Poland. The modelling work was undertaken by Dr. Iain Fraser, Senior Lecturer atImperial College, London. It has been undertaken by means of extensive desk research in the periodJanuary to July 2004 and interviews in all the countries under review. We would like to take thisopportunity to thank all those who assisted us in this effort.It should be noted that official statistics covering the EU poultry and egg sector are not as completeas for other livestock sectors such as beef, pork, sheep/goats and milk and dairy products. This isdue to the almost complete lack of EU legislation requiring collection of statistics relating to thesector. The report therefore provides as much data as possible at an EU level but considerably moredata is presented from our extensive field research and from national sources. In this context, wealso note that where possible we have presented data covering the whole of the EU-25, but that inline with the ToR, the bulk of the data collected relates to the EU-15 as the research took place2For the purposes of this report it should be noted that unless explicit reference is made to the EU-25 the terms ‘EU’ and ‘EU-15’ referto the Union as constituted prior to 1 May 2004. The term EU-25 refers to the EU as it is currently constituted and the term EU-N10refers to the ten Member States which acceded to the Union on 1 May 2004. The term EU-12 refers to the EU as constituted prior to theaccession of Austria, Finland and Sweden.1

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSprior to the expansion of the Union on May 1, 2004. However, we have included a detailed analysisof the Polish egg sector as it has the largest sector in the new Member States.2

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS2. Egg production2.1. The structure of the EU egg industry2.1.1. ProductionThe EU-25 produced 6.349 million tonnes of eggs for human consumption in 2003, an increase of10% since 1995 (Figure 2.1). Production increased annually between 1996 and 2001 from 5.722million tonnes to 6.324 million tonnes (despite the outbreak of avian influenza in Italy in 2000). Sincethen, production has declined slightly (avian influenza in the Netherlands and Belgium in 2003 is likelyto have influenced this to some extent). The EU-25 series most closely tracks the EU-15 data andproduction in the new Member States moved counter to the EU-15 trend up to 2002 althoughfollowed the EU-15 in 2003. The new Member States have generally accounted for between 15%and 17% of EU-25 production.700060005000Production ('000 tonnes)400030002000100001995 1996 1997 1998 1999 2000 2001 2002 2003EU-15 production EU-N10 production EU-25 productionFigure 2.1: Production of eggs for human consumption in the EU-25 1995-2003Note: For the new Member States, the production of eggs for human consumption was calculated by subtracting anestimate of the production of hatching eggs from total production.Source: DG Agri.3

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe production of eggs for human consumption in the EU-15 in 2003 is shown by Member State inFigure 2.2 3 . The main producer in 2003 was Spain (although see Figure 2.5 below). France,Germany, Italy and the UK follow. Between them these top five producing Member Statesaccounted for 79% of EU-15 production. The main change from 1990 is that Spain was not then inthe top five although the Netherlands was. The top five producing Member States accounted for51% of EU-12 production in 1990 4 (see Figure 2.3).Portugal2%Netherlands7%Italy14%Spain20%Sweden2%United Kingdom13%Austria2%Belgium3%France17%Denmark1%Finland1%Ireland1% Greece2%Germany15%Figure 2.2: EU-15 production of eggs for human consumption 2003Note: production in the Netherlands and Belgium was affected by avian influenza.Source: DG Agri.3 Data are not available for Luxembourg, although such production is likely to be at a very low level.4 They accounted for the same proportion of EU-15 production in 1991.4

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSUnited Kingdom15%Belgium4%Denmark2%France18%Spain14%Portugal2%Germany14%Netherlands14%Italy13%Greece3%Ireland1%Figure 2.3: EU-12 production of eggs for human consumption 1990Source: DG Agri.Figure 2.4 shows the same information for the EU-N10 in 2003. Almost half of the total egg outputof the new Member States was produced in Poland. Approximately one-fifth was produced inHungary and one-sixth in the Czech Republic. Between them these three countries accounted for80% of total EU-N10 production in 2003.5

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSSlovak Repulic7%Slovenia2%Cyprus1% Czech Republic16%Estonia2%Hungary18%Poland45%Lithuania5%Malta1%Latvia3%Figure 2.4: EU-N10 production of eggs for human consumption 2003Note: The figures were calculated by subtracting an estimate of the production of hatching eggs from total production.Source: DG Agri.Production of eggs for human consumption in the EU-25 in 2003 is shown by Member State in Figure2.5. Only Member States with more than 5% of total EU-25 production are shown separately. Spainwas the most important producer (17%), followed by France (15%), Germany (12%), Italy (12%) andthe UK (11%). Poland comes sixth with a 7% share in total EU-25 production in 2003 and is the onlynew Member State with a more than 5% share. Hungary and the Czech Republic, the other main eggproducers in the new Member States account for 3% and 2% respectively of EU-25 production andare therefore not shown separately.6

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSOther EU-N108%France15%Other EU-1512%Poland7%Germany12%UK11%Italy12%Spain17%Netherlands6%Figure 2.5: EU-25 production of eggs for human consumption 2003Note:Only those Member States with a share of more than 5% in total egg production are labelled. The figures for the newMember States were calculated by subtracting an estimate of the production of hatching eggs from the totalproduction. Production in the Netherlands and Belgium was affected by avian influenza.Source: DG Agri.Figure 2.6 presents an index of production (where 1990 = 100) to illustrate changes in Member Stateproduction in the EU-15 between 1990 and 2003. The main point to note is the large increase inproduction in Spain between 2002 and 2003 which took it from being the third largest producer with11% of total EU-15 production in 2002 to largest producer in 2003 accounting for 15% of EU-15production.Other points to note are that production increased in Germany by 18% over the period, in Italy byone-third, in France by 11% and in the UK by 7%. Production in the Netherlands decreased by 37%,although this was largely the result of avian influenza in 2003. Production in Finland and Austriadeclined by 15% and 14% respectively over the period shown.7

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS180160Index of production (1990 = 100)14012010080601990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Austria Belgium Denmark Finland France Germany GreeceIreland Italy Netherlands Portugal Spain Sweden United KingdomFigure 2.6: Index of production of eggs for human consumption, EU-15 1990 to 2003 (1990 = 100)Note: Austria, Finland and Sweden are based on 1991 rather than 1990.Source: DG Agri.8

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSAn index of production (where 1995 = 100) for the 10 new Member States is shown in Figure 2.7 toillustrate changes in national production between 1995 and 2003. An increase in egg productionover the period occurred in Poland (+31%), Latvia (+31%), Cyprus (+28%), Slovenia (+21%),Lithuania (+13%) and the Czech Republic (+10%). In Hungary, production fell by 8% between 1995and 1999, but by 2003 had increased again to a level slightly over the 1995 production volume. InMalta, the Slovak Republic and Estonia, egg production decreased over the period (by 26%, 24% and22% respectively).9

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS150140130Index of production (1995 = 100)120110100908070601995 1996 1997 1998 1999 2000 2001 2002 2003Cyprus Czech Republic Estonia Hungary Lithuania Latvia Malta Poland Slovenia Slovak RepulicFigure 2.7: Index of production of eggs for human consumption in EU-N10 1995 to 2003 (1995 = 100)10

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSBetween 1995 and 2003, the relative importance of the various countries’ individual output in totalEU-N10 production remained relatively unchanged. Poland was the most important producer overthe whole period, followed by Hungary and the Czech Republic. This pattern was only broken in1998 and 1999, when Czech egg production exceeded Hungarian output. The share in total EU-N10output of the top three producing countries increased from 75% in 1995 to 80% in 2003.Figure 2.8 presents the structure of the EU-15 flock in 2000 in terms of laying hen places by differentflock size categories. Almost two thirds (65%) of laying hen places were in flocks in excess of 30,000birds suggesting that production in the EU-15 is typically fairly large-scale in nature. A similarclassification of producers shows that 98.0% have less than 100 hens. Less than 0.5% of producers(just over 3,000 individuals) have flocks in excess of 30,000 birds. Comparing 2000 data with 1995data shows that there are now fewer and larger holdings with a greater number of laying hen placeson larger units. Directive 1999/74/EC will therefore only affect a small proportion of EU-15 eggproducers as those with fewer than 350 birds are exempt from its requirements. However, it willcover the bulk of the laying flock.300250Number of laying hens (millions)20015010050-1-99 100-2,999 3,000-9,999 10,000-29,999 30,000+Flock size categoriesFigure 2.8: Structure of the EU-15 flock in 2000Source: EU Farm Structure Survey (2000).The average size of flocks with more than 100 birds increased by 31% between 1995 and 2000 from8,624 to 11,313 reflecting the increasing concentration in the sector. The average number of layinghens per unit with more than 30,000 laying hen places increased from 78,138 to 86,010 (10%) overthe same period. The average numbers of hen places in the other size groups was virtuallyunchanged providing further evidence for concentration in the sector.11

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSAverage flock size has increased in most EU-15 Member States over the 1990s, with the exception ofAustria where average flock size fell by 10% between 1995 and 2000. The largest increases tookplace in Portugal (148%), Denmark (123%) and Finland (111%), although in the latter two cases theaverage size still remained below the EU-15 average even after these large increases. Average flocksizes are presented by Member State in 2000 in Figure 2.9 where only laying hens in flocks with atleast 100 birds are included.25,00020,000Average flock size15,00010,0005,000-AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainSwedenUnited KingdomEU-15Figure 2.9: Average flock sizes in 2000Note: holdings with less than 100 birds are excluded.Source: EU Farm Structure Survey (2000).Figure 2.10 presents the proportion of EU-15 Member State flocks held in units with more than30,000 birds in 2000. The average for the EU-15 is 65% and the largest proportions are found inSpain, Italy, Portugal and Germany. In contrast the smallest proportions are located in Finland,Austria, Greece and Ireland.12

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS80%70%Proportion of laying hens in flocks of 30,000+60%50%40%30%20%10%0%AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainSwedenUnited KingdomEU-15Figure 2.10: Proportion of laying hen places on units with more than 30,000 hen placesSource: EU Farm Structure Survey (2000).Bringing together some of the data above it is possible to classify the EU-15 egg sectors into differentgroups. Figure 2.11 presents the number of laying hens plotted against the average flock size. Theaverage number of laying hens and the average flock size in the EU-15 is marked. This shows thatFrance, the Netherlands, Italy, Spain and the UK have large national flocks kept in large units.Germany, on the other hand, has a large national flock, but a relatively fragmented structure.Sweden and Finland have small flocks, but a concentrated structure. Finally, Greece, Ireland, Austria,Portugal, Belgium and Denmark have small national flocks and a fragmented structure.13

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS9080Large, fragmented sectorFranceLarge, concentrated sector70Number of laying hens (millions)60504030GermanyEU-15NetherlandsItalySpainUKSmall, fragmented sector20Small, concentrated sectorBelgiumGreece10AustriaPortugalIrelandDenmarkSwedenFinland0- 5,000 10,000 15,000 20,000 25,000Average flock sizeFigure 2.11: Number of laying hens versus average flock sizeNote: average flock size excludes flocks with less than 100 hens.Source: EU Farm Structure Survey (2000).Figure 2.12 presents the number of producers versus average flock size. This allows classificationaccording to concentration without reference to total flock size. Under this classification, Swedenand Finland join the UK and the Netherlands as the most concentrated sectors, i.e. the sector withthe least producers and the largest average flocks. The egg sectors in France, Italy and Spain are alsoconcentrated, but have a larger producer base. Greece and Portugal have the largest producer basesand the smallest average flock sizes suggesting that they have large, fragmented egg sectors. Ireland,Belgium, Denmark, Austria and Germany have smaller than average producer numbers and are alsorelatively fragmented.14

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS1000GreeceLarge producer base,fragmented structureItalyLarge producer base,concentrated structureNumber of producers (thousands) (logarithmic scale)10010IrelandAustriaBelgiumPortugalGermanyDenmarkEU-15FranceSwedenSpainUK1Small producer base,fragmented structure- 5,000 10,000 15,000 20,000 25,000Average flock sizeFinlandNetherlandsSmall producer base,concentrated structureFigure 2.12: Number of producers versus average flock sizeNote: average flock size excludes flocks with less than 100 hens.Source: EU Farm Structure Survey (2000).2.1.2. Egg industryThe general structure of the industry varies greatly between Member States and is partially reflectedby the varying concentration levels at different points in the marketing chain. In some countriessubstantial portions of this chain are integrated in that pullet rearing, feed supply, production,processing and marketing to the retailer are all in the hands of a single company or co-operative.Prime examples of this would be Deutsche Frühstücksei in Germany, Eurovo in Italy, Deans Foods inthe UK and Danæg A/S in Denmark all of which own and pack a significant proportion of nationalproduction, packing and processing as well as generally having their own pullet rearing and feedcompounding capacity.At the other end of the scale would be countries like Portugal and Greece where a relativelyfragmented production structure is accompanied by a marked lack of concentration at the packerlevel. In other countries such as Austria, producer groups play a significant role in the marketing ofthe eggs. In most countries, however, packer concentration is relatively low and producers willeither own their own packing station or have arrangements to sell to independent packers who willbundle supplies on short-term supply or price contracts from a relatively limited number ofproducers.15

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe 2003 four and eight firm concentration ratios 5 in the egg packing sector are presented in Figure2.13. The most concentrated packing sectors are in France and Denmark where the CR-4 is 99.0%and 97.6% respectively. The sectors in Finland, Ireland, Sweden, the UK and Italy are all moreconcentrated than the EU-15 average, with least concentration evident in Greece, Spain and Portugal.In the vast majority of cases the packing sectors are more concentrated now than they were adecade ago as larger companies have acquired smaller ones and mergers have taken place. Finland isan example where concentration has decreased as some (now significant) players were establishedafter accession.100.0%90.0%80.0%70.0%Concentration ratio60.0%50.0%40.0%30.0%20.0%10.0%0.0%AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainSwedenUKEU-15CR-4CR-8Figure 2.13: Four and eight firm packer concentration ratios by Member State, 2003, (%share of market held by respectively top 4 (CR-4) and top 8 (CR-8) companies)Notes: Data for top four companies concentration ratio (CR-4) in France refers the top 3 companies only as data for top 4and top 8 (CR-8) in France is not available. Data for CR-4 in Sweden refers to top five companies, CR-8 in Sweden is not available.Source: Industry estimates and Agra CEAS Consulting calculations.An indication of the significance of the processing sector is provided by the data in Table 2.1 whichshows the number of eggs broken for processing as a percentage of domestic egg production. Usingthis limited data suggests that up to 24% of eggs produced in the EU-15 are broken for processing (in5 A concentration ratio (CR) is a measure of the market share accounted for by a particular number of enterprises in a sector or subsector.Thus the term CR-4 indicates the market share held by the largest four enterprises the term CR-8 indicates the market share heldby the largest eight enterprises.16

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSreality this figure is lower as some eggs are imported from third countries for processing in the EU-15). It is estimated that in the 10 new Member States on average 10% of total egg output isprocessed 6 .Table 2.1: Eggs broken for processing as proportion of egg production 2002Total egg production (‘000tonnes)Eggs broken (‘000 tonnes)Proportion of eggs brokenfor processingAustria 88Belgium 200 40 20%Denmark 77 27 35%Finland 59 4 7%France 1,026 359 35%Germany 890 222 25%Greece 120 0%Ireland 37 6 16%Italy 963 337 35%Netherlands 650 162 25%Portugal 118 0%Spain 615 62 10%Sweden 103 21 20%UK 671 134 20%EU-15 5,617 1,374 24%Note: Figures for eggs broken for processing and total production may not match data from other sources.Source: EPEGA.Figure 2.14 presents processor concentration ratios for four and eight firms. The processing sectoris much more concentrated than the packing sector with many Member States (Sweden, Finland,Denmark, Portugal, Greece, Austria, Belgium and Ireland) having fewer than four processors. All EU-15 Member States do, however, have at least one processing facility. Where processors are limitedin number they tend to focus on breaking second quality eggs, mainly for the domestic market, andusually liquid products only. Often these liquid products include blends and mixes in order tocapture greater value-added. The drying sector is being increasingly concentrated and many smallerscale processors have stopped this activity in the face of competition. For example, even in the UK,which is a reasonably large sector, there are no longer any drying facilities.6Impact de l’elargissement de l’UE en 10 nouveaux Etats Membres, Ofival, 2004.17

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS100%90%80%70%Concentration ratio60%50%40%30%20%10%0%AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainSwedenUKEU-15CR-4CR-8Figure 2.14: Four and eight firm processor concentration ratios by Member State, 2003,(% share of market held by respectively top 4 (CR-4) and top 8 (CR-8) companies)Notes:1 Data for Italy CR-8 refers to top 7 processors.2 Belgian CR-4 refers to top 5 processors.Source: Industry estimates and Agra CEAS Consulting calculations.2.2. Egg production systems in useThe primary source for data on the types of egg production system in use are the statistics DG Agrihas compiled. Regrettably these are only complete to 2001 and there are some discrepancies withdata collected at a national level. Using this as a basis, however, confirms that over the last decadethere has been a substantial increase in the proportion of the EU laying hen flock held in alternativenon-cage systems. Thus, inasmuch as there is data available, the share of the EU-15 laying hen flockheld in alternative systems between 1993 and 2003 has risen from 3.56% to 11.93%.These averages conceal wide variations at national level with the southern Member States (Spain,Portugal, Italy, Greece) showing very low proportions of such systems of generally around 1-2% ofthe national flock, to Belgium and Finland at 4-5% and France and Germany 12-13%. On the otherside of the spectrum is a large number of Member States with 20-30% of their flock in alternativesystems. Within the alternative systems, free range systems are generally the most significant(outside the Scandinavian countries for climatic reasons) accounting for 48% of the alternative flock,followed by barn (deep litter and perchery) with 42% and semi-intensive systems (now incorporatedwith the free range category) with some 10%. Organic production generally accounts for a low18

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSproportion (under 10%) of the overall total, but is important in some Member States, most notablyDenmark.Specific differences between the EU legislation relating to production systems and national legislationare drawn out in the Member State reports (see Appendix 1).Within the new Member States the commercial egg production sector is dominated by cage basedsystems with recent estimates by ITAVI 7 in France suggesting that caged production accounts for 81%of commercial production in Poland (15% barn, 4% free range), 96% in Hungary (4% barn) and 97% inthe Czech Republic (3% barn).2.3. Technical dataThis Section presents technical egg production data for all Member States. From this data technicalfactors have been calculated at the EU level for each system using a weighted average according tothe importance of each Member State at the EU level, as measured by the number of laying hensrecorded in each system from the last available year of DG Agri data. Finally, a composite set oftechnical factors has been produced to take account of both the different systems in use in eachMember State, and their relative importance, and the relative importance of egg production in eachMember State in the context of the EU. This information is presented in the following sub-sections,preceded by an explanation of how this data was sourced and manipulated.2.3.1. Calculating technical dataTechnical data were collected from respondents interviewed in each Member State 8 . In some cases anational body such as the Danish Poultry Council collect information from their members which arethen averaged, in other cases the data were estimated by a combination of respondents fromnational associations and large packers/producers. Where data have been provided from more thanone source, averages have been used. The intention is to capture the situation in reality in eachMember State, i.e. encompassing both large and small producers. Given the fact that there are oftenmore small producers than large ones, but that these contribute a smaller proportion of total eggsproduced, respondents were asked to consider ‘typical’ production factors. This results in anapproximation of the technical factors achieved by most producers in each Member State. The factthat there may be wide variations in the technical performance factors in similar production systemsis because of the many differences in scale and type of buildings and equipment used, variations infeeding and management practice, etc. which exist across the EU.It should be stressed that in practice there will be a great deal of variation between producers. Also,because the data represents ‘typical’ producers, it does not necessarily reflect the technical factorsthat the industry would be capable of achieving given large, modern facilities. The estimates willtherefore tend to show where the industry typically is, rather than provide a guide as to what it7 Institut Technique de l'AVIculture.8 The data presented here refers to EU-15 although data on Poland is contained in Annex 1. This is not included here as EC Dir. 1999/74did not apply during the period under review.19

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSmight achieve. As producers invest in more modern facilities there is likely to be an improvement incertain technical factors (such as the number of birds that can be managed by one labourer, feedconversion ratios, etc.).Each technical factor is considered below:Laying cycle (days): this is the period over which the bird is laying eggs.Empty period (days): the period between flocks during which time the house is thoroughlycleaned.Feed/bird/day (grams): the feed requirement per bird per day.Feed/bird/year (Kg): this is calculated as the feed per bird per day multiplied by the layingcycle and then divided by the sum of the laying cycle and the empty period. This is thenmultiplied by 365 to present the information in terms of feed per bird per year. This calculationtakes account of the fact that a laying house is empty for a proportion of time in any calendaryear and when there are no birds there is no feed requirement.Eggs/bird/year: this is calculated as the number of eggs collected per bird per laying cycledivided by the sum of the laying cycle and the empty period, multiplied by 365 to annualise thedata. The base data for this is generally corrected for mortality in that producers usually dividethe total number of eggs produced in a house by the birds put in at the beginning.Kg feed per kg eggs: this is the feed per bird per year divided by the eggs collected per birdper year multiplied by 16 on the basis that a typical egg weight is 62.5 grams 9 . This figure inannual terms is the same as that in laying cycle terms.Mortality (%): the percentage mortality over the complete laying cycle. It is not possible topresent this figure in annual terms without knowing the distribution of mortality across the layingcycle.Number of hens managed per labourer: there will be a great deal of variation in this figuredepending on the degree of automation possible. The figures provided are ‘typical’ of thecommercial laying sector in each Member State. In some cases laying houses tend to be smalland looking after them would not be a full-time job.Space allowance per hen per cm 2 : the available space per hen. This follows the EU stockingdensity requirements with some exceptions where national legislation has tighter requirements(for example, Sweden) or where national derogations with respect to the requirement ofDirective 1999/74/EC are currently in place (for example, in the UK where barn and free rangesystems may maintain stocking densities for facilities in production prior to August 1999 at 11.7birds per square metre until 2012) 10 .Hens housed per m 2 house: this figure takes account of the use of tiers by presenting howmany hens are housed per square metre of floor space. It is the number of hens per metre(calculated from the space allowance in cm 2 ) multiplied by the number of tiers of cages.9 It should be noted that the source data were collected in per dozen egg terms and that as national egg weights do differ by Member Stateexpressing feed conversion in terms of egg weight may conceal these differences. The average weight of 62.5 grams per egg used for thiscalculation was specified by DG SANCO.10 The Directive specifies that stocking density must be not more than 9 birds per square metre from 2007.20

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSPullet cost (€): this is the cost of a pullet. Where it is common to rear birds rather than buythem in at point of lay this figure includes a profit element for the rearing enterprise. This figureis not annualised.End of lay hen weight (Kg): this figure is liveweight unless indicated.End of lay hen price (€): this is the revenue generated by spent hens net of any associatedcosts. In many cases disposal of spent hens is a cost and where this is the case the figure isnegative. This figure is not annualised.2.3.2. Member State dataTable 2.2 presents technical factors for traditional cage production for each Member State and theEU weighted average. As will be evident the data presented shows considerable variation betweenMember States which largely reflects the range of structural conditions as well as the particularitiesof the historical evolution of the sector in each of the Member States. Thus some Member Statestypically have large units (notably Belgium, Italy, Netherlands and the UK) whereas others (notablyAustria, Denmark, Finland and Greece) tend to operate with smaller production units. The valuespresented represent the average of the views of those members of the industry spoken to andshould be taken as ‘typical’ of efficient/competitive producers rather than absolute. In some casesthere was a great deal of variation and a range would be a more representative, although lesscomparable, way of presenting this data 11 .Key points to note are as follows:feed per bird per day varies from 109 grams in France to 120 in Ireland and Portugal;average eggs collected annually (after mortality) range from 261 in Portugal to 293 in theNetherlands;feed conversion ratios in the more efficient sectors are 2.10 kg feed per kg eggs (theNetherlands) and 2.13 kg feed per kg eggs (France and Denmark) compared to 2.59 kg feed perkg eggs in Portugal and 2.41 kg feed per kg eggs in Austria and Ireland;mortality is as low as 4.0% in Ireland and Portugal, but reaches 7.5% in Spain and 7.0% in Italy;larger scale sectors such as Belgium, the Netherlands, Italy and the UK have a typical bird tolabourer ratio of 50,000, whereas Ireland has a ratio of just 10,000 and Denmark just over12,000; and,the end of lay hen price is positive in some Member States, but in some is actually a cost.Data for enriched cages is presented in Table 2.3. Data in this form was only available for the UK,Sweden, Belgium, and in the latter case is experimental only. For this reason EU-15 data has notbeen extrapolated. The examples for the UK and Sweden are drawn from very large producers withfully automated modern equipment and therefore represent the more efficient and large scale end ofthe likely range. The enriched system in the UK is currently being used with a 630 cm 2 space11 Ultimately a full survey of a representative sample of producers across the EU, stratified by size and production system, would benecessary to be certain that the data are statistically representative.21

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSallowance rather than the full 750 cm 2 until 2012 when egg production in unenriched cages will beprohibited. The UK figures are therefore not strictly comparable and are included because of thegeneral paucity of information on enriched cages throughout the EU. A final word of caution is thatbecause the data used for enriched cages is taken from a very limited number of sources comparedto that for traditional cages, comparisons between the two are not meaningful as the former is not ofthe same degree of robustness as the latter.Table 2.4 to Table 2.6 present technical data for barn, free range and organic systems respectivelywhere this information is available.A key point to note for all systems is that whilst there is a high degree of variability between MemberStates, there will also be significant variation between producers within Member States. This meansthat although there are differences in certain factors, for example, average feed conversion, betweenMember States, in reality for each factor there is a range around the average and the majority of thisrange will overlap between Member States. It is not therefore meaningful to seek explanation formost of the apparent differences in the averages.That said, some differences are likely to be meaningful, for example, the number of birds managed byone labourer which will reflect general levels of mechanisation and hens housed per square metre ofhouse which reflects the typical number of tiers of cages used which reflects the typical scale ofoperations. Pullet cost will vary according to the cost of feed and will therefore be lower towardsthe centre and higher around the periphery of the EU. Finally, the value of spent hens is determinedby the market for spent hen meat and where this is minimal or non-existent a cost is incurred.Feed requirements per bird (and feed conversion) are lowest in the traditional cage systems andhighest in organic and free range systems. Generally the more freedom a bird has to move about themore energy it needs. As bird density decreases more energy will also be needed in order to keepwarm. The number of eggs collected per bird per year is highest in the caged system and getsprogressively lower through barn and free range to organic.22

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 2.2: Traditional caged system technical and cost factors of production (2003)Austria Belgium Denmark Finland France Germany Greece Ireland Italy NL Portugal Spain UK EU-15Laying cycle (days) 406 392 392 364 352 406 355 396 395 400 378 392 406 388Empty period (days) 14 21 28 42 19 14 50 19 25 16 35 28 18 22Feed/bird/year (Kg) 40.58 40.95 38.50 37.30 37.58 39.52 36.18 41.59 37.80 38.52 41.54 39.11 40.98 38.83Feed/bird/day (g) 115 112 113 114 109 112 110 120 110 110 120 115 115 112Eggs/bird/year (collected) 269 282 289 278 282 275 270 276 278 293 256 282 282 280Kg feed per kg eggs 2.41 2.24 2.13 2.15 2.13 2.30 2.14 2.41 2.18 2.10 2.59 2.22 2.33 2.22Mortality (%) 6.0% 6.2% 5.7% 5.2% 4.9% 6.0% 4.5% 4.0% 7.0% 6.5% 4.0% 7.5% 4.3% 6.0%Number of hens managed/labourer10,000 50,000 12,308 15,000 30,000 20,000 16,500 10,000 50,000 50,000 40,000 30,000 55,000 36,461Hens housed per m 2 house* 18 50 18 55 73 18 55 18 109 109 73 111 72 78Space allowance per hen per cm 2 550 550 600 550 550 550 550 550 550 550 550 450 550 534Pullet cost (€)** 3.40 2.90 3.75 4.20 3.10 3.32 3.65 3.45 3.10 3.43 2.85 2.70 3.51 3.17End of lay hen weight (Kg) n.a. n.a. n.a. n.a. 1.96 n.a. 1.75 1.90 2.05 1.70 1.95 2.00 1.89 1.50End of lay hen price (€) 0.10 0.05 0.04 -0.20 0.33 0.10 0.15 -0.25 0.26 0.31 0.02 0.18 -0.10 0.18Note:* This figure is the space allowance per m 2 multiplied by the number of tiers commonly used. The more tiers the more hens per m 2 of floor space.** Pullet costs in Spain and Portugal are at 16 weeks rather than 18 and are therefore lower. This reflects the high degree of vertical integration in that many producers breed theirown pullets.Source: Industry estimates and Agra CEAS Consulting calculations.23

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 2.3: Enriched caged system technical and cost factors of production (2003)¹Belgium Sweden UKLaying cycle (days) 392 532 424Empty period (days) 21 28 18Feed/bird/year (Kg) 40.71 30.63 40.91Feed/bird/day (g) 111 115 115Eggs/bird/year (collected) 285 238 274Kg feed per kg eggs 2.20 2.06 2.39Mortality (%) 4.0% 5.4% 4.0%Number of hens managed/labourer 50,000 40,000 72,500Hens housed per m 2 house 12 40 95Space allowance per hen per cm 2 750 750 630Pullet cost (€) 3.15 3.92 3.41End of lay hen weight (Kg) n/a 1.85 1.90End of lay hen price (€) 0.05 -0.22 -0.07¹Note Belgium data derived from research results, Sweden and UK data from units which are relatively large and UK system would not fully comply with post 2012 requirements forenriched cages ---see also Section 2.3.2.Source: Industry estimates and Agra CEAS Consulting calculations.24

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 2.4: Barn system technical and cost factors of production (2003)Austria Belgium Denmark Finland France Germany Greece Ireland Italy NL UK EU-15Laying cycle (days) 413 392 364 350 327 413 355 385 360 385 392 382Empty period (days) 28 21 28 42 26 28 80 10 40 21 21 25Feed/bird/year (Kg) 41.02 45.89 42.03 38.33 39.81 41.02 35.22 43.05 40.61 41.89 44.86 41.65Feed/bird/day (g) 120 125 124 118 118 120 115 121 124 121 125 121Eggs/bird/year (collected) 246 266 269 267 261 265 222 277 249 284 261 269Kg feed per kg eggs 2.67 2.66 2.50 2.30 2.44 2.48 2.53 2.48 2.61 2.36 2.75 2.49Mortality (%) 8.0% 9.3% 9.7% 6.6% 11.6% 8.0% 4.5% 5.0% 13.0% 9.0% 7.3% 9.1%Number of hens managed/labourer 5,000 15,000 8,807 2,500 8,000 20,000 6,250 7,000 20,000 25,000 14,333 17,420Hens housed per m 2 house 7 12 9 7 7 7 9 7 9 7 12 8Space allowance per hen per cm 2 1,429 - 1,111 1,429 1,429 1,429 1,111 1,429 1,111 1,429 855 1,271Pullet cost (€) 3.90 2.90 4.34 4.20 3.20 3.58 3.70 3.85 3.10 3.76 3.75 3.63End of lay hen weight (Kg) n/a n/a n.a. n.a 1.91 n/a 1.90 2.20 1.80 1.80 1.87 1.21End of lay hen price (€) 0.10 0.05 0.13 -0.20 0.26 0.10 0.15 -0.30 0.26 0.36 -0.11 0.18Source: Industry estimates and Agra CEAS Consulting calculations.25

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 2.5: Free range system technical and cost factors of production (2003)Austria Denmark France Germany Greece Ireland Netherlands UK EU-15Laying cycle (days) 413 336 332 413 355 399 375 392 378Empty period (days) 28 28 26 28 50 20 21 19 23Feed/bird/year (Kg) 44.44 43.80 39.35 44.44 41.12 46.38 43.04 47.84 43.99Feed/bird/day (g) 130 130 116 130 125 133 125 133 126Eggs/bird/year (collected) 238 268 262 238 231 258 279 265 261Kg feed per kg eggs 2.99 2.62 2.40 2.99 2.85 2.88 2.47 2.89 2.70Mortality (%) 10.0% 8.9% 14.0% 10.0% 13.0% 4.7% 11.0% 7.8% 10.4%Number of hens managed/labourer 3,000 7,218 8,000 5,000 5,500 7,000 25,000 9,230 11,031Hens housed per m 2 house 7 9 7 7 9 7 7 12 8Space allowance per hen per cm 2 1,429 1,111 1,429 1,429 1,111 1,429 1,429 855 1,247Pullet cost (€) 4.10 4.34 3.20 4.10 3.70 3.73 3.91 3.88 3.77End of lay hen weight (Kg) n.a. n.a. 1.82 n.a. 2.00 2.07 1.80 2.10 1.51End of lay hen price (€) 0.10 0.13 0.26 0.10 0.15 -0.26 0.36 -0.12 0.11Source: Industry estimates and Agra CEAS Consulting calculations.26

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 2.6: Organic system technical and cost factors of production (2003)Austria Denmark France Germany Netherlands UK EU-15Laying cycle (days) 413 336 338 413 350 396 354Empty period (days) 28 28 25 28 21 21 26Feed/bird/year (Kg) 44.44 43.80 41.63 44.44 45.45 48.04 43.19Feed/bird/day (g) 130 130 122 130 132 135 127Eggs/bird/year (collected) 235 231 254 235 260 246 246Kg feed per kg eggs 3.02 3.04 2.62 3.02 2.80 3.14 2.81Mortality (%) 10.0% 18.4% 13.9% 10.0% 12.0% 10.8% 13.8%Number of hens managed/labourer 3,000 4,507 4,500 5,000 10,000 5,250 5,031Hens housed per m 2 house 6 6 7 6 7 9 7Space allowance per hen per cm 2 1,323 1,667 1,429 1,323 1,429 1,111 1,443Pullet cost (€) 4.10 6.73 3.80 4.10 5.96 3.93 4.64End of lay hen weight (Kg) n/a n.a. 1.90 n.a. 1.70 1.85 1.19End of lay hen price (€) 0.10 0.18 0.67 0.10 0.58 -0.10 0.43Source: Industry estimates and Agra CEAS Consulting calculations.27

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS2.3.3. Weighted average EU dataThis Section weights the technical factors for each production system in each Member Statepresented in Section 2.3.2 by the size of the egg sector in each Member State measured by theproportion of laying hens. The semi-intensive system 12 has been excluded because it is not a widelyused system and data are only available from Italy. There is no data on enriched cages because this isdrawn from very few examples and is not considered truly representative at the EU-15 level. Thisexercise results in the technical data contained in Table 2.7.Feed requirement per bird per day increases as the bird has more freedom to move and hence hashigher energy requirements. Feed per kg eggs follows the same pattern. Eggs collected annually(after mortality) show the opposite trend with higher collections in the caged systems and lowerwhere the birds are less controlled. Mortality also increases as the degree of control is reduced.Pullet costs do increase in the alternative systems and are expected to become even higher in theorganic system when the new organic regulations are introduced stipulating that pullets for theorganic system must be reared organically.Given the relative proportions of the systems used in the EU, and the weights of the egg sector inthe various Member States, the weighted average for all systems is heavily influenced by thetraditional cage data and the largest egg producing Member States.12 This system is as free range, but allows for a higher outdoor stocking density. Under the marketing regulations such eggs are classified asfree range.28

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 2.7: EU level weighted average technical costs for each system (2003)Traditional cage Barn Free range Organic All systemsLaying cycle (days) 388 382 378 354 387Empty period (days) 22 25 23 26 22Feed/bird/year (Kg) 38.82 41.84 43.99 43.19 39.33Feed/bird/day (g) 112 121 126 127 113Eggs/bird/year (collected) 280 269 261 246 278Kg feed per kg eggs 2.21 2.49 2.70 2.81 2.27Mortality (%) 6.0% 9.1% 10.4% 13.8% 6.5%Number of hens managed/labourer 36,714 17,420 11,031 5,031 33,694Hens housed per m 2 house 79 8 8 7 70Space allowance per hen per cm 2 534 1,271 1,247 1,443 630Pullet cost (€) 3.17 3.63 3.77 4.64 3.25End of lay hen weight (Kg) 1.53 1.21 1.51 1.19 1.51End of lay hen price (€) 0.18 0.18 0.11 0.43 0.17Source: Agra CEAS Calculations.29

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS2.4. Production costs2.4.1. Calculating production costsProduction cost data were collected in the same way as technical data and the same method ofarriving at final figures where more than one source contributed information was used (see Section2.3.1). In some cases data were calculated from technical factors, for example, bird depreciation.Because data were made available in a variety of forms a number of different calculations had to beemployed in order to arrive at a cost per dozen eggs. At the request of DG SANCO all data werethen converted to kg egg terms at their specified egg weight of 62.5 grams (16 eggs per kg).The following calculations were necessary for variable costs:Feed cost per kg eggs: in some cases a feed price per tonne for 2003 was provided and thiscost was calculated by multiplying this by the feed conversion rate. However, in most cases afigure for actual feed cost per dozen eggs was submitted. This was corrected to kg terms.Medication/veterinary: many Member States did not provide this information on the groundsthat no cost is typically incurred and that even where such a cost is incurred this is too small tofeature in per kg egg terms. That said, it was accepted that there is a higher medication andveterinary cost in alternative systems, particularly free range systems where the birds haveaccess to parasites in soil and are exposed to wild bird populations, the vector for a range ofdiseases including avian influenza and Newcastle disease.Miscellaneous: this is a category for any other variable costs that respondents mentioned, themajority of respondents did not have any costs in this category. In some cases respondents didnot list medication/veterinary costs separately and included them here.Bird depreciation: this figure was calculated in per kg egg terms by dividing the pullet cost bythe number of eggs collected over the laying cycle and multiplying this by 16. This figure istherefore corrected for mortality (see Section 2.3.1).Calculations required to convert raw data into fixed costs per kg eggs are set out below.Labour: this was generally calculated from a requirement per bird per year multiplied by thetypical employment cost, divided by the annual eggs collected figure and multiplied by 16. Insome cases an annual cost for labour was given for a typical house (or calculated from a dailyhourly requirement). This was then divided by the number of laying hens in the house and thenby the number of eggs collected. This was then multiplied by 16 to present the data in per kgegg terms.Buildings: typically the cost of a new building to contain a certain number of hens was provided.This was then divided over a ten-year write off period 13 and then by the number of hens in the13 The choice of ten years is fairly arbitrary, although it was often mentioned as the book write-off period. In practice buildings last for atleast 20 years and the resulting fixed cost is therefore halved. To some extent this compensates for not including an interest charge.31

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENShouse. This figure was divided by the number of eggs collected per year and the result multipliedby 16. Some respondents provided a cost per hen place. Where this was the case the figurewas depreciated over ten years and divided by annual egg production multiplied by 16. Finally,some respondents provided this information in per dozen egg terms which was then correctedto kg egg terms. Although the vast majority of producers would need to borrow money to builda new house, the cost of interest was not calculated. This is because interest rates vary and notall producers will borrow the same amount.Equipment: the cost of equipment was treated in the same manner as building costs, althoughin this case the ten-year book write off period is closer to the actual usable life. In a minority ofcases respondents presented building and equipment costs together.Land: although land is required for all systems, it is only the free range and organic systemswhere this represents an additional cost. This cost was either given by respondents in dozen eggterms or was calculated from the stocking density and the average rental price per hectare.Manure disposal: not all respondents included a charge for this on the grounds that in manycases manure can either be used on-farm in other enterprises 14 , or used for pelleting. In thelatter case the farmer often receives no payment, but the pelleter incurs the cost of removal.Where a charge was included it was typically for removing manure from a house with a specifiednumber of birds. This charge was divided by the number of eggs collected over the laying cycleand multiplied by 16.Insurance: this covers both buildings and the flock and was usually provided as a fixed annualpayment for a house of a certain size. This figure was then divided by the annualised number ofeggs collected and multiplied by 16.Utilities: water, electricity and other forms of power are included under this heading. Whennot provided as a charge per kg eggs this was often given as a cost per bird per laying cycle or anannual charge for a house of a specified capacity. This was converted by dividing by eggscollected over the laying cycle and multiplying by 16 in the first case and by dividing by thenumber of birds in the house and then the annualised number of eggs collected in the secondcase.Cleaning: not all respondents provided a cost for cleaning. Where it was provided it wasusually a cost for a house of a specified size. This figure was divided by the number of birds inthe house and then by the number of eggs collected over the laying cycle.Miscellaneous: as under variable costs this category was intended to capture any costs that arenot specified elsewhere. Where respondents cited miscellaneous costs they included elementssuch as repairs and maintenance and office costs. In some cases this category included costsseparately identified above, but mixed in with other costs making it impossible to extract themwith any certainty.14 Technically in this case there really ought to be a positive value equal to the value of the inorganic fertiliser replaced less the cost ofremoving it from poultry sheds. However, it was not possible to calculate this value in the context of interviews with associations who areonly concerned with the egg enterprise.32

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS2.4.2. Member State data2.4.2.1. Variable costsWeighted average variable costs for each Member State and for each system (with the exception ofthe semi-intensive system) are presented in Figure 2.15 to Figure 2.19. All figures are Agra CEASConsulting calculations based on industry estimates.Key points include the following in relation to each system.Traditional cage system:the most significant cost is feed accounting for around 65%-75% of total variable costs with birddepreciation contributing most of the remainder;not all Member State data separately reports veterinary and medication costs as the cost ofvaccines being given at the rearing stage may be included in the pullet price;some Member State data records miscellaneous variable costs, but these are insignificant andmost do not in any case;Greece, Ireland, Italy and Finland are high cost Member States, mainly as a result of high feedcosts, although bird depreciation is also high in Greece and Finland;The lowest cost Member States are Belgium, Portugal and the Netherlands, mainly as a result ofaccess to cheaper feed in the case of Belgium and the Netherlands and through verticalintegration in terms of pullet production in Portugal; finally, it should be noted that for comparison purposes the feed cost in Spain has been set at €30which is considered to be a typical level as the €37 cost in 2003 was artificially high in 2003 as aresult of drought (see Appendix 1 for further details).Enriched cage system:these costs should be treated with caution as the experience with enriched cages is notwidespread and the cost figures obtained are drawn from larger, more efficient units witheconomies of scale;the Belgian figures are experimental;the UK figures are drawn from ‘enrichable’ cages operating at 630 cm 2 rather than 750 cm 2 andfrom a very efficient producer. They therefore compare well with typical variable costs fortraditional cages;there is little difference between the figures presented by Member State.33

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSAlternative systems:the same general pattern in terms of high and low cost Member States is apparent (as expected apriori given the importance of the feed cost) compared to the traditional cage system;Austrian costs in the organic system are lower than would be expected given the fact thatAustria is generally a high cost Member State.90.0080.0070.00Variable cost per kg eggs (Euro cents)60.0050.0040.0030.0020.0010.00-AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainUKEU-15Feed cost Medication/vet Miscellaneous Bird depreciationFigure 2.15: Variable costs in the traditional cage system per kg eggs (2003)34

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS80.0070.00Variable cost per kg eggs (Euro cents)60.0050.0040.0030.0020.0010.00-Belgium Sweden UKFeed cost Medication/vet Miscellaneous Bird depreciationFigure 2.16: Variable costs in the enriched cage system per kg eggs (2003)110.0090.00Variable cost per kg eggs (Euro cents)70.0050.0030.0010.00-10.00AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsUKEU-15Feed cost Medication/vet Miscellaneous Bird depreciationFigure 2.17: Variable costs in the barn system per kg eggs (2003)35

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS120.00100.00Variable cost per kg eggs (Euro cents)80.0060.0040.0020.00-Austria Denmark France Germany Greece Ireland Netherlands UK EU-15Feed cost Medication/vet Miscellaneous Bird depreciationFigure 2.18: Variable costs in the free range system per kg eggs (2003)160.00140.00Variable cost per kg eggs (Euro cents)120.00100.0080.0060.0040.0020.00-Austria Denmark France Germany Netherlands UK EU-15Feed cost Medication/vet Miscellaneous Bird depreciationFigure 2.19: Variable costs in the organic system per kg eggs (2003)36

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS2.4.2.2. Fixed costsWhilst variable costs are reasonably uniform between Member States, fixed costs exhibit a fairamount of variation, largely because of differences in the range of costs reported. However, themain fixed costs in terms of individual importance are labour, equipment and buildings, usually in thatorder. For this reason, these are the only cost elements shown separately in Figure 2.20 to Figure2.24 below. All figures are Agra CEAS Consulting calculations based on industry estimates.Key points include the following in relation to each system.Traditional cage system:labour costs vary from 6% to 59% of total fixed costs (Spain and Finland respectively), butaverage 17% at the EU-15 level;the combined building and equipment costs range from 8% to 64% (Finland 15 to Austria) of totalfixed costs, with an average for the EU-15 of 33%. These are usually around one third forbuildings and two thirds for equipment;other fixed costs comprise: manure disposal, cleaning, utility provision and insurance;the Member States with the highest fixed costs broadly follow those with the highest variablecosts and include Italy, Greece and Ireland, although Austria has the highest fixed costs of allMember States as a result of high building and equipment costs;those Member States with the lowest fixed costs (Germany, Belgium, Denmark and Spain) do notmatch the pattern with variable costs so closely.Enriched cage system:as mentioned above, enriched cage costs should be treated with caution;the UK figure is so low relative to Sweden mainly as a result of economies of scale in relation tobuilding cost, labour and other costs; and,the variation between the UK enriched cage fixed costs and those for the traditional cage are theresult of differences in scale, fixed costs would be higher in the enriched cage system at anequivalent scale.Alternative systems:fixed costs for the alternative systems follow broadly the same pattern as for variable costs withDenmark being towards the lower end of the scale and Austria at the higher end;labour costs generally become more important as a proportion of total fixed costs as systemsrequire greater labour input, i.e. from barn to free range to organic.15 Building and equipment costs in Finland are dwarfed by labour costs.37

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS454035Fixed costs per kg eggs (Euro cents)302520151050AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainUKEU-15Labour Buildings Equipment OtherFigure 2.20: Fixed costs in the traditional cage system per kg eggs (2003)3530Fixed costs per kg eggs (Euro cents)2520151050SwedenUKLabour Buildings Equipment OtherFigure 2.21: Fixed costs in the enriched cage system per kg eggs (2003)38

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS7060Fixed costs per kg eggs (Euro cents)50403020100AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsUKEU-15Labour Buildings Equipment OtherFigure 2.22: Fixed costs in the barn system per kg eggs (2003)908070Fixed costs per kg eggs (Euro cents)6050403020100Austria Denmark France Germany Greece Ireland Netherlands UK EU-15Labour Buildings Equipment OtherFigure 2.23: Fixed costs in the free range system per kg eggs (2003)39

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS908070Fixed costs per kg eggs (Euro cents)6050403020100Austria Denmark France Germany UK EU-15Labour Buildings Equipment OtherFigure 2.24: Fixed costs in the organic system per kg eggs (2003)2.4.2.3. Total costsBringing together the variable and fixed costs from the preceding two sections, Figure 2.25 to Figure2.29 below present total costs for all systems where data are available. Key points to note are:Traditional cage system: variable costs account for 73% of total costs at the EU-15 level and fixed costs for 27%;variable costs account for just 61% of the total in Austria and 78% of the total in Greece whichresults from a combination of higher fixed costs in the former and higher variable costs in thelatter.Enriched cage system:variable costs account for between two thirds (Sweden) and 79% (UK) of total costs for theenriched cage system and as a consequence fixed costs account for one third and 21% for thesecountries respectively;in Belgium the split is 70:30 in favour of variable costs.40

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSAlternative systems:whilst both variable and fixed costs are higher in the barn system compared to the traditionalcage system, the proportion of fixed costs in total cost is higher at 35% for the EU-15;fixed costs range from a low of 24% of total costs in Greece to a high of 45% in Austria, thesame extremes as for the traditional cage;both variable and fixed costs are higher again for free range systems compared to barn systemswith fixed costs accounting for 39% of the total for the EU-15;once again the lowest proportion of fixed costs was in Greece (31%) and the highest in Austria(49%);both variable and fixed costs are higher again in the organic system with 68% of the total madeup of variable costs;the lowest proportion of fixed costs is found in Denmark (27%) and the highest again in Austria(39%).120.00100.00Total cost per kg eggs (Euro cents)80.0060.0040.0020.00-AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainUKEU-15Variable costsFixed costsFigure 2.25: Total costs in the traditional cage system per kg eggs41

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS120.00100.00Total cost per kg eggs (Euro cents)80.0060.0040.0020.00-Belgium Sweden UKVariable costsFixed costsFigure 2.26: Total costs in the enriched cage system per kg eggs160.00140.00Total cost per kg eggs (Euro cents)120.00100.0080.0060.0040.0020.00-AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsUKEU-15Variable costsFixed costsFigure 2.27: Total costs in the barn system per kg eggs42

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS180.00160.00140.00Total cost per kg eggs (Euro cents)120.00100.0080.0060.0040.0020.00-Austria Denmark France Germany Greece Ireland Netherlands UK EU-15Variable costsFixed costsFigure 2.28: Total costs in the free range system per kg eggs250.00200.00Total cost per kg eggs (Euro cents)150.00100.0050.00-Austria Denmark France Germany UK EU-15Variable costsFixed costsFigure 2.29: Total costs in the organic system per kg eggs43

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS2.4.3. Weighted average EU cost dataThis Section weights the variable and fixed costs for each Member State presented in Section 2.4.2 bythe relative size of the national egg sectors, as measured by laying hens. This exercise results in thevariable costs presented in Figure 2.30 and the fixed costs in Figure 2.31 below. These figures areAgra CEAS Consulting calculations based on industry estimates.Costs for the enriched system are not representative at EU level being drawn from just Sweden andthe UK 16 and are therefore not shown.Fixed costs show the same pattern, increasing from traditional cage to enriched cage, mainly as aresult of higher labour costs, but also higher building and equipment costs, and again increasing forbarn, free range and organic systems respectively.160.00140.00Weighted average variable cost per kg eggs (Euro cents)120.00100.0080.0060.0040.0020.00-Traditional cage Barn Free range Organic All systemsFeed cost Medication/vet Miscellaneous Bird depreciationFigure 2.30: Weighted average variable costs per kg eggs for all Member States and allsystems (2003)16 While enriched cages do exist in Germany no comparable data was made available to this study and for Belgium data is on anexperimental rather than commercial basis only. The reader should also bear in mind that UK enriched cage data is drawn from‘enrichable’ cages operating at 630 cm 2 rather than 750 cm 2 .44

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS80.0070.00Weighted average fixed costs per kg eggs (Euro cents)60.0050.0040.0030.0020.0010.00-Traditional cage Barn Free range Organic All systemsLabour Buildings Equipment OtherFigure 2.31: Weighted average fixed costs per kg eggs for all Member States and allsystems (2003)Figure 2.32 brings together the variable and fixed costs from above and shows that the pattern ofincreasing costs from the traditional cage system through barn, free range and organic systemsevident in the comparisons above is maintained with total costs in the barn system 26% higher thanin the traditional cage, free range total costs 45% higher than traditional cage and total costs in theorganic system more than twice as high as in the traditional cage.45

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS250.00Weighted average total cost per kg eggs (Euro cents)200.00150.00100.0050.00-Traditional cage Barn Free range Organic All systemsVariable costsFixed costsFigure 2.32: Weighted average total costs per kg eggs for all Member States and allsystems (2003)2.5. Producer gross margins2.5.1. Calculating gross marginsThe calculations used in the construction of gross margin are reviewed below (as for variable andfixed costs, these data were subsequently converted into kg terms at 16 eggs per kg):Egg revenue: this was variously presented in the data obtained as revenue per dozen, perkilogram of egg or per egg. Where data was in weight terms this was adjusted to per egg termsusing national egg weights from the International Egg Commission. Estimating revenue from eggsales is not as straightforward as it might sound. In some cases the figures provided werecorrected using data derived from the source to account for the different prices achieved by firstand second quality eggs. In others this calculation was not performed because of the variabilityof prices between producers in a Member State resulting from different quality bonuses and thevariation in the proportion of second quality eggs.Spent hen revenue: whether positive or negative this figure was divided by the number of eggsproduced over the laying cycle and multiplied by 16.Total output: the sum of the above. Total variable cost: this is the sum of the variable costs outlined in Section 2.4.Gross margin: total output less total variable cost.46

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSIt was not felt meaningful to provide a net margin figure (although this can be calculated simply byremoving total fixed costs from gross margin) mainly because of the difference between the periodover which buildings and equipment are depreciated and the useful life of these investments.Total output showing the proportion covering variable costs and that providing gross margin for thevarious systems for all Member States are presented in Figure 2.33 to Figure 2.37 below. All figuresare Agra CEAS Consulting calculations based on industry estimates. Note that data on barnproduction in Sweden was not made available to the consultants, the absence of data for all otherMember States signifies that the system is not in operation. Figure 2.38 to Figure 2.42 present thegross margin data separately to facilitate comparison between Member States.Key points include the following in relation to each system.Traditional cage system:the highest gross margins are obtained in Portugal, Spain, Germany and the UK, while the lowestare obtained in France, Finland and Italy;there is little apparent relationship between total variable cost and gross margin in that Portugal,with the second lowest variable costs has the highest gross margin and Belgium has the lowestvariable cost, yet one of the smallest gross margins.Enriched cage system:as mentioned above, enriched cage costs and hence gross margin should be treated with caution;the highest margin is obtained in Sweden as a result of the higher relative output, variable costsbeing broadly equivalent.Alternative systems:the highest gross margins are available in Denmark and Greece for barn systems and in Irelandand the UK for free range systems. This is likely to result from the consumer willingness to payfor eggs from alternative systems as, if anything, variable costs in these countries are generallyhigher than the EU-15 weighted average;similarly, Denmark and the UK show high gross margins for the organic system, most likely forthe same reason, although in this case variable costs in the UK are also marginally below the EU-15 weighted average.47

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS120.00100.00Total output per kg eggs (Euro cents)80.0060.0040.0020.000.00AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainUKEU-15Total variable costsGross marginFigure 2.33: Total output in the traditional cage system per kg eggs (2003)100.0090.0080.00Total output per kg eggs (Euro cents)70.0060.0050.0040.0030.0020.0010.000.00Belgium Sweden UKTotal variable costsGross marginFigure 2.34: Total output in the enriched cage system per kg eggs (2003)48

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS160.00140.00Total output per kg eggs (Euro cents)120.00100.0080.0060.0040.0020.000.00AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsUKEU-15Total variable costsGross marginFigure 2.35: Total output in the barn system per kg eggs (2003)300.00250.00Total output per kg eggs (Euro cents)200.00150.00100.0050.00-Austria Denmark France Germany Greece Ireland Netherlands UK EU-15Total variable costsGross marginFigure 2.36: Total output in the free range system per kg eggs (2003)49

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS250.00200.00Total output per kg eggs (Euro cents)150.00100.0050.000.00Austria Denmark France Netherlands UK EU-15Total variable costsGross marginFigure 2.37: Total output in the organic system per kg eggs (2003)60.0050.00Gross margin per kg eggs (Euro cents)40.0030.0020.0010.000.00AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainUKEU-15Figure 2.38: Gross margin in the traditional cage system per kg eggs (2003)50

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS25.0020.00Gross margin per kg eggs (Euro cents)15.0010.005.000.00Belgium Sweden UKFigure 2.39: Gross margin in the enriched cage system per kg eggs (2003)60.0050.00Gross margin per kg eggs (Euro cents)40.0030.0020.0010.000.00AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsUKEU-15Figure 2.40: Gross margin in the barn system per kg eggs (2003)51

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS140.00120.00Gross margin per kg eggs (Euro cents)100.0080.0060.0040.0020.00-Austria Denmark France Germany Greece Ireland Netherlands UK EU-15Figure 2.41: Gross margin in the free range system per kg eggs (2003)90.0080.0070.00Gross margin per kg eggs (Euro cents)60.0050.0040.0030.0020.0010.000.00Austria Denmark France Netherlands UK EU-15Figure 2.42: Gross margin in the organic system per kg eggs (2003)52

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSFinally, weighting gross margins by the importance of Member State egg sectors within the EU-15,results in Figure 2.43 which shows total output split into the portion needed to cover variable costsand the balance left as gross margin (gross margin only is shown in Figure 2.44). Whilst higher totaloutputs are achieved in the alternative systems, this is necessary to cover higher variable costs,although this still leaves a higher gross margin. The lowest cost system appears to be the enrichedcage, although the caveats associated with the data suggest that this would not be the case in realityleaving the traditional cage, as expected, the lowest cost system. A higher gross margin is availablefrom the enriched cage system, due mainly to the high price of eggs in Sweden, but also as a functionof the small number of examples to draw upon and as such is not considered robust. Gross marginsin modern, automated enriched cage systems are not expected to be significantly different fromthose achieved in similar size traditional cage facilities, at least in per dozen or per kg egg terms.However, fixed costs are expected to be higher and performance per unit of floor space will beweaker as a result of greater space allowance and possibly also because less tiers of cages can beemployed in the same size building.Barn systems appear to offer little advantage in gross margin terms over traditional cage systems,although free range systems more clearly offer higher returns, albeit on top of higher variable costs.Perhaps surprisingly the significantly higher variable costs of the organic system are not as wellcompensated by available premia as might be expected and this systems offers a gross margin onlyslightly superior to that obtained in the barn system.180.00160.00Weighted average total output per kg eggs (Euro cents)140.00120.00100.0080.0060.0040.0020.00-Traditional cage Barn Free range Organic All systemsTotal variable costsGross marginFigure 2.43: Weighted average total output for all Member States and all systems(2003)53

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS40.0035.00Weighted average gross margin per kg eggs (Euro cents)30.0025.0020.0015.0010.005.00-Traditional cage Enriched cage Barn Free range Semi-intensive Organic All systemsFigure 2.44: Weighted average gross margin for all Member States and all systems(2003)54

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS3. Egg marketsTotal human consumption of eggs in the EU-25 was 6.150 million tonnes in 2003, the last year forwhich this data can be calculated (Figure 3.1). This represents an increase of 9% since 1995.Consumption in the EU-N10 amounted to 17% of the EU-25 total in 2003.70006000Total human consumption ('000 tonnes)5000400030002000100001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004EU-15 EU-N10 EU-25Figure 3.1: Total human consumption EU-15 1991-2004Source: DG Agri.Figure 3.2 examines consumption by EU-15 Member State in 2003. Figure 3.3 demonstrates that, aswould be expected in view of the size of their population, the main consumers in aggregate terms(total consumption by country) are Germany, Spain, France, the UK and Italy. The average percapita consumption in the EU-15 was 13.9 kg/person/year with Spain having an exceptionally highlevel of 24.1 kg per head per year. In the new Member States average consumption is marginallylower at 13.0 kg/person/year.55

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSSweden2%United Kingdom15%Austria2%Belgium2%Denmark2%Spain18%Finland1%Portugal2%France17%Netherlands3%Italy13%Ireland1%Greece2%Germany20%Figure 3.2: Total consumption by EU-15 Member State in 2003Source: DG Agri.3025Per capita consumption of eggs (Kg/head)2015105-AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainSwedenUnited KingdomEU-15Figure 3.3: Per capita consumption of eggs by EU-15 Member State 2003Source: DG Agri56

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSFigure 3.4 presents the evolution of per capita consumption in the EU-15 and shows that after a dipthroughout the 1990s, most likely linked to health concerns, consumption has been trending upwardssince 2000 to finish the period up 9% on 1991 levels.14.5014.00Per capita consumption of eggs (Kg/capita)13.5013.0012.5012.0011.5011.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Figure 3.4: Evolution of per capita consumption of eggs EU-15 1990-2004Source: DG Agri.Figure 3.5 presents the three-year average market (producer) price for eggs for consumptionbetween 2001 and 2003 for all EU-15 Member States. The Scandinavian countries, Ireland and Italyshow the highest prices, although the Italian price may be affected by the avian influenza outbreak in2000. The lowest prices were recorded in Spain and Belgium.Figure 3.6 provides an index showing the evolution of the market (producer) price for eggs from1990 to 2003. Most, but not all Member States experienced a sharp increase in price in 1996 and asharp decrease in 1999. From this point, prices have generally increased.57

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS160.00Three year average market price in €/100 kg (2001-2003)140.00120.00100.0080.0060.0040.0020.000.00AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainSwedenUKEU-15Figure 3.5: Three year average market price 2001-2003Note: eggs for consumption (average for categories L and M).Source: Eurostat.58

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS160140Index of egg market price (1990 = 100)1201008060401991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Austria Belgium Denmark Finland France Germany GreeceIreland Italy Netherlands Portugal Spain Sweden UKFigure 3.6: Market price index, 100 kg eggs (1990 = 100)59

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSFigure 3.7 compares the three-year average retail price for a dozen fresh eggs across the EU-15(where comparable data permits) between 2000 and 2002 17 . There is a great deal of variability withprices lowest in Spain and Portugal and highest in Denmark, Luxembourg and Austria. For the mostpart relative price levels are similar to the market prices shown above, although Austrian retail pricesare noticeably higher than average EU-15 market prices. Retail prices for fresh eggs are shown as anindex in Figure 3.8. Points to note are the drop in price in Finland upon accession in 1995 and thegeneral upward trend above the rate of inflation which may result from the increasing consumptionof eggs from alternative systems, although it is unclear whether the data collected by the source isaveraged across production systems or simply refers to eggs from caged hens and this conclusionmust therefore remain tentative.3.50Three year average retail price 2000-2002 (Euros per dozen eggs)3.002.502.001.501.000.500.00AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsPortugalSpainSwedenUKEU-13Figure 3.7: Member State retail price, dozen eggs, 2000-2002 (in Euros)Notes:EU-13 excludes France and Germany. Data from France and Germany are drawn from an alternative source as they are not presented by the main source.Data for Germany and France may not be fully comparable with that for other countries since calculation basis forboth ILO and ZMP data is not made explicit (notably in respect of egg size and production systems covered).Source: France and Germany ZMP, all others Laborsta- International Labour Organisation.17 Within any one year prices vary as a result of seasonal demand with demand peaks around Easter and Christmas. The data here areweighted by sales and hence incorporate this variation.60

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS230210Retail price index, dozen eggs (1990 = 100)1901701501301109070501990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Austria Belgium Denmark Finland France Germany Greece IrelandItaly Luxembourg Netherlands Portugal Spain Sweden UKFigure 3.8: Retail price index, dozen eggs (1990 = 100)Notes:1 France is Paris region only for 1990, 1991, 1992.2 Germany is West Germany only in 1990.61

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS3.1. Market share of eggs produced under alternative systemsThe bulk of eggs currently supplied in all markets is derived from traditional caged production. Theshare of this type of production in the sale of fresh eggs at retail level does, however, varyconsiderably. In some southern Member States where there is relatively little production of, ordemand for, alternatively produced eggs, virtually 100% of eggs sold fresh are from the traditionalcaged system 18 . Moving northwards, the proportion of eggs from alternative systems consumed freshrises sharply. In the Netherlands, Sweden, Denmark and the UK it is estimated that close to 50% ofeggs sold at the retail level are now sourced from alternative systems, in Germany and Austria thepercentage is estimated to be around 25%. The proportion sourced via alternative systems hasgradually increased as some large retailers have indicated they will no longer source fresh eggs fromtraditional caged production.Most eggs for the processing and food service (catering) sector are derived from caged production(or from alternative systems when there is a surplus of this type of output). The proportion ofalternatively sourced eggs used for processing/food service which is specifically destined for endproducts which indicate that they contain such eggs is limited. In the UK, which is probably the mostadvanced in these terms as a result of a major retailer (Marks and Spencer) and a major food servicecompany (McDonald’s) setting a requirement for free range (in processed product as well as fresheggs), it is estimated that 12% of the processed market is sourced from free range production.Figure 3.9 presents an estimation of eggs used in the retail, food service and processing sectors bytype of production at the EU-15 level. Accurate information is sparse and this estimation is based ona number of assumptions. These are:all first quality eggs from alternative systems are sold in-shell in the retail sector with theexception of the UK and the Netherlands where 5% of first quality eggs from the free rangesystem go into the food service sector and a further 2% enter the processing sector;second quality eggs from alternative systems are sold to the processing sector;the caged system includes both conventional and enriched cage systems.The Figure indicates clearly that the majority of eggs are sold through the retail sector (56%) and alsothat currently the dominant production system is the traditional cage (89%). Just under a quarter of18 This statement is made on the basis that it is legal to produce eggs in a number of defined systems. Egg producers are assumed to beeconomically rational and to attempt to maximise profits subject to a set of constraints. They will therefore produce eggs in systemswhich result in the highest levels of profitability. Where there is consumer demand and willingness to pay for more expensive eggsproduced in higher cost systems, then egg producers will do so as long as the revenue they achieve is sufficient to result in acceptableprofits. Where demand is high and supply low, consumers will pay higher premiums for such eggs. This will result in a greater number ofproducers entering this market. As they do so, supply increases towards the level of demand and as a result the price will decline.Ultimately an equilibrium is achieved where supply is sufficient to meet demand at a certain price. Where there is little supply of eggs fromalternative systems the implication is that consumers are unwilling to purchase such eggs at a price which makes it worthwhile forproducers to enter the market. The absence of supply therefore indicates an absence of demand at prices necessary to facilitateproduction. Conversely, where there is a supply of eggs from alternative systems the implication is that at the prices required to facilitateproduction there is consumer demand and willingness to pay.62

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSeggs (24%) are processed with a fifth destined for the food service sector. If consumers in MemberStates where there is currently little interest in eggs from alternative systems begin to demand sucheggs, the share of alternative eggs sold through the retail sectors will increase. As the market foralternative eggs matures, the share of these eggs in both the food service and processing sectors isalso likely to increase as it has in the UK and the Netherlands.2,500Demand for eggs by production system ('000 tonnes)2,0001,5001,000500-Retail Food service ProcessingCage Barn Free range OrganicFigure 3.9: EU-15 use of eggs by production system and sectorData on the price elasticity of eggs is also sparse, although there are some estimations, most notablyfrom Denmark. However, as this research confirms (see Appendix 1), the industry is unanimous inagreeing that eggs are an inelastic product as they are a staple in most Member States. As such theindustry do not generally expect consumption patterns to alter dramatically in response to price.63

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS4. TradeThe EU-15 has been consistently self-sufficient in eggs with a small exportable surplus as can be seenin Figure 4.1. The smaller exportable surplus in 2003 is likely to be the result of avian influenza in theNetherlands and Belgium.12010080Self sufficiency (%)60402001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Figure 4.1: EU-15 self sufficiency in eggs 1990-2004Source: DG Agri.Examining the Member States in more detail for 2003, it can be seen that even with the avianinfluenza outbreak the Netherlands still has the largest exportable surplus. Belgium, Finland, Spain,Portugal and Italy are also more than 100% self sufficient. The least self sufficient Member States areGermany, Austria, Denmark and Ireland.65

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS200180160140Self sufficiency (percent)120100806040200AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainSwedenUnited KingdomEU-15Figure 4.2: EU-15 Member State self sufficiency in 2003Source: DG Agri.There have been relatively few changes in this position since 1990, the most notable being thedecline in self sufficiency in the Netherlands from 338% to 192% (43%), partly the result of avianinfluenza and partly due to a general reduction in self sufficiency, a decline of 21% for Denmark from99% to 78% self sufficient and increases of 13% and 12% respectively for Spain and Italy turning bothfrom having a small net import requirement to having an exportable surplus. Both Austria andSweden went from self sufficiency in 1991 to having net import requirements whilst Finland’s selfsufficiency became an exportable surplus.Figure 4.3 shows that the 10 new Member States were generally self sufficient between 1995 and2002, although a slight exportable surplus was apparent in 2003 arising from a decrease inconsumption which exceeded the small fall in production.66

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS10080Self sufficiency (%)60402001995 1996 1997 1998 1999 2000 2001 2002 2003Figure 4.3: EU-N10 self sufficiency in eggs 1995-2003Source: DG Agri.Within the EU-N10 there is a degree of variability in self sufficiency as shown in Figure 4.4 whichprovides data for 1995 and 2003. Poland had the largest exportable surplus in 2003, followed byHungary. In 2003, partially as a result of the avian influenza outbreak in the EU, Poland was asignificant exporter to the EU. Lithuania, Latvia, Slovenia, the Czech Republic and the SlovakRepublic also had an exportable surplus. Malta, Cyprus and Estonia were net importers in 2003.Over the 1995 to 2003 period, self sufficiency in the individual new Member States fluctuatedbetween a minimum of 89% (Malta 2003) and a maximum of 109% (Cyprus 1995). Poland went fromhaving a small net import requirement to having a modest exportable surplus between 1996 and2003. Hungary also became a net exporter between 1995 and 2003. The Czech Republicmaintained a small exportable surplus over the whole period, with the exception of 2001, whileCyprus’ self sufficiency decreased by 10% between 1995 and 2003.67

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS12010080Self sufficiency (%)6040200CyprusCzechRepublicEstonia Hungary Lithuania Latvia Malta Poland Slovenia SlovakRepulic1995 2003Figure 4.4: EU-N10 Member State self sufficiency in 2003Source: DG Agri.The evolution of EU-15 third country trade is presented in Figure 4.5. The upper part of the verticalline marks exports and the lower part imports. The column shows the trade balance with thepositive values indicating net exports. The EU-15 has been a net exporter throughout the periodshown with a general upward trend between 1990 and 1995 and again from 1996 to 1999. Since2000 the trade balance has worsened, although it remains positive.68

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS250200150Volume of trade ('000 tonnes)100500-50-100-1501990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Trade balanceFigure 4.5: Third country imports, exports and trade balance EU-15 1990-2003Note: 1990 is EU-12.Source: DG Agri.Imports, exports and trade balance are shown for the EU-15 and Member States in 2003 in Figure4.6. EU-15 data is external trade only whilst Member State data includes intra-EU trade as well asthird country trade. The Figure shows that the Netherlands is the largest net exporter and Germanythe largest net importer. Other points to note are that Spain, Italy and Belgium are significant netexporters whilst the UK is a significant net importer. The Figure also shows that whilst someMember States appear to import or export as a market balancing exercise (for example, Austria andthe UK who have a net import requirement and Spain and Italy who have an exportable surplus),others probably have an exportable surplus of some products and an import requirement for others(for example, France and Belgium) shown by relatively large volumes of trade in both directions toarrive at relatively small trade balances.69

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS450.0300.0Volume of trade ('000 tonnes)150.00.0-150.0-300.0-450.0AustriaBelgiumDenmarkFinlandFranceGermanyGreeceIrelandItalyNetherlandsPortugalSpainSwedenUnited KingdomEU-15Trade balanceFigure 4.6: Total imports, exports and trade balance by EU-15 Member State 2003Note: EU-15 data excludes intra-EU trade.Source: DG Agri.Figure 4.7 shows the evolution of EU-N10 third country trade. In the 1995 to 2002 period, the EU-N10 trade balance fluctuated between a net deficit of -5,380 tonnes (2001) and a net surplus of10,639 tonnes (2002). As a result of lower EU-15 production due to avian influenza in 2003 the EU-N10 trade balance improved considerably, when the EU-N10 achieved a net export surplus of 43,911tonnes.Over this period, the total volume of imports increased only slightly from about 9,000 to 12,000tonnes per year. By contrast, the volume of exports increased considerably from approximately8,000 tonnes in 1995 to more than 55,000 tonnes in 2003, so that the net trade surplus has risensharply.70

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS605040Volume of trade ('000 tonnes)3020100-10-201995 1996 1997 1998 1999 2000 2001 2002 2003Trade balanceFigure 4.7: Third country imports, exports and trade balance EU-N10 1995-2003Source: DG Agri.Imports, exports and the net trade balance are shown for the EU-N10 and individual states in 2003 inFigure 4.8. Volumes traded are only relatively large for the three biggest countries, Poland, Hungaryand the Czech Republic, which were all net exporters and make up most of the EU-N10’s positivetrade balance. Poland is by far the largest net exporter, followed by Hungary and the CzechRepublic. In Poland and Hungary, exports exceed imports considerably, while other new EUMember States such as the Czech or the Slovak Republics show similar volumes of trade in bothdirections to arrive at relatively small net trade balances.71

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS605040Volume of trade ('000 tonnes)3020100-10-20CyprusCzechRepublicEstonia Hungary Lithuania Latvia Poland Slovenia SlovakRepulicEU-10Trade balanceFigure 4.8: Total imports, exports and trade balance by EU-N10 Member State 2003Note: Malta is not shown because export data is not available.Source: DG Agri.Table 4.1 presents EU-15 import data for eggs for processing. The majority are sourced from theUS, but around three quarters of these are entering under inward processing arrangements.Significant volumes were also entering from Poland and the Czech Republic, most of which were notunder inward processing arrangements.72

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 4.1: EU imports of eggs for processing by origin 2000-2002 average (tonnes)Normal import procedure Inward processing Total importsCzech Republic 989 794 1,783Lithuania 112 213 325Hungary 230 20 250Poland 1,065 718 1,783Norway 58 181 239Switzerland 5 5US 1,091 3,132 4,223Canada 14 14Mexico 24 24Chile 1 1Israel 967 857 1,824Singapore 3 3China 185 185Taiwan 3 3Hong Kong 4 4TOTAL 4,756 5,916 10,672Note:Totals may not add up due to rounding.Source: EPEGA.Table 4.2 and Table 4.3 present export refunds and import duties respectively. Table 4.4 presentsdata concerning the EU’s preferential tariff rate quotas which currently amount to 135,000 tonnesfor shell eggs and 22,500 tonnes for egg products. The import duties provide a significant level ofprotection for both EU-15 producers and processors. Import duties are used in Section 5 to assessthe competitive position of selected third countries relative to EU-15 domestic production.Table 4.2: Refunds on egg and egg product exportsExport Restitutions on eggs and egg products 2004*Refunds Destination **Kuwait, Bahrain,Oman, Qatar, UAE,Yemen, Hong Kong(SAR), Russia, TurkeySouth Korea, Japan,Malaysia, Thailand,Taiwan, PhilippinesOther ThirdCountries (exceptSwitzerland, Bulgaria)Nomenclature Description Euro/100kg Euro/100kg Euro/100kg0407 0030 Shell eggs 6.00 25.00 3.000408 1180 Egg yolk dried 40.000408 1981 Egg yolk liquid 20.000408 1989 Egg yolk frozen 20.000408 9180 Whole egg dried 75.000408 9980 Whole egg, not dried 19.00* Eggs/egg products: refunds applicable from 15 September 2004 (Commission Regulation 1602/2004).** A differentiation in the export refund rate on the basis of destination is possible, as is currently the case, notablywhen the market situation and conditions of competition make this necessary, as provided for by the eggs CMO (CouncilRegulation 2771/75).Source: European Commission.73

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 4.3: Duties on egg and egg product importsImport duties on eggs and egg products*Nomenclature Description Specific customs duty per100kg net in Euro0407 0030 Shell Eggs(also boiled eggs)Egg ProductsFootnotes/Notes30.4 a, b, c, f, I k, 10408 1180 Egg yolk dried 142.3 a, b, c, d, e, f0408 1981 Egg yolk liquid 62.0 a b, c, d, e, f0408 1989 Egg yolk frozen 66.3 a, b, c, d, e, f0408 9180 Whole egg dried 137.4 a, b, c, d, e, f, g0408 9980 Whole egg other than dried; egg rolls35.3 a, b, c, d, e, f, g(long egg)Egg White3502 1190 Egg white dried 123.5 a, b, d, e, f3502 1990 Egg white other than dried 16.7 a, b, d, e, f3502 2091 Lactoalbumine dried or flake 123.5 a, c, f3502 2099 Lactoalbumine other than dried 16.7 a, e, f* As applicable in October 2004Footnotes:(a) Products originating from OCT-countries (Overseas countries and territories) can be imported with 100% reductionof the customs duty.(b) Products originating from third countries can be imported with a partially reduced customs duty within the GATTagreement for eggs.(c) Products originating from certain ACP countries (Africa, Caribbean and Pacific) can be imported with 16% reduction ofthe customs duty under the arrangements set for imports of eggs from ACP countries.(d) Products originating from Mexico can be imported with 50-100% reduction of the customs duty under thearrangements set for import quotas for eggs from Mexico.(e) Products originating from the Republics of Albania, Croatia, Bosnia and Herzegovina, the Federal Republic ofYugoslavia including Kosovo and the FYR of Macedonia can be imported with a 100% reduction of the customs duty.(f) Products originating from some countries (especially least developed countries) can be imported with complete orpartially suspended customs duties under the arrangements set for the Generalised System of Preferences (GSP).Source: European Commission.74

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 4.4: Preferential import quotas on eggs and egg products, 2004/05Import quotas on eggs and egg products (1 June to 1 July)*Nomenclature Description Annual tariff quota(tonnes)In-quota duty, Euro/tonneproduct weight0407 0030 Shell Eggs 135,000 152Egg Products0408 1180 Egg yolk dried7110408 1981 Egg yolk liquid 3100408 1989 Egg yolk frozen 7,000 (a)3310408 9180 Whole egg dried 6870408 9980 Whole egg other than dried; egg rolls176(long egg)Egg White3502 1190 Egg white dried 15,500 (a) 6173502 1990 Egg white other than dried 83* Tariff quotas for 1 June 2004 to 1 July 2005, as laid down in Commission Regulation 593/2004Footnotes:(a) Shell egg equivalent. Conversion according to the yield rate fixed in Annex 69 to Commission Regulation 2454/93.Source: European Commission.75

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS5. Third countriesThe US, Mexico, Brazil, Ukraine and India were selected in conjunction with the DG SANCOSteering Committee for consideration in this project. They represent those third countriesconsidered most likely to be competitive with the EU. Full reports on each of these countries areavailable in Appendix 2. The sub-sections below provide a concise summary and comparison oftechnical factors of production and variable costs for the third countries.5.1. OverviewThe third countries covered are extremely diverse ranging from India and the Ukraine with a highproportion of production (56% in Ukraine) accounted for by small scale production to the UnitedStates where 260 firms account for 95% of all layers. The magnitude of production varies greatlywith the United States having the highest commercial egg output at some 74.4 billion eggs, followedby India at 43.1 billion, Brazil at 14.4 billion and Mexico and Ukraine with some 11.5 billion eggs each.The main characteristic that all these countries share is that the main system for commercialproduction of eggs is caged.The structure of the laying hen sector and consumption in each country goes hand in hand with itslevel of economic development. This means that there is a range from the highly integrated,extremely large scale operations seen in the United States to the relatively fragmented structureseen in the Ukraine with Mexico and Brazil falling between these two extremes. Thus, while thelargest producer in the US has some 21 million hens, the largest in Mexico is estimated to have some9 million hens, the largest in Brazil has some 4 million and in the Ukraine the largest producer wouldprobably have just over 1 million birds. Similarly, while in the Ukraine most packing and the limitedprocessing takes place in relatively small packing stations associated with the production unit, in theUS this will take place in large scale central packing stations owned by the producer.In terms of egg usage the relative sophistication of the markets is reflected in the degree to whicheggs are consumed in processed form and this ranges from well under 1% in the Ukraine to 7% inMexico and over 30% in the United States. Similarly, while in the US the bulk of fresh eggs are soldvia the retail sector, in the Ukraine up to 30% of eggs are still sold via open markets, although this ischanging rapidly.Voluntary measures to improve animal welfare are being undertaken in the US which, inter alia,requires producers to move to a cage size of 555 cm 2 per hen over five years (this is approximatelythree quarters of the space required in enriched cages in the EU from 2012). However, apart fromperhaps in Mexico this issue is seen as being unlikely to be of concern for the foreseeable future inthe other third countries examined.77

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS5.2. Discussion of technical factorsTable 5.1 compares technical factors of production between the EU-15 weighted average traditionalcage and cage systems in the selected third countries. Only the Ukraine requires more feed per birdper day than the EU-15. However, Ukraine and Brazil have lower egg collection figures meaning thatin feed conversion terms (i.e. feed required to produce a kg eggs) the EU-15 has an advantage overUkraine and has efficiencies which are comparable to Brazil. The mortality figures in the EU-15 arebetter than all the other countries listed (with the exception of India which is the same), althoughpullet costs are by far the highest which will raise EU costs in terms of bird depreciation.Table 5.1: Technical factor comparisonEU-15 USA Brazil Mexico Ukraine IndiaLaying cycle (days) 388 590 453 462 420 365Empty period (days) 22 14 14 60 35 22Feed/bird/year (Kg) 38.83 35.52 37.80 31.99 39.81 37.00Feed/bird/day (g) 112 100 107 99 118 101Eggs/bird/year (collected) 280 280 275 250 237 283Kg feed per kg eggs 2.22 2.04 2.20 2.02 2.69 1.97Mortality (%) 6.0% 10.3% 8.7% 6.3% 7.0% 6.0%Number of hens managed/ labourer 36,461 138,700 14,000 160,000 12,500 3,750Hens housed per m 2 house 78 111 66 30 n.a.Space allowance per hen per cm 2 534 345 454 495 n.a.Pullet cost (€) 3.17 2.10 1.52 1.62 1.68 2.10End of lay hen weight (Kg) 1.50 1.54 1.71 1.70 1.75 1.60End of lay hen price (€/bird) 0.18 0.00 0.17 0.50 0.78 0.81Notes:1Exchange rates used: € = US$1.1920, R$ 3.7772, Mex$ 9.2279, INR 55.82Source: Agra CEAS Consulting calculations and industry estimates.5.3. Discussion of variable costsFigure 5.1 presents a comparison between the EU-15 weighted average variable costs from thetraditional cage system, the EU-15 weighted average including all systems and cage system variablecosts from the selected third countries. The import tariff for shell eggs and transport costs wouldneed to be added to these production costs to determine whether eggs produced in the thirdcountries are currently competitive with EU-15 caged production.Variable costs are lowest in the US and India and highest in Brazil. However, even in Brazil thevariable cost amounts to just 67% of the average EU-15 caged variable cost and 65% of the weightedaverage variable cost for all systems.78

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS70.0060.0050.00Variable costs (Euro cents)40.0030.0020.0010.00-EU-15 cage EU-15 all systems USA Brazil Mexico Ukraine IndiaFeed cost Medication/vet Miscellaneous Bird depreciationFigure 5.1: Variable cost comparison (cost per kg eggs)Source: Agra CEAS Consulting and industry estimates.79

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS6. The socio-economic impact of Directive 1999/74/EC6.1. Implementation to dateImplementation of the ban on unenriched cages in line with Chapter II, Art. 5.2 of Directive 1999/74across the EU-15 has not been uniform with some countries, notably Germany and Austria,introducing national cage bans which will come into effect from 2007 and 2009 respectively.Sweden is a special case within the EU. National legislation in this area has been driven from theanimal welfare point of view for some time and the government believes that both consumers andproducers are in agreement that animal welfare is important and worth paying for. Swedenannounced in 1988 that caged egg production would be banned with effect from 1998. However, inthe meantime Sweden joined the EU and enriched cages were ultimately permitted with a ban on thetraditional cage from January 2003. Implementation in Sweden is nearly complete, although sometraditional caged producers did take the Swedish government to court on the grounds that it hadfailed to notify Brussels of the legislation correctly. Whilst this legal challenge was successful, thegovernment then notified Brussels correctly and, following the decision by the third and fourthlargest retailers in Sweden to stop stocking eggs from the traditional cage system by the end of2004 19 and the strengthening of the inspection system, it is expected that all production in traditionalcages will have ceased by the beginning of 2005. The outcome from this is that Sweden has adoptedthe ban on unenriched cages in line with Chapter II, Art.5.2 of some years in advance of the rest ofthe EU and thus provides a good illustration of what might happen in the wider EU once theprohibition on production in unenriched cage systems is applied from 1 January 2012.6.2. Expected implementationWith the notable exception of Sweden, for the reasons outlined above, in most Member States therehas been very little progress made on the introduction of enriched cages. This is primarily for fourreasons:Producers are/have been awaiting the outcome of the review of the regime by the Commissionin 2005.Producers are/have been awaiting the outcome of national discussions on the future of policy(Germany, Belgium, Austria).Producers in a number of Member States feel that they will not be able to recover the one offcapital investment that is likely to arise from the introduction of enriched cages because themarket will not differentiate this product from traditional caged production. There are alsoconcerns about the on-going impact on variable costs.19 The top two retailers had already taken this decision. Between them these four retailers account for 98-99% of the Swedish retailmarket.81

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSFinally, even when the above issues have been worked through, the economically rationalproducer will not invest in new equipment until absolutely necessary to avoid being placed at adisadvantage in comparison to those producers continuing to produce with traditional cages.The consequence of this is that, apart from the experimental use of enriched cages in a number ofMember States (Germany, Belgium, Netherlands, Denmark, France, Portugal and the UK), there hasbeen a marked lack of investment in anticipation of the 2012 ban (with the obvious exception ofSweden and limited investments in the UK). However, a number of producers in a limited number ofMember States (e.g. Finland and the UK) have invested in what are known as ‘enrichable’ cages.These are currently operated as traditional cages, but can be adapted and furniture added in order tocomply with the Directive at a relatively low cost.Producer organisations have noted that with respect to future implementation, if the Directive is tobe adopted successfully it is essential that producers across the EU feel that the Directive is beingimplemented uniformly since the real or perceived absence of a level playing field is likely to severelyhamper implementation.6.3. Impact on the industryThere are only detailed estimates as to the cost of implementing the Directive in the UK where theGovernment has produced a Regulatory Impact Assessment which estimated that the cost ofcompliance will be around €247,758 20 for holdings with 12,000 birds, €2,062,176 for those with100,000 birds and €8,263,541 for large holdings with 400,000 birds. These costs equate to a totalnet present value 21 of €606.78 million from 2000 to 2011, €68.24 million per year from 2000 intoperpetuity 22 .There are no other detailed cost estimates 23 , but our research can be summarised as follows:The industry in most countries expects that demand for cheap eggs will remain and that the bestway to service this demand will be through enriched cage production (where this is allowed bynational legislation).It is noted that change will be very much market driven and that in particular the attitude ofretailers and consumers could be highly important in that (potentially consumer led) moves awayfrom caged eggs by retailers with a substantial market share would have a significant impact onthe sector. The experience in Switzerland in this regard is highlighted in Box 6.1 at the end of20 £ = €1.48358.21 Including capital/investment and running costs and discounted at 6%.22 Assumptions used in these calculations include a large switch into free-range production not envisaged by the industry. Caution shouldbe exercised when using these figures.23 Agra CEAS estimates of the consumer costs and benefits of various scenarios relating to animal welfare in the egg sector are containedin Section 7.3. Estimates of the potential benefits of improved animal welfare in general are contained in Bennett, R.M. and R.J.P. Blaney(2003). Estimating the Benefits of Farm Animal Welfare Legislation Using the Contingent Valuation Method, Agricultural Economics, 29: 85-98.82

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSthis Section and this indicates that retailers (as well as government support) were instrumental inensuring that the Swiss transition to a system which has no caged production progressed asplanned. On the basis of interviews with retailers and NGOs in the EU it would, however, atpresent appear highly unlikely that food retailers in general will cease stocking eggs fromtraditionally caged hens prior to the introduction of the ban on the use of such cages in 2012.While retailers interviewed noted that they took animal welfare into account in their supplierspecifications, they considered it unlikely that moves to stock only alternatively produced eggswould go significantly beyond those companies serving the minority needs of specific populationgroups (e.g. with higher incomes, higher levels of environmental/welfare consciousness, etc.).The general view taken was that, unless there was a sharp shift in consumer requirements, thenumber of retailers selling only alternative egg products would probably not go significantlybeyond the current levels where, in a number of countries and particularly at the premium endof the market, some retailers have taken such action (for example, Marks & Spencer in the UK,Spar and Billa in Austria, Albert Hein in Belgium and the Netherlands, health food shops(‘Reformhäuser’) in Germany) 24 . In this context it should, however, also be noted that consumersurveys have shown there to be hitherto untapped potential demand for alternatively produced‘welfare friendly’ eggs even in markets such as Spain with relatively low apparent demand 25 .It is expected by the industry in the EU that a significant number of caged egg producers(variously estimated at between 20% and 60%) will choose to leave the sector rather than makethe necessary investments. Inevitably there will be some increase in the number of producers inalternative systems but in much of the northern half of the EU-15, where demand for such eggs isstrongest, planning and environmental constraints will limit the scope for such an increase. Thepercentage of producers likely to leave the sector in each country and across the EU-15 as awhole will vary according to how recently investments have been made and whether they havebeen made with a view to adjusting to an enriched cage system. This will also depend on the agestructure of existing producers, level of sector indebtedness, etc.In view of relatively inelastic demand for eggs any additional production costs incurred are likelyto be passed on to consumers in the form of higher prices if there is sufficient border protectionto stop imported third country shell eggs undercutting those produced in the EU-15. In theabsence of such protection, producers/packers would have to absorb some of the additionalcosts or face being undercut by eggs produced to lower welfare standards. The industry in theEU-15 does not expect retailers to commit to buying domestically produced eggs if cheaperproducts are available from elsewhere whether from within the EU-25 or from third countries.24 Strictly speaking the ‘Reformhäuser’ do not have a formal ban on caged production, but only stock organically produced eggs whichwould not be derived from traditional caged production.25 See for example: Public perception of farm animal welfare in Spain, Gustavo A. Marin, Animal Welfare and Food Quality Group, Facultyof Veterinary Medicine, University of Zaragoza, Spain.83

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThat said, the processing sector is expected to face severe pressure. Demand for processedproducts is growing, dictated mainly by lifestyle changes, and within the processed egg productmarket, demand is growing for dried rather than liquid products 26 . This makes the EU sectormore vulnerable to imports from third countries as powder can be transported more cheaplyand has a longer shelf life increasing the number of potential exporting countries.The sector organisations contacted feel that, without the necessary border protection, there is ahigh risk that that proportion of the market which currently takes eggs from caged production,mainly the processing and the food service sectors in addition to retailers, will no longer sourcethe bulk of their eggs from the EU if (potentially more costly) enriched cages are introduced.This means that the growing proportion of the market, estimated at 30% plus, which goes intoprocessing and the food service, which by and large do not differentiate their products by type ofproduction system, could be vulnerable to competition from third country imports which wouldreduce production and employment in the EU sector 27 . This potential for this displacement ofEU sourced eggs in the processing sector is thought to be more likely to increase in futurebecause of the structure of the processing sector and the changing pattern of trade in this sector.In terms of structure the sector can be broken down into large international companies who dryegg products and those, mainly national players, who currently produce liquid egg and othermore processed (and hence value added) egg products.In future, the latter group of companies is likely to come under pressure as the traded marketbecomes increasingly dominated by dried egg (the cost of transporting egg in this form withoutwater is much lower and the shelf life is longer) and they will either have to move into moreadded value products such as blends, mixes etc. or they are thought unlikely to be able tosurvive. Thus as trade becomes increasingly dominated by large international players trading indried egg this will enhance the scope for imports further (as well as driving consolidation in theprocessing sector).In this context it is important to note that a number of countries currently only have onesignificant processor (Austria, Ireland, Portugal, Greece, Finland). The loss of the singleprocessor available in such countries will remove the market producers in these countriescurrently have for second quality and other eggs which currently cannot be sold directly to theconsumer. The likely returns from these eggs, once cross-border transport has been taken intoaccount, will be lower and producers may have to recoup this loss from shell egg sales eitherpushing up prices for consumers in these markets or resulting in increased imports and lowerdomestic production.With respect to alternative systems the sector considers that in some countries demand forproduction from alternative systems has peaked. This factor combined with the fact that the26 Current demand for powdered egg products is 25% of total egg product demand.27 According to some players in the processing sector it is already cheaper to import.84

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSnew labelling legislation will mean that it is no longer possible for ‘cascading’, i.e. the movementof surplus alternatively produced eggs into the caged egg chain, to take place, mean that in futureeither the premium that such eggs currently command will reduce as supply exceeds demand, orproducers may withdraw these eggs from the shell market and seek to sell into the food serviceand processing sectors instead at a lower price 28 . In either case this is likely to reduce thecompetitiveness of alternative production.6.1: The experience of banning caged egg production in SwitzerlandSwitzerland introduced a ban on caged production of eggs in 1981 with a ten year transition period.All shell eggs produced in Switzerland are now produced from alternative systems (the majority(60%) of which have outdoor access and might be equated with the EU free range system, theremainder in barn systems). During the 1980s it was decided that the Swiss version of ‘enriched’cages appeared not to adequately satisfy animal welfare needs and they were therefore not acceptedas an alternative.This process was greatly enhanced by the fact that from the early 1990s onwards the two dominantsupermarket chains in Switzerland (Co-op and Migros) saw it as a major means of enhancing theirmarketing strategy and image to provide consumers with eggs from alternative systems. They thusinvested heavily in the promotion of eggs produced in alternative systems and thereby contributed toa change in consumer demand patterns 29 . This was further reinforced border protection and bygovernment funded programmes providing substantial investment subsidies for the transition toalternative production systems 30 . The combination of these factors has meant that consumers arenow willing to pay a premium for alternatively produced eggs 31 .The consequences of this policy are highlighted in Figure 6.1 below. Overall egg consumption fellfrom the mid 1980s to the mid-1990s, although remained stable from this point. Within overall eggconsumption the share of domestically produced shell eggs, as well as the share of processed eggproducts, in total consumption has risen. Egg product imports have doubled from some 32 eggs percapita in 1990 to some 62 eggs per capita in 2003. At the same time the share of imported shell eggsfell sharply between 1990 and 1995 (from some 74 eggs per capita to some 37 eggs per capita) asimport protection measures were adopted and consumer preferences changed 32 . Thus, the overallbalance on the market between imported and domestically produced eggs has remained broadly28 According to some players in the processing sector it is already cheaper to import. The only alternative to this outlook would be if themarket for alternatively sourced eggs in the food service (catering) sector or the processing sector expanded dramatically. At present thismarket is very limited although one retailer in the UK, Marks & Spencer uses only alternatively sourced eggs in its branded processedproducts and we are aware that there is currently some, albeit limited usage of such eggs in the food service sector. There is, however, nocurrent expectation amongst producers or retailers that in the short to medium term this market will grow to take a significant marketshare.29 Zweifel, Ruedi., ‘Schweizer Eierproduktion: 22 Jahre nach dem „Käfigverbot’, Aviforum Colmar Conference on ‘Haltungssysteme imWandel’, November: 2003.30These were BTS ‘besonders tierfreundliche Stallhaltungssysteme ‘ (particularly welfare friendly production systems) and RAUS‘regelmässiger Auslauf ins Freie (regular access to free range).31 The average price of an egg in Switzerland was approximately double that in the four adjacent EU Member States in 2003.32 Oester, H. & Fröhlich, E.K.F., Non-cage housing systems for laying hens in Switzerland, Centre for proper housing: poultry and rabbits(ZTHZ), Swiss Federal Veterinary Office, (FVO), Zollikofen, Switzerland.85

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSstable with around 50% of total egg consumption being derived from each source. These numbersdo not indicate what proportion of imported eggs are sourced from alternative egg production, but itmight be assumed that the bulk of imported egg products are derived from caged production and thebulk of imported shell eggs are sourced from alternative forms of production, although it has alsobeen noted that there has been an increase in the share of egg products being sourced fromalternative systems. There is currently some concern, however, that the extensive transitionalsubsidisation of producers switching to alternative systems has created a group of potentially nonviableholdings. 33250200Annual per capita consumption1501005001975 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003Domestic shell eggs Imported shell eggs Domestic egg products Imported egg productsFigure 6.1: Per capita egg consumption in Switzerland, 1975-200333 Koch, Benedikt and Rieder, Peter, Staatliche Marktinterventionen unter besonderer Berücksichtigung vertikaler Vertragsproduktion,Institut für Agrarwirtschaft, Gruppe Markt und Politik, ETH-Zentrum, February 2002.86

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS7. Economic impact of potential changes affecting the egg sectorFollowing on from the data collection exercise undertaken in Stage 1 of this research, in line with theTerms of Reference for this study, Agra CEAS, in conjunction with Imperial College, London,constructed a model of the EU-25 egg sector in order to test a range of scenarios agreed with theSteering Group for the study. These scenarios have been designed to examine the potential socioeconomicimpact of the implementation of the 2012 battery cage ban in line with Directive1999/74/EC and other potential changes (e.g. to border protection, input costs) for the futureevolution of the sector.This Chapter therefore sets out and reports results for the scenarios investigated under Stage 2 ofthis research. These results have been produced by employing an Equilibrium Displacement Model(EDM) of EU egg production and market demand that includes trade with third countries. A fulltechnical description of the model used and our bibliography is presented in Appendix 3.Four sets of scenarios are considered as follows:1. increase in production costs;2. changes in demand;3. changes in import tariffs; and,4. joint policy scenarios.The socio-economic results presented for each scenario consist of producer, consumer and totalsurplus changes measured in Euros (at 2003 prices to be consistent with the collected data) as wellas percentage changes in egg production (shell caged, shell alternative and processed). In terms ofdefinitions, shell caged describes production in all caged systems (traditional and enriched), shellalternative embraces all non-caged forms of production (i.e., barn, free range and organic) andprocessed is that fraction of egg production, from all forms of production, used by the food industry.The following sub-section contains a brief overview of the EDM, key data and terminology employed.Section 7.2 presents results for the EU-15 and EU-25 and Section 7.2 concludes.7.1. Equilibrium Displacement Models: an overviewThere are a number of alternative modelling approaches that could be used to undertake the analysisrequired here. However, EDMs have proven a popular choice in agricultural policy analysis in the USand Australia when considering individual agricultural industries (e.g., Alston, 1986, Cranfield, 2002and Zhao, et al., 2000, 2002). According to Piggott (1992) the term EDM has arisen in contexts inwhich the analysis focuses on a specific market that can be characterised by a set of supply anddemand functions where no functional form is assumed; and where:1. the market is ‘shocked’ as the result of a change in some exogenous variable; and,2. the effect of the shock on the market is approximated by functions that are linear in elasticities.87

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe EDM approach is not uncommon in economics as it simply involves comparative statics. Astructural model is built that describes the industry and/or markets of interest. This structural modelis then combined with various types of data (i.e. elasticities, shift parameters, share parameters) todescribe the initial equilibrium prevailing. Then, for example, a policy shock or change to some otherexogenous variable is allowed. The type of shocks that can be accommodated by a model willdepend on its structure and clearly the structural model is designed with the type of policy shock ofinterest in mind.There are several reasons for using an EDM to undertake the modelling of the EU egg sector.First, as Piggott (1992) argues, the main strength of EDMs is: that it allows qualitative assessmentsto be made of the impacts on endogenous variables of infinitely small changes in exogenousvariables.’ (p.133).This means that it is relatively simple to undertake ’what if’ analysis and to examine various scenariosof interest to the industry.Second, EDMs are also very useful at yielding estimates of policy change when either limited timeor resources are available to conduct econometric modelling. Without a huge data collectioneffort it is unlikely that an econometric model can be developed to capture the necessarycomplexities of industry structure. The data requirements of an EDM are minimal and much ofthe data can be obtained from secondary data sources and existing research.Third, an important aspect of EDMs is that they require the use of elasticities and in many casesthese elasticities can be obtained from the literature. However, it is also not uncommon forelasticities not to exist for certain parameters of a model and in cases such as this eithereconomic theory or qualitative information is required. As with all models it is important tovalidate the reliability of results obtained and in the case of EDMs it is common practice toundertake extensive sensitivity analysis using Monte Carlo methods.Fourth, Zhao, et al., (2003) argue that an EDM is an appropriate approach to take in specificmodelling situations. When a researcher is concerned with analysing disaggregated industrysectors and there is limited data, an EDM is well suited. An alternative approach, and one thathas already been used to examine the egg industry, is computable general equilibrium (CGE)modelling (van Horne and Bondt, 2002). However, when an industry is small relative to the restof the economy, such as the egg industry, and the commodities in question have few closesubstitutes in production or consumption, then an EDM is more appropriate. Furthermore,many CGE models are highly aggregated in nature and as such they do not provide the richnessof detail that an EDM can incorporate. This has a detrimental impact on the breadth and depthof industry specific results. This point in neatly borne out by the work of van Horne and Bondt(2002) who previously used the GTAP GCE model to consider the impact of Directive1999/73/EC. The GGTAP database not only aggregates many countries into regions, ignoring the88

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSimportance of intra-regional trade, but also it does not model eggs as a separate productionactivity. Instead eggs are subsumed into intensive livestock along with pigs and poultry. Also,eggs are not disaggregated to include shell eggs from alternative production. Therefore for thetype of results and information required it is clear that an EDM is more appropriate and canprovide superior results.7.1.1. EDM Model SpecificationThe simplest way to describe the EDM employed is to consider Figure 7.1 below.InputsFeed, Labourand OtherEggProductionCagedShelldAlternativeTrade with ThirdCountriesProcessedFigure 7.1: Schematic diagram of the EDM modelFigure 7.1 shows that the EDM is comprised of an egg production sector that employs three primaryinputs (feed, labour and ‘other’). The ‘other’ input category captures all activity that has a potentialbearing on cost of production, principally bird depreciation (see Section 2.4) for a full breakdown ofthe cost structure). The eggs that are produced are then separated into three types: caged shell,alternative shell and processed. Finally, trade in both caged shell and processed eggs is included and,depending on individual Member State circumstances will be either a net import or a net exportrequirement.The first step in making the model operational is to characterise the various market relationshipsalgebraically. To conduct policy analysis with the model it is ‘shocked’ or displaced from its initialequilibrium as a result of some exogenous change (e.g., a demand or supply shift). By totallydifferentiating all equations in the model and expressing these in the form of elasticities the modellinearly relates changes in the endogenous variables to changes in exogenous variables.89

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSFor the purposes of this study, we report results for a number of policy experiments that take theform of an exogenous variable change. In line with the scenarios agreed with the Steering Group forthis study, the results reported on are as follows: producer, consumer and total surplus changes measured in Euros (2003);changes in the volume of egg production (shell caged, shell alternative and processed) measuredin per cent 34 .The analysis we conduct with the model is to make a change in one of the exogenous demand orsupply shift parameters. Our measures of welfare change take account of situations when there aremore than two sources of general equilibrium feedback i.e. close substitutes in demand. For all otherdemand and supply situations the measurement of economic surplus is straightforward 35 .7.1.2. Data parameters and elasticitiesTo solve the EDM three sets of information were used. These were:1. Base equilibrium prices and quantities for all sectors and markets;2. Market parameters that describe producer and consumer responses to any price change; and,3. The value of exogenous variables (e.g. tariff or input cost changes) that quantify the shocks.Base equilibrium prices and quantities have been obtained from existing EU data sources as well asStage 1 of this research. The various market parameters required to make the model operational,such as elasticities, have been derived as a result of an extensive review of the literature as well astaking account of industry opinion that emerged as part of the project. In this context it is to benoted that some of the elasticities needed to solve the model do not emerge as a result ofeconometric estimation but rather the analysts' feel for what is appropriate. In this case what haspreviously been used in the EDM literature has been considered. We would also note that thedesire for a model that describes an industry supply chain will almost always mean that many of thekey parameters have not been estimated statistically. This is a limitation of EDMs but even more soof Classical General Equilibrium (CGE) models or any other type of detailed simulation model.Finally, the model has been devised in such a way that all exogenous variables allow us to examinethe relevant policy scenarios.34 As for existing EDMs we accept the proposition that change in economic surplus is measured off Marshallian demand and supply curves.Furthermore, as only relatively small shifts in demand or supply curves are examined it is the trapezoid area of welfare change that ismeasured and as such the errors from using changes in surplus to approximate changes in Hicksian welfare are relatively small (Zhao, et al,2003).35 Our estimates of producer/consumer and total surplus are only approximations of welfare changes because we have employedMarshallian and not Hicks compensated demand curves. We have, however, conducted the necessary theoretical testing on the model toensure that our surplus measures are a good approximation. For more technical detail on these issues see La France (1991) and Thurman(1991) and Zhao et al. (1999).90

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe main differences between the EU-15 and EU-25 models relate to key data inputs. First, bothtotal revenue from egg production and total costs of production, are greater for the EU-25. Second,to reflect differences in egg production by production system, the contribution to total revenue hasbeen adjusted. As would be expected, caged egg production provides a higher proportion ofrevenue because in the EU-25 the use of alternative systems to produce eggs is lower than in the EU-15.7.2. Scenario results7.2.1. Production costsThe four scenarios examined involve changes (all net increases) to feed, labour and other costsresulting in total cost changes of 1%, 5%, 10% and 20%. It is important to note that these changesare intended to highlight possible implications of the ban on production in unenriched cage systemsand they could be induced by a combination of actual cost changes, changes in the productionsystems used and/or changes in space allowances within enriched cages. As is evident from the Stage1 research presented earlier in this report there are substantial differentials in costs between thevarious production systems currently in use. Section 2.4.2.1 shows that the variable costs of barnproduction are 12% higher than production in traditional cages and free range production costs are22% higher. The scenarios presented therefore represent an estimation of the potential implicationsof moving from traditional caged production to alternative systems. It should be noted that thescenarios are not based on data drawn from any single country but are derived from the discussionwith industry in Stage 1 of this project as well as a literature review.It needs to be borne in mind that for the lower percentage changes (1%, 5% and 10%) the modelresults are considered to be robust. However, the 20% change in the model needs to be treatedwith a degree of caution since as with all economic models there are limits to the interpretativecapacity, particularly for changes in parameters that represent a significant change from thebenchmark 36 . The standard deviations (SDs) presented in the tables are small which means that thesensitivity analysis highlights that the model results are robust with respect to a range of keyparameter estimates.Our results are presented in Table 7.1 for the EU-15 and Table 7.2 for the EU-25.36 As part of our analysis we have conducted significant sensitivity analysis using Monte Carlo methods. All results reported are for aMonte Carlo experiment of 10,000 draws which is large in comparison to existing applications of this method in the literature. As a resultwe can be sure that our mean and standard errors results are robust. In terms of the model performance it can be seen from all theresults presented the standard errors are small compared to the means. More details of the various assumptions underpinning the MonteCarlo experiment are provided in Appendix 3.91

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 7.1: Increase in production costs (EU-15)Feed Units 1% SD 1 5% SD 10% SD 20% SDProducer Surplus Euro (millions) -20.21 0.46 -100.25 2.36 -198.65 4.92 -389.84 10.71Consumer Surplus Euro (millions) -3.60 0.51 -17.93 2.49 -35.59 4.96 -70.25 9.90Total Surplus Euro (millions) -23.80 0.04 -118.18 0.15 -234.25 0.24 -460.09 1.21Quantity Shell % 0.03 0.01 0.17 0.03 0.34 0.06 0.68 0.12Quantity Processed % -0.02 0.00 -0.09 0.02 -0.17 0.04 -0.35 0.08Quantity Alternative % -0.36 0.05 -1.78 0.23 -3.56 0.47 -7.10 0.95Price Shell % 0.03 0.00 0.13 0.02 0.27 0.05 0.53 0.10Price Processed % 0.02 0.00 0.11 0.02 0.22 0.04 0.45 0.08Price Alternative % 0.46 0.07 2.32 0.33 4.63 0.66 9.24 1.33Quantity Shell 3rd Country % 0.17 0.02 0.85 0.11 1.71 0.23 3.41 0.46Quantity Processed 3rd Country % 0.14 0.02 0.72 0.09 1.43 0.19 2.85 0.39Labour Units 1% SD 5% SD 10% SD 20% SDProducer Surplus Euro (millions) -4.05 0.08 -20.21 0.42 -40.32 0.84 -80.34 1.71Consumer Surplus Euro (millions) -0.72 0.09 -3.59 0.46 -7.19 0.91 -14.31 1.82Total Surplus Euro (millions) -4.77 0.01 -23.80 0.04 -47.51 0.07 -94.64 0.13Quantity Shell % 0.01 0.00 0.03 0.01 0.07 0.01 0.14 0.02Quantity Processed % 0.00 0.00 -0.02 0.00 -0.03 0.01 -0.07 0.02Quantity Alternative % -0.07 0.01 -0.36 0.04 -0.71 0.08 -1.42 0.17Price Shell % 0.01 0.00 0.03 0.00 0.05 0.01 0.11 0.02Price Processed % 0.00 0.00 0.02 0.00 0.04 0.01 0.09 0.02Price Alternative % 0.09 0.01 0.46 0.06 0.93 0.12 1.85 0.24Quantity Shell 3rd Country % 0.03 0.00 0.17 0.02 0.34 0.04 0.68 0.08Quantity Processed 3rd Country % 0.03 0.00 0.14 0.02 0.29 0.03 0.57 0.07Other Units 1% SD 5% SD 10% SD 20% SDProducer Surplus Euro (millions) -16.24 0.32 -80.70 1.64 -160.18 3.40 -315.38 7.23Consumer Surplus Euro (millions) -2.80 0.35 -13.97 1.75 -27.81 3.47 -55.17 6.85Total Surplus Euro (millions) -19.04 0.03 -94.67 0.11 -187.99 0.17 -370.55 0.72Quantity Shell % 0.03 0.00 0.13 0.02 0.27 0.04 0.53 0.09Quantity Processed % -0.01 0.00 -0.07 0.02 -0.14 0.03 -0.27 0.06Quantity Alternative % -0.28 0.03 -1.39 0.16 -2.77 0.32 -5.55 0.64Price Shell % 0.02 0.00 0.10 0.02 0.21 0.04 0.42 0.07Price Processed % 0.02 0.00 0.09 0.01 0.17 0.03 0.35 0.06Price Alternative % 0.36 0.05 1.80 0.23 3.61 0.46 7.22 0.92Quantity Shell 3rd Country % 0.13 0.02 0.66 0.08 1.33 0.16 2.66 0.31Quantity Processed 3rd Country % 0.11 0.01 0.56 0.07 1.11 0.13 2.23 0.26Source: Agra CEAS estimates.Note: 1 Standard Deviation.92

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 7.2: Increase in production costs (EU-25)Feed Units 1% SD 1 5% SD 10% SD 20% SDProducer Surplus Euro (millions) -22.69 0.48 -112.60 2.43 -223.01 5.14 -437.33 11.04Consumer Surplus Euro (millions) -3.57 0.52 -17.80 2.54 -35.45 5.11 -70.25 9.98Total Surplus Euro (millions) -26.27 0.04 -130.40 0.13 -258.46 0.27 -507.58 1.49Quantity Shell % 0.03 0.01 0.17 0.03 0.33 0.06 0.66 0.12Quantity Processed % -0.02 0.01 -0.11 0.02 -0.21 0.05 -0.43 0.10Quantity Alternative % -0.36 0.05 -1.80 0.24 -3.61 0.48 -7.21 0.97Price Shell % 0.03 0.01 0.15 0.03 0.31 0.06 0.62 0.11Price Processed % 0.03 0.00 0.13 0.02 0.27 0.05 0.54 0.10Price Alternative % 0.47 0.07 2.36 0.34 4.72 0.69 9.44 1.37Quantity Shell 3rd Country % 0.20 0.03 0.98 0.13 1.96 0.27 3.93 0.53Quantity Processed 3rd Country % 0.17 0.02 0.85 0.12 1.71 0.23 3.42 0.47Labour Units 1% SD 5% SD 10% SD 20% SDProducer Surplus Euro (millions) -4.55 0.08 -22.69 0.43 -45.29 0.87 -90.21 1.79Consumer Surplus Euro (millions) -0.71 0.09 -3.57 0.46 -7.13 0.93 -14.22 1.88Total Surplus Euro (millions) -5.26 0.01 -26.26 0.04 -52.42 0.07 -104.43 0.12Quantity Shell % 0.01 0.00 0.03 0.01 0.07 0.01 0.13 0.02Quantity Processed % 0.00 0.00 -0.02 0.00 -0.04 0.01 -0.08 0.02Quantity Alternative % -0.07 0.01 -0.36 0.04 -0.72 0.09 -1.44 0.17Price Shell % 0.01 0.00 0.03 0.01 0.06 0.01 0.12 0.02Price Processed % 0.01 0.00 0.03 0.00 0.05 0.01 0.11 0.02Price Alternative % 0.09 0.01 0.47 0.06 0.94 0.12 1.88 0.25Quantity Shell 3rd Country % 0.04 0.00 0.20 0.02 0.39 0.05 0.78 0.09Quantity Processed 3rd Country % 0.03 0.00 0.17 0.02 0.34 0.04 0.68 0.08Other Units 1% SD 5% SD 10% SD 20% SDProducer Surplus Euro (millions) -18.23 0.33 -90.59 1.68 -179.76 3.58 -353.99 7.48Consumer Surplus Euro (millions) -2.78 0.36 -13.88 1.77 -27.67 3.61 -54.86 6.95Total Surplus Euro (millions) -21.01 0.03 -104.47 0.10 -207.44 0.19 -408.84 0.89Quantity Shell % 0.03 0.00 0.13 0.02 0.26 0.05 0.52 0.09Quantity Processed % -0.02 0.00 -0.08 0.02 -0.17 0.04 -0.33 0.08Quantity Alternative % -0.28 0.03 -1.40 0.16 -2.81 0.33 -5.62 0.65Price Shell % 0.02 0.00 0.12 0.02 0.24 0.04 0.48 0.08Price Processed % 0.02 0.00 0.10 0.02 0.21 0.04 0.42 0.07Price Alternative % 0.37 0.05 1.84 0.24 3.68 0.48 7.34 0.94Quantity Shell 3rd Country % 0.15 0.02 0.77 0.09 1.53 0.18 3.06 0.36Quantity Processed 3rd Country % 0.13 0.02 0.67 0.08 1.33 0.16 2.67 0.32Source: Agra CEAS estimates.Note: 1 Standard Deviation.93

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe first thing to note about the results presented in Table 7.1 and Table 7.2 is that, as would beanticipated a priori, both producers and consumers experience a reduction in surplus as a result ofprice increases to each input. As would be expected these differences are relatively larger for theEU-25 because of the larger volume of eggs produced.The relative differences in the scale of the impact between feed, labour and other costs is a reflectionof the relative cost share of each of these inputs. Of perhaps most significance, given the focus onanimal welfare, are the results for other costs that include items such as bird depreciation and layingfacility depreciation. We can see that for a 20% increase in such costs, which is the type ofpercentage increase in terms of variable cost producers are likely to face as a result ofswitching to free range production (slightly more than half this (12%) for barnproduction), the industry will potentially suffer a loss of producer surplus of €315 million(EU-15) and €354 million (EU-25). However, many producers are likely to switch toenriched cage production which will entail a smaller increase in production costs andwill therefore mitigate this loss to some extent.As would be expected the results for the EU-15 and EU-25 behave in the same manner.In particular as costs increase quantities imported increase (by up to between 3-4% for a20% increase in feed costs). This does not, however, significantly affect the overallscenario results because the rise in imports is from a very low base or, to put thisdifferently, because the quantity of eggs currently traded is very small in relation to thesize of the overall egg market 37 . At the same time domestic production of alternativelyproduced eggs and eggs for processing goes down (by 7.2% and 0.43% respectively for a 20% rise infeed costs). The logic of this is that producers of alternative eggs have little scope to shift intoprofitable production of eggs for processing or conventionally produced shell eggs and therefore acost rise of this nature would have a bigger impact on this market.7.2.2. Demand structureFour scenarios were developed addressing potential changes in demand for eggs produced underdifferent systems (e.g. as a result of changes in retailers’ and consumers’ requirements). Thescenarios examined follow from the market trends observed and discussed in Chapter 3 and involvea reduction in demand for caged shell eggs (of 1%, 5%, 10% and 20% respectively) and an increase inthe demand for processed (of 1%, 5%, 10% and 20% respectively) and alternatively produced shelleggs (of 1%, 5%, 10% and 20% respectively).37 It should be noted that for this scenario tariff levels have been maintained at current levels.94

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe results for these scenarios are presented in Table 7.3 for the EU-15 and Table 7.4 for the EU-25.Table 7.3: Changes in demand for EU-15Reduction in demand for caged shellUnits 1% SD 1 5% SD 10% SD 20% SDProducer Surplus Euro (millions) 1.35 0.35 6.77 1.76 13.55 3.54 27.20 7.08Consumer Surplus Euro (millions) -35.23 0.39 -174.77 2.02 -346.13 4.27 -678.68 9.45Total Surplus Euro (millions) -33.88 0.04 -168.01 0.31 -332.58 0.95 -651.48 3.33Quantity Shell % -0.43 0.05 -2.13 0.23 -4.26 0.47 -8.52 0.94Quantity Processed % 0.09 0.00 0.47 0.01 0.95 0.01 1.90 0.03Quantity Alternative % 0.05 0.01 0.25 0.05 0.50 0.09 1.01 0.18Price Shell % -0.04 0.01 -0.20 0.03 -0.40 0.07 -0.80 0.13Price Processed % 0.00 0.00 0.02 0.00 0.04 0.01 0.08 0.01Price Alternative % 0.54 0.06 2.69 0.30 5.39 0.60 10.77 1.19Quantity Shell 3rd Country % 0.26 0.03 1.28 0.13 2.56 0.26 5.11 0.53Quantity Processed 3rd Country % -0.03 0.00 -0.13 0.01 -0.25 0.03 -0.50 0.06Increased demand for processedUnits 1% SD 5% SD 10% SD 20% SDProducer Surplus Euro (millions) 0.76 0.14 3.78 0.69 7.61 1.39 15.19 2.78Consumer Surplus Euro (millions) 12.22 0.15 62.19 0.72 127.09 1.42 265.19 2.93Total Surplus Euro (millions) 12.97 0.01 65.97 0.11 134.70 0.45 280.38 1.84Quantity Shell % -0.05 0.00 -0.23 0.00 -0.47 0.01 -0.93 0.02Quantity Processed % 0.92 0.08 4.59 0.42 9.20 0.86 18.36 1.72Quantity Alternative % 0.01 0.00 0.06 0.01 0.12 0.03 0.24 0.06Price Shell % 0.00 0.00 -0.01 0.00 -0.03 0.00 -0.05 0.01Price Processed % 0.08 0.01 0.39 0.06 0.79 0.12 1.58 0.24Price Alternative % -0.02 0.00 -0.09 0.02 -0.18 0.03 -0.36 0.07Quantity Shell 3rd Country % 0.02 0.00 0.09 0.01 0.17 0.02 0.34 0.04Quantity Processed 3rd Country % -0.50 0.05 -2.52 0.24 -5.04 0.48 -10.05 0.97Increased demand for alternativeUnits 1% SD 5% SD 10% SD 20% SDProducer Surplus Euro (millions) 3.84 0.08 19.22 0.43 38.50 0.86 77.28 1.66Consumer Surplus Euro (millions) 0.96 0.09 4.78 0.47 9.59 0.97 19.25 1.91Total Surplus Euro (millions) 4.79 0.01 24.00 0.05 48.09 0.11 96.53 0.25Quantity Shell % -0.01 0.00 -0.06 0.01 -0.12 0.01 -0.23 0.03Quantity Processed % 0.00 0.00 0.01 0.00 0.03 0.01 0.05 0.01Quantity Alternative % 0.11 0.01 0.55 0.04 1.09 0.08 2.18 0.17Price Shell % -0.01 0.00 -0.03 0.00 -0.05 0.01 -0.10 0.02Price Processed % 0.00 0.00 -0.02 0.00 -0.04 0.01 -0.08 0.01Price Alternative % 0.86 0.01 4.30 0.06 8.60 0.13 17.20 0.26Quantity Shell 3rd Country % 0.03 0.00 0.17 0.02 0.33 0.04 0.66 0.08Quantity Processed 3rd Country % 0.03 0.00 0.13 0.02 0.25 0.03 0.51 0.07Source: Agra CEAS estimates.Note: 1 Standard Deviation.95

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 7.4: Changes in demand for EU-25Reduction in demand for caged shellUnits 1% SD 1 5% SD 10% SD 20% SDProducer Surplus Euro (millions) 0.99 0.32 4.94 1.57 9.93 3.17 19.90 6.35Consumer Surplus Euro (millions) -38.63 0.35 -191.59 1.82 -379.39 3.91 -743.41 8.97Total Surplus Euro (millions) -37.64 0.04 -186.65 0.30 -369.45 1.01 -723.51 3.63Quantity Shell % -0.43 0.05 -2.14 0.23 -4.27 0.47 -8.54 0.94Quantity Processed % 0.10 0.00 0.48 0.01 0.96 0.01 1.92 0.03Quantity Alternative % 0.04 0.01 0.21 0.04 0.43 0.08 0.86 0.16Price Shell % -0.04 0.01 -0.18 0.03 -0.35 0.06 -0.70 0.12Price Processed % 0.00 0.00 0.02 0.00 0.03 0.01 0.06 0.01Price Alternative % 0.55 0.06 2.75 0.31 5.51 0.62 11.03 1.22Quantity Shell 3rd Country % 0.22 0.02 1.12 0.11 2.23 0.23 4.47 0.46Quantity Processed 3rd Country % -0.02 0.00 -0.10 0.01 -0.20 0.03 -0.41 0.05Increased demand for processedUnits 1% SD 5% SD 10% SD 20% SDProducer Surplus Euro (millions) 0.81 0.15 4.07 0.73 8.14 1.47 16.29 2.90Consumer Surplus Euro (millions) 14.28 0.16 72.69 0.75 148.67 1.46 310.38 3.03Total Surplus Euro (millions) 15.09 0.01 76.77 0.13 156.80 0.54 326.67 2.21Quantity Shell % -0.05 0.00 -0.24 0.00 -0.47 0.01 -0.94 0.02Quantity Processed % 0.93 0.09 4.65 0.44 9.30 0.88 18.59 1.74Quantity Alternative % 0.01 0.00 0.06 0.01 0.12 0.03 0.24 0.05Price Shell % 0.00 0.00 -0.01 0.00 -0.02 0.00 -0.04 0.01Price Processed % 0.07 0.01 0.35 0.05 0.69 0.11 1.38 0.21Price Alternative % -0.02 0.00 -0.09 0.02 -0.17 0.03 -0.35 0.07Quantity Shell 3rd Country % 0.01 0.00 0.07 0.01 0.14 0.02 0.27 0.04Quantity Processed 3rd Country % -0.44 0.04 -2.21 0.21 -4.42 0.43 -8.84 0.86Increased demand for alternativeUnits 1% SD 5% SD 10% SD 20% SDProducer Surplus Euro (millions) 3.22 0.07 16.14 0.33 32.33 0.66 64.84 1.31Consumer Surplus Euro (millions) 0.74 0.07 3.71 0.37 7.43 0.73 14.89 1.48Total Surplus Euro (millions) 3.97 0.01 19.85 0.03 39.76 0.07 79.73 0.17Quantity Shell % -0.01 0.00 -0.05 0.01 -0.10 0.01 -0.20 0.02Quantity Processed % 0.00 0.00 0.01 0.00 0.03 0.01 0.05 0.01Quantity Alternative % 0.09 0.01 0.47 0.03 0.94 0.06 1.88 0.13Price Shell % 0.00 0.00 -0.02 0.00 -0.04 0.01 -0.09 0.02Price Processed % 0.00 0.00 -0.02 0.00 -0.04 0.01 -0.07 0.01Price Alternative % 0.88 0.01 4.40 0.05 8.79 0.11 17.58 0.22Quantity Shell 3rd Country % 0.03 0.00 0.14 0.02 0.29 0.03 0.57 0.07Quantity Processed 3rd Country % 0.02 0.00 0.11 0.02 0.23 0.03 0.46 0.06Source: Agra CEAS estimates.Note: 1 Standard Deviation.96

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe first thing to note about the results from the estimation of the demand scenarios (EU-15 andEU-25), is the way in which the scenario envisaging a reduction in demand for caged shell eggproduction yields very different results compared to the scenarios envisaging increases in demand forprocessed and alternatively produced shell eggs.The model results indicate that under the scenario envisaging a reduction in demand for caged eggproduction producers still gain because they are in principle able to switch into production ofprocessed and shell eggs from alternative systems. This means that even with a 20% reduction indemand for caged shell eggs producer surplus rises by some €20 million in EU-15 and €27 million inthe EU-25. At the same time the modelling results demonstrate that as demand for shell eggs isreduced domestically there is a compensating increase in imports of 4.47% and 5.11% respectively forthe EU-15 and EU-25 in the case of a 20% reduction in caged shell demand.These results are of course predicated on the ability of egg producers to adjust their productionmix 38 and clearly this will not happen immediately. There will be an adjustment period. The speed ofadjustment will, for example, depend on the availability of capital. However, it is clear from theseresults that a reduction in demand for one product will force producers to look at alternative formsof production and within our model these are other types of egg production.Consumers, on the other hand, potentially face a negative impact because of the increase in pricebeing paid for eggs such that the net overall economic effect is a reduction in surplus. Thus for a20% reduction in demand for caged shell eggs consumer surplus declines by €651 million and €724million respectively in the EU-15 and EU-25 as a result of the higher price being paid for alternativelyproduced eggs.Conversely under the scenario envisaging an increase in demand for alternativelyproduced eggs both producers and consumers show a gain in surplus, the latter partly asa result of an increase in utility from increased consumption of alternatively producedeggs (with more desirable characteristics). This amounts to some €77 million forproducers and €19 million for consumers in the case of a 20% increase in demand in theEU-15 (and respectively €65 million for producers and €15 million for consumers for theEU-25). Under this scenario there are minimal trade effects but a significant increase in price(17.2% in EU-15 and 17.6% in EU-25) for alternatively produced eggs assuming a 20% increase indemand.It is interesting to note that, for the reasons discussed above, the impact on consumers of thevarious cost increases being examined is significantly larger than the impact on producers. However,this assumes that premium is payable on eggs from alternative systems remains at current levels andthis may not be the case as production from alternative systems increases. The impact of decreases38 There may of course be constraints to producers’ ability to achieve this in particular locations due to planning and/or environmentallegislation.97

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSin premium would reduce the cost increase to consumers and increase that to producers whosegross margins would be reduced.The impact of an increase in demand for processed and alternatively produced shell eggs is that bothproducer and consumer surplus is increased 39 . In both cases there is a small reduction in the quantityof caged shell eggs produced because producers produce more of the other types.7.2.3. Trade flowsFour scenarios were examined to test the effects of potential reductions in import tariff levels of10%, 20% and 50%. These represent potentially realistic alternative outcomes from the currentDoha Round trade negotiations and should be read in conjunction with our analysis of the egg sectorin third countries which suggests that in certain cases these sectors could compete with those in theEU.The results are presented in Table 7.5 for the EU-15 and Table 7.6 for the EU-25.Table 7.5: Changes in import tariffs for EU-15Units 10% 20% 50%Mean SD 1 Mean SD Mean SDProducer Surplus Euro (millions) -71.27 1.71 -141.71 3.49 -347.04 9.38Consumer Surplus Euro (millions) 79.80 1.84 160.58 3.66 407.72 9.10Total Surplus Euro (millions) 8.53 0.14 18.87 0.26 60.68 1.23Quantity Shell % 0.84 0.09 1.67 0.17 4.18 0.44Quantity Processed % 1.53 0.16 3.05 0.32 7.63 0.80Quantity Alternative % -1.22 0.15 -2.43 0.31 -6.09 0.78Price Shell % -1.76 0.03 -3.52 0.05 -8.80 0.13Price Processed % -1.70 0.03 -3.40 0.06 -8.51 0.16Price Alternative % 0.42 0.22 0.84 0.45 2.11 1.13Quantity Shell 3rd Country % 1.04 0.09 2.09 0.18 5.22 0.45Quantity Processed 3rd Country % 1.42 0.11 2.83 0.22 7.08 0.56Source: Agra CEAS estimates.Note: 1 Standard Deviation.39Subject to the caveat concerning the premium payable for alternatively produced eggs cited above.98

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 7.6: Changes in import tariffs for EU-25Units 10% 20% 50%Mean SD 1 Mean SD Mean SDProducer Surplus Euro (millions) -100.31 1.48 -198.96 2.96 -484.70 7.74Consumer Surplus Euro (millions) 111.65 1.66 224.87 3.39 573.63 9.04Total Surplus Euro (millions) 11.34 0.25 25.90 0.82 88.93 4.53Quantity Shell % 1.01 0.12 2.02 0.24 5.06 0.59Quantity Processed % 2.02 0.26 4.05 0.52 10.11 1.27Quantity Alternative % -1.55 0.22 -3.10 0.45 -7.75 1.12Price Shell % -2.12 0.04 -4.24 0.08 -10.61 0.20Price Processed % -2.23 0.07 -4.46 0.13 -11.15 0.32Price Alternative % 0.61 0.29 1.22 0.58 3.04 1.49Quantity Shell 3rd Country % 1.26 0.14 2.52 0.28 6.29 0.70Quantity Processed 3rd Country % 1.95 0.21 3.90 0.42 9.73 1.02Source: Agra CEAS estimates.Note: 1 Standard Deviation.The results from the scenarios reducing the EU’s level of import protection indicatevery clearly that as a consequence of the reduction in import tariffs producers stand tolose substantially (up to €200 million across the EU-25 with a 20% reduction in tariffs or€485 million for a 50% tariff reduction). Conversely as would be expected consumersgain substantially as a result of an increase in supply at a lower price (up to €574 millionwith a 50% reduction in tariffs across the EU-25) with the net effect being a reasonablysubstantial increase in overall surplus of between €89 million (EU-25) and €61 million(EU-15). In line with a priori expectations the various levels of tariff reduction result in a rise in thequantity of imports (of up to just under 10% for processed egg imports in the EU-25 when tariffs arecut by 50%) and a decrease in price. This price decrease also generates higher demand and higherproduction levels to meet this demand.A further interesting feature of the model results is that there is a potential modest decrease in thedemand for alternatively produced shell eggs. This results from the fact that increasing imports willtend to reduce the price for caged shell and processed eggs and will therefore result in somesubstitution of demand from alternative produced shell eggs to caged shell eggs (again assuming thatpremium levels for eggs from alternative systems remain the same).7.2.4. Combined ScenariosAs part of the quantitative analysis, several combined scenarios have also been investigated. Theseresults provide insights into how multiple changes to the egg sector will tend to impact producersand consumers. As previously noted, it should be borne in mind that these estimates need to betreated with caution as the scenarios investigated are pushing the model to the bounds of meaningfulinterpretation.99

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThese scenarios have been presented in order to seek to quantify the impact of several possiblechanges affecting the egg sector simultaneously and thus provide a possibly more realistic assessmentof socio-economic impact. Thus, for example, Scenario 2 represents a situation where the sectormight face an increase in costs, as is likely to occur with the introduction of the battery cage ban in2012, and at the same time experiences a reduction in tariff protection as might occur as a result ofthe current WTO trade negotiations 40 .We present results for the following set of combined scenarios in for the EU-15 and the EU-25 inthe Tables below:Scenario 1:Scenario 2:Scenario 3:Scenario 4:10% increase in demand for alternatively produced shell eggs and a 10% reductionin demand for caged shell eggs.10% increase in other costs and 20% reduction in tariffs.20% reduction in import tariffs and a 20% increase in the demand for alternativelyproduced shell eggs.20% reduction in import tariffs, a 20% increase in the demand for alternativelyproduced shell eggs and a 20% increase in other costs.40 Combining effects to shock the system may have the effect that, in terms of their impact on welfare, the shocks may work in opposingdirections thus reducing the magnitude of the final impact. Thus, for example, if we take Scenario 2 above, an increase in costs reducesconsumer welfare while a reduction in tariffs potentially increases consumer welfare. In other words the net effect is likely to be less thanany of the effects taken on their own. This is also the explanation for the low percentage impact in terms of production and trade volumesin the results presented.100

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 7.7: Combined Scenarios for EU-15Combined Scenario 110% increase in alternative and 10% reduction in cagedUnit Mean SDProducer Surplus Euro (millions) 52.2 3.7Consumer Surplus Euro (millions) -336.6 4.4Total Surplus Euro (millions) -284.4 0.9Quantity Shell % -0.0438 0.0047Quantity Processed % 0.0098 0.0001Quantity Alternative % 0.0160 0.0014Price Shell % -0.0045 0.0007Price Processed % 0.0000 0.0001Price Alternative % 0.1399 0.0058Quantity Shell 3rd Country % 0.0289 0.0027Quantity Processed 3rd Country % 0.0000 0.0005Combined Scenario 210% increase other costs, 20% reduction tariffsUnit Mean SDProducer Surplus Euro (millions) -297.7 7.2Consumer Surplus Euro (millions) 133.1 6.9Total Surplus Euro (millions) -164.5 0.7Quantity Shell % 0.0194 0.0018Quantity Processed % 0.0292 0.0031Quantity Alternative % -0.0520 0.0063Price Shell % -0.0331 0.0009Price Processed % -0.0323 0.0009Price Alternative % 0.0444 0.0088Quantity Shell 3rd Country % 0.0342 0.0032Quantity Processed 3rd Country % 0.0395 0.0032Combined Scenario 320% reduction tariffs, 20% increase alternativesUnit Mean SDProducer Surplus Euro (millions) -66.4 2.0Consumer Surplus Euro (millions) 179.5 2.2Total Surplus Euro (millions) 113.1 0.2Quantity Shell % 0.0144 0.0018Quantity Processed % 0.0311 0.0032Quantity Alternative % -0.0025 0.0015Price Shell % -0.0362 0.0003Price Processed % -0.0348 0.0005Price Alternative % 0.1804 0.0029Quantity Shell 3rd Country % 0.0143 0.0012Quantity Processed 3rd Country % 0.0232 0.0019101

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSCombined Scenario 420 % reduction tariffs, 20% increase alternatives, 20% increaseother costsUnit Mean SDProducer Surplus Euro (millions) -378.1 9.1Consumer Surplus Euro (millions) 124.4 8.5Total Surplus Euro (millions) -253.7 1.1Quantity Shell % 0.0144 0.0018Quantity Processed % 0.0311 0.0032Quantity Alternative % -0.0025 0.0015Price Shell % -0.0362 0.0003Price Processed % -0.0348 0.0005Price Alternative % 0.1804 0.0029Quantity Shell 3rd Country % 0.0143 0.0012Quantity Processed 3rd Country % 0.0232 0.0019Note: SD = Standard DeviationSource: Agra CEAS102

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable 7.8: Combined Scenarios for EU-25Combined Scenario 110% increase in alternative and 10% reduction in cagedUnit Mean SDProducer Surplus Euro (millions) 41.2 3.4Consumer Surplus Euro (millions) -370.8 4.2Total Surplus Euro (millions) -329.6 1.0Quantity Shell % -0.0434 0.0046Quantity Processed % 0.0096 0.0001Quantity Alternative % 0.0136 0.0011Price Shell % -0.0043 0.0007Price Processed % 0.0001 0.0001Price Alternative % 0.1429 0.0059Quantity Shell 3rd Country % 0.0276 0.0026Quantity Processed 3rd Country % -0.0009 0.0004Combined Scenario 210% increase other costs, 20% reduction tariffsUnit Mean SDProducer Surplus Euro (millions) -337.7 7.3Consumer Surplus Euro (millions) 155.5 6.9Total Surplus Euro (millions) -182.1 0.9Quantity Shell % 0.0195 0.0018Quantity Processed % 0.0291 0.0031Quantity Alternative % -0.0533 0.0066Price Shell % -0.0330 0.0009Price Processed % -0.0322 0.0009Price Alternative % 0.0462 0.0091Quantity Shell 3rd Country % 0.0348 0.0033Quantity Processed 3rd Country % 0.0399 0.0032Combined Scenario 320% reduction tariffs, 20% increase alternativesUnit Mean SDProducer Surplus Euro (millions) -98.1 2.4Consumer Surplus Euro (millions) 195.7 2.6Total Surplus Euro (millions) 97.6 0.2Quantity Shell % 0.0148 0.0018Quantity Processed % 0.0309 0.0032Quantity Alternative % -0.0062 0.0020Price Shell % -0.0360 0.0004Price Processed % -0.0346 0.0006Price Alternative % 0.1851 0.0033Quantity Shell 3rd Country % 0.0160 0.0014Quantity Processed 3rd Country % 0.0247 0.0020103

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSCombined Scenario 420 % reduction tariffs, 20% increase alternatives, 20% increaseother costsUnit Mean SDProducer Surplus Euro (millions) -448.4 10.0Consumer Surplus Euro (millions) 143.6 8.8Total Surplus Euro (millions) -304.8 1.7Quantity Shell % 0.0202 0.0019Quantity Processed % 0.0281 0.0030Quantity Alternative % -0.0628 0.0087Price Shell % -0.0317 0.0011Price Processed % -0.0311 0.0011Price Alternative % 0.2589 0.0119Quantity Shell 3rd Country % 0.0432 0.0043Quantity Processed 3rd Country % 0.0475 0.0040Note: SD = Standard DeviationSource: Agra CEASFor the combined Scenario 1, (a 10% increase in demand for alternatively produced eggs and acorresponding reduction in demand for shell eggs), there is an increase in producer surplus (of Euro52 million in EU-15 and Euro 41 million in EU-25) as a result of the rise in higher price alternativeproduction but a significantly bigger decrease in consumer surplus (of Euro 337 million and Euro 330million respectively).For combined Scenario 2, we see that for consumers the negative effect of an increase in other costsof egg production (+10%), such as those associated with bird deprecation and the investment cost ofintroducing alternative egg laying systems, is more than compensated for by a reduction in tariffprotection of 20%. This consumer surplus of Euro 133 million in the EU-15 (€156 million in EU-25)is, however, substantially outweighed by the loss arising to producers (of €298 million in EU-15 and€338 million in EU-25) as a result of having to face higher costs and lower import protection.For combined Scenario 3, (a 20% reduction in tariffs and a 20% increase in demand for alternativelyproduced eggs), results in a loss of producer surplus (of €66 million in EU-15 and €98 million in EU-25), but this is much less than the gain in consumer surplus (of €180 million and €196 millionrespectively).Finally, when we extend the third scenario to also include an increase in costs (Scenario 4) we findthat the net overall effect is a reduction in surplus as producer losses are increased by adding inextra costs and consumer gains are reduced.1047.3. SummaryThe extensive range of scenarios for change reviewed above, provide a useful guide to the directionand magnitudes of potential socio-economic impacts in the form of producer and consumer lossesand gains as well as the trade-offs involved in relation to a range of policy and market scenarios. The

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSmodel used provides a coherent and explicit analysis framework although it inevitably relies onparsimonious assumptions and does not indicate what adjustment path will be taken to arrive at theequilibrium point outlined above. In reality, as a result of the multiple factors which influence anyeconomic sector and specifically the laying hen sector, whatever adjustment processes take place willnot be uniform across the EU 41 .Overall the results we present are as would be expected a priori. In other words, the changes toconsumer and producer surplus from the various exogenous shocks considered do not yield anyunusual or unexpected outcomes. The magnitude of the changes, especially for the 20% scenariosare relatively large (for example up to a €743 million reduction in consumer surplus resulting from a20% reduction in demand for caged shell eggs or a consumer gain of some €574 million from a 50%tariff reduction), but this is to be expected.Specifically as regards the assessment of the likely impact of an increase in costs asmight occur if there were to be a shift into alternative egg production systems as aresult of the implementation of the battery cage ban mandated for 2012 underRegulation 1999/74, the model indicates that for a 20% increase in such costs, which isthe type of percentage increase in terms of variable cost producers are likely to face asa result of switching to free range production, (slightly more than half this (12%) forbarn production), the industry will potentially suffer a loss of producer surplus of €315million (EU-15) and €354 million (EU-25). However, many producers are likely toswitch to enriched cage production which will entail a smaller increase in productioncosts and will therefore mitigate this loss to some extent.It should also be noted that under this scenario as costs increase quantities importedincrease (by up to between 3-4% for a 20% increase in feed costs). This does not,however, significantly affect the overall scenario results because the rise in imports isfrom a very low base or, to put this differently, because the quantity of eggs currentlytraded is very small in relation to the size of the overall egg market.In this context it should be noted that while the model results presented here provide no indicationof the distribution of losses or gains for producers and consumers between Member States, thesewill not ultimately be distributed evenly. In practice, outcomes in this regard will depend on thecurrent structure and cost of production, consumption and trade in each Member State as well asthe nature of the change taking place. Thus, for example, the effect of a reduction in import tariffswill depend on the competitiveness of the sector in each Member State as well as the structure ofdemand.Finally, we note that the magnitude of the results, especially the estimates of change in surplus, needto be considered relative to the potential non-market benefits from changes in animal welfarelegislation. There is a limited literature available on this subject, but estimates to date suggest that41This is evident from the model construction which aggregates Member State detail.105

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSthe non-market benefits may be substantial. For example, Bennett and Blaney (2003) employedcontingent valuation to elicit UK consumer’s willingness to pay for legislation under which traditionalcaged egg production would be phased out. They report as a result of their research that thisproposal would yield annual benefits of £161 million (or some €240 million). This figure is for theUK alone and if we assume that similar estimates were to be derived across the EU-15 or EU-25then we can see that the non-market benefits of improvements in animal welfare are significantly(magnitudes) larger than the estimates presented here. On this basis even where the modellingabove projects a decrease in market surplus, the net impact bearing in mind the non-market aspectscould well be positive.106

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSAppendix 1: Member State reportsA1.1. AustriaA1.1.1. OverviewThe Austrian egg production sector is characterised by the fact that in comparison with a number ofother EU Member States the average size of unit is relatively small. It is also noteworthy that anumber of Austrian Länder have already introduced and implemented bans on all caged productionand the Federal Government has now also adopted a cage ban from 2009. The overall share of thecommercial laying hen flock in alternative production systems is relatively high at 28%. The level ofconcentration in the sector is relatively low and a substantial proportion of output is marketed byproducer co-operatives.A1.1.2. Egg productionAustria’s total egg production amounts to some 1.47 bn eggs from a laying flock of some 5.8 mnlaying hens. At the time of the last census in 1999 there were 89,900 producers with laying hensalthough 99.2% of these producers held less than 1,000 hens. Approximately 1.5 mn hens areestimated to be in flocks of less than 100 birds which produce eggs largely for consumption on farmor direct sale. This output is not recorded.Table A1.1: Structure of laying hen production1979 1995 1999Producers with Producers Stock Producers Stock Producers Stocklaying hens No % head % No % head % No % head %1 - 1000 233.1 99.7 3,830 53.3 105.3 99.5 2,068 34.8 89.2 99.2 1,939 28.61001 - 5000 0.5 0.2 1,176 16.4 0.4 0.4 1,074 18.1 0.5 0.6 1,220 18.05001 - 10000 0.1 0.0 492 6.9 0.1 0.1 698 11.8 0.1 0.1 951 14.010001 - 20000 0.0 0.0 500 7.0 0.0 0.0 502 8.5 0.1 0.1 968 14.320001 - 30000 0.0 0.0 417 5.8 0.0 0.0 311 5.2 0.0 0.0 423 6.230001 - and over 0.0 0.0 764 10.6 0.0 0.0 1,284 21.6 0.0 0.0 1,285 18.9Total 233.7 100.0 7,179 100.0 105.8 100.0 5,937 100.0 89.9 100.0 6,786 100.0Source: Austrian Ministry of Agriculture and ForestryAs is indicated above, Austria’s egg production industry is characterised by the large number ofrelatively small-scale production units. The average number of laying hens per unit is now estimatedto average 3,000 having risen from an average of approximately 750 per holder in the mid 1990s.Since accession a degree of specialisation has occurred with a considerable number of farmersabandoning beef and particularly pig production and concentrating on laying hens alone. Productionstructures tend to be more specialised and concentrated in the East of the country while in thepredominantly grassland Länder of western Austria (Tirol, Vorarlberg and Salzburg) egg productionstill more frequently occurs on units with other livestock.107

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.1.2.1. Main production systemsTaking the latest available data approximately 28 per cent of the flock (1.628 mn birds out of a flockof 5.762 mn birds in 2002) were in non-cage systems. Trade estimates suggest this figure has nowrisen to almost half the total but there were no numbers provided to confirm this. Within thealternative systems free range and barn account for about half of output each while there is verylimited production from perchery or enriched cage systems.Table A1.2: Evolution of laying hen numbersFree Range Deep litter Perchery Caged Total laying hensNotes:19901991 6,179,000 6,179,0001992 4,100 6,227,000 6,227,0001993 4,960 6,324,000 6,324,0001994 3,302 6,477,000 6,477,0001995 286,668 360,503 18,600 5,270,919 5,937,0001996 285,157 439,363 27,600 4,999,317 5,752,0001997 344,466 555,817 43,034 4,756,274 5,700,8711998 456,433 630,716 17,875 4,354,609 5,459,8921999 542,992 692,375 20,393 3,735,465 4,994,8102000 589,007 753,274 14,012 3,462,944 4,824,3052001 680,557 732,592 9,709 4,078,140 5,503,0002002 773,815 853,860 4,134,325 5,762,000 1999 and 2000 total hen numbers are DG Agri estimates. Perchery and deep litter systems are combined from 2002. For 1990 to 2002 caged hens are calculated as total hens less the sum of those in alternative systems, they thereforeinclude organic birds as these are not separately presented in the DG Agri data.Sources: DG Agri, Agricultural Situation in the Community,There is currently almost no production in enriched cages as the sector has been waiting to see whatpolicy the government is likely to adopt in this regard.A1.1.2.2. Main producers/packersThe producer and packing sector in Austria is relatively fragmented with a relatively large number ofnot particularly large scale producers combining to market their output and supplying a number ofcentral packing stations. The major producers/producer organisations in the sector are describedbelow.108

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSAlternativeiererzeugergemeinschaftFormed 4 years ago out of a backward integration process by a large packer/wholesaler who hasdeveloped the leading alternative production based brand ‘Toni’s Freilandeier’ (after the co-opsfounder: Toni Hubmann). It is estimated that this co-operative which groups together 360enterprises accounts for some 80% of free range production and some 600,000 laying hens. TwoAustrian retailers, Spar and Billa, have committed themselves to taking only alternatively producedproduction.Oesterreichische Frischeiererzeugergemeinschaft.This marketing co-op embraces 147 producers (57 producers with caged output covering 540,000hens). The largest holding is 40,000 hens and the average size of holding is 9,400 hens; 50 producersof barn eggs with 180,000 hens, largest 20,000, average size 3,600 hens; 40 free range with some100,000 hens largest 6,000 average 2,550; (total 820,000 hens). Set up five years ago to increaseproducer marketing power. The co-operative delivers to 5 packers who are obliged to take allsupplies.LatschenbergerThe largest individual producer with an estimated 400,000 hens in caged production.A1.1.2.3. Production (packer) concentrationOn the basis that the top three producers/producer organisations account for some 27% of totaloutput and given that the next five producers are estimated to have an average of 50,000 hens each,this would mean that the top 4 producers/producer organisations would account for some 28% oftotal domestic output and the top 8 for 31%. The packing sector is even less concentrated withmost producers packing for themselves and the top four packers (Bohringer, Schrall, Schlierbuschand Landgold) estimated to pack some 14% of output and the top eight 21%.A1.1.3. Technical dataCurrent technical data were provided by the production sector in Austria and the figures presentedin Table A1.3 are averages. There is no data on performance from enriched cages in Austria. Themain point to note is that the feed requirements are higher the more freedom to move around thatthe bird has and pullet costs are also higher in alternative systems.109

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.3: Technical factors, laying hen production in different production systems2003Traditional cages Barn Free-range OrganicLaying cycle (days) 406 413 413 413Empty period (days) 14 28 28 28Feed/bird/year (Kg) 40.58 41.02 44.44 44.44Feed/bird/day (g) 115 120 130 130Eggs/bird/year (collected) 269 246 238 235Kg feed per kg eggs 2.41 2.67 2.99 3.02Mortality (%) 6% 8% 10% 10%Number of hens managed/labourer 10,000 5,000 3,000 3,000Hens housed per m 2 house 18 7 7 6Space allowance per hen per cm 2 550 1,429 1,429 1,323Pullet cost 1 3.40 3.90 4.10 4.10End of lay hen weight Kg n.a. n.a. n.a. n.a.End of lay hen price 0.10 0.10 0.10 0.10Fertiliser value 0.20 0.20 0.20 0.20Notes: some data have been converted from laying cycle to year to correct for different laying cycle lengths by system.1This is the cost of buying in pullets and therefore includes a profit element for the rearer.Source: Industry data.A1.1.3.1. Production costs and gross marginsThe data presented below on variable costs and gross margins show that on the basis of gross marginper m 2 by far the best return was achieved for caged systems due to the fact that in particular feedcosts were significantly lower in this system than for all the alternatives and in particular comparedto organic production. It should be noted that the gross margins indicated below are exceptionallyhigh due to the favourable market conditions prevailing in 2003. Thus average prices ex packingstation in 2003 (for caged production size category M) were Euro 6.52/100 compared to Euro5.74/100 in 2002, a difference of 12%.110

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.4: Variable costs and gross marginsVariable costs Caged Barn Free-range OrganicPullet price in € per head 3.40 3.90 4.10 4.10Adjusted pullet price in € per hen/year 3.05 3.44 3.61 3.61LossesFeed costsin € 100kg/hen/year8.19 8.76 9.58 16.37Veterinarian, medicines 0.15 0.60 0.60 0.70Cleaning, disinfection 0.04 0.04 0.04 0.04Water 0.11 0.11 0.11 0.11Total energy 0.20 0.36 0.36 0.36Floor material 0.00 0.07 0.07 0.07Nest material 0.00 0.00 0.00 0.30Maintenance and repairs 0.10 0.10 0.10 0.10Insurance 0.10 0.15 0.18 0.18Producer levy per hen 0.17 0.17 0.17 0.17Pasture maintenance per ha 0.00 0.00 0.07 0.07Professional orgs. lvey 0.05 0.05 0.05 0.05Packaging 0.50 0.47 0.46 0.45Other variable costs 0.20 0.20 0.20 0.20Total variable costs in € per head 12.85 14.52 15.61 22.78Gross revenueSaleable output € per hen 15.31 17.43 19.04 28.90Processing € per hen 0.38 0.41 0.51 0.51Spent hens € per hen 0.10 0.10 0.10 0.10Fertiliser value € per hen 0.20 0.20 0.20 0.20Total gross revenue 15.98 18.14 19.85 29.71less variable costs 12.85 14.52 15.61 22.78Gross margin per hen 3.13 3.63 4.24 6.93per m² 56.99 25.38 29.68 41.57A1.1.4. Egg processingIt is estimated that some 45% of overall supplies (on average between 15-25% of domesticproduction) is sold to processors. The greater part of this surplus is accounted for by eggs fromalternative production systems where there appears to have been substantial (partially governmentsupported) over-investment since 1995. The level of surplus is variable with production being gearedto the two annual peaks in usage at Christmas and Easter (at Easter demand rises 30% above theaverage for the year as a whole). Since production is largely inflexible (although there is some effortto introduce new hens with higher productivity) just before Easter, means that demand is heavilydependent on tourist arrivals both in the winter (often weather dependent) and summer (when inany case fewer eggs are eaten).111

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.1.4.1. Main egg processorsThe processing sector in Austria is highly concentrated with one company dominating the sector.This is Pro-Ovo which is partially owned by WEKO from the Netherlands and is estimated to havean 85% market share. This company is profiled below. Very little production moves directly from eggproducers to processors with the bulk of output passing through the packing stations. There are alsoa number of well established traders primarily importing from Central Europe, Canada, the UnitedStates and India.Box A1.1: Profile of Pro-Ovo, AustriaPro-Ovo is partially owned by WEKO in the Netherlands and is Austria’s largest processor withan approximate 85% market share.Production: 7,000-8,000 tonnes per year (3mn eggs)Employment: 20 personsMain products: produces primarily liquid egg (some frozen) as well as sugared concentrated products.Also produces some 20-30 tonnes per week of product from barn eggs for export and sale to pastrymanufacturers and large food processorsMain markets: 80% domestic, 20% exported to Germany, Croatia, Hungary, Czech RepublicApart from Pro-Ovo there are only three further processors. These are presented below:Amering Eiprodukte, estimated to have a 10% market share or less than 1,000 tonnes peryearSchloegel with a 2.5 % market shareFallsberger with a 2.5% market share.A1.1.4.2. Processor concentrationThe four companies indicated above between them undertake 100% of processing. Thus both thefour-firm and eight-firm concentration ratio is 100%..A1.1.4.3. Trade in egg productsAustria has a substantial deficit in egg production in that out of a total domestic usage of some116,000 tonnes in 2003 net imports amounted to 31,000 tonnes (41,000 of total imports less 10,000of exports). Self-sufficiency therefore amounts to 73% compared to 100% in 1991. In this context it isworth noting that Austria’s imports of shell eggs have risen from 88 mn eggs in 1997 to 212 mn eggsin 2002 while exports have remained stable at just under 30 mn. Net imports of liquid and frozen eggproducts came to 3,559 tonnes while net imports of dried egg products came to 1,292 t.112

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.1.5. Egg marketsA1.1.5.1. Primary demandAverage consumption of eggs has fallen from 14.5 kg per head in 1980 to 13.8 kg per head in 2002.Approximately 50% of domestic production is sold directly by producers to the food service sector,off farm or to local shops. Only a very limited proportion of these sales (

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS1201008060402001990 1992 1994 1996 1998 2000 2002 2004AustriaEUFigure A1.1: Evolution of egg market prices 1991-2003 (size categories L+M)Source: DG Agri.2%Percentage difference from EU average1%0%-1%-2%-3%-4%-5%1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.2: Difference between Austrian and EU egg market prices 1995-2003Source: DG Agri.114

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.1.5.3. Demand and supply elasticitiesThere is no data on supply and demand elasticities.A1.1.6. Impact of Directive 1999/74/ECA1.1.6.1. Implementation to dateFollowing the adoption of the legislation at EU level Austria introduced a complex system oflegislation governing the welfare requirements for laying hens. Currently each of the nine Länder hasits own rules. Broadly speaking the western Länder (Vorarlberg, Tirol, Salzburg, Carinthia plusVienna – which in any case has no production,) have all adopted a total ban on caged production ofany kind and this has been in place with varying dates of implementation starting in 2001. For thevery limited amount of caged production which existed in these Länder, transitional supports(enabling producers to write off their investment) were introduced. Burgenland has legislated for atotal ban in 2008. For the other 3 Länder (Upper and Lower Austria and Steiermark) caged systemsare still allowed.A Federal animal welfare law was adopted by a two-thirds majority in the Austrian Parliament at theend of May 2004. This legislation bans the use of conventional cages from 2009 onwards and the useof enriched cages from 2019. It also bans investment in enriched cages from 1 January 2005.A1.1.6.2. Expected implementationAs is indicated above a number of Austrian Länder have pre-empted the EU Directive by introducingcage bans earlier than required under the EU legislation. These regions, which in any case hadrelatively little caged production, are already in compliance with the requirements for 2012. For theregions which have not introduced cage bans to date the new national legislation will force them toremove conventional caged systems by 2009 but they will continue to be able to operate enrichedcages until 2019. Until now the sector has not been undertaking any investment since it has beenawaiting both the outcome of the Federal Government’s legislative initiative and the review of theEuropean legislation. Thus there has to date been virtually no production/investment in enrichedcages taking place although some equipment manufacturers have been trying to encourage this.115

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.2. BelgiumA1.2.1. OverviewBelgium typically produces around 240,000 tonnes of eggs annually, three quarters of which arepacked by 10 central packers. Most of the remainder are packed on farm for smaller retail outletswith a very small proportion sold direct. There are around 450 commercial producers with a layingflock of some 13 million birds. Commercial flocks are typically around 35,000-40,000 birds for cagedsystems and less for alternatives. Belgium is a net exporter importing 66,000 tonnes and exporting99,000 tonnes in 2003. There are five processing companies in Belgium.A1.2.2. Egg productionAnnual Belgian production in 2001 was 205,000 tonnes from a laying flock of 9,940,475 42 birds. Thepredominant mode of production is in traditional caged systems which accounted for 95.5% of thenumber of laying hens in 2001. The bulk of Belgian egg production is in Flanders in the northern halfof the country.Overall Belgian egg production rose from 200,400 (3.134 bn eggs) in 1991 to a level of 236,000tonnes (3.729 bn eggs) in 2001 but fell back to 205,000 tonnes (3.239 bn eggs) in 2003 due to avianflu.Table A1.5: Belgium egg production, 1990-2003Year Production '000t No of eggs (bn) 21990 186 2.9431991 20 3.1341992 210 3.1811993 210 3.3391994 244 3.8131995 245 3.8331996 241 3.5561997 252 3.9771998 263 4.1471999 251 3.9622000 216 3.4072001 236 3.7292002 225 3.5552003 205 3.239Source: Eurostat, ZMP and Agra Ceas EstimatesThere has also been significant concentration in the production sector as illustrated in Figure A1.3which presents the evolution which shows the evolution of the proportion of laying hens by flock42 The May 2003 census records a total of 12,965,814 laying hens and pullets of which 9,940,475 were laying hens (8,469,512 hens forconsumption eggs and 1,470, 963 for eggs for breeding)116

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSsize. In 1990 there were 12,910 producers, of which just over 90% had a flock size of less than 100laying hens. The largest 90 producers with flocks of over 30,000 hens accounted for just under 40%of the national flock in 1990 compared to the 190 producers in this size category in 2000 whoaccounted for some 65% of the flock. The level of concentration by 2000 is even more striking sinceover 90% of the flock was held by 420 producers with more than 10,000 hens. Overall by 2000 thetotal number of producers with laying hens had fallen to 5,460 and the average number of laying hensheld increased from 9,605 in 1990 to 18,047 over the same period although if the average ofcommercial producers were taken the average is estimated to lie between 35,000 and 40,000 hens.By 2003 there were 4,507 holdings recorded as producing eggs for consumption. The largestindividual producer was estimated to hold 200,000 hens and there are an estimated 7-8 furtherproducers with a flock in excess of 100,000 hens. Three hatcheries control the bulk of pulletproduction. These are van der Berghe, van der Moonen and de Biest.100%90%80%70%60%50%40%30%20%10%0%1 to 99 100 to 2999 3000 to 9999 10000-29999 over 29999Figure A1.3: Belgium, Evolution of share of total flock in holdings by flock sizecategories (no of laying hens) 1990-2000Source: DG Agri.1990 1995 1997 2000Most large scale producers tend to be specialist egg producers in that the egg enterprise is the mostsignificant economically and the sector estimates that while 30% of holdings are on mixed farms over85% of the flock is on specialised units. It is estimated that half the producers are private farmerswho will have a contract with a feed company to provide feed and take the eggs. The feed companywill then have a contact with the packers who will either buy on a fixed price contact for a year oron the spot price. Some 30% of producers are totally integrated and the remaining 20% are partiallyintegrated.117

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.2.2.1. Main producers/packersThe Belgian packing industry is made up of some 150 packers. The majority of the larger packersoperate solely as packers but two of the largest (Belovo and Lodewickx) are also egg processors.One of the larger packers, Euroei also has extensive production capacity estimated at some 200,000layers, some 75% of all eggs packed. The sector is relatively unconcentrated with the top 4companies estimated to pack some 25-30% of Belgian egg output and the top 8 companies packingbetween 40-50% of output. Data on the market shares for the top eight companies was not availableand Table A1.6 therefore presents the largest eight packers in alphabetical order. It is estimated thatthe next 40 companies' pack a further 30% of output with the balance being accounted for byapproximately 100 mainly farm based units.Table A1.6: Belgium, top 8 egg packersRankn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.CompanyBelovoDe KeysersEuroeiHof ter LindKempische EierhandelLodewickxLouwersVerhelstA1.2.2.2. Main production systemsThe predominant mode of production is in traditional caged systems which accounted for 95.5% ofthe number of laying hens in 2001. In this year 2.8% of hens were held deep litter systems(grundhuisvesting) although this percentage is estimated to have risen to some 8% in 2003. Freerange systems account for 1.2% of hens in 2001 and there was almost no production percherysystems (volierehuisvesting). Since the early 1990s the share of hens in alternative productionsystems has risen gradually from a base of 1.75% in 1991. We understand that there are only sixproducers of organic eggs. It was indicated that there was no use of enriched cages except on anexperimental basis.118

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.7: Evolution of laying hen numbers by system 1990-2001Caged Free Range Semi-intensive Deep litter Perchery Total layinghens1990 10,486,422 1,400 8,814 218,035 77,309 10,792,0001991 11,287,441 5,317 17,596 137,059 41,107 11,287,4411992 11,696,957 5,774 21,824 145,240 32,205 11,696,9571993 12,305,592 5,774 43,752 127,922 22,960 12,305,5921994 12,055,874 8,725 29,057 159,259 24,085 12,055,8741995 12,225,022 4,465 28,117 212,872 21,524 12,225,0221996 12,104,080 18,337 20,742 209,263 9,538 12,104,0801997 13,936,908 28,217 21,052 282,370 8,607 13,936,9081998 14,351,451 60,756 14,891 266,457 10,387 14,351,4511999 16,175,178 71,760 29,844 275,468 10,142 16,175,1782000 12,104,242 96,836 36,129 378,573 8,838 12,104,2422001 12,329,981 156,042 59,026 364,102 9,849 12,329,981Sources: DG Agri, Agricultural Situation in the Community and Agra CEAS Consulting.A1.2.2.3. Technical dataThe technical factors achieved do vary from producer to producer and key to this is thesophistication and scale of the system used. An enriched cage system on a trial station was visited inBelgium, the performance of which the industry believes can be matched by other producers as theyincrease scale and invest in modern control equipment. Data from this trial is presented below.Table A1.8: Performance comparison of egg production systems in use in Belgium(2003)Traditional cages Enriched cage BarnLaying cycle (days) 392 392 392Empty period (days) 21 21 21Feed/bird/year (Kg) 40.95 40.71 45.89Feed/bird/day (g) 112 111 125Eggs/bird/year (collected) 282 285 266Kg feed per kg eggs 2.24 2.20 2.66Mortality (%) 6.2% 4.0% 9.3%Number of hens managed/labourer 50,000 50,000 15,000Hens housed per m2 house 50 12 12Space allowance per hen per cm2 550 750 0Pullet cost (Euro) 2.90 3.15 2.90End of lay hen weight Kg n/a n/a n/aEnd of lay hen price (Euro) 0.05 0.05 0.05Source: Industry estimates.119

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.2.2.4. Production costsTypical variable costs of production are presented in Table A1.9 and fixed costs in Table A1.10.Based on the technical factors presented in Section A1.2.2.3 there is an additional cost for feed in thebarn and enriched cage system. Other key points to note are that while variable costs were found tobe highest in the enriched cage system fixed costs were considerably lower (due to the different sizeof units). Given that the price obtained for barn eggs is higher than that for eggs from cagedproduction these numbers suggest the enriched cage provides the lowest gross margin of the threesystems studied 43 .Table A1.9: Variable costs of production 2003 (€ per kg)Traditional cages Enriched cage BarnFeed cost 40.57 41.19 38.93Medication/vet 0.20 0.30 0.20MiscellaneousBird depreciation/live pullets 16.26 15.97 15.72Total variable costs 57.03 57.46 54.84Source: Industry estimates.Table A1.10: Capital (fixed) costs 2003 (€ per kg)Traditional cages Enriched cages BarnLabour 3.73 3.58 12.75Buildings 2.98 3.47 6.49Equipment 5.44 6.97 9.38LandManure disposal 2.01 2.01 2.17Insurance 0.20 0.25 0.38Utilities 2.15 1.95 2.47Cleaning 1.71 1.71 5.47Miscellaneous 4.07 4.58 4.79Total fixed costs 22.30 24.52 43.89Source: Industry estimates.A1.2.2.5. Gross marginsBuilding on the cost data in Section A1.2.2.4, Table A1.11 presents revenue figures and from thiscalculates producer gross margin. It should be stressed that the prices obtained in 2003 were higherthan normal for caged eggs reflecting a tightening of supply.43 At the time of writing still awaiting confirmation of Belgian price on barn eggs.120

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.11: Egg producer gross margin 2003 (€ per kg)Traditional cages Enriched cage BarnEgg returns 66.88 66.88 80.26Revenue from spent hens 0.24 0.22 0.23Output (per year) 67.12 67.10 80.48Total variable costs 57.03 57.46 54.84Gross margin 10.09 9.64 25.64Source: Industry estimatesA1.2.3. Egg processingEgg processing is a very significant segment of the egg market in Belgium with over 50% of the eggsbeing produced going into processing. There are five processing companies in Belgium.A1.2.3.1. Main egg processorsThe market for egg products in Belgium is equivalent to 365 million eggs. Roughly 159 million eggsare sourced domestically with the balance imported either as shell eggs for processing or processedproducts 44 . Around half of processed product output is then exported. Profiles of the majorprocessors are presented below.Box A1.2: Profile of Dion Vandewiele Ltd.Dion Vandewiele Ltd. is the largest egg processor in Belgium processing 35,000 tonnes of eggproducts annuallyOwnership: limited company. Turnover: million in 2003Profit: not availableEmployment: not availableMain markets: the domestic market accounts for just over half of turnover with the majority ofthe remainder being from the (enlarged) EU. Some products are also sold in the far eastMain products: extended shelf life (frozen and liquid) productsBox A1.3: Profile of Belovo S.A.Belovo S.A. Ltd. processes 10,000 tonnes of egg products annuallyOwnership: limited company. Turnover: million in 2003Profit: not availableEmployment: 115 (2000)Main markets: strongly export focusedMain products: egg powders and egg chemicals44 There are some exports and the import requirement shown here is net.121

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSBox A1.4: Profile of Lodewickx Ltd.Lodewickx Ltd processes 12,000 tonnes of egg products annuallyOwnership: limited company. Turnover: million in 2003Employment: not availableMain products: extended shelf life (frozen and liquid) productsBox A1.5: Box: Profile of Ovofood Ltd.Ovofood is a signifiicant processor of dried egg productsOwnership: limited company owned by EurovoMain products: ‘instant’ spray dried egg products, cooked and peeled eggs, Omega eggsA1.2.3.2. Processor concentrationThe Belgian processing sector is concentrated with just 5 players accounting for the entire processedproduct output.A1.2.3.3. Trade in eggs and egg productsBelgium is a net exporter of eggs and egg products. In 2003 Belgium exported 99,000 tonnes of eggsand egg products and imported 66,000t.A1.2.4. Egg marketsA1.2.4.1. Primary demandOf the 216,000 tonnes of consumption eggs 45 produced in Belgium in 2001, 139,181 tonnes or 59%went into the processing sector. Of these eggs 10-15% are sourced directly from producers, 60% willbe delivered to processors via packers and the balance of eggs for processing will be imported. Totalegg exports came to 111,000 tonnes with imports amounting to some 61,000 t. The main exportdestinations for shell eggs are the Netherlands, Germany and France and the main destinations forprocessed egg products are Germany and France. Given that a high proportion of the processed eggproducts are also exported it is estimated that some 50% of total egg output is exported. WithinBelgium 80-85 % of eggs are sent to packing stations and these distribute some 60% of their eggs toretailers and discounters, 15-20% to bakeries and butchers, 3% to markets with the balance goinginto the processing sector. Industrial (non-food) usage of eggs came to 19,930 tonnes in 2001or justunder 10% of domestic production.45 Excludes hatching eggs at 19,930 tonnes in 2001122

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.2.4.2. PricesFigure A1.4 shows the evolution of egg prices in Belgium between 1991 and 2003 and compares thisto average EU prices. The percentage difference between average prices in Belgium and the EU isshown in Figure A1.5.Figure A1.4: Belgian and EU egg prices 1995-2003160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Source: DG AgriBelgiumEU0%-5%Percentage difference from EU average-10%-15%-20%-25%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.5: Difference between Belgian and EU egg prices 1995-2003Source: DG Agri123

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.2.4.3. Demand and supply elasticitiesWhilst there is no research on the elasticity of demand for eggs, the Belgian industry considers eggsto be a staple product and therefore relatively inelastic.A1.2.5. The impact of Directive 1999/74/ECA1.2.5.1. Implementation to dateDirective 1999/74 has not as yet been fully transposed into Belgian legislation. The matter iscurrently being discussed by the regional and central government authorities but no decision on theissue is expected before late 2004. The sector as a whole was delaying any investment until clarityemerged from the Belgian authorities as to what legislation on welfare was going to be put in place.More generally, at the producer level there was therefore considerable doubt as to whetherproducers would be willing to take the risk of investing in enriched cages/alternative systems if theintroduction of the ban on traditional cages by 2012 or earlier were to be confirmed. It was thoughtthat this consideration would inevitably lead to a very significant number of producers ceasingproduction rather than investing in enriched cages.124

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.3. DenmarkA1.3.1. OverviewDenmark will implement the ban on unenriched cages in line with Chapter II, Article 5.2 of Directive1999/74/EC from 2012. The Danish egg industry is very concentrated with only 301 producers (in2002), of which 200 produce around three quarters of all eggs. Almost 80% of laying hens are keptin units with more than 10,000 birds. Commercial egg production in Denmark is around 52 millionkgs (2003) which is approximately equal to 818 million eggs 46 . Denmark is a net importer of eggswhich are used both in shell (predominantly in the catering sector) and also for processing.There are two main packers, Danæg A/S (co-operatively owned) and Hedegaard Foods A/S whobetween them account for in excess of 90% of eggs packed. As at January 2004 there were only 38registered packers. The majority of production (90%) is to contract which are usually for a durationof six months to one year.There are only three processors in Denmark. These are Danæg Products A/S, Sanovo Foods A/Sand Hedegaard Foods A/S. The first and last of these companies are owned by the packers of thesame name given above.A1.3.2. Egg productionCommercial egg production in Denmark was 52,000 kg in 2003 47 (approximately 818 million eggs)from a laying flock of 3.5 million birds. Approximately 16 million kgs are consumed on farm or solddirect. The main production system used is the traditional cage 48 accounting for 56.5% of total eggproduction in 2003 (56.2% of the laying flock). About a fifth of laying hens (21.4%) are kept in deeplitter systems and contribute 20.4% of production. The organic sector is very well developed inDenmark and accounts for 14.1% of production from 14.9% of the laying flock. Free range is lesspopular with 7.6% of the laying flock accounting for 9.0% of total egg production. Aviary systems areinsignificant accounting for 0.1% of production and there is only one established producer usingenriched cages and one in the process of setting up conversion.The use of systems in Denmark is influenced by the fact that cages were not permitted until 1979.Prior to this, variants of the barn system were predominantly used and it is to this system, withwhich consumers are familiar, that producers have turned as the alternative egg sector has increasedin importance. The relatively low use of free range systems and the high use of organic systems isexplained by the strong consumer interest in animal welfare as it relates to the egg sector.46 Number of eggs calculated using average egg weights of each system weighted by the proportion of each system in total production.Average egg weights are 63.3 grams, 64.0 grams, 63.8 grams and 63.7 grams for caged, barn, free range and organic productionrespectively.47 Source: The Danish Veterinary and Food Administration. Egg production is recorded by packing stations and therefore may not includeeggs exported without packing station involvement.48 Although Danish space allowances are 600cm 2 rather than the current EU standard of 550cm 2 .125

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSConsumers are therefore polarised into those that select eggs on relative price and those that areprepared to pay a price premium. These consumers consider organic production to be the mostanimal welfare friendly system and there is thus relatively little room in the market for the similar (atleast in the eyes of the consumer) free range system.Denmark used to be a much larger producer of eggs and the world’s leading exporter (in 1970Denmark had around 6.0 million laying hens compared to around 3.5 million thirty years later).However, production has declined significantly to leave Denmark a net importer of both shell eggsand products. The delayed permission to use cages compared to the rest of Europe contributedsignificantly to this decrease. Imports of eggs are drawn from a variety of origins including theNetherlands, Germany and central and eastern European states, some of whom are now members ofthe EU. The evolution in production can be seen in Figure A1.6 which shows total production from1991 to 2003. After generally trending upwards to 1995, egg production then began to decline. Theintroduction of a strict salmonella combat programme has caused a decline from 1995.807060Egg production in million kgs504030201001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.6: Egg production in Denmark 1991 to 2003Source: Danish Poultry Council.The Danish industry has also become significantly more concentrated over the last thirty years asFigure A1.7 showing the evolution of proportion of flocks by flock size and Figure A1.8 showing theevolution of proportion of laying hens by flock size demonstrate. In 1970 there were no producerswith more than 10,000 laying hens and just over a quarter of laying hens were in flocks of less than99 birds. By 2000, while a greater proportion of laying flocks had less than 99 hens, these producers126

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSaccounted for only 2.3% of laying hens and the 2.0% of flocks with more than 10,000 birds accountedfor almost three quarters of total output.100%90%80%70%Percentage of all flocks60%50%40%30%20%10%0%1970 1980 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20021-99 100-999 1,000-9,999 10,000+Figure A1.7: Evolution of proportion of flocks by flock size 1970 to 2002Source: Danmarks Statistik.127

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS100%90%80%70%Percentage of all laying hens60%50%40%30%20%10%0%1970 1980 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20021-99 100-999 1,000-9,999 10,000+Figure A1.8: Evolution of proportion of laying hens by flock size 1970 to 2002Source: Danmarks Statistik.Further evidence of consolidation in the egg production sector is provided by data from Danægshowing that in 1990 they packed 41,810 tonnes of eggs sourced from 170 producers (i.e. 246 tonnesper producer) whilst in 2003, 80 producers provided 28,514 tonnes (at an average of 356 tonneseach).A large proportion of egg production in Denmark is currently carried out by specialist eggproducers, although this was not always the case. In 1970, almost half of farms had laying hens (48%),although this had fallen to just 8% in 2002.Most production (around 90%) is carried out on contract to a packer (or a processor where the eggshave certain required quality traits). The terms differ with Hedegaard Foods stipulating thatproducers buy feed from the feed division of the company and Danægg demanding purchase ofpullets from specified rearing units. Contracts do not usually specify price which fluctuatesdepending on the market price in north Germany and the Netherlands. Whilst contracts are oftenfor a period of six months to a year, the relationships between producers and packers are long-termin nature.128

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.3.2.1. Main producers/packersThe main packer in Denmark is Danæg who account for around 50% of the market. The other mainpacker is Hedegaard Foods with around 40% market share. These packers are profiled in Box A1.6and Box A1.7.Box A1.6: Profile of Danæg A/SDanæg is the largest Danish egg packer and accounts for half of all egg productionOwnership: Danæg is a limited company owned by Danæg Amba as is shown in Box A1.7 belowTurnover: DKK 350 million, €46.9 million 49 , in 2003 (this represents around half of the turnover inthe parent group)Profit: Danæg Amba profits were DKK 14.5 million, €1.94 million in 2003 (this includes all divisions)Employment: 180 staff in total, 54 staff involved in the packing enterprise (40 administrative staffworking for Danæg A/S and Danæg Product A/S)Main markets: domesticBox A1.7: Danæg ownership and subsidiariesDANÆG ambaDANÆG A/S100%DANÆGProducts A/S92% 2%Cooperation withKronäggEk. förScaneggHolding A/S20% 20%DAN-CHICKHANDEL A/S100%DAN-CHICKSERVICE A/S28%Danagricola Kft.Ungarn33%Danagrico Rt.Ungarn33%Stockholms Ägg& Syd Ägg AB5,4% 94,4%KällbergsIndustri AB52,9% 13,8%ScaneggSuomi OY10%SanovoFoods A/S10%PriorNorge9,9%49 At € = DKK 0.134.129

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSBox A1.8: Profile of Hedegaard FoodsHedegaard Foods accounts for 40% of all eggs packed in DenmarkOwnership: Hedegaard A/SSubsidiary: NoneTurnover: DKK 380 million, €50.9 million (2003)Profit: DKK 29 million, €3.9 million (2003)Employment: 112 (2003)Main markets: DomesticA1.3.2.2. Production (packer) concentrationThe Danish industry is concentrated with only around 300 commercial egg producers, of which 200account for three quarters of total production. The packing level is also very concentrated with just38 registered packers, of which two, Danæg and Hedegaard Foods dominate with more than 90%market share between them. These are followed by four packers who between them account for afurther 7.5% of market share. The remaining packers are very small scale in comparison.Table A1.12: Main egg packers in DenmarkRank Company Output 20031 Danæg A/S 408.0 million eggs (estimate)2 Hedegaard Foods 345.0 million eggs (estimate)3 Hønseriet Henriettelund 22.5 million eggs (estimate)4 Møllebjerggård Ægpakkeri 22.5 million eggs (estimate)5 Dueholm 11.0 million eggs (estimate)6 Flinterup 5.5 million eggs (estimate)Total productionNote: estimates are calculated from the mid-point of an estimated percentage range of market share.818.0 million eggsThe 4-firm concentration ratio for Danish egg packers is therefore high at 97.6%. It is not possibleto calculate the 8-firm concentration ratio accurately, but assuming the remaining packers are all thesame size it will be around 99.6%. At least three mid-sized egg packing companies have ceased toexist since 1995 (what was at the time the third largest company was taken over by HedegaardFoods in 2002, the other two were acquired by Danæg). The egg packing sector has thereforebecome more concentrated over time.A1.3.2.3. Main production systemsJust over half (56.5%) of Danish commercial egg production takes place in traditional cages. Theremaining production is dominated by deep litter and organic systems accounting for 20.4% and14.1% of egg production respectively in 2003. Just over half (56.9%) of eggs sold in the retail sectorare from caged hens with 19.9% from barn systems, 14.8% from organic and 8.5% from free rangesystems see Figure A1.12in Section A1.3.5.1. Despite the dominance of the caged system, the Co-op,accounting for one third of the Danish retail market, reports that 31% of the value of egg sales is130

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSderived from barn eggs, 30% from organic, 22% from cages and the balance from free range,reflecting the impact of differential prices 50 .The technical definitions of the systems in use differ somewhat in Denmark from the minimum EUlegislation and Danish research suggests that the cost of the added national animal welfare adds 3.62Euro cents/kg 51 (around 5%) to the production of caged eggs 52 .The differences in the systems as operated in Denmark compared to the EU legislation are asfollows:Traditional cages only 18 hens are permitted per square metre of floor space which means that only 3 tiers ofcages are allowed (6 tiers are standard in many Member States giving a greater number ofbirds per area of floor space); Danish legislation allows for 600cm 2 per bird compared to 550cm 2 at the EU level (this wasalso the case when the EU minimum requirement was 450cm 2 and took effect from 1979when cages were introduced); a maximum of 6 birds per cage is permitted; light and ventilation must be ‘sufficient’ and there must be an alarm if the power fails; andfinally, cage floors must slope by no more than 12 degrees compared to 14 degrees under EUlegislation.Deep litter In aviary systems (in the spring of 2004 accounting for less than 1% of laying hens in Denmark)only 3 levels are permitted where the Directive permits 4 levels.Free range Popholes are required to be at least 50 x 50 cm compared to the Directive’s 35 x 40 cm.Enriched cages Only one system has been approved to date in Denmark and there is at present (May 2004) anon-going national discussion over certain aspects including drinking facilities. The Danishgovernment has stipulated one water nipple for every two birds. This is likely to causeproblems of wet floors and may have a negative impact on animal welfare. It is also physicallydifficult to fit the necessary number of water nipples into a cage.The evolution of use of the different production systems in Denmark is presented in Table A1. 13and Figure A1.9 below. This shows both the steady growth in the use of alternative systems and thefairly steep decline in the use of the caged system from 1994 (possibly linked to the provision ofnational subsidies for investing in alternative systems, see below).50 It should be stated that the Co-op does not stock eggs from caged hens in all its stores due to the exceedingly low demand in thegreater Copenhagen area.51 27DKK at DKK = €0.134.52 This only accounts for the limit to three tiers rather than the standard six. Source: Dansk Erhvervsfjerkrae.131

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1. 13: Evolution of laying hen numbers by system 1990-2003Notes:Free range Deep litter Perchery Organic Caged Total layinghens1990 12,840 327,560 3,986,600 4,327,0001991 45,491 349,792 3,458,717 3,854,0001992 68,520 307,492 4,000 3,485,988 3,866,0001993 76,220 297,181 5,500 3,843,099 4,222,0001994 160,667 460,613 50,800 4,623,920 5,296,0001995 340,597 570,356 53,100 3,332,947 4,297,0001996 381,724 666,669 42,000 266,405 3,368,202 4,725,0001997 352,828 719,362 30,060 294,579 2,858,771 4,255,6001998 370,236 655,642 23,200 421,876 2,138,406 3,609,3601999 393,599 640,174 19,500 478,206 1,406,761 2,938,2402000 311,024 536,735 9,300 443,227 1,726,194 3,026,4802001 320,781 576,522 10,000 518,266 2,403,431 3,829,0002002 350,048 674,135 534,377 1,941,440 3,500,0002003 271,569 769,096 533,144 2,015,392 3,589,201The figures represent the number of hens that houses are approved to contain rather than actual hens.1999 and 2000 total hen numbers are DG Agri estimates, 2001 are Agra CEAS Consulting estimates.Organic and caged numbers are Danish Poultry Council estimates. Perchery and deep litter systems are combined from 2002.Sources: DG Agri, Agricultural Situation in the Community, Danish Poultry Council and Agra CEAS Consulting.554Number of laying hens (millions)433221101990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Free range Deep litter Perchery Organic CagedFigure A1.9 Evolution of laying hen numbers by production system 1990-2003Sources: DG Agri, Agricultural Situation in the Community, Danish Poultry Council and Agra CEAS Consulting132

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSFigure A1.10 shows the percentage of production that is accounted for by alternative systems overthe same time period. The percentage of production accounted for by alternative systems grewfrom 8% in 1990 to 44% in 2003, although reached a high of 52% in 1999 before caged eggproduction began to increase once more. Whilst there have been fluctuations in the proportion ofproduction from alternative systems, generally speaking year to year decreases in alternativeproduction have been smaller than in caged and increases larger as the overall proportion ofalternative production has increased.100%80%Proportion of total flock60%40%20%0%1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Free range Deep litter Perchery Organic CagedFigure A1.10: Evolution of importance of alternative systems 1990-2003Sources: DG Agri, Agricultural Situation in the Community, Danish Poultry Council and Agra CEAS Consulting.Figure A1.9 shows relatively steep falls in caged laying hen numbers from 1996 to 1999 and relativelystable overall numbers of laying hens in alternative systems. Figure A1.10 shows the consequentialincrease in the importance of alternative systems. Although this period coincides with the use ofdomestic support for alternative systems (1996 and 1997), the extent to which this support wasresponsible for these events is unknown. It is, however, worth noting that caged laying hensincreased as a proportion of the total in 2000 for the first time since 1993 and in absolute numbersfor the first time since 1996.The surplus of alternative eggs (the difference between eggs delivered and sold) is illustrated inFigure A1.11. This shows that delivery has exceeded sales and suggests that supply exceeds demand,in some cases quite considerably 53 . The main point to note is the increase in surplus production from53 It is necessary to have at least a small surplus to meet peaks in demand.133

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS1995. This is likely to result from national support measures to encourage producers to switch intoalternative systems. Whilst this appears to have been successful, demand did not follow supply. It isnot clear exactly what has happened to these surplus eggs, but the presumption is that these haveeither been ‘cascaded’ into the caged egg supply chain (a practice that is no longer possible under theEgg Marketing Regulation 54 from January 1, 2004) and/or have been sent for processing, presumablywithout a premium.90,00080,00070,00060,000Number of eggs ('000)50,00040,00030,00020,00010,00001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Free Range Deep litter Perchery All alternative systemsFigure A1.11: Surplus of eggs from alternative systems 1990-2003Source: DG Agri.A1.3.2.4. Technical dataTechnical data are gathered by the Danish Poultry Council and account for approximately a quarterof Danish egg producers. Table A1.14 shows technical data for 2002, the last year for which suchdata are available. There are no semi-intensive systems in use in Denmark and data for enrichedcages are not presently available. Organic systems are included due to the importance of this systemin the Danish context.Key points to note are the higher feed requirements in alternative systems and the lower number ofeggs collected per year. Mortality appears to be little different with the exception of the organicsystem (although see note to the table). Whilst a higher price is paid for pullets in alternativesystems, these birds attract a higher price at end of lay 55 .54 Regulation (EEC) No 5/2001 amending Regulation (EEC) 1907/90.55 It is not currently permitted to transport spent hens from caged systems for slaughter in Denmark because they are considered to betoo frail to travel. In some cases therefore disposing of spent hens is likely to entail a cost.134

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.14: Performance comparison of egg production systems in use in Denmark(2002) (prices in € at 1DKK = €0.134)TraditionalcagesBarn Free-range OrganicLaying cycle (days) 392 364 336 336Empty period (days) 28 28 28 28Feed/bird/year (Kg) 38.50 42.03 43.80 43.80Feed/bird/day (g) 113 124 130 130Eggs/bird/year (collected) 289 269 268 231Kg feed per kg eggs 2.13 2.50 2.62 3.04Mortality (%) 1 5.7% 9.7% 8.9% 18.4%Number of hens managed/labourer 2 12,308 8,807 7,218 4,507Hens housed per m 2 house 18 9 9 6Space allowance per hen per cm 2 600 1,111 1,111 1,667Pullet cost 3 3.75 4.34 4.34 6.73End of lay hen weight Kg n.a. n.a. n.a. n.a.End of lay hen price 0.04 0.13 0.13 0.18Notes: some data have been converted from laying cycle to year to correct for thediffering lengths of laying cycle by system.1. Mortality can vary significantly from year to year.2. Based on minutes per hen data from 1990 and a standard working year of 1,600 hours. It is likely that currently morehens can be managed per labourer in all systems as technology has led to efficiency gains.3. This is the cost of buying in a pullet, not the cost of rearing. It therefore includes a profit element for the rearer.Source: Danish Poultry Council and Agra CEAS Consulting calculations.A1.3.2.5. Production costsVariable production costs in Denmark are presented in Table A1.15 and Table A1.16 presents fixedcosts. As anticipated from the technical requirement for additional feed in alternative systems, thecost of feed per dozen eggs is also higher. Bird depreciation is also higher following higher pulletcosts and lower egg production. Total variable costs are therefore higher in alternative systemscompared to traditional cage systems. Amongst alternative systems, barn production offers thelowest variable cost.Estimates exist for enriched cage fixed costs and show a higher cost for equipment and labourcompared to traditional cages, although the building cost is expected to be the same. The fixed costsassociated with barn production are 13.8% higher than traditional cage production whilst thoseassociated with free range are 15.0% higher. The substantially higher cost of buildings for organicproduction makes the total fixed cost almost twice as expensive as traditional cages.Table A1.15: Variable (running) costs of production (per kg eggs) (prices in € cents at1DKK = €0.134)Traditional cages Barn Free-range OrganicFeed cost 40.00 49.33 52.00 89.33135

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSMedication/vet 0.85 2.55 2.77 2.81Miscellaneous 2.48 2.24 2.26 2.52Bird depreciation/live pullets 18.07 24.03 26.01 46.82Total variable costs 61.41 78.15 83.04 141.48Source: Danish Poultry Council and industry estimates.Table A1.16: Capital (fixed) costs (per kg eggs) (prices in € cents at 1DKK = €0.134)Traditional cages Enriched cages Barn Free-range OrganicLabour 4.62 6.16 8.75 12.69 19.25Buildings 4.69 4.69 6.25 6.36 12.55Equipment 6.92 7.82 6.96 7.00 7.89Land 0.88 1.02Manure disposal 2.01 2.01 2.17 2.27 2.27Insurance 1.03 1.03 1.82 1.98 2.01Utilities 0.96 0.96 2.00 2.18 2.21Cleaning 1.71 1.71 5.47 5.95 6.02MiscellaneousTotal fixed costs 21.94 24.38 33.42 39.31 53.20Note:1 The cleaning cost for enriched cages has been assumed equal to that for traditional cages, although it is widely expected tobe higher given the difficulties expected in cleaning cage furniture.Source: Danish Poultry Council and industry estimates.Cost data above and calculated gross margins in the following Section are based on figures from2003. Due to Avian Influenza in the Netherlands and elsewhere, and a hot summer in southernEurope, market conditions for eggs were favourable in 2003 with gross profits about a third higherthan what is considered typical.A1.3.2.6. Gross marginsTable A1.17 builds on the cost data in Section A1.3.2.5 and presents revenue figures and producergross margin. Alternative production systems have higher returns resulting from available premiaand a higher revenue for spent hens. This is mitigated to some extent by higher variable costs, butstill results in a substantially higher gross margin.Table A1.17: Egg producer gross margin (€ cents per kg) 56Traditional cages Barn Free-range OrganicEgg returns 80.20 125.06 135.93 201.13Revenue from spent hens 0.18 0.71 0.71 1.25Output (per year) 80.38 125.78 136.65 202.38Total variable costs 61.41 78.15 83.04 141.48Gross margin 18.97 47.63 53.60 60.90Source: Danish Poultry Council.56 At DKK 0.134 to the Euro.136

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.3.3. Egg processingThere is a high degree of concentration in the Danish egg processing sector with just threecompanies responsible for all production. Whilst the processing businesses at Danæg A/S andHedegaard Foods are linked in to their egg packing activities, the largest processor in Denmark,Sanovo, is not heavily linked in to the Danish production/packing sector 57 and operates globally withfacilities in Spain and Germany in the EU. Facilities are owned in Bulgaria and Venezuela and thereare plans to construct facilities in South America and the Far East within the next couple of years.Denmark produces both liquid and dried eggs (through Sanovo) and there is limited differentiation ofprocessed product by production system, much of which is exported to the UK.A1.3.4. Main egg processorsThe largest processor in Denmark is Sanovo who break around 11,000 tonnes of eggs per year,equivalent to just more than 40% of the approximately 25,000 tonne annual consumption, althoughmuch of Sanovo’s production is exported with the UK, Japan, Russia and the Far East being importantmarkets. Half of Sanovo’s eggs are imported from the EU-15 with a further 35% sourced from newEU-10 Member States.As a global player and without ownership of Danish production facilities, Sanovo is able to sourceeggs globally wherever they happen to be cheapest (given quality requirements) 58 . This is the reasonbehind having and developing facilities in South America and the Far East. Some differentiatedproducts require contracts with individual farms to ensure the correct egg characteristics (usuallythese are dependent on a particular feed regime). Differentiated product requirements cannottherefore simply be met by using the cheapest eggs. Meeting such needs requires long-termrelationships with suppliers from within the EU. Sanovo is profiled in Box A1.9 and Danæg Productsin Box A1.10.Box A1.9: Profile of SanovoSanovo is the largest egg processor in DenmarkOwnership: Sanovo is part of the Thornico GroupSubsidiary: as part of the Thornico Group Sanovo has sister companies in Spain and Germany andadditional plant in Bulgaria and VenezuelaTurnover: €20 million in 2003 in DenmarkProfit: not availableEmployment: 50 staff in DenmarkMain markets: UK, followed by Japan, Russia, Denmark and the Far EastMain products: powder and liquid commodity products, some product differentiated by productionsystem57 Less than 20% of eggs used by Sanovo are sourced domestically.58 The production of powder increases storage lengths and allows eggs to be bought in bulk when the price is low.137

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSBox A1.10: Profile of Danæg ProductsOwnership: Danæg Products is a limited company owned by Danæg Amba as is shown inBox A1.6 in Section A1.3.2.1Turnover: DKK 175 million, €23.45 million 59 in 2003Profit: Danæg Amba profits were DKK 14.5 million, €1.94 million in 2003 (this includes all divisions)Employment: 180 in total, 100 staff on two processing sites with 40 administrative staff workingfor Danæg A/S and Danæg Product A/SMain markets: roughly equal split between domestic and exports to a range of countiesMain products: liquid and cooled egg only, long egg 60 is an important product as are liquid blendsA1.3.4.1. Processor concentrationThe Danish processing sector is highly concentrated with just three processors. Between themthese processors create a considerable exportable surplus.A1.3.4.2. Trade in egg productsDenmark is a net importer of processed product. Most exports are of commodity type, butspecialised, value-added products like boiled egg and long egg are increasing in importance.A1.3.5. Egg marketsA1.3.5.1. Primary demandDanish production of eggs amounted to just over 70 million kgs in 2002, of which, 16 million kgswere consumed on-farm or sold direct. Total imports of shell eggs amounted to 11.6 million kgs,exports to 1.5 million kgs. Approximately a third of the net import of shell eggs was sold in the retailsector with the remainder used in processing. Retail sales of eggs amounted to 39 million kgs andthe processing sector accounted for about 25 million kgs. The breakdown of retail sales byproduction system is presented in Figure A1.12.59 At DKK = €0.134.60 Long egg is separated yolk and white recombined and boiled in the shape of a cylinder which can be sliced uniformly.138

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS60.050.040.0Proportion of retail sales30.020.010.00.0Cage Organic Barn Free rangeFigure A1.12: Retail sales by production system 2002Source: Danish Poultry Council.A1.3.5.2. PricesFigure A1.13 presents egg price evolution in Denmark and the EU between 1991 and 2003. Danishprices are consistently higher than the EU average. For most of the series the Danish price tracksthe movements in the EU price closely, although diverges between 1991 and 1993 and again from2002. The percentage difference between average prices in Denmark and the EU is shown in FigureA1.14. The gap between Danish and EU prices increased to 1994 before reducing to 1997. Fromthis point there is less of a discernible trend.139

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003DenmarkEUFigure A1.13: Evolution of egg prices 1991-2003Source: DG Agri.80%70%Percentage difference from EU average60%50%40%30%20%10%0%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003DenmarkFigure A1.14: Difference between Danish and EU egg prices 1991-2003Source: DG Agri.140

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.3.5.3. Demand and supply elasticitiesSome research into the price elasticity of eggs in Denmark has taken place. Two methods wereused: a household panel of 2,000 respondents and retailer scanner data. Results from these twoapproaches broadly agree, although the scanner results suggest a greater responsiveness to price,possibly reflecting the quality bracket of the stores taking part. The greater elasticity also stems fromthe way in which the models were constructed in that data were highly disaggregated in one form ofthe model allowing greater substitution possibilities. Where the model treated eggs produced underdifferent systems to be variants of the same product, again, a high degree of substitutability wasassumed.This is not the place to fully discuss the methodology and results and the reader should refer to thestudy itself carried out by the Danish Research Institute of Food Economics 61 . However, Table A1.18presents own and cross-price elasticities based on the household survey panel and Table A1.19 theown and cross-price elasticities derived from retail scanner data.The own price elasticities suggest that demand for organic and free range eggs is more elastic thanthat for eggs from caged and barn systems, probably reflecting their higher price. Additionally thecross-price elasticities show that an increase in the price of organic eggs has little impact on demandfor eggs from other systems. In contrast, an increase in the price of caged eggs results in higherdemand for eggs from alternative systems. As might be expected a priori the scanner-derived datashows that an increase in the price of free range eggs does not result in higher demand for cagedeggs, but interestingly a price increase for barn eggs does suggest substitutability with caged eggs.This seems to suggest that consumers do not differentiate as much between caged and barn eggs asthey do between free range and caged eggs.Table A1.18: Own and cross-price elasticities derived from household panel dataProduction systemCage Barn Free range Organic PasteurisedCage -1.99 0.30 0.36 0.33 0.07Barn 0.63 -1.76 -0.24 0.50 -0.04Free range 0.92 -0.10 -2.34 1.13 -0.07Organic 0.41 0.24 0.64 -2.55 -0.02Pasteurised 0.66 -0.21 -0.32 -0.19 -0.75Source: Fødevareefterspørgsel i Danmark – perspektiver for produktdifferentiering.Fødevareøkonomisk Institut. Rapport nr. 16561 Fødevareefterspørgsel i Danmark – perspektiver for produktdifferentiering. Fødevareøkonomisk Institut. Rapport nr. 165. Located at:http://www.foi.dk/Publikationer/Rapporter/rap165.PDF141

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.19: Own and cross-price elasticities derived from retailer scanner dataProduction systemCage Barn Free range Organic PasteurisedCage -1.25 0.28 0.10 0.11 -0.03Barn 0.28 -1.35 -0.00 0.31 0.02Free range 0.03 0.12 -1.44 0.58 -0.02Organic 0.03 0.04 0.05 -1.77 0.02Pasteurised -0.26 -0.06 0.20 -0.02 -0.99Source: Fødevareefterspørgsel i Danmark – perspektiver for produktdifferentiering.Fødevareøkonomisk Institut. Rapport nr. 165A1.3.6. The impact of Directive 1999/74/ECA1.3.6.1. Implementation to dateThere has been no significant investment to date (May 2004) in enriched cages in Denmark. Oneproducer has been using an enriched system for about five months and another has just started. Thisstems from a degree of uncertainty over the authorisation of particular cage systems by the Danishgovernment, but is explained mainly by the fact that producers are unwilling to make the investmentuntil they are certain that the Directive will be implemented and in what form this will be. Individualproducers are also unwilling to incur the investment costs in advance of the rest of the industry toavoid being placed at a cost disadvantage.A1.3.6.2. Expected implementationThe industry is currently paying close attention to the situation in Germany and is unlikely to start toconsider its strategy until the German position is certain. The review of the Directive adds furtheruncertainty and investment is not likely until after these uncertainties have been removed, i.e. in theperiod 2007 to 2012. The expectation in Denmark is that the majority of producers who chooseultimately to invest will do so as late as possible prior to 2012. However, there is a recognition inthe packing sector that they may have to take steps to encourage investment as 2012 draws closerto avoid a shortage of eggs. A contribution to the cost of investment would be welcomed byproducers. There is considerable unease in the Danish industry over the degree to which thenational government has added additional requirements to the Directive and it is understandablydifficult for producers to tease apart requirements put forward nationally from those contained inthe Directive. As a result of this the Danish industry would prefer rules governing productionpractices to be issued as a Regulation, which cannot be added to, rather than a Directive.As 2012 approaches, packers are likely to consider offering limited financial incentives to helpproducers make necessary investments. In fact, Danægg has already outlined a scheme wherebyproducers using enriched systems will be offered a price guarantee (linked to feed cost) for threelaying cycles once a range of systems of enriched cages has been approved by the Danishgovernment. These producers will operate quality control systems which will allow them to sell in142

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSthe German market in addition to premium Danish markets. The intention of this is to ensure thatthere is no shortage of eggs as 2012 approaches.143

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.4. FinlandA1.4.1. OverviewFinland will implement the prohibition on egg production in unenriched cage systems set out inDirective 1999/74/EC from 2012. Finland produces just under a billion eggs from around 1,700producers, around a 1,000 of whom have more than 100 hens and are considered commercial. Thevast majority of Finnish eggs are produced in caged systems.The egg industry in Finland is dominated by Munakunta, a packing company owned by a co-operativeof producers. Munakunta accounts for more than half of Finnish egg production and has two mainegg packing operations. In total there are ten central packing stations (some of which also ownproduction units) with around a further 150 producer/packers. Producer packers account for lessthan 15% of eggs packed. Whilst Munakunta employs a contract system for egg procurement anddoes not own production facilities, other packers tend to have looser arrangements. Some of theseother packers are co-operatively owned by producers whilst some are privately owned. The largestprivately owned packer, Farmimuna Oy, has around 100,000 hens and uses some contractproduction.There are two main egg processors in Finland, the largest of which is Scanegg, a subsidiary ofMunakunta and therefore ultimately producer-owned. Farmimuna Oy also carries out someprocessing.A1.4.2. Egg productionThe Finnish egg industry is located in the south-west of the country, although there is someproduction in the east. This production tends to be packed on farm and is for local shell egg marketsand is not considered to be a main part of the industry. Most of these eastern producers are smallscale with up to 1,000 laying hens.Total egg production in Finland was 59 million kg in 2003 (944 million eggs 62 ). There are two mainproduction systems used in Finland. The vast majority of eggs are produced in traditional cageswhich account for 86% of laying hens. The deep litter system accounts for just over 10% of layinghens with a residual 4% of laying hens being managed organically. As at February 2004, less than 1%(six producers) are believed to be using enriched cages and their output is sold as traditional cagedproduction. There is no free range production because of the climate.Prior to joining the EU Finland had a significant degree of surplus production which was encouragedby the government’s use of export subsidies. This system came to an end on accession (with atransition period) and egg production declined dramatically as many farmers went out of business ormoved out of egg production. This process of consolidation is still in evidence with around 20%62 At a conversion rate of 62.5 grams per egg.145

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSfewer producers year on year. The move from 480cm 2 to 550cm 2 space requirements from January2003 resulted in a 10% contraction in the industry 63 . Directive 1999/74/EC is considered by theindustry to provide further pressure for consolidation over the years to 2012.Table A1.20 shows the number of farms and laying hens by size category in 1990 and 2000. FigureA1.15 presents the laying hen data graphically. The number of farms with hens fell from just under15,000 to just over 2,000 over the period whilst the number of laying hens fell from 4.8 million to 3.1million. The disparity between these two declines resulted in an increase in the average number oflaying hens per farm from 323 in 1990 to 1,476 in 2000. The Figure clearly shows the shift towardslarger flock sizes over this time period.Table A1.20: Evolution of laying flock structure 1990 to 2000Size groups Farms Laying hens Averagehens/farm1990 1 2000 2Farms Laying hens Averagehens/farm1-49 9,696 120,062 12 840 14,344 1750-99 1,018 67,893 67 152 10,400 68100-299 1,254 199,346 159 192 31,025 162300-499 510 188,274 369 54 21,307 395500-799 474 283,264 598 65 41,896 645800-999 551 508,028 922 47 43,128 9181,000-1,999 794 1,023,814 1,289 245 346,803 1,4162,000-2,999 423 1,009,983 2,388 205 506,317 2,4703,000-3,999 104 352,593 3,390 86 295,542 3,4374,000-4,999 82 352,817 4,303 65 291,435 4,4845,000-5,999 35 186,219 5,321 44 240,823 5,4736,000-7,999 23 151,608 6,592 39 273,530 7,0148,000-9,999 8 69,296 8,662 26 230,343 8,85910,000+ 16 331,650 20,728 47 763,134 16,237Total 14,988 4,844,847 323 2,107 3,110,027 1,476Source: Finnish agricultural census data.Notes:1 1990 data includes hens aged 24 weeks and over.2 2000 data includes hens aged 20 weeks and over.63 Finland had a minimum space requirement of 480cm 2 whilst the EU minimum was 450cm 2 .146

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS30%25%Proportion of laying flock20%15%10%5%0%1-49 50-99 100-299 300-499 500-799 800-999 1,000-1,9992,000-2,9993,000-3,9994,000-4,9995,000-5,9996,000-7,9998,000-9,99910,000+Flock size1990 2000Figure A1.15: Evolution of laying flock structure 1990-2000Source: Finnish agricultural census data.Finland is still self sufficient in eggs (115%) despite the decline in production implied by the above.Sweden is the traditional market for shell egg exports (used in the Swedish processing industry) andaccounts for over two thirds of total exports. Like Finland, Sweden has salmonella-free status and asa result can only import eggs for consumption in shell from Finland.The Finnish government, in conjunction with the egg industry has prepared a strategy forrestructuring up to 2012 64 . It is expected that there will be around 300 to 350 significant producers 65 ,just a third of the current number, at the end of this period.There are few producers concentrating solely on egg production in Finland, although egg productionis often the most significant enterprise. Most egg producers also have forest and/or crops andcropping area is used to spread manure in order to meet the requirements of environmentallegislation. That said, it is quite common for the egg enterprise to be classified as a separate businessfor taxation purposes. Specialisation is increasing as concentration takes place.As seen elsewhere in the EU, the age profile of Finnish farmers shows a reasonably high average andthis age structure is thought to be reflected in the egg sector. The industry believes that many of theolder egg producers (who also tend to be smaller scale having up to 2,000 to 3,000 laying hens) will64 Työryhmämuistio MMM 2003:14 Kananmunien tuotantostrategia: Uusiin tuotantomuotoihin siirtyminen vuonna 2012 LoppuraporttiHelsinki 200365 Those with more than 100 laying hens.147

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSnot invest in enriched cages or alternative systems, but will choose to retire or leave the sectorinstead.A1.4.2.1. Main packersMunakunta is the dominant packer in Finland and is a producer co-operative. This position in themarket was consolidated in 2001 with the purchase of A-Muna Oy, a large private packer previouslyowned by a multiple retailer. Munakunta accounts for just over half (55% in 2003) of all eggs packed.Box A1.11: Profile of MunakuntaMunakunta is the largest egg packer in Finland accounting for more than half of all eggs packedOwnership: Munakunta is a producer co-operativeSubsidiary: Munakunta owns 65% of ScaneggTurnover: €46.9 million in 2003 (this figure is for the Group as a whole and includes Munakunta’sshare of Scanegg). Turnover for the shell egg business was €41.2 million in 2003Profit: €1 millionEmployment: 79 staff (Munakunta Grouop, but not including Scanegg)Main markets: in volume terms, domestic 71%, shell egg exports 14%, 15% for processing,mainly domesticA1.4.2.2. Production (packer) concentrationThe nature of egg production in Finland is fragmented with, according to the key players spoken to,too many producers and too many packers leading to excessive competition. The contract system isnot as developed as it could be resulting in some marketing problems. Prior to joining the EU theFinnish government took responsibility for exporting the often significant surplus (with exportsubsidy). On accession this assistance was phased out and the resulting domestic surplus caused asevere downward price adjustment. A lot of egg producers were forced out of business at this time,although the government was able to provide support for restructuring under temporary accessionagreements.The packing sector of the industry is dominated by Munakunta and there is a big difference in scaleseparating this company from the rest of the industry. Table A1.21 presents the main egg packers inFinland.Table A1.21: Main egg packers in FinlandRank Company Output 20031 Munakunta 32.7 million kg, 523.0 million eggs2-6 Munakuutoset (5 packers who compete domestically,11.7 million kg, 187.2 million eggsbut co-operate in export markets)7 Narpes egg packery 2.0 million kg, 32.0 million eggs (estimates)8 Ōsterbotten egg centrallag 1.8 million kg, 28.8 million eggsTotal production59 million kg, 944 million eggs148

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSBased on the above, the 4-firm concentration ratio for Finland in 2003 was 67.3% 66 and the 8-firmconcentration ratio 81.7%. The packing industry is now less concentrated than it was prior toaccession when the Narpes egg packery did not exist, neither did two companies packing between1.5 and 1.8 million kg, nor one packing just under 1.0 million kg. A range of smaller packingcompanies were also founded after accession. Producers therefore now have a greater range ofpacking stations to send eggs to.A1.4.2.3. Main production systemsThe dominant system in Finland is the traditional cage (accounting for 86% of laying hens). The mainalternative system in use is deep litter which accounts for just over 10% of laying hens. A further 4%of laying hens are kept in organic systems 67 . There are just six producers using enriched cages, thelargest of which has just under 10,000 laying hens. Some producers have invested in what are knownas ‘enrichable’ cages. These are currently operated as a traditional cages, but the removal ofpartitions and addition of cage furniture will make the cage comply with Directive 1999/74/EC.Whilst production costs are said to be higher than production using traditional cages, they are not ashigh as expected using fully enriched cages and it is felt by some players in the industry that manyproducers will implement the Directive over time in this manner.All systems in use in Finland follow the EU legislation with no national modifications. Although not asystem issue, beak-trimming is not permitted in Finland.Figure A1.16 shows the evolution of laying hens kept by system from 1994 to 2002. Data are fromthe Agricultural Situation in the Community. Data on alternative systems is only available from 1996and data for caged production in 2002 is not yet available from this source. The Figure shows thatwhilst production in deep litter systems is increasing, it is fairly insignificant in comparison toproduction from traditional cages. The steep decline in laying hen numbers between 1996 and 1997reflects accession to the EU.66 Under the assumption that production from Munakuutoset is evenly split between the 5 companies.67 Organic production cannot be caged and thus these hens are in deep litter systems with a reduced stocking density of 5 rather than 9birds per m 2 , outdoor access and a limit of 3,000 birds per barn.149

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS6,000,0005,000,0004,000,000Number of laying hens3,000,0002,000,0001,000,00001994 1995 1996 1997 1998 1999 2000 2001 2002Deep litterTraditional cagesFigure A1.16: Laying hens by production system 1994-2002Figure A1.17 presents eggs delivered and sold for the deep litter system. It also shows the surpluswhich is the difference between these two figures. This used to be sold as caged egg production, butcan no longer be disposed of in this manner following changes in the egg marketing legislation.Whilst sales of eggs produced in deep litter systems has generally trended upwards, supply hasoutstripped demand forcing a downward correction in 2000 when demand remained static. Thesurplus has followed the same pattern.150

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS70,00060,00050,000Number of eggs ('000)40,00030,00020,00010,000-1996 1997 1998 1999 2000 2001 2002Eggs delivered Eggs sold SurplusFigure A1.17: Deep litter eggs delivered, sold and surplus sold as caged production1996-2002A1.4.2.4. Technical dataData were not available for enriched cages or organic systems. The former is not considered to besignificant in the Finnish context and the second is outside the terms of reference for this study 68 .Technical data, adjusted to from laying cycle to annual for the barn system, are presented in TableA1.22. The barn system requires more feed per bird and yields less eggs resulting in a greaterdisparity in terms of feed per dozen eggs.68 Although this information has been included for some Member States where it was made available to the consultants.151

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.22: Performance comparison of egg production systems (2003)Traditional cageLaying cycle (days) 364 350Empty period (days) 42 42Feed/bird/year (Kg) 37.30 38.33Feed/bird/day (g) 114 118Eggs/bird/year (collected) 278 267Kg feed per kg eggs 2.15 2.30Mortality (%) 5.2% 6.6%Number of hens managed/labourer 15,000 2,500Hens housed per m 2 house 55 7Space allowance per hen per cm 2 550 1,429Pullet cost 4.20 4.20End of lay hen weight Kg 1 n.a. n.a.End of lay hen price (€) -0.20 -0.20Note:1 Deadweight.Source: Suomen Siipikarja 4/03 and Agra CEAS Consulting calculations.BarnA1.4.2.5. Production costsVariable production costs in Finland are presented in Table A1.23 and Table A1.24 presents fixedcosts. As anticipated from the technical requirement for additional feed in alternative systems, thecost of feed per dozen eggs is higher, this is exacerbated by a higher cost of feed for birds kept inbarn systems. Variable costs are 12% higher in barn systems compared to traditional cage systems.With the exception of equipment, fixed costs are higher for every category in barn systems. Thisresults in fixed costs 67% higher than in the caged system.Table A1.23: Variable (running) costs of production per kg eggs (2003) (prices in Eurocents)Traditional cagesFeed cost 46.44 52.90Medication/vetMiscellaneousBird depreciation/live pullets 21.76 23.46Total variable costs 68.20 76.36Source: Suomen Siipikarja 4/03 and Agra CEAS Consulting calculations.Barn152

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.24: Fixed (capital) costs of production per kg eggs (2003) (prices in Euro cents)Traditional cagesLabour 15.26 28.37Buildings 1 0.65 1.04Equipment 1 1.32 1.08Manure disposal 2.01 2.17Insurance 1.03 1.82Utilities 3.37 5.20Cleaning 0.96 1.17Miscellaneous 2 0.19Total fixed costs 24.60 41.05Notes:1 Building and equipment costs include repairs and maintenance.2 Miscellaneous includes litter in the barn system and the annual veterinary inspection of €200, although at the per dozeneggs level this cost does not feature.Source: Suomen Siipikarja 4/03 and Agra CEAS Consulting calculations.BarnA1.4.2.6. Gross marginsBased on the costs in the preceding Section, Table A1.25 presents revenue and gross margin for boththe caged and barn system. The premium for barn eggs is sufficient to outweigh the higher variablecosts and provide a gross margin almost three times that for caged production. However, thereader should bear in mind the higher fixed costs associated with the barn system.Table A1.25: Egg producer gross margin per kg (2003) (prices in Euro cents)Traditional cagesEgg returns 80.00 112.00Revenue from spent hens -1.04 -1.12Output (per year) 78.96 110.88Total variable costs 68.20 76.36Gross margin 10.76 34.52Source: Suomen Siipikarja 4/03 and Agra CEAS Consulting calculations.Notes:Spent hens incur a cost, hence this potential revenue is negative.BarnA1.4.3. Egg processingThe egg processing sector in Finland is extremely concentrated with just two main producers, one ofwhich, Scanegg, dominates. The main processed egg product in the market is liquid plain eggaccounting for approximately 70% of the Finnish market. The other main products are salted eggyolk, mixtures (including with added salt, milk powder or cream) and products with longer shelf lives.These, with frozen plain liquid egg, egg white, cooked whole egg and cooked white account for theremaining 30% of the market. The vast majority of Finnish processed egg products are for domesticconsumption with small quantities of exports produced to order.153

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe processed sector utilises the entire Finnish production of second quality eggs 69 and supplementsthis with first quality to give a ratio of 65-70:35-30. Whilst there is generally no differentiationaccording to production system, Scanegg does have a dedicated organic processed product for whichthey both charge and receive a premium. It is generally difficult to ensure identity preservationwithout the need to halt production and this presents a barrier to differentiated processed products,especially in the case of liquid eggs. With this exception, second quality eggs from alternativesystems are bought without premium and are sold as undifferentiated egg products.A1.4.3.1. Main egg processorsThere are just two main egg processors in Finland. The largest is Scanegg, a subsidiary of Munakunta(there are also some other minor shareholders), the other is Farmimuna. Farmimuna also producesand packs eggs and has its own feed mill. The market for processed egg products in Finland in 2003was between 7.0 and 7.5 million kg (112 million to 120 million shell eggs 70 ), and of this total, Scaneggaccounted for 5.2 million kg (83.2 million eggs) 69% to 74% of the total market and Farmimunaaround 0.5 million kg (8.0 million eggs). The residual (about 1.4 million kg, 22.4 million eggs in 2003)was made up of imports.Finnish customers of the egg processing sector tend to use two suppliers in order both to mitigateagainst supply problems and to exert downward pressure on price.Box A1.12: Profile of ScaneggScanegg is the largest processor of eggs in Finland accounting for almost three quarters of Finnishprocessed egg productionOwnership: the majority owner is Munakunta (65%) and thus ultimately Scanegg is mainly cooperativelyowned by producers. Munakuutoset Oy owns 20%, Ōsterbottens Äggcentrallag 5%and a Danish holding company 10%Subsidiary: Eesti Munatooted, Estonia, 50% ownershipTurnover: €8 million in 2003Profit: €150,000Employment: 34 staffMain markets: domestic 80% to 90%, some exports to Sweden, Lithuania, Estonia andoccasionally Denmark and the NetherlandsMain product: plain liquid eggA1.4.3.2. Processor concentrationThe processing sector in Finland is extremely concentrated with only two main producers, one ofwhich (Scanegg) has almost 75% of market share. Farmimuna was founded approximately five yearsago and prior to that Scanegg was the only significant producer.69 Approximately 6% to 8% of egg production is second quality.70 At a conversion rate of 62.5 grams per egg.154

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.4.3.3. Trade in egg productsThe Finnish egg processing sector mainly serves the domestic market, but there are some exports toSweden, Lithuania, Estonia and sometimes to Denmark and the Netherlands. These typically accountfor between 10% and 20% of total production. The export market is to order rather than as amarket balancing exercise and as a result exported products are drawn mainly from first quality eggs.The only real surplus disposal market is frozen egg whites to Estonia.Imports are currently limited and are confined to processed products from Belgium and occasionallyGermany. There are currently no imports from third countries and importing liquid products fromthird countries is considered to be very unlikely for reasons of transport cost and shelf life. Theimport of frozen products is, however, considered possible, as is that of dried products. The marketis very much price driven (assuming quality and shelf-life are comparable) and there is therefore noreason why imports would not be used as long as the price was competitive and the logistics of thesupply chain could be guaranteed.A1.4.4. Egg marketsA1.4.4.1. Primary demandConsumption of eggs in Finland was 51 million kg 71 in 2003. Some 35 million kg of shell eggs weresold through the retail sector, 30.8 million kg in boxes, the balance from open trays. The processingsector accounted for 6.6 million kg and the catering sector for 5.9 million kg. Approximately 3.5million kg were sold direct from farms/were used on farm. The remaining shell eggs (around 8million kg) are exported.All eggs produced in deep litter systems are sold as shell eggs through the retail sector with a pricepremium of around 50% over eggs from caged hens.Processed eggs are destined for the catering, bakery and food industry markets, although it was notpossible to determine the market share between these outlets. All processed eggs are for humanconsumption purposes.Scanegg operate an identity preserved organic frozen whole egg line which uses second qualityorganic eggs plus some outgraded first quality eggs. A premium is paid for these eggs and this ispassed on to the consumer.A1.4.4.2. PricesRetail and producer prices are presented in Figure A1.18 using data from TNS-Gallup. Pricesdecreased sharply after accession to the EU in 1995, as did the margin between retail and producerprice, although this has subsequently recovered.71 Approximately 816 million eggs at 62.5 grams per egg.155

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS3.501.60Producer and retail price (€/kg)3.002.502.001.501.000.501.401.201.000.800.600.400.20Difference between retailer and producer price (€/kg)0.001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Producer prices Retail prices Difference0.00Figure A1.18: Retail and producer prices 1990-2003The price for egg products follows the producer price of shell eggs closely as raw material costaccounts for 70% to 80% of production cost.Figure A1.19 shows the evolution of Finnish egg prices between 1995 and 2003 and compares this tothe weighted average EU price. The Finnish price came close to the EU average in 1997, but thisyear aside has remained higher. Whilst the Finnish price appears to track the EU price there was adivergence in 1998 and 1999 which widened the price differential as can be clearly seen in FigureA1.20. The difference in price has narrowed somewhat from this high point.156

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003FinlandEUFigure A1.19: Evolution of egg prices 1991-2003Source: DG Agri.70%60%Percentage difference from EU average50%40%30%20%10%0%1994 1995 1996 1997 1998 1999 2000 2001 2002Figure A1.20: Difference between Finnish and EU egg prices 1995-2003Source: DG Agri.157

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.4.4.3. Demand and supply elasticitiesEggs are considered to be a staple product in Finland and the annual fluctuation in consumption ofshell eggs is small at +/-2% (there was a more significant increase in consumption in 2001/02 whichwas thought to result from a successful advertising campaign, although consumption has sincereturned to more typical levels). Cholesterol remains a concern for most consumers in Finland.There is no concern about salmonella because Finland has salmonella-free status.Processed egg consumption in Finland is below the EU average, although is trending upwards and it isconsidered likely by the industry that if there is to be any appreciable growth in egg consumption inFinland it will come from processed products.A1.4.5. The impact of Directive 1999/74/ECA1.4.5.1. Implementation to dateThere has been little investment in enriched cages to date with just 6 producers, accounting for lessthan 1% of production, having established new systems. However, some producers are reported tohave invested in ‘enrichable’ cages which will comply with the Directive on removal of partitions andaddition of cage furniture.A1.4.5.2. Expected implementationThe Finnish government, in collaboration with the egg industry, has produced a strategy forimplementing the ban on unenriched cages in line with Chapter II, Article 5.2 of Directive1999/74/EC. This includes consideration of a range of scenarios. Finland has a particular concern inthat due to its salmonella-free status, any shortage in shell eggs as a result of the Directive can not bemet through imports 72 . It is therefore clearly in the national interest to ensure that there is noshortfall in supply (given that the demand for eggs in Finland is fairly inelastic, there is less concernabout reduced demand should prices increase). The Finnish government has ratified the Directiveand producers are therefore aware that from 2012 production in traditional cages will no longer bepossible.That said, producers are delaying the decision to invest and the egg industry states that there is stillsome uncertainty amongst producers as to whether the ban on traditional cages will in fact takeplace in 2012. Most producers are therefore adopting a wait and see approach. In the meantimemany producers have purchased decommissioned traditional cages (with a capacity of around300,000 hen places) from Sweden where the government has banned this type of production fromthe beginning of 2003. This represented good business for the Swedish producers who wouldotherwise probably have had to pay to have these cages disposed of and good business for Finnishproducers who needed to invest in replacement cages, but did not want to move to enriched cagesbefore they absolutely have to. Around 100,000 laying hens have apparently also been procured72 Sweden is the only other Member State with salmonella-free status and is therefore the only other Member State who can export shelleggs to Finland.158

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSfrom Sweden as a result of their early implementation. The use of Swedish cages is not consideredhelpful in terms of implementing the Directive by the industry and is not a strategy, rather simply theindividual decisions of certain producers.A1.4.5.3. Impact on the industryOne of the most likely impacts of the Directive is expected to be further pressure to continue therestructuring that is already taking place. A significant reduction in the number of egg producers (to300 to 350 from more than a thousand) and an increase in the average number of laying hens perflock is expected. This process will be assisted through Article 141 and Article 142 of Finland’s EUAccession Treaty which allows some national aid 73 . Whilst Article 142, concerning Nordic regions, isconsidered to be a permanent fixture by both the Finnish government and the EU Commission,Article 141 is not and is renegotiated periodically. The latest incarnation is implemented from thebeginning of 2004 to the end of 2007 (aid will be available from Spring 2004 assuming that the EUgives its approval). Under Article 141 the Finnish government pays both investment aid (50% of totalinvestment cost, 60% for young farmers and more where the investment is to improve animalwelfare) and aid on a per hen basis to producers. This has been a very useful mechanism for assistingthe restructuring in the sector.Under the latest incarnation of Article 141 a greater emphasis has been placed on the investmentcomponent of the support and less on the support per hen. Support per hen is currently decliningyear on year and is not in any case sufficient to compensate for the higher production costsexperienced under alternative systems. It may be the case in future that the support per hen will bedifferentiated according to production system to assist the transition from traditional cages. Thesituation will be assessed in a few years time to see if such a change is necessary.There is thought to be considerable interest in aviary systems 74 amongst producers using traditionalcages, but little investment to date. However, some respondents felt that there is currently lessinterest in enriched cages (although others disagreed). This might be the result of the investments inSwedish traditional cages which has allowed some producers to defer further investment decisionsuntil nearer 2012. Despite the producer interest in aviary systems from a technical point of view, itis not felt that there is sufficient consumer demand for eggs from alternative systems to prompt anysignificant expansion of this sector, not least because of the current level of premium (around 50% ofcaged egg prices).As long as Finland maintains salmonella-free status there is little concern that imports of shell eggswill threaten the domestic industry (only Sweden is currently able to export shell eggs to Finland).However, as far as the processing sector is concerned, any increase in egg production cost resultingfrom the implementation of the Directive is likely to have an impact on the price of second quality73Further details on national aid can be found in Työryhmämuistio MMM 2003:14 Kananmunien tuotantostrategia: Uusiintuotantomuotoihin siirtyminen vuonna 2012 Loppuraportti Helsinki 2003.74 A barn or perchery system that is sold under the deep litter marketing label.159

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSeggs. There is a fear that if the implementation causes a reduction in production, there may be aproblem in securing eggs for processing.A concern for the future relates to the relative usage of dried versus liquid egg. Dried egg is lighterto transport, does not require chilled storage and has a longer shelf life than liquid egg. Dried eggproducts are therefore more vulnerable to competition from imports, whether from the EU or thirdcountries. The size of the dried product market is increasing in Finland, although this does not seemto be at the expense of the liquid market. However, converting production systems in the foodindustry from those that use liquid to those that use dried egg is not considered to be difficult and inprinciple this could happen. In such a scenario the market in Finland would be much more open tocompetition from imports.A lot will depend on consumer habits and how these might change between now and 2012. Anincreasing number of meals are taken out of the home and a greater proportion of ready meals areconsumed. Finland has a high proportion of women in the workforce and this may accelerate thistrend. Increases in this type of consumption are likely to increase the demand for processed eggproducts.Scanegg did introduce some processed egg products (for example, omelette mix) to the retail sectorin 2001 to test the market, but these were subsequently withdrawn. These products may well bereintroduced to take advantage of changes in lifestyle in the medium term and, if successful, this mayhelp to underpin the market.In summary, the processing industry in Finland would find it difficult to increase the price ofprocessed products to maintain margins given the threat from imported products both from withinthe EU and also from third countries. The strategy for the processing sector is therefore one oftrying to add value, increase efficiency and build market share in the medium term. Whilst there is adegree of nervousness in the industry about the likely impact of the Directive, there is still time toadjust.160

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.5. FranceA1.5.1. OverviewFrance will implement the prohibition on egg production in unenriched cage systems set out inDirective 1999/74/EC from 2012 having transposed the Directive in 2002. France is Europe’s largestegg producer (18%). In 2002 the country had 47 million hens in production, 7.9 million of which werebred in alternative systems. This figure has been increasing in recent past years. Eggs sourced fromalternative production accounted for 20% of egg volume consumption and 34% of eggs sold in superand hyper-markets.Production is relatively dispersed and carried out in relatively small-holdings. Eggs are graded inpackaging stations in which several producers are grouped. Marketing is concentrated in three largegroups, which represent around 80% of total egg marketing. These groups establish contracts withlarge retailers, through which they guarantee an annual average price to the producers. Theprofitability of the sector is low and even negative in certain periods.An increasing proportion of French egg production is processed by the egg products industry. In 2002this proportion was 30%. This industry has been the responsible for the change in the egg sector asegg production has remained constant.Trade in eggs and egg products represents only a small proportion of French production. The overallegg trade balance has been positive, mainly due to the trade in processed egg products; the trade inconsumption eggs has on the contrary had a negative trade balance.Total per capita egg consumption in France is expected to remain constant at around 255 eggs peryear. Generally processed egg product consumption is expected to increase, while an equivalentreduction in the fresh egg consumption is expected.A1.5.2. Egg productionFrance is the EU’s largest egg producer producing some 15.1 million consumption eggs (992,000 t) or18% of EU production in 2002.The egg cluster for 2002/03 is represented in Figure A1.21 below which indicates that at this pointthere were 49.1 million hens in 2,100 holdings. Production is therefore relatively fragmented with anaverage of 23,300 hens per holding. On the other hand, there are 560 packaging stations,representing an average of 3.75 holdings per station. 85% of all eggs produced (13.3 million) arepackaged in these stations. National egg consumption is 15.4 million eggs, indicating a slight surplus of1.2%. The foreign trade balance is positive (0,2 million eggs), mainly due to the positive egg producttrade balance. Per capita consumption has been rising slightly due to an increase in the egg productconsumption, while fresh egg consumption has been diminishing.161

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS546,000 breeding hens7 multiplication units49,1 million sexed pullets2mn.t.of feedfor layers700 pullet breeding farms2100 laying hen farmsTotal egg production 15,2 bn eggs560 packers 63 processorsProduction13,3 bn eggs packed270 000 tonnes egg productsExports2,1 bn eggs(61% eggproducts)Imports1,9 bn(38% eggproductsDomestic consumption15,3 bn eggsConsumption250 eggs per capita (71 are eggFigure A1.21: The egg cluster in France, 2002/03Source: ITAVI162

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe following Figure A1.22 shows the evolution of per capita egg consumption between 1992 and2002, as well as a forecast for 2012. This forecast is based on another estimate for 2010 by ITAVI. Itshows that consumption of processed egg products is expected to increase while fresh eggconsumption is expected to fall from 179 eggs per head per year in 2002 to 159 eggs per head peryear by 2012.Eggs consumption per capita/year250200eggs per capita/year1501005001992 2002 2012shell eggsegg productsFigure A1.22: Egg consumption per capita/year 1992, 2002 and 2012Source: ITAVI163

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSThe Figure A1.23 below shows the evolution of production since 1990 and indicates that productionhas tended to proceed along a cycle but with a rising trend to 1999 since when production has tendedto decline.1,100,0001,050,0001,000,000950,000900,000850,000800,000199019911992199319941995199619971998Egg production in million kgs19992000200120022003Figure A1.23: Egg Production in France 1990 to 2003Source: Eurostat and Agriculture Directorate-General.Note: Usable production. 2003: estimate.As is shown in Figure A1.28 the French production sector is heavily regionally concentrated withover one third of production in 2002 occurring in Brittany.Table A1.26: Regional distribution of egg production 1990-2002 (%)1990 1995 2000 2001 2002Total egg production (‘000 eggs) 10.6 11.9 13.1 13.2 13.2Bretagne 32.6 33.4 34.9 36 35.2Rhône Alpe 10.8 8.9 8.3 8.9 8.9Pays de la Loire 7.0 8.9 9.0 7.8 8.4Ile de France 6.6 6.4 6.8 6.4 6.8Poitou Charentes 6.4 5.7 5.3 5.4 5.3Source: ITAVIThe French industry has also become significantly more concentrated over the last fifteen years asFigure A1.24 and Figure A1.25 showing the evolution of the proportion of laying hens by flock sizedemonstrates. While between 1990 and 2000 the total number of holdings with hens fell by over50% from 473,000 to 232,000 well over 95% of holdings have between 1-99 hens. 670 holdings with164

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSover 30,000 hens account for 64 % of between 1990 and 2000 the average size of unit has risen from10,744 hens to 14,636 hens.However production structures in France cannot be considered to be concentrated. In fact, there is alegal regulation forbidding the existence of holdings with more than 300,000 laying hens. However, thesame producer may have more than one production unit and this limits the effect of the legislation.100%90%80%Percentage of all holdings70%60%50%40%30%20%10%0%1990 1993 1995 1997 2000Figure A1.24: France Evolution of proportion of holdings by flock size 1990 to 2000Source: ZMP 20041-99 100-2,999 3,000-9,999 10,000-29,999 over 29,999165

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS100%90%80%Percentage of all laying hens70%60%50%40%30%20%10%0%1990 1993 1995 1997 2000Figure A1.25: France Evolution of proportion of laying hens by flock size 1990 to 2000Source: ZMP 2004.1-99 100-2,999 3,000-9,999 10,000-29,999 over 29,999A1.5.2.1. Main producers/packersIt is understood that 80% of egg production is marketed under three brands. The largest packers inFrance are Matines, AFPRO and Oeufs de Nos Villages. Most eggs are sold by producers toindependent packers on long term (5 year) contracts with prices renegotiated annually.A1.5.2.2. Production (packer) concentrationIn 2002 the egg packing stations processed some 13.1 million eggs. The number of packing stations hasdiminished drastically since 1990 when there were 1,284 stations to 542 in 2002. In 2002 71 of thesestations packed more than 50 million eggs each accounting for 72% of the total number of eggspacked. The eggs from each type of production sold by the packing stations in 2002 were: 83.7% eggsfrom traditional cages, 10.7% free range eggs, 4.3% organic eggs and 1.6% barn eggs.166

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.27: Packer concentration and egg sales by production system, 1990-20021990 1995 2000 2001 2002Packing activity 1284 649 594 561 542More than 50mn eggsNumber of packers 47 61 71 70 71% of packers 57 61 70 71 72Consumption eggs sales (‘000eggs)10.7 11.2 11.5 11.4 11.6Organic 4.0% 4.4% 4.3%Free range 9.2% 10.6% 10.7%Barn 1.2% 1.1% 1.6%Cages 85.6% 83.8% 83.7%Source: ITAVIA1.5.2.3. Main production systemsDuring the 1980s in response to growing demand for eggs produced in alternative systems withoutdoor access, two new systems emerge. These were “plein air” (2.5 m 2 per hen or 4,000 hens perhectare) and “libre parcours” – or free range (10m 2 per hen or 1,000 hens per hectare). In 2002 thesetwo production systems were merged in the “plein air” system. Recently, the organic system and the“label rouge” 75 (at least 5 m 2 per hen) system have also been developing. The latter is similar to “pleinair”, but with feed constraints similar to those of organic.In 2002, the total number of hens kept in alternative systems was estimated at 7.8-7.9 mn, of which1.327 mn came from organic production, 1.235 mn in the “label rouge” system, 4.570 million in thestandard “plein air” system and 800,000 in the deep litter system 76 . Assuming a total flock of 61.4 mnhens the total number of hens kept in alternative systems would corresponded to 12.7% of the Frenchflock in 2002.75 A quality assurance mark.76 The source for the 2002 numbers in text is ITAVI. These numbers do not fully correspond with those from Eurostat167

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.28: France: Evolution of laying hen numbers by system 1990-2002Notes:Free range Semi-intensive Deep litter Perchery Caged Total layinghens1990 786,181 335,960 84,200 60,893,659 62,100,0001991 135,974 923,640 420,234 88,130 63,132,022 64,700,0001992 3,000 781,257 152,800 190,430 63,272,513 64,400,0001993 750,000 120,000 66,830,000 67,700,0001994 681,302 1,003,591 112,241 99,830 64,603,036 66,500,0001995 621,506 2,028,056 103,197 18,000 63,629,241 66,400,0001996 1,100,000 1,700,000 60,900,000 63,700,0001997 1,150,000 2,000,000 47,960,204 51,110,2041998 1,180,000 1,370,000 8,914 79,680 49,278,353 51,916,9471999 1,270,000 1,889,460 248,282 590,090 50,601,389 54,599,2212000 1,482,000 2,112,000 450,000 590,080 48,846,907 53,480,9872001 2,109,806 3,047,661 1,309,370 635,960 48,297,203 55,393,0002002 5,809,336 2,000,000 53,560,000 61,369,336The figures represent hen house capacity 1999 and 2000 total hen numbers are DG Agri estimates, 2001and 2002 are Agra CEAS Consulting estimates whichassume ‘label rouge’ and ‘plein air’ are combined to equate to free range. Deep litter is combined with perchery.Sources: DG Agri, Agra CEAS Consulting.The evolution of the different systems since 1990 is presented in Figure A1.26 below and shows thatafter some growth in traditional cage capacity in the early 1990s there was then a decline and thenumbers held in this system have been relatively stable since 1997. By contrast production inalternative systems, notably free range systems, has been rising steadily.168

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS8070Number of laying hens (millions)60504030201001990 1992 1994 1996 1998 2000 2002Free Range Semi-intensive Deep litter Perchery CagedFigure A1.26: France Evolution of laying hen numbers by production system 1990 - 2003Sources: DG Agri, Agra CEAS Consulting.A1.5.2.4. Technical dataTable A1.29 shows technical data for 2002, the last year for which such data are available. There areno semi-intensive systems in use in France and data for enriched cages are not available. Organicsystems are included.Key points to note are the higher feed requirements in alternative systems and the lower number ofeggs collected per year. Mortality appears to be little different with the exception of the organicsystem (although see note to the table). Whilst a higher price is paid for pullets in alternativesystems, these birds attract a higher price at end of lay.169

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.29: Performance comparison of egg production systems in use in France(2002)Traditional cage Barn Free range OrganicLaying cycle (days) 352 327 332 338Empty period (days) 19 26 26 25Feed/bird/year (Kg) 37.58 39.81 39.35 41.63Feed/bird/day (g) 109 118 116 122Eggs/bird/year (collected) 282 261 262 254Kg feed per kg eggs 2.13 2.44 2.40 2.62Mortality (%) 4.9% 11.6% 14.0% 13.9%Number of hens managed/labourer 30,000 8,000 8,000 4,500Hens housed per m2 house 73 7 7 7Space allowance per hen per cm2 550 1,429 1,429 1,429Pullet cost 3.10 3.20 3.20 3.80End of lay hen weight Kg 1.96 1.91 1.82 1.90End of lay hen price (€/bird) 0.33 0.26 0.26 0.67Notes: some data have been converted from laying cycle to year to correct for thediffering lengths of laying cycle by system.Mortality can vary significantly from year to year.This is the cost of buying in a pullet, not the cost of rearing. It therefore includes a profit element for the rearer.Source: ITAVI and Agra CEAS Consulting calculations.A1.5.2.5. Production costsVariable production costs in France are presented in Table A1.30 and Table A1.31 presents fixedcosts. As anticipated from the technical requirement for additional feed in alternative systems, thecost of feed per dozen eggs is also higher. Bird depreciation is also higher following higher pulletcosts and lower egg production. Total variable costs are therefore higher in alternative systemscompared to traditional cage systems. Amongst alternative systems costed free-range productionoffers the lowest variable cost. No estimates exist for enriched cage costs.The fixed costs associated with alternative production are significantly higher than traditional cageproduction, notably the substantially higher cost of feed, labour and buildings for organic productionmakes the total cost more than three times as expensive as traditional cages.Table A1.30: Variable (running) costs of production (€ cents per kg eggs) 2003Traditional cage Barn Free range OrganicFeed cost 39.51 45.38 48.31 103.52Medication/vet 0.64 1.28 1.60 2.56Miscellaneous 3.68 3.47 3.36 3.36Bird depreciation 17.32 19.04 19.89 24.06Total variable costs 61.15 69.16 73.16 133.50Source: ITAVI.170

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.31: Capital (fixed) costs (€ cents per kg eggs) 2003Traditional cage Barn Free range OrganicLabour 5.12 15.89 21.27 38.39Buildings 9.33 5.88 4.16 5.64Equipment 5.76 7.46 8.32 11.29Land 0.74 0.77Manure disposal 0.00 0.00 0.00 0.00Insurance 4.54 3.68 4.88 5.04Utilities 1.14 1.11 1.10 1.13Cleaning 0.80 1.20 1.59 2.58Miscellaneous 2.40 2.40 2.40 2.40Total fixed costs 29.08 37.62 44.45 67.24Note:Source: ITAVI.A1.5.2.6. Gross marginsTable A1.32 builds on the cost data in Section A1.5.2.5 and presents revenue figures and producergross margin. Alternative production systems have higher returns resulting from available premia.This is offset to varying degrees by higher variable costs, but still results in substantially higher grossmargins for barn and free range producers than are available under the traditional caged system.Table A1.32: Egg producer gross margin (€ cents per kg) 2003Traditional cage Barn Free range OrganicEgg returns 67.34 89.79 101.01 134.69Revenue from spent hens 1.86 1.68 1.59 4.21Output (per year) 69.20 91.47 102.60 138.90Total variable costs 61.15 69.16 73.16 133.50Gross margin 8.05 22.31 29.44 5.40Source: ITAVI.In fact, if we consider the producer prices for 2003 and the costs for 2002, the end-of-year resultswould be positive for all systems, except for organic production. However, we must take intoaccount that in 2003 there was an increase in the usable surface per hen (to 550 cm 2 ), leading to anincrease in the average production costs in the conventional system.171

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.5.3. Egg processingAn increasing proportion of French egg production is processed by the egg processing industry. The“egg product” category includes a large set of egg derivatives which can be grouped into two broadtypes:intermediate egg products (whole egg, yolk, albumin, pasteurised, with sugar and salt, liquidconcentrated, dry and frozen), mainly destined to food industries;more highly processed products, ready to cook, mainly destined for food serviceFor 2002, SCEES recorded production of 221,445 liquid egg equivalent tonnes. If production of hardboiledeggs (around 19,000 t) and other cooked egg products are added total production can beestimated at 240,000 liquid equivalent tonnes, corresponding to 280,000 liquid equivalent tonnes ofshell eggs, which constitutes some 30% of French egg production. As is evident from the table below,processed egg output has grown by 27% over the past six years while shell egg production hasremained relatively constant.Table A1.33: Evolution of the processed egg and egg product production, 1990 - 2002Tonnes 1990 1995 1997 1998 1999 2000 2001 2002Shell eggs 901.800 1.024.600 1.003.500 1.023.400 1.052.800 1.038.700 1.029.325 998.800Liquid egg 131417 147048 164258 167798 175013 170109Frozen egg 462 4375 3565 2436 2909 2450Dried egg 7145 8675 8304 7528 8583 7846Other Processed 1654 2156 2187 1828 2936 2331Total processedTonnes liquidEquivalent 173120 199483 216668 214290 231508 221455Egg ProcessedTonnes in shellEquivalent 203.589 234.592 254.802 252.005 272.253 260.43Processed egg% of total eggoutput 20.3% 22.9% 24.2% 24.3% 26.4% 26.1%Source: ITAVIGenerally, three types of eggs are processed by the egg products industry: non-graded eggs (category B); “tout venant” eggs, neither graded nor calibrated, and included in category A, of which 5-10%correspond to non-graded eggs; some category A and fresh eggs, meant for human consumption.The egg product industry is generally not linked directly production. The price of eggs for processingis generally lower than class M eggs for human consumption. However, when prices are low, these172

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENStwo different prices become close; by contrast, when prices are high, price differences are moresignificant, since egg processors import shell eggs for breaking.Within the processed egg product sector liquid egg is the most significant single item representing77% of all egg products produced in 2002. In 2001, the food industry used around 28% of the eggproducts produced. As is shown in the chart below the majority of this quantity was consumed bythe cake and biscuit sector.7000060000500004000030000200001000001991 1998 1999 2000 2001Cakes/Biscuit Toast Ice Dessert Pate OtherFigure A1.27: Industrial use of egg products (liquid tonnes) (without "charcuterie")1991-2001Source: ITAVIFor the food service sector in 2001 58% of its egg usage consisted of fresh shell eggs (-6% in fouryears) and the remaining 42% consisted of processed egg products (+9% in four years).A1.5.4. Main egg processorsThe egg products industry is fairly concentrated. Only four groups account for an annual productionof 158,000 tonnes in liquid egg equivalent. These groups are Lionello, the Italian group that boughtOvonor and Caradec, with a capacity of some 50,000 t; IGRECA, with an annual production between40,000 and 45,0000 tonnes (it is the largest European egg powder producer); GLON (incorporatingTrois Vallees and Le Cam), with a total capacity of 33,000 tonnes liquid egg equivalent; La CECAB173

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS(incorporating ABCD and PEP) with a capacity of some 30,000 t. These four groups account for some72% of French production.A1.5.4.1. Processor concentrationThe French processing sector is highly concentrated with just four processors accounting for 72% ofoutput. Taking the average size of the next 4 enterprises to be an average of 8,500 tonnes per yearthe eight-firm concentration ratio would amount to 87%. 77A1.5.4.2. Trade in egg productsTrade in eggs and egg products accounts for a small proportion of French production. For the pastten years France has been a net importer of shell eggs and a net exporter of egg products. Afterregistering a net surplus for five years in aggregate the egg sector had a 5,900 tonnes shell eggequivalent deficit in 2002.Since 1996 shell egg external trade has recorded net deficits due to an increase in imports (+5%since 1996) and smaller growth in exports (+0.9% since 1996). In 2002, there was a record deficit of38,706 t. The trade within the EU is presented in Table A1.34. Exports are mainly to the Germanmarket, while imports come mainly from Spain.Table A1.34: French trade of fresh eggs (fresh egg equivalent)Value (thousand Euro) 1990 1995 2000 2001 2002 9 month evolution 2003Import 35692 24226 46769 41805 50639 23%Export 35653 36576 44269 39201 42383 20%Balance -39.0 12.350 -2.500 -2.604 -8.256Volume (t) Imports 39696 37524 59066 58385 74666 11%Origin (%)EU-15 99.6 98.4 99.0% 99.0% 98.4% 11%Spain 0.4 18.7 24.5% 48.8% 51.0% 39%Netherlands 44.6 22.7 41.8% 16.9% 15.4% -53%Germany 6.5 21.2 20.6% 13.2% 13.7% -49%Belgium/Luxembourg 46.3 25.0 6.7% 9.3% 10.0% 32%ITALY 0.0% 3.5% 1.2% 5.1% 5.1% 2,1%*Exports 31459 37799 37417 36447 35959 17%DestinationEU-15 86.5 83.4 85.4% 85.4% 88.7% 14%Germany 11.9 45.3 33.1% 37.2% 28.6% 42%United Kingdom 19.0% 4.9% 12.7% 19.1% 24.4% =Belgium/Luxembourg 4 20.1 15.0% 19.6% 21.8% 10%Switzerland 11.8 12.6 14.3% 14.3% 11.1% 44%Trade balance -8237 275 -21649 -21938 -38707Source: ITAVI77 Based on estimate that there are between 2-9 processors producing between 5,000-12,000 tonnes of liquid egg equivalent per year174

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSBy contrast the processed egg product sector trade has been growing both in volume and in valuefor the past decade. Since 1994, the egg product trade has had a net surplus due to the doubling ofexports, from 32, 000 shell equivalent tonnes in 1992 to 77,500 shell equivalent tonnes in 2002, whileimports remained fairly constant.In 2002, there were record egg products exports, both in volume and value, which increasedrespectively 5,300 tonnes and € 5.1 million, in respect to 2001. Egg product exports increased 4.4%in value and 11% in volume due to the increase in liquid of French egg products.A1.5.5. Egg marketsEgg marketing in France primarily takes place via one of three major branded marketing groups whichaccount for 80% of national egg output. Direct sales by producers are very limited so the balance ofsales is accounted for by producer co-operatives.The branded marketing groups pack and marketing under their own brands. Usually producersestablish 5-year contracts with these independent groups, negotiating the price annually.A1.5.5.1. Primary demandOverall domestic consumption of eggs came to 935,000 tonnes in 2003. As is indicated above some30% of eggs are utilised by processors. The balance is made up as follows: 10% producers’ ownconsumption; 20% into the food service sector and 40% sold by retailers. For fresh eggs as is evidentfrom Table A1.35, there has been an increase in the demand for eggs from alternative systems overthe past four years. Demand has risen from 10.9% in 2000 to 14.3% in 2003. At the same time therehas been a reduction in the demand for eggs from caged production and a slight increase in theprocessed egg product demand.Table A1.35: Demand for shell eggs by sector (%) 2000-2003OrganicConsumption of fresh eggsPlein airintensiveDeep(SolEggs DestinationCage eggsIndustry usageEggs soldotherProcessedHardboiledeggs2000 3.06% 6.95% 0.90% 64.76% 7.70% 14.79% 1.84% 100.00%2001 3.36% 7.97% 0.87% 63.30% 8.55% 14.41% 1.54% 100.00%2002 3.22% 8.06% 1.17% 63.25% 8.48% 14.38% 1.43% 100.00%2003 3.50% 9.14% 1.64% 60.25% 10.73% 13.14% 1.60% 100.00%Note: Figures not precisely equivalent to Table A1.33 due to differing calculation basisSource: AGRESTETotalMore generally as is shown in Figure A1.28 below, although alternatively produced eggs now accountfor some 34% of fresh egg (as opposed to total egg) sales, according to a study by ITAVI 78 the main78 Impact des systèmes de d´élevage des poules pondeuses sur la demande des consommateurs finaux, des distributeurs et des industriels”– ITAVI, February 2001.175

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSdriver for consumer purchasing behaviour with respect to egg purchasing remains the concern withfood safety.5%40%14%7%1%15%8%10%Figure A1.28: Figure Breakdown of fresh egg sales, by production typeSource: ITAVICaged Extra Fresh First Organic Label Plein standard/semi-intense Barn/DeepA1.5.5.2. PricesFigure A1.29 presents egg price evolution in France and the EU between 1991 and 2003. Frenchprices are consistently below the EU average although the French price tracks the movements in theEU price relatively closely. The percentage difference between average prices in France and the EUis shown in Figure A1.30. The gap between French and EU prices ranges from just over 4% in 1991to just under 19% below the EU level in 1994/1995. In 2003 prices were some 7% below the EUaverage.176

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.29: Evolution of egg prices 1991–2003Source DG AgriFranceEU0%-2%-4%Percentage difference from EU average-6%-8%-10%-12%-14%-16%-18%-20%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.30: Difference between French and EU Egg Price 1991-2003Source DG Agri177

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.5.5.3. Demand and supply elasticitiesWhile there is no data on demand elasticities it is thought that given there is relatively littlesubstitutability for eggs the price elasticity will be close to one.A1.5.6. The impact of Directive 1999/74/ECA1.5.6.1. Implementation to dateWhile the requirements to date of Directive 1999/74 have been implemented in France there hasbeen no private investment to date in enriched cages in France 79 . This is explained mainly by the factthat producers are unwilling to make the investment until they are certain that the ban onunenriched cages in line with Chapter II, Article 5.2 of the Directive will be implemented and in whatform this will be. Individual producers are also unwilling to incur the investment costs in advance ofthe rest of the industry to avoid being placed at a cost disadvantage.A1.5.6.2. Impact on the industryThere is a strong expectation that the implementation of the ban on unenriched cages in line withChapter II, Article 5.2 of the Directive will bring further consolidation to the industry with asignificant number of producers (approximately 35%) suggesting that they will use their traditionalcaged facilities as long as they are able to and then retire in preference to making the necessaryinvestments. According to research, not yet published, concerning how producers are likely to reactto the full implementation of the Directive, the majority of producers are awaiting the outcome ofthe Commission’s report in 2005. According to a survey 80 conducted with a sample of 20% of Frenchproducers:20% of producers will cease production. These are mainly smaller producers with facilitiesdating from before 1985 of whom an estimated 50% have no heirs;for producers with more recent facilities (post 1985) the conclusions were: 15% of producers will cease production; 23% will reduce production, due to the increase in area per hen; 27% will enlarge their facilities in order to maintain their production levels (mainly,producers with over 50,000 hens, new facilities and younger management); 20% are still undecided; 6-8% will change to alternative systems; the remainder did not answer.79 ITAVI is conducting a field study on the operation of enriched cages over a number of production cycles. The first production cycle willhave been completed in May/June 2004.80 This survey is part of a Traineeship Report coordinated by Luc Mirabito,of ITAVI due to be concluded in June 2004.178

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.6. GermanyA1.6.1. OverviewGermany has introduced legislation to ban production in traditional cages from 1 January 2007.Germany produced 859,000 tonnes of eggs (13.9 billion eggs) in 2002. There were approximately97,000 producers with a laying flock of some 50 million birds in 2001. Egg production is concentratedin the old Bundesländer, where 71% of the total of all laying hens were held in 2001. 32% ofproducers holding more than 3,000 birds kept 5,000-10,000 birds, and 30% kept flocks of 10,000-30,000 birds in 2002. Germany is a net importer importing 397,866 tonnes and exporting 105,919tonnes of eggs (including eggs for breeding) and egg products in 2002.There are four significant processing companies in Germany accounting for an estimated 50-60% ofeggs processed.A1.6.2. Egg productionAnnual German production of eggs for consumption in 2002 was 827,000 tonnes (plus 40,000 tonnesof hatching eggs) from a laying flock of 48.6 million 81 birds. The predominant mode of production is inthe traditional caged system, which accounted for 86.4% of the number of laying hens in 2001 82 . Thebulk of German egg production is in the old pre-unification Federal Republic Länder in the westernpart of the country. In 2001, 67% of all eggs (in flocks of 3,000 birds or more) were produced in theold Länder, mainly in Lower Saxony (37%). About 10% were produced in Saxony in the new Länder.In 2003, more than 90% of all holdings with more than 3,000 birds were situated in the old preunificationFederal Republic Länder. Lower Saxony dominated with 31% of all holdings (with >3,000hens). The average size of holdings with more than 3,000 hens was 31,600 in 2003. Holdings tend tobe bigger in the new Länder (104,100 birds in Saxony, 82,200 in Thuringia, 67,500 in Saxony-Anhaltand 52,500 in Mecklenburg-Western Pomerania) than in the old pre-unification Federal RepublicGerman Bundesländer (30,600 in Lower Saxony, 9,600 in Baden-Württemberg and Rhineland-Palatinate).Overall German egg production decreased from 922,000 tonnes (15.4 bn eggs) in 1991 to a level of826,000 tonnes in 1993, and then increased again to reach another peak of 893,000 tonnes in 1998.Since 1998, overall German egg output has been falling and is now estimated at 825,000 tonnes (13.3bn eggs) in 2003.81 Excluding mother hens. Using ZMP data in 2002, there was a total of 58,607,000 laying hens recorded, of which 41,330,000 were half ayear or older and 17,277,000 were less than half a year old82 83.9% of the total number of laying hens in 2002 for flocks with more than 3,000 hens.179

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.36: Germany egg production 1990-2003Year Production ‘000 t No.eggs (bn)1990 692 11.51991 922 15.41992 882 14.51993 826 13.51994 843 13.81995 836 13.71996 842 13.81997 850 13.91998 855 141999 874 14.22000 893 14.42001 877 14.12002 859 13.92003 825 13.3Source: Eurostat and DG AgriThere has also been significant concentration in the production sector as illustrated in Figure A1.31which shows the evolution of the proportion of laying hens by flock size of the birds of half a year orolder. In 1992 there were 290,876 producers, of which 97% had a flock size of less than 100 layinghens. On the other hand, the largest 240 producers with flocks of over 30,000 hens accounted for55% of the national flock (of hens of half a year or older) in 1992 compared to the 232 producers inthis size category in 2001 who accounted for 66% of the flock (hens ≥ 0.5 years). The level ofconcentration by 2001 is even more striking since 79% of the flock (hens ≥ 0.5 years) was held by564 producers with more than 10,000 hens. Overall by 2001 the total number of producers withlaying hens had fallen to 97,165 and the average number of laying hens held (taking into considerationall flocks of more than 100 birds) increased from 5.688 in 1990 to 7,145 over the same period. Thelargest individual producer was estimated to hold over 10 mn hens, followed by two with some 3 mnhens and there are an estimated 80 further producers with a flock in excess of 100,000 hens.180

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS100%90%80%70%60%50%40%30%20%10%0%1990 1993 1995 19971 - 99 100 - 2,999 3,000 - 9,999 10,000 - 29,999 30,000 and moreFigure A1.31: Germany: Evolution of holdings by size categories (no of laying hens)1990-1997Source: ZMP 2004Most large scale producers tend to be specialist egg producers in that the egg enterprise is the mostsignificant economically.A1.6.2.1. Main producers/packersThe largest German producer and packer is Deutsche Frühstücksei GmbH. It is estimated to holdover a quarter of the approximately 50 mn hens in Germany and to pack roughly 30% of German eggproduction. Deutsche Frühstücksei GmbH is profiled in Box A1.13.Box A1.13: Profile of Deutsche Frühstücksei GmbHDeutsche Frühstücksei GmbH is the largest producer and packer in Germany with a marketshare of some 25% of production and 30% of packing. The bulk of the company’s production is inbattery cages and it is a fully integrated operation with its own feed compounding, pullet rearingand processing capacity. Has invested in capacity in Czech RepublicOwnership: Limited companyMain markets: Domestic --- supplies large discount chains181

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSBox A1.14: Profile Gold-Ei Erzeugerverbund GmbHGold-Ei Erzeugerverbund GmbH is estimated to pack and market the production from some6mn hens (1 bn + eggs). Largest individual member is Salmet GmbH & Co.which holds about 3 mnhens largely in traditional (550 sq. cm) cages. The bulk of production is in the eastern half ofGermany where there are four units including two with respectively 950,000-1mn hen places and780,000 places. In addition six farms in the state of Hesse supply approximately a further 800,000-1mn hen placesOwnership: Marketing organisation with Gold-Ei brandMain markets: Domestic retail chain and some 30% to processorsA1.6.2.2. Production (packer) concentrationThe German packing industry is highly concentrated. The largest of the packers, DeutscheFrühstücksei GmbH, accounts for some 30% of the total. Between them these four account for anestimated 67% of total eggs packed in Germany. The 8-firm concentration ration is estimated at48%. The estimated market shares for the top eight packers ( 83%) is presented in Table A1.37below.Table A1.37: Main packers in Germany and concentrationRank Company Output 20031 Deutsche Frühstücksei GmbH 4.1 bn eggs2 Gold-Ei Erzeugerverbund GmbH 1 bn eggs3 Eierhof Hennes GmbH 1 bn eggs4 EZH Gutshof Ei GmbH 0.5 bn eggs5 W.H. Frischei 0.5 bn eggs6 Eifrisch-Vermarktung 0.5 bn eggs7 Rodinger Frischei 0.25 bn eggs8 Amshoff 0.25 bn eggs9 Rühl 0.25 bn eggs10 Fischer Weppler 0.25 bn eggs11 Others 1.25 bn eggsTotal eggs packed9.8 billion eggsA1.6.2.3. Main production systemsThe predominant mode of production is in traditional caged systems which accounted for 86.4% ofthe number of laying hens in 2001. In this year 6.9% of hens were held in free range systems(Freilandhaltung). Deep litter systems (Bodenhaltung) accounted for 5.9% of hens in 2001 and therewas almost no production perchery systems (Volierenhaltung). In 2002, the trend towards anincreasing share of hens held in alternative systems continued (15.1% of hens were held in alternativesystems and 84.1% in cages in 2002), with the exception of semi-intensive systems (0.1% in 2002compared to 0.5% in 2001). The biggest increase occurred for free range systems, which accountedfor 8.6% of laying hens held in 2002. Since the early 1990s the share of hens in alternative productionsystems has risen gradually from a base of 3.1% in 1990 to 13.6% in 2001.182

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.38: Evolution of laying hen numbers by system 1990-2001Caged Free Range Semi-intensive Deep litter Perchery Total layinghens1990 43,049,559 216,974 11,342 1,136,325 4,800 44,419,0001991 56,952,368 259,302 17,026 1,122,524 48,780 58,400,0001992 53,064,696 306,983 27,831 994,807 5,683 54,400,0001993 49,139,961 206,736 24,126 1,322,887 6,290 50,700,0001994 49,469,702 569,519 36,751 1,616,409 7,619 51,700,0001995 47,399,321 778,123 44,268 2,458,605 19,683 50,700,0001996 46,668,197 1,524,451 31,136 2,353,942 22,274 50,600,0001997 41,881,730 1,381,085 140,934 2,112,330 34,062 45,550,1411998 39,850,070 1,801,535 139,523 2,411,497 31,315 44,233,9401999 38,102,880 2,267,166 197,147 2,544,508 54,059 43,165,7602000 37,571,429 2,899,353 217,422 2,534,619 66,128 43,288,9512001 39,536,197 3,160,936 246,991 2,688,802 123,074 45,756,000Sources: DG Agri and Agra CEASA1.6.3. Technical factorsThe technical factors and production costs presented for Germany in this and the following sectionsare currently based on Agra CEAS estimates.Table A1.39: Performance comparison of egg production systems, Germany, 2003Traditional cages Barn Free-range OrganicLaying cycle (days) 406 413 413 413Empty period (days) 14 28 28 28Feed/bird/year (Kg) 39.52 41.02 44.44 44.44Feed/bird/day (g) 112 120 130 130Eggs/bird/laying cycle (collected) 275 265 238 235Kg feed per kg eggs 2.30 2.48 2.99 3.02Mortality (%) 6% 8% 10% 10%Number of hens managed/labourer 20,000 20,000 5,000 5,000Hens housed per m2 house 18 7 7 6Space allowance per hen per cm2 550 1,429 1,429 1,323Pullet cost 3.32 3.58 4.10 4.10End of lay hen weight Kg n/a n/a n/a n/aEnd of lay hen price 0.10 0.10 0.10 0.10Source: Agra CEASA1.6.3.1. Production costsTypical variable costs of production are presented in Table A1.40 and fixed costs in Table A1.41.Based on the technical factors presented in Section A1.6.3 there is an additional cost for feed in thealternative systems.183

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.40: Variable costs of production 2003Traditional cages Barn Free-range OrganicFeed cost 41.52 46.83 58.97 104.36Medication/vet 0.76 3.00 3.34 3.94MiscellaneousBird depreciation 16.80 17.89 22.86 23.10Total variable costs 59.08 67.71 85.17 131.40Source: Agra CEASTable A1.41: Capital (fixed) costs 2003 (per kg eggs)Traditional cages Barn Free-range OrganicLabour 4.00 9.33 23.90 24.16Buildings 3.47 5.07 12.16 16.20Equipment 6.93 10.13 24.31 32.41Land 0.02 0.04Manure disposal 0 0 0 0Insurance 0.58 0.91 1.21 1.23Utilities 1.80 2.84 3.17 3.20Cleaning 1.71 5.47 0.27 0.27Miscellaneous 1.44 1.88 2.09 4.16Total fixed costs 19.94 35.61 67.13 81.66Source: Agra CEASA1.6.3.2. Gross marginsBuilding on the cost data in Section A1.6.3.1, Table A1. 42 presents revenue figures and from thiscalculates producer gross margin. It should be stressed that the prices obtained in 2003 were higherthan normal for caged eggs reflecting a tightening of supply.Table A1. 42: Egg producer gross margin 2003 (in Euro per kg)Traditional cages Barn Free-range OrganicEgg returns 79.31 89.16 108.98 165.70Revenue from spent hens 1.52 1.50 1.67 1.69Output (per year) 80.82 90.66 110.65 167.39Total variable costs 59.08 67.71 85.17 131.40Gross margin 21.74 22.95 25.49 35.99Source: Agra CEASA1.6.4. Egg processingGerman usage of eggs for egg processing amounted 222,000 tonnes in 2002 out of a total eggproduction of 859,000 tonnes. This equates to 25.8% of total egg output.184

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.6.4.1. Main egg processorsThe three main egg processors in Germany are Ovobest (part of Deutsche Frischei GmbHincorporating AEP Artland Eiprodukte, Goldkorn and Eiproduktenwerk Ostbevern), Eipro, Sanovo,and followed by CEWO and Juchem. The top 14 German producers are as follows:AEP Artland EiprodukteBonner EiprodukteCEWO WortmannEhlegoEipro VermarktungEi-FrischEiprodukte OstbevernGold-korn-EiJuchemOvobest EiprodukteOvofit EiprodukteSanovoWadenA1.6.4.2. Processor concentrationThe German processing sector is relatively concentrated with the four largest companies estimatedprocess some 65-70% of the eggs sent for processing and the largest eight companies processing 80-85%.A1.6.4.3. Trade in egg productsIn 2002, Germany produced 859,254 tonnes of eggs. Germany is a net importer importing 397,866tonnes and exporting 105,919 tonnes of eggs and egg products in 2002. Domestic use amounted to1,151,201 tonnes in 2002, resulting in a degree of self-sufficiency of 74.6%. Since 2000, the degree ofself-sufficiency has been decreasing with decreasing domestic production and use and increasingimports.About 85% of shell eggs imports came from the Netherlands, with Belgium/Luxembourg and Francesupplying approximately 4% each. Most egg product imports came from the Netherlands,Belgium/Luxembourg and Italy. Imports from Eastern Europe have been continuously increasing (e.g.from zero in 2000 to 36.3 million eggs in 2003 from the Czech Republic). Approximately 12% ofdomestic eggs and egg products for consumption are exported, and imports of eggs and egg productsamount to 35% of domestic consumption (excluding hatching eggs).185

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSTable A1.43: Supply balance for eggs and egg products in Germany (‘ 000 tonnes) 1991-20021991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Production 922 882 826 843 836 842 850 855 874 893 877 859Imports 357 339 338 351 385 394 407 400 396 375 392 398Exports 75 67 60 77 68 87 80 94 98 100 113 106Domestic use 1,212 1,154 1,105 1,118 1,153 1,149 1,178 1,160 1,172 1,168 1,156 1,151Self-sufficiency (%) 76.1 76.4 74.8 75.4 72.5 73.3 72.2 73.7 74.6 76.5 75.9 74.6Source: Eurostat.A1.6.5. Egg marketsA1.6.5.1. Primary demandIn 2002 827,000 tonnes of consumption eggs 83 were produced in Germany in 2002. Total shell eggexports for consumption came to 62,000 tonnes (1.03 bn eggs) with imports amounting to some319,000 tonnes (5.14 bn egg). Overall egg demand is estimated to break down as follows: 25% forprocessing use, 25% for the food service sector and 50% sold via retail outlets. The 50% sold viaretail breaks down as follows: 36% via shops; 6% via direct producer sales; 4% via weekly markets;1% direct sales to households via mobile shops; 2% other outlets (Source: Agra CEAS based on ZMPand industry estimates). Hardly any eggs are used in industry (for non-food purposes) in Germany.A1.6.5.2. PricesFigure A1.32 shows the evolution of market prices for eggs in Germany between 1991 and 2003 andcompares this to average EU prices. The percentage difference between average prices in Germanyand the EU is shown in Figure A1.33. This shows that for the first half of the 1990s prices weregenerally in line with the EU average but that since then they have generally been 2-4% below the EUaverage.83 Excluding hatching eggs.186

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENS140Average of large and medium egg price (EUR/100 kg)1201008060402001990 1992 1994 1996 1998 2000 2002 2004GermanyEUFigure A1.32: Evolution of egg market prices 1991-2003 (size categories L+M)Source: Agriculture Directorate-General6%Percentage difference from EU average4%2%0%-2%-4%-6%-8%-10%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.33: Difference between German and EU egg market prices 1991-2003Source: Agriculture Directorate-General187

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSA1.6.5.3. Consumer behaviourEgg demand by type of retail outlet:Figure A1.34 shows the results of a survey of egg demand of German households 84 by type of retailoutlet. In 2003, 72% of German household bought eggs from food retailers. Within this categorypurchases at discounters dominate with 45% (Aldi 22%). The importance of the different types ofretail outlet differs considerably between the old and the new Länder. Egg purchases directly fromthe producer play a more important role in Western Germany. The discounter Aldi sells more eggsin Western than in Eastern Germany.discounterexcl. Aldi23%supermarket /traditional foodretailer7%others5%consumer market20%Aldi22%weekly market8%farmer / producer/ house sale15%Figure A1.34: Egg demand by type of retail outlet in Germany 2003Source: ZMP 2004.Packaging:According to a survey commissioned by ZMP/CMA, 85% of all eggs in Germany were sold packedand 15% were sold loose in 2003.Egg demand by production system:Figure A1.35 shows the household purchases of eggs from different types of egg farming in the firsttwo months of 2004. In line with Regulation 2295/2003, eggs sold in the EU have had to be labelledwith a code indicating the rearing method (organic, free range, barn or cage) since 1 st January 2004.40% of eggs bought by German households in January and February 2004 were produced from hensreared in cages. Among the alternative production methods, free range dominates with 19%. For27% of eggs sold to households, the production system was unknown (unlabelled eggs) but it can beassumed these are largely from caged production.84 Survey of 8,000 households. Eggs eaten via food service outlets and the consumption of processed eggs are not taken into consideration.188

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENSunknown27%free range19%barn8%organic6%cage40%Figure A1.35: Egg demand of German households by type of production system, Januaryand February 2004Source: ZMP 2004.A1.6.5.4. Demand and supply elasticitiesWhilst there is no research on the elasticity of demand for eggs, the German industry considers eggsto be a staple product and therefore relatively inelastic.A1.6.6. The impact of Directive 1999/74/ECA1.6.6.1. Implementation to dateGermany has implemented EC Directive 99/74 in full and has imposed more stringent conditions onGerman producers via national legislation 85 . Under this legislation there will be a ban on traditionalbattery cages as of 1 January 2007 and a ban on the usage of all types of cages, including enrichedcages, from 1 January 2012. The ban on the construction of traditional cages was introduced on 6July 1999.The German national legislation is currently the subject of extensive debate. A recent three year longgovernment commissioned study 86 based on six pilot enterprises using various types of enriched85 Notably via the ‘Erste Verordnung zur Aenderung der Tierschutznutztierhaltungsverordung of 28 February 2002’ BGB Part 1 of 12March 2002.86 ‘Modellvorhaben Ausgestaltete Käfige, Die ökonomischen Auswirkungen der Praxiserprobung von ausgestalteten Käfigen für dieLegehennenhaltung in sechs deutschen Pilotbetrieben’, Peter Hinrichs and Anke Redantz, Institut für Betriebswirtschaft, derBundesforschungsanstalt für Betriebswirtschaft (FAL), Braunschweig, 2004.189

THE SOCIO-ECONOMIC IMPLICATIONS OF THE VARIOUS SYSTEMS TO KEEP LAYING HENScages, has suggested that, in economic terms at least, enriched cages are likely to be broadlycompetitive with traditional battery cage systems (although the study makes no direct comparisonwith conventional systems). The government is, however, unwilling to accept the enriched cage ascurrently defined by EU legislation and is instead seeking to establish a definition of what is termed a‘Klein Voliere’ or small scale barn production. This definition will need to be agreed and tested as towhether it meets animal welfare requirements and this will take some time. Sector representativesargue that in order for production from ‘enriched’ cages or similar systems to be viable the EUlabelling legislation needs to be amended to enable a separate/additional marketing category for suchsystems to be identifiable for the consumer.190

APPENDIX 1: MEMBER STATE REPORTSA1.7. GreeceA1.7.1. OverviewThe ban on the use of unenriched cages in line with Chapter II, Art.5.2 of Directive 1999/74/EC willbe implemented in Greece from 2012. The Greek egg industry is fragmented with the 15 mainproducer/packers accounting for less than 30% of total egg production. The three mainproducer/packers are Golden Eggs, Blahaki and Megafarm and of these, Golden Eggs account forapproximately 15% of total production while Megafarm and Blahaki Eggs have between 3% and 5%market share. Greece has 107 approved packing stations.Egg production in Greece amounted to just under 2.5 billion eggs in 2003, of which almost a third(31.7%) were produced in (generally) non-intensive systems for on-farm consumption or direct farmgatesales. The total number of laying hens in Greece in 2003 was 7,223,744 of which 6,196,444 henswere in commercial production.The Greek egg industry is located mainly in the outskirts of big cities (i.e. Athens and Thessaloniki).However, a significant part of egg production is also undertaken in the rest of the country includingthe region of Epirus (Ioannina), and islands (Dodecannese, Crete, etc). The region of Attica inparticular accounts for a quarter of total egg production in the country (2003), followed byThessaloniki with 8.6% and Ioannina with 5.7%.Egg processing in Greece is extremely limited and accounts for only second quality eggs from largepackers with seconds from smaller production/packing units simply being discarded. The processingsector represents around 0.5% of total egg production. There are three main egg processorsSovimo in Attica region, Ovo Fresco in Giannena and Avgo ABEE in Larissa. Sovimo is a subsidiary ofthe packer Golden Eggs although it is operated by the French egg processor SOVIMO (SociétéVimoise d’Ovoproduits). There are no egg drying facilities in Greece with processors producingliquid and frozen whole eggs, egg white and egg yolks.A1.7.2. Egg productionTotal egg production reached 2.488 billion eggs in 2003. The main production system used inGreece is the traditional cage accounting for 98% of laying hens in commercial flocks. There is asmall amount of free range, barn (achyrona) and organic production. Although one small producerhas invested in enriched cages, there is no record of egg production in enriched cages yet. It isworth noting that according to data from the Ministry of Agriculture, alternative systems appearedonly in 2002 and account only for less than 0.5% of total laying hens. However, interviews withproducers indicate that some alternative production has been undertaken prior to 2002, but notrecorded. It is on this contention that a 2% share for alternative systems is predicated.191

APPENDIX 1: MEMBER STATE REPORTSIt is worth noting that Greece moved into caged production only in the mid-1950s (14% of totalproduction in 1958 rising to 67% in 2003). Over the past five years the sector has experienced theopposite trend, albeit slowly in the commercial sector.The evolution of total laying hen numbers from 1990 to 2002 is presented in Figure A1.36. The 11%decline between 1990 and 2002 results from a reduction in the number of hens kept by smallagricultural holdings.181614Total laying hen numbers (millions)1210864201990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Figure A1.36: Evolution of total laying hen numbers from 1990 to 2002Source: Eurostat.The fragmented sector results in fierce competition as, with the exception of Golden Eggs with 15%market share, the largest producers/packers have market shares of less than 5% and as a result littlemarket power over the large retail chains. Although the number of farmers producing eggs hasdeclined dramatically already, further consolidation in the sector is expected with the implementationof stricter rules for marketing egg products in Greece and in particular labelling. A second majorconsolidation is expected with the implementation of Directive 1999/74 by the year 2012.Table A1.44 below shows the number of farms with poultry and laying hens by size category in 1991and 2000. There were just over 300,000 holdings with poultry in 2000, a 15% decline on numbers in1991. Over the same period, laying hen numbers were virtually unchanged (-2%). The Table showsthat the proportion of laying hens held on holdings with more than 1,000 head of poultry increasedover the period while the proportion kept in all smaller units declined. This is not the case for farms192

APPENDIX 1: MEMBER STATE REPORTSwhich suggests that in general there were fewer and larger farms in 2000 than in 1991 (see alsoFigure A1.37).Calculating the average numbers of laying hens held by farm from Table A1.44 87 shows that in generalthere was an increase between 1991 and 2000. The average number of laying hens held per holdingin Greece in 1991 was 30.0, rising to 34.5 in 2000.Table A1.44: Size structure of laying hen holdings 1991 and 2000Laying hensFarms with poultry1991 2000 1991 20001-9 176,132 1.7% 129,530 1.2% 34,047 9.6% 24,558 8.1%10-29 2,387,941 22.5% 2,150,219 20.6% 184,303 52.1% 165,369 54.7%30-49 1,539,279 14.5% 1,364,464 13.1% 75,637 21.4% 65,004 21.5%50-99 1,326,652 12.5% 1,111,413 10.7% 47,611 13.5% 37,735 12.5%100-499 518,949 4.9% 436,658 4.2% 11,002 3.1% 8,626 2.9%500-999 52,657 0.5% 29,214 0.3% 163 0.0% 104 0.0%1000+ 4,613,970 43.5% 5,198,308 49.9% 882 0.2% 722 0.2%Total 10,615,580 10,419,806 353,645 302,118Source: Greek Government figures.100%90%80%Percentage of total flock/total farms70%60%50%40%30%20%10%0%hens1991hens2000farms1991farms20001-9 10-29 30-49 50-99 100-499 500-999 1000+Figure A1.37: Size structure of laying hen holdings 1991 and 2000Source: Greek Government figures.87 Because the number of farms listed refers to farms with poultry and not just laying hens, the average laying hens held per farm do notalways fall within the size category boundaries.193

APPENDIX 1: MEMBER STATE REPORTSAs shown in the table below, around two thirds of farms with laying hens are classed as arable andalmost a quarter are specialist olive farms. However, these producers have relatively few laying hens.Most laying hens (51%) are found on livestock farms, most of which are on pig units (47%).Table A1.45: Laying hen holdings by farm type in 2000TypeFarmofSpecialisation Farms Laying Hens % of farms % of layinghensCereals General Field cropping 58,650 1,210,000 18.9% 9.9%Specialist cereals, oilseed and protein crops 23,640 470,000 7.6% 3.8%Specialist horticulture 4,020 80,000 1.3% 0.7%Specialist vineyards 4,400 70,000 1.4% 0.6%Specialist fruit and citrus fruit 13,800 240,000 4.4% 2.0%Specialist Olives 71,850 1,190,000 23.1% 9.7%Various permanent crops 25,870 480,000 8.3% 3.9%TOTAL CEREALS 202,230 3,740,000 65.1% 30.6%Livestock Dairying 870 20,000 0.3% 0.2%Cattle rearing and fattening 950 20,000 0.3% 0.2%Cattle dairying, rearing and fattening combined 340 10,000 0.1% 0.1%Sheep, goats and other livestock 24,200 520,000 7.8% 4.3%Specialist granivores 1,880 5,710,000 0.6% 46.7%TOTAL LIVESTOCK 28,240 6,280,000 9.1% 51.4%Mixed Mixed cropping 41,250 910,000 13.3% 7.4%Mixed livestock, mainly grazing livestock 10,810 260,000 3.5% 2.1%Mixed livestock mainly granivores 1,970 150,000 0.6% 1.2%Field crops-grazing livestock combined 10,270 250,000 3.3% 2.0%Various crops and livestock combined 15,790 630,000 5.1% 5.2%TOTAL MIXED 80,090 2,200,000 25.8% 18.0%TOTAL 310,560 12,220,000 100.0% 100.0%Source: Eurostat.Greece is almost self-sufficient in eggs (96.7% in 2003). As shown in Figure A1.38, total eggproduction declined slightly from 1990 to 1997, but recovered from 1999 to 2001 before decliningagain in 2002. The industry believe that the recent recovery in egg production is related topopulation increases resulting to net inward migration. There is also some (untested) suggestion thatper capita egg consumption is higher amongst immigrant groups compared to native Greeks.194

APPENDIX 1: MEMBER STATE REPORTS3.02.5Egg production (billion eggs)2.01.51.00.50.01990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Figure A1.38: Egg production 1990 to 2002 (million tonnes)Source: Eurostat.The majority of producers are vertically integrated with packers/processors and therefore pack theirown eggs. A large number of producers also have other activities such as the production and/ortrade of feed products, poultry and organic fertilisers.A1.7.2.1. Main producers/packersThe main egg packers are Golden Eggs, Megafarm and Vlahaki. All three own production facilitieswhich supply all their eggs. These three companies are profiled in Box A1.15, Box A1.16 and BoxA1.17 below.Box A1.15: Profile of Golden Eggs (Xryssa Avga)Golden Eggs is the largest egg packer in Greece accounting for 15% of all eggs packedOwnership: Limited companySubsidiary: the egg processor SovimoTurnover: €12.8 million in 2002Profit: €23,786 (2002)Employment: 200 staffMain markets: domestic 70%, remainder exported to Albania, Bulgaria, France, Germany, Italy,Cyprus, Serbia and Montenegro195

APPENDIX 1: MEMBER STATE REPORTSBox A1.16: Profile of Megafarm S.A.Megafarm has between 3% and 5% market shareOwnership: Limited companyTurnover: €5.5 million in 2002Profit: €49,997Employment: 50 staffMain markets: mainly domestic, exports of 1% to Albania and CyprusBox A1.17: Profile of Blahakis APEEBlahakis has between 3% and 5% market shareOwnership: Limited companyTurnover: €4.6 million in 2002Profit: €215,219Employment: 49 staffMain markets: mainly domesticA1.7.2.2. Production (packer) concentrationAs mentioned above, the Greek egg industry is extremely fragmented. There is a large number ofproducer/packers and a slightly smaller but still very large number of packers. Competition isextremely fierce and often results in very low producer prices, often leaving no profit margin to theproducer/packer. In fact, two of the three largest producer/packers made losses in 2001, in one casethese losses were substantial. A number of egg producers have been forced out of business asconsolidation takes place.Table A1.46 presents the main egg packers in Greece and their approximate share of total eggspacked in 2003. After the top three packers there are a number of firms of approximately similarsize and only the first one of these is listed here.Table A1.46: Main egg packers in GreeceRank Company Output 2003 (in eggs)1 Golden Eggs 290 million (estimate)2 Megafarm 90 million (estimate)3 Blahaki 60 million (estimate)4 Ptynotrofiki 50 million (estimate)Total production2,480 million eggsThe 4-firm concentration ratio for Greece in 2003 is around 20% and the 8-firm concentration ratio28% (on the assumption that the next four firms all pack approximately 50 million eggs, 2% of totaleggs packed). Egg producers/packers are more concentrated than a decade before as some allianceshave been formed (for example, Golden Eggs).196

APPENDIX 1: MEMBER STATE REPORTSA1.7.2.3. Main production systemsTotal egg production in Greece in 2003 was 128,500 tonnes (approximately 2.48 billion eggs). Twothirds of this takes place in commercial systems with the rest in less intensive back-yard flocks foron-farm consumption and direct farm-gate sales.The dominant production system is the traditional cage (accounting for approximately 98% ofcommercial egg production). According to the producers, the use of alternative egg productionsystems in commercial flocks started 4 to 5 years ago. The main alternative systems in use are freerange and barn, although these only account for up to 2% of total production 88 . There are someorganic flocks, but these account for less than 1% of total egg production.There is one producer in northern Greece with enriched cages, although production has yet to workits way through the figures. Producers are generally not willing to invest in enriched cages as theyclaim that this will dramatically increase their production costs. As a result, a wait and see approachto enriched cages has been adopted whilst current plans are more likely to involve increases in theuse of alternative systems.The official register of production units is still being undertaken and as a result the only available datafor alternative production is from the Organisation for the Certification of Agricultural Products(AGROCERT). According to their register for certified alternative systems (which make up a sub-setof total alternative production), production in 2003 accounted for 128,083 kg (just more than 3million eggs).The Greek surplus of free range eggs was 14,000 in 2002, rising to 692,550 in 2003. The surplus ofbarn eggs was 134,640 in 2003 see Table A1.47.Table A1.47: Eggs delivered and sold by alternative system 2002-20032002 2003Laying hens Eggs delivered Eggs sold Laying hens Eggs delivered Eggs soldFree range eggs 2,200 403,000 389,000 14,500 2,383,470 1,690,920Barn eggs - 13,500 749,220 614,580Source: DG Agri and AGROCERT.A1.7.2.4. Technical dataCurrent technical data were established through interviews with the major players in the Greekindustry. The figures presented in Table A1.48 are averages calculated from the ranges provided andtherefore mask a fair degree of variation. Clearly the actual performances achieved by individualfarms can vary widely. A key point of difference with other Member States is the long empty periodbetween laying cycles.88 The only data relating to production by system held by DG Agri states that 2,200 laying hens were kept in free range systems in 2002.197

APPENDIX 1: MEMBER STATE REPORTSTable A1.48: Performance of egg production in Greece (2003)Traditional cages Barn Free-rangeLaying cycle (days) 355 355 355Empty period (days) 50 80 50Feed/bird/year (Kg) 36.18 35.22 41.12Feed/bird/day (g) 110 115 125Eggs/bird/year (collected) 270 220 231Kg feed per kg eggs 2.14 2.53 2.85Mortality (%) 4.5% 4.5% 13.0%Number of hens managed/labourer 16,500 6,250 5,500Hens housed per m 2 house 55 9 9Space allowance per hen per cm 2 550 1,111 1,111Pullet cost (€) 3.65 3.70 3.70End of lay hen weight (Kg) 1.75 1.90 2.00End of lay hen price (€) 0.15 0.15 0.15Note: data relating to the barn system were sparse and some figures have beenextrapolated from the cage system data.Source: Hypodomi, based on interviews with major producers.A1.7.2.5. Production costsVariable production costs established through interviews with the Greek industry are presented inTable A1.49 and fixed costs in Table A1.50. The industry was reluctant to pass on detailedinformation on costs and revenues and the figures presented provide the fullest picture possible.However, it should be noted that in some cases individual items have had to be extrapolated frominformation given for the same cost item in a different system. This most usually applies to thefigures for barn systems and a degree of caution should be exercised when using these figures.All cost items are cheapest in the caged system and most expensive in the free range system. Totalvariable costs are 29% higher in the barn system compared to the caged system and 37% higher inthe free range system relative to caged production. Total fixed costs are 43% higher in barncompared to caged systems and 112% higher in free range systems.Table A1.49: Variable costs of production per kg eggs 2003 (Euro cents)Traditional cages Barn Free rangeFeed cost 53.32 69.32 73.98Medication/vet 2.67 4.00 4.67Miscellaneous 1.33 2.00 4.00Bird depreciation/live pullets 21.60 26.62 25.66Total variable costs 78.92 101.94 108.31Note: data relating to the barn system were sparse and some figures have beenextrapolated from the cage system data.Source: Hypodomi, based on interviews with major producers.198

APPENDIX 1: MEMBER STATE REPORTSTable A1.50: Fixed costs of production per kg eggs 2003 (Euro cents)Traditional cage Barn Free rangeLabour 2.67 2.80 2.93Buildings 2.93 8.00 8.00Equipment 1.87 4.67 4.67Land 4.27Insurance 2.00 0.80 0.80Manure disposal 0.13 0.13 2.00Utilities 0.80 0.80 1.33Cleaning 12.13 15.06 23.86Miscellaneous 4.67 4.00 4.00Total fixed costs 22.53 32.26 47.85Note: data relating to the barn system were sparse and some figures have been extrapolated from the cage system data.Source: Hypodomi, based on interviews with major producers.A1.7.2.6. Gross marginsDeveloping the cost data presented above and adding revenue data allows the calculation of grossmargins Table A1.51.Table A1.51: Egg producer gross margin 2003 per kg eggs (Euro cents)Traditional cages Barn Free rangeEgg returns 95.98 149.72 239.94Revenue from spent hens 0.53 0.53 0.53Output (per year) 96.51 150.26 240.47Total variable costs 78.92 101.94 108.31Gross margin 17.59 48.32 132.17Note: data relating to the barn system were sparse and some figures have beenextrapolated from the cage system data.Source: Hypodomi, based on interviews with major producers.A1.7.3. Egg processingEgg processing in Greece is extremely limited and the sector has a value of no more than €5 millionin total and accounts for just 0.5% of total egg production. The main processed egg products in themarket are: plain egg, egg yolk and egg white either in liquid or frozen form. There is no domesticproduction of egg powder in Greece and all requirements are met through imports. The Greekprocessing sector utilises only second quality eggs (around 8% of total eggs amongst commercialproducers) and there is no differentiation by production system.A1.7.3.1. Main egg processorsThere are only three main processors: Sovimo, Avgo ABEE and Ovo Fresco. Sovimo is a subsidiaryof the largest egg producer/packer, Golden Eggs, and has around 60% market share. Ovo Frescodistributes its products through the producer/packer Megafarm, and has a market share of some20%. The remaining 15% of Greek processing capacity is owned by AVGO ABEE. Box A1.18 profilesSovimo.199

APPENDIX 1: MEMBER STATE REPORTSOvo Fresco, the second largest egg processor was founded in 1999 by an egg producer (Mr Missas)in the region of Epirus. Ovo Fresco has a turnover of less than €1 million (in 2002) and a very smallprofit. In 2002, Ovo Fresco recorded a small loss (€9,891). It employs 12 people.Box A1.18: Profile of SovimoSOVIMO is the largest processor of eggs in Greece accounting for 60% of Greek processed eggproductionYear of establishment: 1997Ownership: the company is owned by three main egg producers: Zouras, Prevezanos andSkourtis. It belongs to the same group as Golden Eggs (Xryssa Avga)Turnover: €3 million in 2002; (est. €4 million in 2003)Growth rate: 50% in 2002 (est. 30% in 2003)Net Profit: €62,218 (2002)Profit margin: 2%Employment: 17 staffMain markets: domestic 90%, some exports to France and ItalyMain products: plain liquid egg, plain frozen egg, egg yolks and egg whitesA1.7.3.2. Processor concentrationThere are only three processors in Greece and the largest, Sovimo has 60% market share.A1.7.3.3. Trade in egg productsThe Greek egg processing sector mainly serves the domestic market. Trade in shell eggs and eggproducts is extremely limited, although there was a net deficit of €8 million in 2002. Imports of shelleggs and egg products totalled €8.3 million while exports were valued at €0.3 million. Greece mainlyimports shell eggs (53% of the combined trade). Imports of dried egg yolks account for 35% of totalimports of egg products, followed by liquid egg yolks with 28%, dried egg albumin (15%) and driedwhole eggs (12%).As far as quantities are concerned, some 1,654 tonnes of shell eggs where imported in 2002, a 15%reduction on 2001. Liquid whole egg imports amounted to 1,081 tonnes. In 2002, Greece exportedonly €201,045 worth of shell eggs (around 263 tonnes of eggs). Exports of egg products was evenless significant amounting to around €100,000 (78 tonnes).Figure A1.39 presents the net trade deficit for selected egg products for the period 1990 to 2002.Comparing this Figure to Figure A1.38 (above showing shell egg production) shows that the declinein domestic laying hen numbers from 1996 and 1997 was subsequently balanced through imports.200

APPENDIX 1: MEMBER STATE REPORTS765Net trade deficit (€ million)432101990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Shell eggs Dried egg yolks Liquid egg yolks Dried whole egg Dried egg albuminFigure A1.39: Net trade deficit for selected products 1990 to 2002Source: Eurostat.A1.7.4. Egg marketsA1.7.4.1. Primary demandTotal human consumption of eggs in Greece was around 129 million tonnes in 2003. It is estimatedthat a large part of the demand is serviced through the retail sector (up to 95%) and only a very smallshare is sold for processing and for the catering sector. The usage of eggs differs between companiesand figures for the whole industry are not available. For example, Megafarm and Golden Eggsindicated that 30% of their production is sold to the retail sector, an equivalent proportion to thecatering sector with the remainder sold to wholesalers or for export. However, Blahaki Eggs sell amajor part of their production to the retail sector and only some 2% goes to the catering andprocessing sectors.Egg produced in alternative systems (free range, barn eggs and organic) are exclusively sold to theretail sector. Free range eggs are sold with a price premium of around 50% to 60% over eggs fromcaged hens. The premium for barn eggs is between 30% and 40% over eggs from caged hens.Processed eggs are mainly destined for the catering, bakery and food industry markets.201

APPENDIX 1: MEMBER STATE REPORTSA1.7.4.2. PricesFigure A1.40 shows the evolution of Greek egg prices between 1991 and 2003 and compares this tothe weighted average EU price. There appears to be little relationship between the two series withGreek prices being substantially higher than the EU average in 1991, but trending towards the EUposition over time, albeit with some year to year reversals. Figure A1.41 illustrates how the pricegap has generally narrowed.180.00160.00Average of large and medium egg price (€/100kg)140.00120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003GreeceEUFigure A1.40: Evolution of egg prices 1991-2003Source: DG Agri.202

APPENDIX 1: MEMBER STATE REPORTS80%70%60%Percentage difference from EU average50%40%30%20%10%0%-10%-20%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.41: Difference between Greek and EU Egg Price 1991 - 2003Source: DG Agri.A1.7.4.3. Demand and supply elasticitiesEgg consumption in Greece has been increasing very slightly since 1995. According to industrysources, this is largely due to the massive wave of immigration which has taken place over the pastfew years. There is also a suggestion that immigrant groups tend to have a higher per capitaconsumption of eggs than Greeks, possibly as a result of the status of eggs as a relatively cheapsource of protein.Eggs are not considered to be particularly sensitive to changes in price and consumption is moreinfluenced by health concerns. In any case, consumers consider eggs to be cheap. Price is important,however, in the catering and processing sectors. The use of eggs in processed products is notexpected to change the overall picture.The demand for eggs is considered to be relatively stable by the main producers and is not expectedto increase in the future, as Greek are not traditionally major consumers of eggs see Figure A1.42.Also, there is an increasing trend towards meals taken out of the home and this is expected to driveegg consumption down. The Greek consumer is also very much influenced by health concerns,although there have not been any major scares in Greece. Cholesterol remains a factor in the lowconsumption figures.203

APPENDIX 1: MEMBER STATE REPORTSConsumption of processed eggs is extremely low in Greece, however some industry specialistsestimate that it will grow in the future. This growth is mainly expected from the switch from fresheggs to processed eggs in the catering and bakery industry.140120100Egg consumption (million tonnes)8060402001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Figure A1.42: Egg consumption 1990 to 2002Source: Eurostat.A1.7.5. The impact of Directive 1999/74/ECA1.7.5.1. Implementation to dateDirective 1999/74/EC was only transposed into national legislation through a Presidential Decree inJuly 2003 (it should have been enacted in May 2002). Whilst assistance will be provided to producerswishing to invest in enriched cages through Material Improvement Plans, these have yet to beinstigated 89 . Only one producer has so far invested in enriched cages.A1.7.5.2. Expected implementationGreek producers are expected to delay investment in enriched cages until they need to in order tocomply with the ban on the use of such cages in line with Chapter II, Art.5.2 of Directive1999/74.89 There is currently no budget allocation for this assistance and detailed eligibility criteria, etc. have yet to be announced.204

APPENDIX 1: MEMBER STATE REPORTSA1.8. IrelandA1.8.1. OverviewIreland will implement the ban on unenriched cages in line with Chapter II, Art.5.2 of Directive1999/74/EC from 2012. There are 257 registered egg producers 90 in Ireland (2004) and 71 registeredpacking centres, of which there are six main players accounting for approximately three quarters oftotal eggs packed between them. The industry is concentrated in the border areas especially inCounty Monaghan and County Cavan. The only significant trade in shell eggs is with NorthernIreland and the direction and magnitude of this is largely determined by exchange rates, althoughIreland has a modest net import requirement. There is only one Irish processor, Irish Egg Products,and this only produces liquid eggs with all dried egg product demand met through imports.A1.8.2. Egg productionTotal Irish egg production is expected to be around 420 million eggs in 2003 from a laying flock ofapproximately 1.7 million birds 91 . The Irish industry is made up of only 257 registered commercialegg producers (2004), although there were 8,985 producers with laying hens in 2000 92 suggesting thatthere is a significant number of producers with very small flocks. The traditional cage is the mostcommon production system encompassing around three quarters of the laying flock. The mainalternative system is free range with just under a quarter of laying hens and the balance is splitbetween the barn system and organic production. There are no enriched cages in use in Ireland.There is little consumer interest in the barn system 93 as it is considered to fall between the caged andfree range systems offering neither a price advantage or enough perceived animal welfare gain.Ireland has a modest net import requirement met almost entirely from Northern Ireland. Actuallevels of trade are dependent on relative exchange rates, but is roughly equivalent to 20% ofdomestic production, down from around 30% a decade ago.90 In order to be registered a producer must have more than 350 hens or must supply a registered packing centre. The second criteriaallows the capture of smaller organic units.91 This figure is sourced from the Department of Agriculture and represents the returns of 230 of the 257 egg producers. The remainingproducers are not thought to be significant and as a result, this figure is considered a reasonable approximation of the total.92 Source: Central Statistics Office, Census of Agriculture 2000.93 This statement is made on the basis that it is legal to produce eggs in a number of defined systems. Egg producers are assumed to beeconomically rational and to attempt to maximise profits subject to a set of constraints. They will therefore produce eggs in systemswhich result in the highest levels of profitability. Where there is consumer demand and willingness to pay for more expensive eggsproduced in higher cost systems, then egg producers will do so as long as the revenue they achieve is sufficient to result in acceptableprofits. Where demand is high and supply low, consumers will pay higher premiums for such eggs. This will result in a greater number ofproducers entering this market. As they do so, supply increases towards the level of demand and as a result the price will decline.Ultimately an equilibrium is achieved where supply is sufficient to meet demand at a certain price. Where there is little supply of eggs fromalternative systems, in this case the barn system, the implication is that consumers are unwilling to purchase such eggs at a price whichmakes it worthwhile for producers to enter the market. The absence of supply therefore indicates an absence of demand at pricesnecessary to facilitate production. Conversely, where there is a supply of eggs from alternative systems the implication is that at the pricesrequired to facilitate production there is consumer demand and willingness to pay.205

APPENDIX 1: MEMBER STATE REPORTSHistoric data on egg production is presented in Figure A1.43. After a steady decline from 1992 to1998, egg production increased again in the late-1990s.700600500Egg production (million eggs)40030020010001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Figure A1.43: Evolution of total egg production 1990-2002Note: converted from kilograms to eggs at 62.5 grams per egg.Source: Eurostat and Agra CEAS Consulting calculations.No data on the structure of the national flock are available in Ireland. However, the industryperception is that consolidation has been and is taking place with a trend towards fewer and largerunits, at least in the caged sector. The expansion in the free range sector is driven by new entrantsas well as increasing scale.Egg production in Ireland has traditionally been a specialist industry and the largest producers, whohave caged systems, typically have large egg enterprises, although they often also have otherenterprises, most commonly dairy. There is an increasing trend towards specialisation, fuelled in partby the recent increase in space allowance from 450cm 2 to 550cm 2 which prompted many to expandproduction whilst making investments. However, many alternative producers, especially those usingthe free range system, tend to have a broader mix of enterprises and a smaller scale egg enterprise 94 .This is mainly because it is relatively easy to enter the free range sector if land is available 95 and, incontrast, very difficult to set up or expand caged production due to restrictive planning controls.Indeed, planning restrictions are a factor in the siting of the Irish egg industry in the border counties94 The average size of free range egg units is 414 birds based on an Irish Farm Association survey carried out in January 2004 (103respondents).95 Despite this ease of entry it is not common to find producers going in and out of the sector.206

APPENDIX 1: MEMBER STATE REPORTSwhere many producers have hen houses on both sides of the border (particularly in CountyMonaghan and County Cavan). This allows expansion in Northern Ireland where planning controlsare not so restrictive. Caged production is generally carried out to contract and it is common forpackers to own the laying stock and supply the feed whilst paying a fixed price (linked to the price offeed) for management. Contracts typically cover a laying cycle, but movement between packers isnot common and relationships tend to be long-term. Free range production tends to be moreindependent and producers are usually paid a price per egg.Despite the general lack of co-operation amongst producers in the Irish agricultural sector, a freerange producer co-operative was established in May 2003. This has 50 members which is just morethan a third of all commercial free range producers. The intention of this co-operative is to captureadded value through increasing market power. This is likely to take the form of vertical integrationthrough either establishing a packing facility or through co-operation with an existing packer, theexact strategy has yet to be finalised.A1.8.2.1. Main producers/packersThere are six main packers in Ireland, of which the largest is Greenfield Foods Ltd (accounting forslightly more than a quarter of total eggs packed) followed by Corby Rock Ltd with just over a tenthof the total. Box A1.19 profiles Greenfield Foods.Box A1.19: Profile of Greenfield Foods LtdGreenfield Foods Ltd is the largest Irish egg packer and accounts for 28% of all eggs packedOwnership: Limited companyTurnover: €18 million in 2003Profit: €630,000 in 2003Employment: 35 staffMain markets: domestic market with any surplus exported207

APPENDIX 1: MEMBER STATE REPORTSA1.8.2.2. Production (packer) concentrationThe packing industry is small in scale with 71 registered packers. However, the ratio of packers toproducers should be considered and this suggests quite a large number of packers in proportion tocommercial producers. Of these packers, six are considered to be the major players with theremainder being medium to small in scale. Table A1.52 shows the eight largest packers in Ireland andtheir market shares.Table A1.52: Main egg packers in Ireland 2003Rank Company Output 20031 Greenfield Foods 1 165 million eggs (estimate)2 Corby Rock 1 77 million eggs (estimate)3 MacFresh 1 48 million eggs (estimate)4 Nestbox 1 46 million eggs (estimate)5 Riverview 34 million eggs (estimate)6 Annalitten 1 28 million eggs (estimate)7 Clonarn Clover 12 million (estimate)8 Emerald Eggs 8 million (estimate)Note:Total eggs packed550 million eggs1 These companies also pack eggs produced in Northern Ireland and these figures are included above.2 Total eggs packed includes some from Northern Ireland and hence exceeds production.The 4-firm concentration ratio for Irish egg packers is 61.1% and the 8-firm concentration ratio is76.0% 96 . The industry estimates that in 1990 the top eight packers would have accounted for nomore than 55% of all eggs packed in Ireland and the top four only 40%. Two main reasons werecited for this increase in concentration. Firstly, the influence of the multiple retailers in drivingconsolidation, particularly Tesco 97 and more recently (late-1990s) the entry of the discount storesLidl and Aldi; and secondly, the extensive use of EU-funding to facilitate structural change throughoutthe 1990s 98 .A1.8.2.3. Main production systemsThere are no legislative differences between the systems in operation in Ireland and the minimumcriteria set out in the EU legislation. However, the Egg Quality Assurance scheme in operation inIreland covers a large proportion (approximately 80%) of the industry and is thought to include mostfree range producers. This scheme contains a number of provisions which producers must follow,most notably it stipulates a maximum stocking density of 1,000 birds per hectare in the free rangesystem compared to 2,500 birds per hectare under EU legislation.96 Bearing in mind that the total eggs packed will be a small underestimation given that it is derived from 230 of the 257 egg producers (seeSection A1.8.2 above).97 In 1990 Tesco was serviced by more than a dozen suppliers, currently it is just one.98 Aid was provided under the Operational Programme for Agriculture Rural Development and Forestry, Council Regulation 866/90.208

APPENDIX 1: MEMBER STATE REPORTSThe industry estimates that around three quarters of all laying hens in Ireland are kept in cagesystems with 23%-24% in free range systems. The small residual is split between barn and organicsystems with the former accounting for slightly more birds. Egg production broadly follows this withcaged systems assuming slightly greater importance as a result of a higher collection of saleable eggs.However, of the 257 registered egg producers in 2004 (i.e. commercial producers), 142 are freerange (55%), 99 are using cages (39%), 10 are organic 99 (4%) and 6 are using barn systems (2%) 100 .This reflects the fact that free range producers tend to have smaller flocks. There are no enrichedcages in use in Ireland.The evolution of laying hen numbers by production system are presented in Table A1.53.Table A1.53: Evolution of laying hen numbers 1990-2002Notes:Free Range Deep litter Perchery Caged Total Laying hens1990 94,795 3,068,205 3,163,0001991 133,062 3,325,938 3,459,0001992 156,390 4,100 3,163,510 3,324,0001993 201,822 4,960 3,195,218 3,402,0001994 202,579 3,302 2,939,119 3,145,0001995 215,647 4,320 3,008,033 3,228,0001996 219,000 n/a 2,654,000 2,873,0001997 281,673 n/a 1,317,439 1,599,1121998 318,000 n/a 1,221,648 1,539,6481999 364,526 23,000 1,200,690 1,588,2162000 435,215 30,960 1,430,419 1,896,5942001 469,750 44,900 1,430,350 1,945,0002002 509,686 55,100 1,235,214 1,800,0001999 and 2000 total hen numbers are DG Agri estimates, 2001 and 2002 are Agra CEAS Consulting estimates. Perchery and deep litter systems are combined from 2002. Caged hens are calculated as total hens less the sum of those in alternative systems, they therefore include organicbirds as these are not separately presented in the DG Agri data.Sources: DG Agri, Agricultural Situation in the Community, Agra CEAS Consulting.99 There is a large number of small scale organic producers not reflected in these figures.100 As in the UK consumers consider barn systems to be between caged and free range systems offering the advantages of neither.209

APPENDIX 1: MEMBER STATE REPORTS43Number of laying hens (millions)32211-1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Free range Barn Traditional cagesFigure A1.44: Laying hens by production system 1990-2002Sources: DG Agri, Eurostat, Agra CEAS Consulting calculations.Whilst the Figure shows a sharp decrease in the number of caged laying hens between 1996 and1997, this should be treated with a degree of scepticism. Figure A1.43 in Section A1.8.2 showing totalegg production does not match the decline in laying hen numbers shown above. Further, althoughthe above total laying hen data used to derive caged hen numbers is labelled by Eurostat as beinglaying hens, the Irish industry believe it to be day old chick placements. The Irish industry does notbelieve that there was a dramatic decline in caged hen numbers as shown above.As Figure A1.44 shows, growth in the prevalence of free range production has been fairly steady.The commercial sector was slow to move into free range production and initial growth came fromthe expansion of existing small scale free range units. The comments made by Edwina Curry MP inthe UK regarding salmonella in eggs also had an impact in Ireland and this provided a boost todemand for free range eggs from the late-1980s onwards.Figure A1.45 shows the percentage of laying hens accounted for by alternative systems between 1990and 2002. The percentage of production accounted for by alternative systems grew from 3% in 1990to 31% in 2002. The importance of alternative systems increased fairly steadily between 1990 and1996 and again from 1997 to 2002 with a dramatic increase between these two periods as a result ofthe substantial decrease in caged hen numbers rather than a sudden expansion of the free rangesector see Figure A1.44.210

APPENDIX 1: MEMBER STATE REPORTS100%90%80%Proportion of laying flock by system70%60%50%40%30%20%10%0%1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Traditional cages Free range BarnFigure A1.45: Evolution of importance of alternative systems 1990-2002Source: as Table A1.53 above.The difference between eggs delivered and sold from alternative systems are illustrated in FigureA1.46. With the exception of the period 1996 to 1999, this shows that delivery has exceeded salesconsiderably and suggests that supply exceeds demand, from 2000 onwards in particular. Thesesurplus alternative eggs have traditionally been ‘cascaded’ into caged egg sales without a premium,although this is technically no longer possible under the Egg Marketing Directive. The extent towhich this practice continues is unclear, although if it is still taking place it will be apparent as therewill be a discrepancy between the egg and pack production codes.211

APPENDIX 1: MEMBER STATE REPORTS14,00012,000Difference in eggs delivered and sold (in '000 eggs)10,0008,0006,0004,0002,00001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Free Range Barn All alternative systemsFigure A1.46: Difference between eggs delivered and sold by alternative system 1990-2002Source: DG Agri.A1.8.2.4. Technical dataCurrent technical data were provided by various players in the Irish industry and the figurespresented in Table A1.54 are averages. There is no enriched cage data in Ireland. The main pointsto note are that there is a charge for birds at end of lay made up of a cost per bird plus cost of acatcher and transport; feed requirements are higher the more freedom to move around that the birdhas and pullet costs are higher in alternative systems.212

APPENDIX 1: MEMBER STATE REPORTSTable A1.54: Performance comparison of egg production systems in use in Ireland 2003Criteria Traditional cages Barn Free-rangeLaying cycle (days) 396 385 399Empty period (days) 19 10 20Feed/bird/year (Kg) 41.59 43.05 46.38Feed/bird/day (g) 120 121 133Eggs/bird/year (collected) 276 277 258Kg feed per kg eggs 2.41 2.48 2.88Mortality (%) 4% 5% 5%Number of hens managed/labourer 10,000 7,000 7,000Hens housed per m 2 house 18 7 7Space allowance per hen per cm 2 550 1,429 1,429Pullet cost 1 3.45 3.85 3.73End of lay hen weight Kg 1.90 2.20 2.07End of lay hen price -0.25 -0.30 -0.26Notes: some data have been converted from laying cycle to year to correct for different laying cycle lengths by system.1 This is the cost of buying in pullets and therefore includes a profit element for the rearer.A1.8.2.5. Production costsTable A1.55 and Table A1.56 present variable and fixed production costs respectively. Feed costsand pullet costs are higher in the alternative systems as a result of both higher feed requirements andcost per tonne, higher pullet prices and lower egg yield.The higher fixed costs seen in the alternative systems are mainly the result of higher labour charges,although even these are probably an underestimate as a considerable amount of (unpaid) familylabour is used in Ireland, especially on the smaller scale farms that are likely to have free range eggenterprises. Most fixed cost elements are higher in alternative systems, mainly as a function of scale.Table A1.55: Variable (running) costs of production (per kg eggs) in Euro cents 2003Traditional cages Barn Free-rangeFeed cost 52.98 55.90 65.85Medication/vetMiscellaneousBird depreciation/live pullets 17.55 20.53 20.18Total variable costs 70.54 76.44 86.03Source: industry estimates.213

APPENDIX 1: MEMBER STATE REPORTSTable A1.56: Capital (fixed) costs (per kg eggs) in Euro cents 2003Traditional cages Barn Free rangeLabour 10.54 15.00 16.12Buildings 3.76 8.66 9.30Equipment 5.21 5.77 6.20Land 0.91Manure disposal 1.53 1.52 1.54Insurance 0.58 0.82 0.89Utilities 2.55 2.67 2.70Cleaning 1.02 1.52 1.54Miscellaneous 0.58 0.82 0.82Total fixed costs 25.76 36.79 40.02Note: Although not shown, there will be a cost for land rental for the free range system.However, in many cases this is an opportunity cost and is therefore difficult to establish.Source: industry estimates.A1.8.2.6. Gross marginsUsing the cost data presented above, and adding revenue allows the presentation of producer grossmargin Table A1.57. The higher returns from alternative systems compared to caged systemsoutweighs the greater costs of production to yield higher gross margins.Table A1.57: Egg producer gross margin per kg (2003) in Euro centsTraditional cages Barn Free rangeEgg returns 86.65 106.64 139.97Revenue from spent hens -1.42 -1.73 -1.63Output (per year) 85.23 104.91 138.33Total variable costs 70.54 76.44 86.03Gross margin 14.69 28.47 52.30Source: industry estimates.A1.8.3. Egg processingIreland has only one egg processor, Irish Egg Products Ltd, and this company only produces liquid eggproducts with dried egg demand met through imports. The industry considers that it is essential tohave a domestic outlet for second quality eggs as this helps to buttress revenue. All domestic eggproducts are absorbed by the domestic market.Most second quality eggs are utilised by Irish Egg Products, although some small eggs are exported toprocessing plants in the UK via packers in Northern Ireland 101 . First quality eggs are used for boilingand these account for between 27% and 30% of total eggs processed in a typical year. Irish EggProducts do not produce differentiated alternative products, although they do break second qualityeggs from alternative systems which are procured without a premium.101 In the case of Greenfield Foods this amounts to about 4% of eggs packed.214

APPENDIX 1: MEMBER STATE REPORTSA1.8.3.1. Main egg processorsIrish Egg Products is profiled in Box A1.20.Box A1.20: Profile of Irish Egg ProductsIrish Egg Products is the only Irish egg processorOwnership: LimitedTurnover: not availableProfit: not availableEmployment: 22Main markets: domestic and Northern Ireland (7%)A1.8.3.2. Processor concentrationIrish Egg Products is the only processor of eggs in Ireland.A1.8.3.3. Trade in egg productsThe Irish demand for dried egg products is met through imports, as is a significant proportion (up toa quarter) of the demand for liquid egg products. Dried egg products are sourced primarily fromGermany, France and the Netherlands and liquid products are drawn from the UK, France, theNetherlands, Belgium and Germany. Some processed products enter Ireland from third countriesincluding Brazil, Argentina, Chile, the US, India and Thailand.A1.8.4. Egg marketsA1.8.4.1. Primary demandIreland’s production of 550 million eggs is supplemented by imports of around 82.5 million eggs andthere are exports of approximately 16.5 million eggs leaving a supply for the domestic market of 616million eggs. Of these, 60% (369.6 million eggs) are used in the retail sector, 30% (184.8 million eggs)in the food service industry (hotels, wholesale and catering) and the remaining 10% (61.6 millioneggs) are processed. It is estimated by the industry that a further 3.5 million eggs 102 are eitherutilised on farm or sold direct and therefore are not represented in the above figures.The vast majority of eggs produced in alternative systems are sold in shell through the retail sectorwith a small quantity sold as shell eggs to the catering industry. Second quality eggs from alternativesystems are used for processing, but are undifferentiated from caged eggs and therefore do notcommand a premium.102 Based on the returns from 230 of the 257 registered packers, see Section A1.8.2. This figure does not include direct sales from packersthat are not registered and these are likely to have a higher proportion of direct sales.215

APPENDIX 1: MEMBER STATE REPORTSA1.8.4.2. PricesFigure A1.47 shows the evolution of egg prices in Ireland between 1991 and 2003 and compares thisto weighted average EU prices. Between 1991 and 1996 prices in Ireland tracked the EU averagefairly closely. However, from 1997 onwards Irish prices have been consistently higher than the EUaverage. The percentage difference between average prices in Ireland and the EU is shown in FigureA1.48. Irish average prices were only below EU averages in 1993 and 1996 and only marginally. TheFigure highlights the divergence in price from 1997 onwards.160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003IrelandEUFigure A1.47: Evolution of egg prices 1991-2003Source: DG Agri.216

APPENDIX 1: MEMBER STATE REPORTS60%50%Percentage difference from EU average40%30%20%10%0%-10%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Percentage difference from EU averageFigure A1.48: Difference between Irish and EU egg prices 1991-2003Source: DG Agri.A1.8.4.3. Demand and supply elasticitiesBord Bia carried out market research into eggs using focus groups in 2002. Whilst this did notexplicitly consider the impact of price on demand for eggs, it is clear that consumers consider eggs tobe a staple product. The fact that consumers were generally unaware of the price of eggs (althoughmost did not consider eggs to be inexpensive) suggest that demand is reasonably inelastic. Theindustry certainly considers eggs to be an inelastic good.The market research suggests that health concerns relating to cholesterol and salmonella aresignificant issues, although the perception of health attributes of eggs in general was notable for itsconfusion. Eggs are not seen as a convenience food and are thought to involve more effort to cookthan (particularly) younger age groups are willing to expend.A1.8.5. The impact of Directive 1999/74/ECA1.8.5.1. Implementation to dateThere has been no introduction of enriched cages to date in Ireland. There is a degree ofuncertainty given the fact that a review in 2005 is specified under Article 10 of the Directive and theindustry is essentially waiting to see the outcome of the review before considering bringing inenriched cages.217

APPENDIX 1: MEMBER STATE REPORTSA1.8.5.2. Expected implementationThe industry does not expect to invest in enriched cages before 2012 as any producers who didinvest ahead of schedule would then be competing at a cost disadvantage until all producers make theswitch. However, packers recognise that they may need to help drive investment in order to ensurethat they have sufficient egg supplies post-2012. To this end, packers are likely to reduce the pricethat they will pay to producers using traditional cages in order to prompt them to invest in enrichedfacilities. It is not thought possible for packers to offer a price incentive to producers using enrichedcages as retailers are expected by the industry to switch to cheaper, traditional cage producers until2012 if packers tried to pass the additional cost on.A problem facing the Irish sector is the fact that much of the traditional cage equipment is reachingthe end of its useful life. Much of this has already been modified to allow for the space enlargementfrom 450cm 2 to 550cm 2 . There is therefore a current need to invest in facilities which will becomemore pressing as 2012 approaches. It is the view of the industry that there have been too manyenforced changes over too short a time period.The growth of the free range sector in Ireland is considered to be demand-led and it is possible thatdemand for eggs produced under this system will continue to grow to 2012, although growth hasslowed recently. One respondent made the point that no one predicted that the Irish free rangesector would approach 25% market share and that it would therefore be heroic to predict where itmight move to from here. However, free range production is still considered a niche product andthe view is that demand for a mass market product will remain strong.218

APPENDIX 1: MEMBER STATE REPORTSA1.9. ItalyA1.9.1. OverviewDirective 1999/74/EC was only transcribed into national legislation in July 2003 103 and the intention isto prohibit the production of eggs in unenriched cage systems from 2012. The Italian industry is bipolarwith a large backyard flock and a few very large commercial producers. Just 0.1% of allproducers accounted for 84% of laying hens in 2000 and the industry is expected to haveconsolidated further in the last few years. Total production in 2002 was just under 13 billion eggsfrom almost 54 million laying hens, the third largest laying flock in the EU. Commercial producersalmost all operate caged systems and there is little tradition of alternative production.Although the largest packer, Eurovo, accounts for almost a quarter of all eggs packed, the packingsector is fairly fragmented with the top four packers accounting for only half of all eggs packed.The Italian processing sector is very large and processes 37% of total Italian production in addition toa small quantity of imported eggs. The Italian industry is fully integrated with the same companiesbreeding, rearing, compounding feed and producing and processing eggs making Eurovo also thelargest processor.A1.9.2. Egg productionThe Italian egg sector the third largest in the EU with production of 12.9 billion eggs in 2003 from alaying flock of almost 54 million laying hens. Almost a fifth of Italian laying hens are kept in backyardflocks of less than 350 laying hens 104 . Of the remaining commercial egg production, the vast majority,96.5%, is from caged systems, with barn systems accounting for 2.4% and the semi-intensive system 105for less than 0.5%. Organic production accounts for slightly more than 0.5%.The geographical focus of Italian egg production is around the Po Valley in the north, although muchof this is fairly new and production in the south is actually more stable over time.The Italian egg sector is one of the most organised of the agricultural sectors in terms of verticalintegration. This allows for a complete production and distribution cycle within the same companyand it provides full traceability for consumers, including the ability to trace the people in charge ofeach stage of production. Packers do source some eggs from independent producers on contract,but this is not particularly common and most of the production facilities are owned by packers.103 Legislative Decree no. 267, July 2003.104 Directive 1999/74/EC does not apply to flocks of this size.105 Whilst the Italian outdoor sector typically uses the semi-intensive variant, some producers do stock more extensively outdoors. DGAgri data suggests that around 10% of outdoor producers used a free range system in 2001. However, the current proportion ofproducers using the free range system is unknown and will be insignificant given the overall scale of the outdoor sector.219

APPENDIX 1: MEMBER STATE REPORTSItalian egg production has increased dramatically since the 1950s from an annual production level ofaround 4 billion eggs to almost 13 billion today. Production increased steadily from the mid-1990sbefore crashing in 2000 due to an outbreak of Avian flu which resulted in the slaughter of 8.2 millionlaying hens and a 14% drop in production. This necessitated the import of around 1.8 billion eggs(import requirement in 1999 was just 370 million eggs) and cut exports by 43%. However, theindustry recovered in 2001 before stabilising at current levels Figure A1.49.14.012.010.0Egg production (billion eggs)8.06.04.02.00.01990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.49: Evolution of Italian egg production 1990-2003Source: National Union of Aviculture.There has been a considerable degree of consolidation in the Italian sector between 1990 and 2000as illustrated in Table A1.58 and Figure A1.50. The number of farms with laying hens decreased by38% from 771,913 in 1990 to 479,729 in 2000 whilst the number of laying hens stayed virtually thesame. This restructuring took the average number of laying hens per farm from 57 to 93, an increaseof 63%. This is despite the impact of Avian Influenza in 2000 which severely reduced production andis likely to have depressed the average laying hens per farm figure. Figure A1.50 clearly illustrates thatcommercial egg production in Italy is concentrated on relatively large units with little mid-sizedproduction. As can be seen, this position has consolidated over the period examined. The Figurealso shows the bi-polar nature of the Italian sector and demonstrates that the typical size of backyardflocks is less than 50 laying hens.220

APPENDIX 1: MEMBER STATE REPORTSTable A1.58: Evolution of egg sector structure 1990 to 20001990 2000size group Farms Laying Hens Hens/farm Farms Laying Hens Hens/farm1-49 759,044 8,267,336 11 473,333 4,781,583 1050-99 8,614 469,806 54 4,073 222,045 54100-499 2,187 323,455 148 1,028 158,603 154500-999 214 132,523 619 127 79,269 6241,000-2,999 412 676,226 1,641 191 311,116 1,6293,000-4,999 225 792,449 3,522 115 416,863 3,6255,000-9,999 348 2,301,499 6,613 194 1,291,196 6,65610,000+ 867 31,333,462 36,140 668 37,523,831 56,173Total 771,913 44,296,756 57 479,729 44,784,506 93Note: the number of laying hens reported in 2000 is not typical as a result of the impact of Avian Influenza.Source: ISTAT.90%80%70%Proportion of laying flock60%50%40%30%20%10%0%1-49 50-99 100-499 500-999 1,000-2,999 3,000-4,999 5,000-9,999 10,000+1990 2000Figure A1.50: Evolution of laying flock structure 1990 to 2000Source: ISTAT.A1.9.2.1. Main producers/packersThe Italian egg sector is vertically integrated with companies owning feed compounding, breeding,rearing, production, packing and processing facilities. This degree of integration facilitates fulltraceability through each stage of production. The largest firm is Eurovo accounting for almost aquarter of all eggs packed. Eurovo is followed by two firms with just under 10% market share, Aiaand Azienda Agricola Parmovo. Eurovo is profiled in Box A1.21 and Aia in Box A1.22.221

APPENDIX 1: MEMBER STATE REPORTSBox A1.21: Profile of Eurovo S.R.LEurovo S.R.L is the largest packer in Italy with a throughout of 2.5 billion eggs in 2003, 24% of allcommercial eggs packedOwnership: Limited companyItalian Subsidiaries: Gandolfi; Maia; Ovisud; CopraOther Subsidiaries: Ovanor (France); Caradec (France); Samo (France) Pycovo (France)Liot (France); Ovofood ( Belgium)Turnover: €250 million per yearProfit: Not availableEmployment: 400 staffMain Markets: Export (UK, Holland, Japan)Box A1.22: Profile of Aia SpAAia SpA is one of two companies with a throughput of around 1 billion eggs per year, a marketshare of around 10%Ownership: Public limited companySubsidiary: Ovomattino (10%)Turnover: €75 million per yearProfit: not availableEmployment: 150 staffMain Markets: mainly domestic, 65% food industry, 35% retailA1.9.2.2. Production (packer) concentrationThe Italian packing industry is fairly fragmented with a number of large players. However, these aredominated by Eurovo with almost a quarter of total market share in terms of eggs packed TableA1.59. The 4-firm concentration ratio is 50% and the 8-firm ratio 66%.Table A1.59: Main egg packers in ItalyRank Company Output 20031 Eurovo 2,500,000,0002 Aia 1,000,000,0003 Azienda Agricola Parmovo 1,000,000,000 (estimate)4 Uovador 657,000,0005 Fattorie Guglielmi 650,000,000 (estimate)6 La Fattoria Novelli 520,000,000 (estimate)7 Cascina Italia 252,000,0008 Agroalimentare F.Lli Monaldi 250,000,000Total production 10,404,000,000Notes: Total production excludes backyard flocks. Including these makes the 4-firm concentration ratio 40% and the 8-firm53%.Source: National Union of Aviculture.222

APPENDIX 1: MEMBER STATE REPORTSAll the above companies have grown since 1990 whilst maintaining their approximate scale relative toone another. However, the industry believes that some concentration has taken place in that thesecompanies now account for a greater share of total eggs packed than a decade ago.A1.9.2.3. Main production systemsThere are no differences between the systems implemented in Italy and the EU minimumrequirements.Almost all commercial Italian egg production takes place in traditional cages. Alternative systemsaccount for less than 4.0% of the laying flock with barn systems accounting for 2.4%, the semiintensivesystem 106 for 0.4% and organic production for 0.6%. Backyard flocks account for a largeproportion of total Italian laying hens (24%) as can be seen in Table A1.60.Table A1.60: Number of laying hens by type of system 1990-20021990 1995 2002Backyard Flocks 15,500,000 15,000,000 13,075,000Traditional cages 36,980,000 39,275,000 39,460,000Barn 200,000 1,000,000Semi-intensive 200,000Organic 250,000Total 52,480,000 54,475,000 53,985,000Note: Whilst data from DG Agri suggest slightly more production in alternative systems, the requirement to reportproduction system is only recent and the main point is that almost all production takes place in traditional cages.Source: National Union of Aviculture.The evolution of the use of systems in Italy is presented graphically using data from DG Agri 107 . Thisdemonstrates both the general low use of alternative systems and the modest increase in these to2002.106 Whilst the Italian outdoor sector typically uses the semi-intensive variant, some producers do stock more extensively outdoors. DGAgri data suggests that around 10% of outdoor producers used a free range system in 2001. However, the current proportion ofproducers using the free range system rather than the semi-intensive one is unknown and will be insignificant given the overall scale of theoutdoor sector.107 National Union of Aviculture is used as a source for traditional cage numbers in 2002. This number includes backyard flocks.223

APPENDIX 1: MEMBER STATE REPORTS6050Laying hen numbers (million)4030201001992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Traditional cage Barn Semi-intensiveFigure A1.51: Evolution of laying hen systems 1992-2002Source: DG Agri and National Union of Aviculture.The difference between eggs delivered and sold from alternative systems are illustrated in FigureA1.52. The data held by DG Agri is not complete in that it does not cover all years, but the absenceof data should not be taken to indicate that the market was perfectly balanced in these years. Giventhe data paucity it is not possible to comment in any detail on the surplus, other than to note that asthe data gets more complete (from 1999) the surplus increases. It is not clear how the Italianindustry will address this surplus now that cascading from one system to another is no longerpermitted as a result of labelling each egg with the production code.224

APPENDIX 1: MEMBER STATE REPORTS60,00050,000Difference in eggs delivered and sold ('000 eggs)40,00030,00020,00010,00001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Free Range Semi-intensive Barn All alternative systemsFigure A1.52: Difference between eggs delivered and sold by alternative system 1990-2003Source: DG Agri.A1.9.2.4. Technical dataThe data in Table A1.61, presenting technical factors of egg production in Italy, have been adjustedfrom a laying cycle to an annual basis where appropriate. Feed requirement and mortality are lowestfor caged systems, egg collection and birds managed per labourer are highest.Table A1.61: Performance comparison of egg production systems in use in Italy (2003)Traditional cages Barn Semi-intensiveLaying cycle (days) 395 360 360Empty period (days) 25 40 40Feed/bird/year (Kg) 37.80 40.61 41.52Feed/bird/day (g) 110 124 126Eggs/bird/year (collected) 278 249 245Kg feed per kg eggs 2.18 2.61 2.72Mortality (%) 7% 13% 15%Number of hens managed/labourer 50,000 20,000 20,000Hens housed per m2 house 109 9 9Space allowance per hen per cm2 550 1,111 1,111Pullet cost1 3.10 3.10 3.10End of lay hen weight Kg 2.05 1.80 1.78End of lay hen price 0.26 0.26 0.26Source: National Union of Aviculture and Agra CEAS Consulting calculations.225

APPENDIX 1: MEMBER STATE REPORTSA1.9.2.5. Production costsItalian variable production costs are presented in Table A1.62 and fixed costs in Table A1.63. Allcost items are lowest in traditional caged systems and highest in the semi-intensive system. Thisresults in total variable costs in the barn system being 17% higher than in caged systems with semiintensivevariable costs 21% higher than caged.In all cases fixed costs are lowest in traditional cages and highest in the semi-intensive system. Thefixed costs associated with the barn system are 42% higher than those in the caged system with fixedcosts in the semi-intensive system double that of caged.Table A1.62: Variable (running) costs of production (per kg eggs) (prices in € cents)2003Traditional cages Barn Semi-intensiveFeed cost 53.62 62.84 65.47Medication/vetMiscellaneousBird depreciation/live pullets 15.50 18.17 18.51Total variable costs 69.12 81.01 83.98Source: National Union of Aviculture and Agra CEAS Consulting calculations.Table A1.63: Capital (fixed) costs (per kg eggs) (prices in € cents) 2003Traditional cage Barn Semi-intensiveLabour 1.68 4.20 4.20Buildings 1.91 4.00 4.09Equipment 3.82 8.00 8.18Land 0.96Manure disposal 0.80 0.80 0.80Insurance 0.13 0.13 2.00Utilities 8.66 9.30 15.36Cleaning 12.13 15.06 23.86Total fixed costs 29.14 41.50 59.44Note: 1 Petrol and vehicle cost.Source: National Union of Aviculture and Agra CEAS Consulting calculations.A1.9.2.6. Gross marginsTable A1.64 adds revenue to the variable cost data above to present producer gross margins. Thehigher returns from the barn system are not sufficient to adequately cover the higher variable costleading to a lower gross margin compared to the caged system. This is not so for the semi-intensivesystem where higher returns do result in a higher gross margin compared to caged systems despitethe higher variable costs.226

APPENDIX 1: MEMBER STATE REPORTSTable A1.64: Egg producer gross margin (€ cents per kg) 2003Traditional cages Barn Semi-intensiveEgg returns 79.45 87.71 96.78Revenue from spent hens 2.67 2.75 2.76Output (per year) 82.11 90.46 99.54Total variable costs 69.12 81.01 83.98Gross margin 12.99 9.45 15.56Source: National Union of Aviculture.A1.9.3. Egg processingThere are only 52 companies processing eggs in Italy and these are integrated with the productionand packing base. Many companies own several processing plants, so the industry is fairlyconcentrated. The Italian processing sector is large and utilises 46% of commercial egg production(37% of total production, i.e. including backyard flocks), in addition to annual imports of around 103million eggs. Processed eggs are overwhelmingly destined for the food manufacturing sector,particularly pasta. Major global food companies served by the Italian processing sector includeBarilla, Ferrero, Unilever, Nestlé, Plasmon and Bauli.A1.9.3.1. Main egg processorsThe Italian egg sector is fully integrated and the main egg processors are therefore the same as thelarge packers listed in Section A1.9.2.1.A1.9.3.2. Processor concentrationThe top eight processors are the same as the packers presented in Section A1.9.2.2 (although one ofthese companies, Fattorie Guglielmi, does not process eggs and has been omitted). The processingsector is more concentrated than the egg packing sector with a 4-firm concentration ratio of 61%(compared to 50%). The 8-firm concentration ratio is higher than the 66% in the packing sector,although data are only available for the top 7 firms and this shows a 68% concentration ratio.Table A1.65: Main egg processors in Italy (output in shell egg equivalents)Rank Company Processed output1 Eurovo 1,500,000,0002 Azienda Agricola Parmovo 1,000,000,000 (estimate)3 Aia 400,000,0004 Uovador 250,000,0005 Cascina Italia 126,000,0006 La Fattoria Novelli 120,000,000 (estimate)7 Agroalimentare F.Lli Monaldi 75,000,000Source: Industry estimates.Total processed production 5,134,000,000227

APPENDIX 1: MEMBER STATE REPORTSA1.9.3.3. Trade in egg productsItaly is a net exporter of shell and processed eggs in addition to processed food containing eggs. In2003 Italy exported almost 3 billion shell eggs and 6.4 tonnes of whole liquid egg, mainly to France,Germany, Denmark and the UK. There is also an important net export of dry, liquid and frozenyolks, dry and liquid albumin and whole dried egg.A1.9.4. Egg marketsA1.9.4.1. Primary demandApproximately 19% of Italian egg production is from backyard flocks 108 and these eggs are sold director used on-farm. Around 44% of egg production enters the retail sector in shell with 37% used bythe food industry 109 . The breakdown by production system differs slightly according to sector witheggs from caged systems accounting for 94% of all retail sales and 97% of eggs used for processing.Barn eggs account for 4.5% of retail sales, but are not used at all for processing. Semi-intensivesystems contribute 0.8% of retail sales and 1.0% of processing share. Finally, organic eggs have aretail market share of 1.1% and a processing market share of 0.1%. This is presented graphically inFigure A1.53 where the dominance of the caged system in both sectors is clearly apparent.6,0005,000Demand for eggs by production system (millions)4,0003,0002,0001,0000RetailFood industryTraditional cage Barn Semi-intensive OrganicFigure A1.53: Estimated demand for eggs by sector and production system 2003Source: National Union of Aviculture and Agra CEAS Consulting calculations.108 Although these account for almost a quarter of laying hens.109 It was not possible to divide this into the food service and the food manufacturing sectors.228

APPENDIX 1: MEMBER STATE REPORTSA1.9.4.2. PricesThe evolution of egg prices in Italy is shown in Table A1.54 alongside the EU weighted average price.The Italian price tracked the EU average very closely until 1996 after which it decreased more slowlyto 1999. From 2000 the prices once again move together, although the Italian price is now higherthan that in the EU as a whole. The sharp increase in price in 2000 coincides with the AvianInfluenza outbreak. The percentage difference between average prices in Italy and the EU is shown inFigure A1.55. The steady increase in the gap from 1996 can be clearly appreciated.160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003ItalyEUFigure A1.54: Evolution of egg prices 1991-2003Source: DG Agri.229

APPENDIX 1: MEMBER STATE REPORTS35%30%25%Percentage difference from EU average20%15%10%5%0%-5%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.55: Difference between Italian and EU egg prices 1991-2003Source: DG Agri.A1.9.4.3. Demand and supply elasticitiesNo Italian research on the elasticities of eggs was made available. However, eggs are considered astaple product (whether in shell or in processed products such as pasta), and as such are not veryresponsive to price changes. A feature of the Italian market is that consumers tend to fall back ondirect sales from backyard flocks when prices do increase.A1.9.5. The impact of Directive 1999/74/ECA1.9.5.1. Implementation to dateThere has been no investment in enriched cages to date in Italy and the Directive was only ratifiedinto national legislation in July 2003. Many Italian producers have not carried out investments toallow the increase in bird space allowance to 550 cm 2 from January 2003, preferring simply to reducethe number of birds in a cage from five to four. The National Union of Aviculture therefore expectsto see a 20% decrease in production by 2005 as a direct result of this interim measure. At the sametime, fixed costs will be spread over a reduced number of birds leading to expected increases incosts of around 13% on a per bird basis. The decrease in production will, according to the NationalUnion of Aviculture, result in a significant net import requirement from the current position of selfsufficiency.230

APPENDIX 1: MEMBER STATE REPORTSA1.9.5.2. Expected implementationThe general response to the Directive in the Italian industry is to maintain current productionsystems for as long as possible in the hope of obtaining an extension to the investment deadline. Ittherefore seems likely that if Italian producers do make the necessary investments, these will be aslate as possible. It also seems possible that many will simply not change their systems and willchoose to cease production instead.231

APPENDIX 1: MEMBER STATE REPORTSA1.10. NetherlandsA1.10.1. OverviewThe Netherlands will implement the prohibition on egg production in unenriched cage systems setout in Directive 1999/74/EC from 2012 with no plans to ban enriched cage production, althoughsome retailers have already decided not to stock eggs from caged hens. The Netherlands hastraditionally been a significant producer and exporter of eggs and eggs products, although nationalenvironmental legislation now provides an upper limit on production of around 10 billion eggs peryear. While the bulk of Dutch egg production is from the cage system, there is a long tradition ofalternative production driven by market demand.There are around 1,000 specialist egg producers in the Netherlands and 9% of producers have flocksin excess of 50,000 laying hens accounting for half of the national flock. Egg production in theNetherlands is still recovering from the impact of a serious outbreak of Avian Influenza in 2003, butis typically just below the effective ceiling of 10 billion eggs per year.The Dutch packing industry is relatively fragmented with a 4-firm concentration ratio of 48%. Thetop eight egg packers account for 59% of total eggs packed. The processing industry is considerablymore concentrated with a 4-firm concentration ratio of 82% with the top eight processorsaccounting for 98% of total processed production.A1.10.2. Egg productionTotal egg production in the Netherlands is just under 10 billion from a laying flock of around 28.7million laying hens 110 . The main system of production is the traditional cage accounting for aroundthree quarters of the total with barn systems (most of which are deep litter rather than perchery)accounting for just under 15% with the balance in free range systems. There are only a fewproducers using enriched cage systems and a small number with ‘enrichable’ cages.The evolution of total egg production is presented in Figure A1.56 from 1990 to 2001. This showssome fluctuations year to year, but generally production has remained fairly constant between 9.5and 10.0 billion eggs.110 The Eurostat Farm Structures Survey states that there are 42 million laying hens in the Netherlands. This number includes the hensunder 18 weeks of age. The Farm Structure Survey figures show a population of 51 million hens. This number in addition includes thehens producing eggs for broiler production or it represents the housing capacity for laying hens and not the number actually present, thesource is unclear.233

APPENDIX 1: MEMBER STATE REPORTS1210Egg production in billion eggs864201990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Figure A1.56: Egg production in the Netherlands 1990 to 2001Source: Land- en tuinbouwcijfers, various years (LEI/CBS).There has been significant consolidation in the Dutch egg sector over the last decade with the totalnumber of egg producers declining by 50% between 1990 and 2002 from 3,431 to 1,701 111 . Thenumber of specialist egg producers fell by 26% (from 1,376 to 1,018) over the same period implying ahigher degree of specialisation. In 1990 specialist egg producers accounted for 40% of all eggproducers, but by 2002 this proportion had increased to 60%. These changes meant that by 2002just 1.9% of farmers in the Netherlands had an egg enterprise compared with 2.7% in 1990 see TableA1.66.In addition to this consolidation in terms of production, the Dutch egg sector has also become moreconcentrated since 1990 with an increase (21%) in the number of holdings with flocks of over 50,000birds at the expense of all smaller flocks. It is interesting to note that there were even more largeflocks in 2000 than in 2002, this later decrease the result of stringent environmental legislationrelating in particular to manure disposal.111 The Farm Structure Survey figures show a total of 2,960 holdings in 2000. This figures appears to include holdings with housing capacityfor laying hens but not actually keeping hens at the survey date.234

APPENDIX 1: MEMBER STATE REPORTSTable A1.66: Number of holdings with laying hens 1 by size of holding 1990-2002Size of holdings (number of laying hens) 1990 2000 200250,000 131 174 158Total number of holdings with laying hens 3,431 2,076 1,701Number of holdings classified as specialised in laying hens 1,376 1,161 1,018Total number of agricultural holdings 124,903 97,483 89,580Note:1 Laying hens of 18 weeks and over.Source: LEI/CBS-publication: Land- en tuinbouwcijfers, various years.Whilst there was little difference in the total number of laying hens between 1990 and 2000, by 2002there had been a decrease of 14% on 1990 figures, partly as a result of the environmental legislationmentioned above see Table A1.67. Despite this, the decreases in the number of hens kept in smallerunits was sufficient to increase the average number of laying hens per specialist producer by 17%from 24,127 in 1990 to 28,195 in 2002. The proportion of the Dutch laying flock kept in flocks ofmore than 50,000 birds increased from 35% to 50% between 1990 and 2002 whilst the proportionsfor all other size categories decreased see Figure A1.57.Table A1.67: Share of laying hens 1 by size of holding 1990-2002Size of holdings (number of laying hens) 1990 2000 200250,000 11,620 15,961 14,352Total number of hens ('000) 33,199 32,573 28,703Average number of hens on specialised holdings 24,127 28,056 28,195Note:1 Laying hens of 18 weeks and over.Source: PVE-publication: Vee, vlees en eieren in cijfers, various years.235

APPENDIX 1: MEMBER STATE REPORTS100%90%80%70%Proportion of laying hens60%50%40%30%20%10%0%1990 1993 1994 1995 1997 1998 1999 2000 20011-4,999 5,000-9,999 10,000-19,999 20,000-49,999 50,000+Figure A1.57: Evolution of proportion of laying hens by flock size 1990 to 2001Note: data were unavailable for some years.Source: PVE-publication: Vee, vlees en eieren in cijfers, various years.Combining the above information it can be seen that whilst just 9% of holdings had flocks in excess of50,000 laying hens in 2002, these flocks accounted for half of the Dutch national flock. Conversely,whilst 47% of holdings with laying hens had less than 5,000 birds in the same year, these accountedfor just 3% of the national flock. This demonstrates a move towards a smaller proportion of largeholdings with an increasing proportion of the national flock since 1990.There is only a small number of very small producer groups supplying eggs to buyers. The bulk ofeggs are sold direct to egg packing centres, usually on short-term supply or price contracts. This isespecially the case for eggs from alternative systems. These contracts usually cover one laying cycleand market prices are paid. About half of the eggs supplied to the egg processing industry are on thebasis of a fixed price contract. These typically run for up to one year.Vertical integration is very limited, although some integration is now being introduced towards theconsumer end of the supply chain. However, a few egg packing centres still have their own eggproduction facilities on site. This is largely for historical reasons and stems from when largeproducers decided to pack and market their own eggs. As scale increased they started to pack eggsfrom other farms as well and over time the packing centre became the core business.236

APPENDIX 1: MEMBER STATE REPORTSIn 2003 outbreaks of Avian Influenza had a negative effect on Dutch egg production. Provisionalfigures from PVE show that production amounted to just 7 billion eggs (27% lower than the previousyear). The equivalent of 2.2 billion eggs were imported in shell and as products to compensate.Egg production for 2004 and 2005 is estimated at 9 billion, only 6% down on 2002. This reduction ispartly due to the increased space allowance from 450 cm² to 550 cm² and partly to the buying-in ofpoultry rights (through environmental legislation). A positive effect on production comes from theswitch from broiler producers and producers of layer replacement stock into laying hens.Overall egg production in the Netherlands is limited due to the poultry rights under nationalenvironmental legislation. Egg production effectively has a ceiling of around 10 billion per annum.A1.10.2.1. Production (packer) concentrationThe number of packing centres decreased by two-thirds between 1992 and 2002 from 474 to 162,although the number of eggs bought in remained fairly stable at just over 8 billion (although this is abillion less than in 2000). The top 18 packing centres (all of whom pack in excess of 100 million eggsannually) account for around 76% of all eggs packed. The average number of eggs packed annuallyacross all packing centres is 48 million eggs, up from 17 million in 1992 see Table A1.68.Table A1.68: Number of egg packing centres by volume of eggs bought-in 1990-2002Volume of eggs bought-in annually 1992 2000 2002< 1 million eggs 271 60 421-9.9 million eggs 127 72 5810-99.9 million eggs 62 47 44>100 million eggs 14 23 18Total number of egg packing centres 474 202 162Total number of eggs bought-in, including imports (million eggs) 7,958 8,949 7,808Average number of eggs bought-in (million eggs) 16.8 44.3 48.2Source: PVE-publication: Vee, vlees en eieren in cijfers, various years.As illustrated above, the Netherlands packing industry is fairly large and fragmented with 18companies accounting for just over three quarters of all eggs packed. The 4-firm concentration ratiois 48% and the 8-firm concentration ratio is 59% see Table A1.69. Although figures are not availableto calculate the concentration ratios in 1990, it is clear from Table A1.68 above that the sector ismore concentrated now that it has been with fewer packing centres and higher average throughput.237

APPENDIX 1: MEMBER STATE REPORTSTable A1.69: Main egg packers in the Netherlands (listed alphabetically)Top 4 Top 8Beekhuis Ovocare B.V.Beekhuis Ovocare B.V.G. Kwetters & Zn. B.V. Cootjans Eierhandel B.V.Gebr. van Beek B.V.Egga B.V.R. van Zetten & Zn. Eierhandel Wulro B.V.G. Kwetters & Zn. B.V.Gebr. van Beek B.V.Natuurfarm de Boed B.V.R. van Zetten & Zn.48% of eggs bought-in 59% of eggs bought-inNote:Based on proportion of total eggs bought in 2001.Source: Industry estimates.A1.10.2.2. Main production systemsJust under three quarters (72%) of total egg production in the Netherlands was derived from cagedproduction systems in 2002. Barn systems accounted for 15% of production with free range systemscontributing some 13%. The proportion of eggs sold to packing centres by production system isbroadly in line with this as can be seen in Table A1.70.Table A1.70: Egg production and sales to packing centres by system (million eggs) 1990-20021992 2000 2002Calculated production:- Caged 8,501 7,736 6,917- Barn 976 1,294 1,411- Free range (Free range and semi-intensive) n.a. 995 1,222Total eggs 9,477 10,025 9,550Sold to egg packing centres:- Caged 7,217 7,104 5,742- Barn 741 1,064 1,145- Free range (Free range and semi-intensive) n.a. 781 921Total eggs 7,958 8,949 7,808Notes:Barn includes perchery and deep litter barn systems.1992 barn figures include free range and semi-intensive data.Source: PVE-publication: Vee, vlees en eieren in cijfers, various years and Agra CEAS Consulting calculations.Table A1.71 presents national data showing the evolution of the use of alternative systems in theNetherlands in terms of numbers of producers and laying hens. Whilst the number of producersusing barn systems declined between 1992 and 2002, the numbers using free range systemsincreased. Despite the decrease in barn producer numbers, there was an increase in laying hens keptin this system resulting in an increase in average laying hen numbers of 74% per producer. Theaverage size of free range flocks increased by more than 5 times as expansion was driven more byincreases in scale rather than increases in producers. It should be noted that it is quite common inthe Netherlands for producers to operate caged and alternative systems.238

APPENDIX 1: MEMBER STATE REPORTSTable A1.71: Alternative housing systems for laying hens 1990-2002Alternative housing system 1992 2000 2002Number of producers:- Barn 765 648 585- Free range (Free range and semi-intensive) 107 365 380- Organic n.a. n.a. 70Number of hen places (‘000):- Barn 3,754 4,870 4,994- Free range (Free range and semi-intensive) 230 3,730 4,579- Organic n.a. n.a. 250Average number of hen places per producer:- Barn 4,907 7,515 8,537- Free range (Free range and semi-intensive) 2,150 10,219 12,050- Organic n.a. n.a. 3,570Notes:Barn includes perchery and deep litter barn systems.1992 barn figures include free range and semi-intensive data.Free range data for 1992 is from 1995.Source: PVE-publication: Vee, vlees en eieren in cijfers, various years.The evolution of laying hen numbers according to production system using data from DG Agri andEurostat is presented in Figure A1.58. This shows the general downward trend in caged hennumbers and the general upward trend, most pronounced in the free range system, in the use ofalternative systems.239

APPENDIX 1: MEMBER STATE REPORTS454035Number of laying hens (millions)3025201510501990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Caged Barn Free range Semi-intensiveFigure A1.58: Evolution of laying hen numbers by production system (1990-2001)Source: DG Agri and Agra CEAS Consulting calculations.The proportion of the laying flock that is accounted for by the different production systems ispresented in Figure A1.59. There was an increase in the proportion of laying hens kept in alternativesystems from 7% to 25% over the period shown.240

APPENDIX 1: MEMBER STATE REPORTS100%90%80%70%Proportion of laying flock60%50%40%30%20%10%0%1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Caged Barn Free range Semi-intensiveFigure A1.59: Evolution of importance of alternative systems 1990-2001Source: DG Agri and Agra CEAS Consulting calculations.Figure A1.60 illustrates the surplus of eggs from alternative systems. The DG Agri data is notcomplete and where no surplus is shown this is the result of missing data rather than market balance.Also, the free range and semi-intensive data for 1993 is included with barn data. Even with thismissing data the surplus was largest between 1990 and 1993. After a decrease in surplus between1992 and 1993, the surplus fluctuated over the remainder of the period for which data exist.241

APPENDIX 1: MEMBER STATE REPORTS900,000800,000700,000600,000Number of eggs ('000)500,000400,000300,000200,000100,00001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Free Range Semi-intensive Barn All alternative systemsFigure A1.60: Surplus of eggs from alternative systems 1990-2002Source: DG Agri.Whilst 50% of total Dutch egg production is exported, around 95% of free range production isexported, as is 50% of perchery barn production and 30% of deep litter barn production. Themajority of these exports are destined for Germany with a small proportion going to Belgium andthe UK. Export of shell eggs are presented in Table A1.72.Table A1.72: Export of shell eggs by type of production system (million eggs) 1992-20021992 2000 2002- Barn (Deep litter) 110 405 408- Barn (Perchery) 38 24 29- Free range (Free range and semi-intensive) n.a. 440 580Total eggs 6,092 5,364 5,071Note:Barn figures for 1992 include free range systems.The barn (perchery) figure for 2002 is the 2001 figure.Source: PVE-publication: Vee, vlees en eieren in cijfers, various years.There are no differences in the technical operation of systems in the Netherlands compared to theEU legislation.242

APPENDIX 1: MEMBER STATE REPORTSA1.10.2.3. Technical dataIn the Netherlands, the Expertisecentrum LNV, a policy department of the Ministry of Agriculture,Nature and Food Quality, in collaboration with the research organisation Animal Sciences Group,annually consults representatives of feed companies, poultry producers, processors, banks andaccountancy firms to establish long-term budgetary norms for the primary egg production sector.These figures are subsequently published by the Animal Sciences Group in the publication KWIN-V.A distinction is made between white and brown hens in traditional cages as these have differenttechnical factors and hence different cost information. Whilst white hens result in lower costs andhence high gross margins, brown hens are more docile and have a lower incidence of feather peckingand cannibalism and hence lower mortality figures. Consumers associate white eggs with cagedsystems and brown eggs with alternative systems, so, although there is no price premium for browneggs from caged hens, consumer perception may make these eggs easier to sell. Below in TableA1.73 we present weighted average figures on the basis that approximately half the Dutch nationalcaged flock is white and half brown.Over the years the technical performance of laying hens has improved. The norm for eggs collectedper bird (white hens in cages) increased from 332 in 1995 to 349 in 2003 as the laying cycleincreased from 400 to 415 days. Over the same period the norm for feed per bird per daydecreased from 113 grams to 109.5 grams. Feed requirements, egg yield and feed conversion ratiosare more favourable in the caged system. Alternative systems have higher pullet costs and are morelabour intensive.243

APPENDIX 1: MEMBER STATE REPORTSTable A1.73: Performance comparison of egg production systems in use in theNetherlands (2003)Traditional cages Barn Free range OrganicLaying cycle (days) 400 385 375 350Empty period (days) 16 21 21 21Feed/bird/year (Kg) 38.52 41.89 43.04 45.45Feed/bird/day (g) 110 121 125 132Eggs/bird/year (collected) 293 284 279 260Kg feed per kg eggs 2.10 2.36 2.47 2.80Mortality (%) 7% 9% 11% 12%Number of hens managed/labourer 50,000 25,000 25,000 10,000Hens housed per m 2 house 109 7 7 7Space allowance per hen per cm 2 550 1,429 1,429 1,429Pullet cost 3.43 3.76 3.91 5.96End of lay hen weight (Kg) 1.70 1.80 1.80 1.70End of lay hen price (€/bird) 0.31 0.36 0.36 0.58Notes:1. Some data have been converted from laying cycle to year to correct for the differing lengths of laying cycle by system.2. Pullet cost is the cost of a 17 week old bird plus the cost of feed for the approximately 3 week acclimatisation periodto point of lay.3. Number of hens managed per labourer in the organic system assume that egg packing is not automated.Source: ASG-publication: KWIN-V 2003-2004 and Agra CEAS Consulting calculations.A1.10.2.4. Production costsVariable and fixed costs are presented in Table A1.74 and Table A1.75 respectively. As withtechnical factors in Section A1.10.2.3, the caged system is a weighted average of white and brownhen data. The caged system has the lowest production cost with barn and free range systems beingfairly similar, although higher in the latter case. As might be expected, the highest costs are incurredin the organic system.The same pattern is in evidence for fixed costs, although data for the organic system are notavailable. All individual cost elements are higher in the alternative systems.Table A1.74: Variable (running) costs of production (per kg eggs) in Euro cents 2003Traditional cages Barn Free range OrganicFeed cost 41.53 46.84 48.93 95.52Medication/vet 0.57 1.01 1.59 0.95MiscellaneousBird depreciation 16.45 19.02 20.63 36.15Total variable costs 58.55 66.87 71.15 132.62Source: ASG-publication: KWIN-V 2003-2004 and Agra CEAS Consulting calculations.244

APPENDIX 1: MEMBER STATE REPORTSTable A1.75: Capital (fixed) costs (per kg eggs) in Euro cents 2003Traditional cages Barn Free rangeLabour 4.41 9.29 9.69Buildings 4.14 6.08 6.38Equipment 4.97 7.29 7.66Land 2.75Manure disposal 2.01 2.17 2.27Insurance 1.03 1.82 1.98Utilities 0.96 2.00 2.18Cleaning 1.71 5.47 5.95MiscellaneousTotal fixed costs 19.23 34.13 38.85Note:Miscellaneous includes electricity, water (including cleaning), litter material, externallabour for entry of pullets and catching of old hens, Poultry Board and compulsoryanimal health scheme levies and removal costs for dead animals.Source: ASG-publication: KWIN-V 2003-2004 and Agra CEAS Consulting calculations.Researchers from the Animal Sciences Group, Applied Research Division, presented (unpublished)results from their study Effects of welfare aspects to cost price for table eggs, at a conference inBremen, Germany, in 2002. Within this study the influence on production costs of the increase inminimum space allowance (from 450 cm² to 550 cm²) and the ban on beak trimming (entered intoforce on 1 September 2001) are compared to production costs for alternative systems.Methodology:Four housing systems are compared to the traditional cage 450 cm²: traditional cage 550 cm²,enriched cage 750 cm², Barn (Perchery) 1,110 cm² and Barn (Deep Litter) 1,110 cm².No beak trimming allowed in cages; in Barn (Perchery) must be before 10 days.Two scenarios were run for three of these systems: the first with considerable negative effectson technical results, and the second with hardly any negative effects.Production data for different systems are estimated, based on research at the Centre for AppliedPoultry Research ‘Het Spelderholt’.245

APPENDIX 1: MEMBER STATE REPORTSTable A1.76: Research resultsTraditionalcage(450 cm²)Traditional cage(550 cm²)Scenario1Scenario2Enriched cage(750 cm²)Scenario1Scenario2Barn(Perchery)(1,110 cm²)Scenario1Scenario2Barn(DeepLitter)(1,110cm²)Second grade eggs Base +2% Equal +5% -2% +2% Equal EqualEgg production Base -5 Equal -15 Equal -10 Equal -6Feed conversion ratio 1 Base +0.20 +0.05 +0.20 +0.05 +0.20 +0.05 +0.15Mortality Base +2% Equal +5% +2% +5% +2% +0.5%Production costs(euro/kg eggs) 0.75 0.82 0.79 0.89 0.86 0.92 0.88 0.96Note:1 Feed conversion ration +0.10 or more: feeding price 0.45 euro/100 kg cheaper.Source: Animal Sciences Group, Applied Research Division, posterpresentation Effects of welfare aspects to cost price for table eggs,Bremen, Germany, 2002.The results show that in comparison to traditional cages (450 cm², beak trimmed hens): Production costs in traditional cages with 550 cm² and no beak trimmed hens increased by 4-8%. In enriched cages the costs increased by 12-17%. In Barn (Perchery) the costs increased by 16-21%. In Barn (Deep Litter) the costs increased by 27%.In conclusion the report states that the increase in production costs for higher animal welfare liessomewhere between 4 and 21 Euro cents (equivalent to 4% and 27% of total production costs),depending on the system used and the scenario. The higher space allowance leads to higher housingcosts of 3-8 Euro cents/kg, higher feeding costs of 1-5 Euro cents/kg and higher labour costs of 0-5Euro cents/kg. Ending beak trimming is, according to this report, likely to lead to higher feedingcosts of 1-3 Euro cents/kg.The Agricultural Economics Research Institute (LEI) has also published calculations relating to theincreasing cost of egg production as a result of animal welfare improvements. They state that thecost price (including labour) of eggs from caged hens (450 cm²) in the Netherlands was 71 Euro centsper kg, or 52.8 Euro cents per dozen eggs. The authors estimate that the cost of egg production willincrease by 8% (5.6 Euro cent per kg egg) between 2000 and 2005 as a result of the increase in spaceallowance per hen, a ban on beak trimming, salmonella controls, the ban on the use of meat andbone meal, reduction of ammonia emissions and the introduction of an energy tax on electricity.The difference in cost resulting from the increase in space allowance alone is estimated to be 4%.246

APPENDIX 1: MEMBER STATE REPORTSA1.10.2.5. Gross marginsAdding egg and spent hen revenue to the variable cost data in the previous section allows thecalculation of producer gross margin Table A1.77. This shows that the additional revenue availablefrom both eggs and the spent hen more than compensate for the higher variable costs leading tohigher gross margins in the alternative systems.Table A1.77: Egg producer gross margin per kg (2003) in Euro centsTraditional cages Barn Free range OrganicEgg returns 71.98 86.38 99.98 172.76Revenue from spent hens 1.49 1.82 1.90 3.50Output (per year) 73.47 88.20 101.88 176.26Total variable costs 58.55 66.87 71.15 132.62Gross margin 14.92 21.33 30.73 43.64Source: ASG-publication: KWIN-V 2003-2004 and Agra CEAS Consulting calculations.A1.10.3. Egg processingThere were 17 egg processing companies active in the Netherlands in 2002 using a total of 2.295billion eggs. Table A1.78 shows that there has been a significant amount of concentration in thesector since 2000 with the loss of 6 companies. Despite this, the number of eggs supplied to theindustry was broadly similar in 2000 and 2002 suggesting that existing companies were increasing inscale. Production of egg products was 42% higher in 2003 than in 1992.Table A1.78: Number of firms in the egg processing industry and their production 1992-2003Volume of eggs bought-in annually: 1992 2000 2002 2003< 625,000 kg 5625,000-10,000,000 kg 3>10,000,000 kg 9Total number of firms n.a. 23 18 17Total number of eggs supplied to industry, excluding imports (‘000 tons eggs) 103.9 144.2 142.3 n.a.Production of egg products (‘000 tons liquid egg equivalent) 103.8 133.1 127.4 147.0 (1)Note:Total production in 2002 is provisional.Source: PVE-publication: Vee, vlees en eieren in cijfers, various years.A1.10.3.1. Processor concentrationThe Dutch processing sector is very concentrated with just 17 companies in 2003. These are listedalphabetically in Table A1.79 with their share of production in 2001, the latest available year. TheTable also shows the 4-firm concentration ratio (82%) and the 8-firm concentration ratio (98%).247

APPENDIX 1: MEMBER STATE REPORTSTable A1.79: Top 4 and 8 egg packing centres (% of 2001 volume of eggs bought-in),alphabetical orderBouwhuis Eiprodukten B.V.Egg Products OspelEierhandel Wulro B.V.Weko group 1Top 4 Top 8Adriaan Goede B.V.Bouwhuis Eiprodukten B.V.Egg Products OspelEierhandel Wulro B.V.Eiproma B.V.Frisian Egg B.V.Lemmers Eiproducten B.V.Weko group (1)82% of kg eggs processed 98% of kg eggs processedNote:1 Weko group comprises of: Nive B.V., Van den Burg Eiprodukten B.V. and Weko Eiprodukten B.V.Source: Industry estimates.A1.10.3.2. Trade in egg productsThe Netherlands is a major exporter of eggs and egg products. In 2002 the value of egg exportsamounted to €264 million, of which, €101 million was derived from egg products. Germany is thesingle most important buyer accounting for 76% of the value of shell egg exports and 42% of thevalue of egg products.Total imports of shell eggs and egg products amounted to €42 million and €13 million respectively inthe same year. Belgium/Luxembourg was the main source for shell eggs (58% of total value) andGermany for egg products (56% of total value). The egg processing industry in the Netherlands isvery export oriented with 80% of production exported. Table A1.80 presents volume and value ofegg product exports and Table A1.81 shows destinations.248

APPENDIX 1: MEMBER STATE REPORTSTable A1.80: Dutch exports of egg products, by product 1992-20021992 2000 2002 1992 2000 2002Volume '000 kg Shares (%)Total egg products 47,357 56,140 65,768 100% 100% 100%Liquid, frozen and cooked egg products- whole eggs 26,082 34,054 41,954 55% 61% 64%- egg yolks 11,009 13,461 12,431 23% 24% 19%- egg whites 4,071 5,337 3,688 9% 10% 6%Dried egg products- whole eggs 2,292 2,914 3,044 5% 5% 5%- egg yolks 813 914 692 2% 2% 1%- egg whites 3,091 4,487 3,959 7% 8% 6%Value '000 euro Shares (%)Total egg products 82,812 101,126 101,041 100% 100% 100%Liquid, frozen and cooked egg products- whole eggs 27,915 34,282 40,008 34% 34% 40%- egg yolks 19,148 22,539 22,035 23% 22% 22%- egg whites 2,468 3,347 2,524 3% 3% 2%Dried egg products- whole eggs 10,007 10,147 11,383 12% 10% 11%- egg yolks 3,845 3,291 2,928 5% 3% 3%- egg whites 19,430 27,520 22,163 23% 27% 22%Source: PVE-publication: Vee, vlees en eieren in cijfers, various years.Table A1.81: Dutch exports of egg products, by destination 1992-20021992 2000 2002 1992 2000 2002Value '000 euro Shares (%)Total egg products 82,812 101,126 101,041 100% 100% 100%Of which:- Germany 35,895 37,927 41,979 43% 38% 42%- United Kingdom 7,531 9,248 11,740 9% 9% 12%- Belgium and Luxembourg 8,326 8,628 8,946 10% 9% 9%- other EU countries 13,091 17,467 11,108 16% 17% 11%- Japan 4,215 11,849 10,286 5% 12% 10%- Switzerland 7,187 8,845 10,240 9% 9% 10%- other 6,566 7,162 6,742 8% 7% 7%Source: PVE-publication: Vee, vlees en eieren in cijfers, various years.A1.10.4. Egg marketsA1.10.4.1. Primary demandDutch consumers bought 1.12 billion eggs in 2003, a 3% decrease compared to 2001 (PVE/GfK) ascan be seen in Table A1.82. Supermarkets are increasingly ceasing to stock eggs from cagedproduction in favour of barn and free range eggs. The retail market share of barn eggs rose from44.1% in 2001 to 48.7% in 2003 and is now higher than that of caged eggs.249

APPENDIX 1: MEMBER STATE REPORTSThe share of barn eggs in consumer purchases is much higher than the share of free-range eggs TableA1.82. To a large extent this is due to the translations of the system labels which favours barn eggs.The Dutch term for barn eggs (‘scharreleieren’) is associated by consumers with the free-rangeproduction system and not the deep litter or perchery housing system.Table A1.82: Consumer purchases of shell eggs (million eggs) 1990-20031990 1999 2001 2003Cages 841 603 607 535Barn 331 522 509 545Free range n.a n.a. 24 27Organic n.a n.a. 14 13Total 1,172 1,125 1,154 1,120Source: PVE/GfKThe Dutch egg processing industry bought 2.295 billion eggs in 2002, approximately twice the volumeconsumed in shell. The egg processing industry traditionally buys second quality eggs and grade outs,but supplements these with first quality eggs, the vast majority of which are produced in cagedsystems. As Table A1.83 shows, the Dutch processing industry almost doubled in size between 1990and 2000.Table A1.83: Supply of eggs to egg processing industry 1990-20031990 2000 2002Supply in billion eggs 1.334 2.326 2.295Source: PVEA1.10.4.2. PricesThe evolution of egg prices in the Netherlands between 1991 and 2003 is presented in Figure A1.61where it is compared to the weighted average EU price. The Netherlands egg price has been veryclosely correlated with the EU price, at a discount of around 15% see Figure A1.62. However, theAvian Influenza outbreak in 2003 resulted in a restriction of supply and higher prices in theNetherlands compared to the EU for the only time in the period shown.250

APPENDIX 1: MEMBER STATE REPORTS160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003NetherlandsEUFigure A1.61: Evolution of egg prices 1991-2003Source: DG Agri.5%0%Percentage difference from EU average-5%-10%-15%-20%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.62: Difference between the Netherlands and EU egg prices 1991-2003Source: DG Agri.251

APPENDIX 1: MEMBER STATE REPORTSThe producer price of eggs varies between 60 and 80 Euro cents per kg in the Netherlands. Barnand free range eggs obtain a price premium of 1 to 2 Euro cents per egg, approximately 16 to 32Euro cents per kg. Table A1.84 shows the evolution of producer price between 1990 and 2002.Table A1.84: Producer prices of eggs, excluding contracts (Euro per kg, including BTW)1990-20021990 1995 2000 2002Producer egg price 0.84 0.62 0.78 0.74Source: Land- en tuinbouwcijfers, various years (LEI/CBS).Deep litter barn eggs are generally 3 to 5 Euro cents (31% to 40%) more expensive per egg in thesupermarket than cage eggs. No price supplement has historically been charged for barn eggs fromthe perchery system as the consumer associates this production system with caged accommodation.However, these eggs are now labelled as barn eggs and as a result these eggs can now achieve barnpremia. Consumers pay 6 to 9 Euro cents more per egg for free range eggs. Organic eggs are up to100% more expensive than cage eggs.Table A1.85: Average price for eggs paid by consumers (Euro cents/egg) 1993-20031993 1995 1997 1999 2001 2003Cages 9,8 12,6Barn (Deep Litter) 12,8 17,4Free range 16,2 22,0Organic 22,7 29,2Weighted average price 10,7 9,8 10,9 10 11,5 15,4Source: PVE/GfK.A1.10.4.3. Demand and supply elasticitiesConsumption of eggs and egg products is relatively stable at around 180 eggs per capita per year.Egg products make up around a quarter of total per capita egg consumption.Table A1.86: Consumption of eggs and egg products per capita per year 1993-20021990 2000 2002Shell eggs 135 137 144Egg products 41 43 40Total egg consumption (eggs per person) 176 180 184Note:The 1990 egg product figure is from 1992.Source: PVE-publication: Vee, vlees en eieren in cijfers, various years.252

APPENDIX 1: MEMBER STATE REPORTSA 2002 LEI report showed the following:Dutch consumers show little price preference when eggs are involved. Consumption generallyremains stable. As long as the price of eggs remains within a margin of €0.70 and €1.60 per box(4, 6 or 10 units) eggs are price inelastic. This low price elasticity can be explained by the lowabsolute price of eggs in relation to other foods.The increasing demand for alternative eggs is market driven and appears to be relativelyinsensitive to the general economic situation.In areas with a high percentage of immigrants, environmentally and welfare friendly products aremuch less frequently chosen, with the cheapest products are chosen instead. This is likely toreflect the fact that immigrant populations tend to be less well off and food consumption willaccount for a greater proportion of their total expenditure.The Dutch consumer is generally brand loyal when it comes to eggs. The same product isgenerally continually chosen; a change of type and brand of eggs seldom occurs. How choices forspecific brands are made is not known, but it is suspected that publicity regarding animal welfarehave caused a shift in demand in favour of eggs from alternative systems.A1.10.5. The impact of Directive 1999/74/ECA1.10.5.1. Implementation to dateThe Decision on Laying Hens 2003 (Legkippenbesluit 2003) implements EU Directive 1999/74/EC.This Decision was only adopted in April 2004 and came into force on 19 May 2004. Under the initialproposal, all cages for laying hens were to be prohibited from 2012 as cages were considered to beundesirable from an animal welfare point of view, nor were they expected to remain economicallyviable. However, following elections in 2002, the new government decided that Dutch animalwelfare rules should not be more stringent than the base European rules. As a result, the enrichedcages were re-introduced in the proposal and this was subsequently adopted. This means that in linewith Chapter II, Art.5.2 of Directive 1999/74 in the Netherlands enriched cages will be permitted forhousing hens after 1 January 2012.There has been no significant investment in enriched cages to date in the Netherlands, although asmall number of producers have installed enriched cages. A further number (the exact number is notknown) have installed ‘enrichable’ cages which will comply with the Directive once the cage furniturehas been added and stocking density adjusted.The interim increase in space allowance prompted most producers to invest in extended cage doorswhich increase the effective surface area of the cage 112 . This cost around €1.75 per cage and waswidely seen as preferable to removing a hen (no investment cost, but loss of one hen) or connectingcages together and removing one hen (€1 per cage plus the loss of half a hen).112 This extended door appears to raise questions which are currently awaiting legal clarification.. Within the UK the extended door isgenerally accepted while in France the application is allowed, but is not formally approved. The Dutch government initially allowed thedoor, but has now said it will not acknowledge the space gained in the cage as a result of the extended door.253

APPENDIX 1: MEMBER STATE REPORTSA1.10.5.2. Expected implementationThe industry is generally expected to make the switch to enriched cages close to 2012, although it isexpected that some producers will prefer to exit the sector. The future demand for eggs fromenriched cage systems will depend largely on the international competitiveness of the processingindustry as this is the main user of eggs from caged hens. The opportunity to export caged eggs isalso likely to be important. The cost of investment is estimated by the industry to be around 30%higher than would have been incurred using traditional 450 cm 2 cages.254

APPENDIX 1: MEMBER STATE REPORTSA1.11. PolandA1.11.1. OverviewThe Polish egg production and laying hen sector is generally dispersed countrywide, with someimportant regional concentrations. Approximately 10% of the laying hens produced by Polishbreeders are domestic varieties 113 which tend to be used in extensive production systems, with theremaining share being specialist foreign breeds destined for intensive caged production systems. Inrecent years, Polish egg producers have shown an increased interest in hen varieties suitable foralternative production systems.According to the National Centre of Animal Breeding (NCAB), around two-thirds of the nationalbreeding stock is located on large-scale farms. In recent years, the number of breeding hens hasdeclined for less intensive production systems has been falling faster than those for intensive systems.This suggest that there has been a decrease in the number of laying hens owned by rural householdsand consequently a decline in the volume of extensive egg production (free range) among ruralhouseholds.This is confirmed by data relating to structural change in the Polish egg industry in recent yearswhich shows a decline in the share of small-scale egg production units in favour of large-scaleoperations. This has reduced the effects of seasonal fluctuation of egg supply, although there are stillregular peaks and lows in egg production.In the early 1990s, egg production in Poland was dominated by co-operatives situated close to urbancentres. The largest private company was AGROFIRMA, which had a 25% market share. Since then,the number and market share of large private companies has increased substantially. There has alsobeen an increase in the number of medium-sized farms with between 0.4 million and 0.9 million layinghens, while smaller producers have organised themselves into several producer groups in order tomeet market requirements (mainly due to supermarkets demanding regular supplies of fresh eggs).In the second half of the 1990s, there was a substantial increase in output by the Polish eggprocessingsector, which increased in volume terms by approximately 15 times. Several new eggprocessing enterprises emerged and by 2002, there were 14 large egg processors in Poland. Thelargest company is OVOPOL, located in Nowa Sol (Lower Silesia), followed by WEKO POLSKA andBASSO.113 According to Dr K Cywa-Benko, Polish Breeding Institute at Balice, cited in “Analiza przekrojowa rynku drobiu I ja do 2005 roku”, page57. (eng. Analysis and outlook on poultry and egg market by 2005).255

APPENDIX 1: MEMBER STATE REPORTSA1.11.2. Egg productionThere are several regional concentrations of egg production in Poland, as shown in Table A1.87These provinces together represent around three-fifths of all egg producing farms and around twothirdsof laying hens kept for egg production.Table A1.87: Regional concentration of egg production in Poland 2003Province Region % of farms % of laying hensWielkopolskie Western-central 19 19Mazowieckie Central 9 17Opolskie South-West 3 10.5Slaskie South 15 9Swietokrzyskie South 12 10Total share 58 65.5Source: Agra CEAS.Total egg production in Poland fluctuates at around 8 billion eggs (44 million Kg 114 ), with productionincreasing towards the end of the 1990s, but declining in 2002 and 2003. Poland is self-sufficient inegg production with production exceeding use by between 6% and 8% on a regular basis. About 85%to 87% of eggs produced are domestically consumed. Hatchings and feed account for some 5% to6% and processing up to 8%. The volume of exports has risen substantially in recent years see TableA1.88.There are two main production systems operating in Poland. Large-scale farms operating traditionalcage and deep litter systems produced an estimated 72.8% of total egg production in 2003 (between60% and 70% in the 1990s), as is shown in Table A1.88. Small-scale producers, mostly operatingfree-range production systems are estimated to account for the remaining 27.2% in 2003. Thisindicates that a significant proportion of the egg production industry in Poland remains highlyfragmented.114 At a conversion rate of 54,981 grams per egg.256

APPENDIX 1: MEMBER STATE REPORTSTable A1.88: Actual and estimated balance sheet of eggs for consumption Poland,tonnes 1999-2004Item 1999 2000 2001 2002 2003 E 2004 FNo of laying hens and egg efficiencyTotal No of birds held ('000 birds) 49,526 48,274 50,694 48,393including laying hens ('000 birds) 43,389 42,649 45,075 42,178Egg per hen (pieces a year) 176 182 187 208Balance sheetProduction 7,543 7,850 8,550 8,924 9,200 9,300Imports 15 10 4 3 - -Total supply 7,558 7,860 8,554 8,927 9,200 9,300Hatching and feed 420 430 428 427 430 430Total use (incl. processing) 7,097 7,401 8,040 8,326 8,480 8,560Waste and losses 21 23 28 27 30 30Exports 20 6 58 147 260 280Large scale production (cages and deep litter system) E 4,750 6,000 6,500 6,700 6,700 6,800Share of large scale production in total production (%) 63,0 76,4 76,0 75,1 72,8 73,1Small-scale production (free range system) E 2,793 1,850 2,050 2,224 2,500 2,500Share of small-scale production in total production (%) 37,0 23,6 24,0 24,9 27,2 26,9Self-sufficiency ratio (Production/use) (%) 106.3 106.1 106.3 107.2 108.5 108.6Notes E and F: estimates by the CSO and the IAFE made prior to the 2002 census.Source: Rynek Drobiu i Jaj. Stan i Perspektywy (Situation and Outlook on PoultryMarket) vol. 24, October 2003, IAFE, AMA, MARD, Warsaw 2003.The number of large-scale laying houses is variously estimated at between 2,400 and 2,800 withaverage stocks of 6,000 laying hens 115 . According to the survey conducted in 2000, 50% of the unitsoperated traditional caged production systems and 50% operated traditional deep litter productionsystems.The average production efficiency in traditional caged production systems is 280 eggs/year/hen and240 eggs/year/hen in deep litter production systems. The overall country average in Poland is lowerat around 180 eggs/year/hen (208 in 2002), due to the large share of free-range production.According to the data from the agricultural census in 2002, there were 382,600 farms (16.3% of thetotal number of farms) with a recorded 393,700 poultry houses in 2002. The total capacity of thepoultry houses countrywide is estimated to have totalled 21.08 million square meters. Therefore,bearing in mind the number of large scale laying houses, it is possible to broadly estimate the numberof free range and mainly open-air production units at 391,100 116 . Approximately 20% (one farm inevery 5) of these flocks average between 20 and 30 birds producing eggs for domestic consumptionand any surplus is traded at local open air markets or sold directly on a door to door basis.However these eggs are not subject to any quality or veterinary control standards and are not115 1999 estimate by M. Adamowicz, Rynek drobiu i jaj, a PHARE project No PL96-01-15/22/773, FAPA, Warsaw 2000 was 2,400. 2000estimate by G.Dybowski, M. Kobuszyńska, Analiza przekrojowa rynku droniu I jaj oraz strategia rozwoju do 2005 r., Studia i monografie vol.109, IAFE, Warsaw 2002 was 2,400.116 This is estimated by taking total laying houses of 393,700 less the average 2,600 units estimated to be in operation in 1999 and 2000.In 2002 according to the agricultural census there were 2,336 farms with more than 500 hens.257

APPENDIX 1: MEMBER STATE REPORTSstandardised. Organic egg production (according to European standards) is still of only marginalimportance.In the mid-1990s, there was a considerable increase in the number of and output from large-scaleproducers. Improvements in breeding (new breeds of laying hens) along with the widespread use ofimproved cage production systems resulted in substantial production cost savings and efficiencyimprovements, particularly a reduction of unit feed use per egg. Poland imports only a negligiblequantity of eggs and therefore, the domestic market (particularly in large agglomerations) hasbecome increasingly reliant on domestic large-scale suppliers.After taking into account the results of the 2002 census, estimates put the Polish laying hen stock in2003/2004 at 48 million, of which between 95% and 96% are held on large-scale farms. For thesemore ‘intensive’ farms the traditional cage system accounts for 81% of laying hens, with theremainder accounted for by deep litter (15%), free range and open-air production systems (4%).The largest producers in Poland hold up to 2 million laying hens each, as shown in Table A1.89.Furthermore, smaller farm holdings are increasingly forming producer groups in order to increasetheir combined competitiveness in the market and be able to meet the demand for regular fresh eggdeliveries from large retail chains. It is also common for producers to buy in eggs from nearbysmaller producers, before selling the eggs on. This is usually only the case for farms in the 10,000 to20,000 laying hen size class.Table A1.89: Number of laying hens held by large-scale egg producers 2003ProducerNumber of laying hens (million)Fermy Drobiu Wozniak 2.0DUBLET 2.0PA-MI-RA 1.0Henryk BORKOWSKI 1.0OVOTEC 0.5RAPEX 0.5Opolskie Zaklady Drobiarskie 0.4Andrzej Kurasek 0.4Zlota Kurka 0.4EKOFERMA 0.2Szewczyk&Blachnio 0.2Zbigniew RONKIEWICZ 0.2OZD Continental 0.2Jerzy SWITALA 0.2AGROFIRMA 0.15Note: Figures are estimatesSource: Industry data258

APPENDIX 1: MEMBER STATE REPORTSThe largest 4 and 8 firms are estimated to account for 13.9% and 18.0% of the total number of layinghens respectively 117 .During the process of economic transition in Poland, marketing channels changed substantially. Manylarge-scale egg production companies entered into supply contracts with retail chains, wholesalersand the food processing industry. Around one-third of egg output in Poland is destined directly forretail sales, and the role of official procurement has continued to decline. Free range and open airproduced eggs continue to be predominantly produced by average-sized farms and are mainly sold inopen air markets, however an increasing proportion are now regularly supplied by more specialisedfarmers, as well as some large-scale producers.Faced with stable domestic demand, egg producers are trying to increase egg consumption bydeveloping new egg products, such as multi-feed eggs (eggs from hens fed with different feedstuffs),OMEGA eggs (eggs from hens fed with light fatty acid enriched feed), low-cholesterol eggs, eggsenriched with vitamins, etc. However, due to price premiums, the market for such products iscurrently limited largely to large supermarkets or other shops located close to large cities.Consumers in small towns continue to favour free-range "traditional country eggs", although theseare increasingly produced by medium and large farms, but still traded at open-air markets or directlyto customers.Egg production is frequently the only source of income for large-scale egg producers in Poland,although some producers that own large grain elevators used to receive money by being involved inthe state intervention storage of grains. Most egg producers also have some cropping area, usedmainly for cereal production to provide poultry feed. Smaller-scale egg producers are generallyinvolved in a wider variety of agricultural enterprises, such as crop production and poultrymeatproduction. Egg production on the average sized farms is considered a by-product activity. The farmsize structure for laying hen production in terms of farm area and size of flock are presented in TableA1.90) and Table A1.91 indicates that production has become increasingly concentrated with thenumber of farms in the largest size category (more than 10,000 hens) more than doubling and theaverage size of such units rising from 31,180 to 42,386.117 Based on the estimates of laying hen numbers in the largest firms (see Table A1.89) average number of laying hens for the period from2000 to 2002 (see Table A1.88).259

APPENDIX 1: MEMBER STATE REPORTSTable A1.90: Number of laying hens by size of farms, 1996 and 2002Size group(ha)1996 2002Farms Laying hens Averagehens/farmFarms Laying hens Averagehens/farmbelow 1 406,705 6,732,380 17 151,703 9,399,354 621-2 266,390 4,602,590 17 139,127 6,390,810 462-3 186,025 2,942,358 16 102,654 3,588,872 353-5 281,292 4,600,161 16 158,157 4,744,510 305-7 201,713 3,322,736 16 112,134 3,917,463 357-10 209,549 3,859,878 18 116,423 4,541,378 3910-15 181,204 4,153,118 23 106,517 4,581,949 4315-20 76,098 2,010,808 26 50,147 2,277,261 4523-30 46,818 1,654,302 35 37,762 2,635,056 7030-50 15,641 1,096,564 70 16,717 2,016,129 121above 50 4,954 4,228,547 854 6,044 7,669,445 1,269Total 1,876,389 39,203,442 21 997,385 51,762,227 52Source: Polish agricultural census data.Table A1.91: Number of laying hens by size of flock 1996 and 2002Stock size(No of birds)1996 2002Farms Laying hens No of hensper farmFarms Laying hens No of hensper farm1-9 707,306 4,063,768 6 211,060 1,264,053 610-49 1,149,945 17,910,909 16 754,639 12,704,511 1750-99 14,310 813,608 58 24,290 1,419,029 58100-149 1,533 161,587 105 3,208 341,936 107150-199 365 57,492 157 753 118,699 158200-299 443 96,630 218 691 148,920 216300-499 348 120,056 345 408 142,207 349500-999 375 231,866 618 396 242,263 6121000-1999 315 391,698 1,243 294 362,469 1,2332000-2999 245 551,610 2,251 183 398,713 2,1793000-4999 387 1,431,871 3,700 270 980,922 3,6335000-9999 488 3,114,070 6,381 474 3,163,094 6,673above 10000 329 10,258,277 31,180 719 30,475,411 42,386Total 1,876,389 39,203,442 21 997,385 51,762,227 52Source: Polish agricultural census data.According to survey responses 118 , only 17% of egg producers in 2002 complied with EU productionstandards and a further 23% indicated that they would be able to meet the standards within 2 years.This implies that around 60% of Polish egg producers either needed more than 2 years to completethe necessary investments required to enable them to meet the EU standards, or would not be ableto do so at all. As of March 2004, there were 14 producers and packing centres with approval fromthe European Commission for exports to the EU.118 G.Dybowski, M. Kobuszyńska, Analiza przekrojowa rynku droniu I jaj oraz strategia rozwoju do 2005 r., Studia i monografie vol. 109,IAFE, Warsaw 2002.260

APPENDIX 1: MEMBER STATE REPORTSPolish foreign trade in shell eggs accounts for a relatively small share of overall production(approximately 3% in 2003) but in recent years, Polish producers have responded to shortages onthe EU market with a sharp increase in exports. In 2003, shell egg exports peaked at 26,700 tonnes(39,0 million pieces), of which 90% were sold to the EU (mainly Netherlands, France, Italy, Belgium,Germany). The trend in the structure of exports shows high volatility, due mainly to the changingmarket situations in trading partner countries, rather than any changes in the domestic market.Nevertheless, shell eggs have dominated Polish egg sector exports for at least last decade and theincreased levels of exports over that period has contributed to some price increases in the domesticmarket.100%80%60%40%20%0%1995 1996 1997 1998 1999 2000 2001 2002 2003Shell Eggs CN 040700 Whole eggs, dried CN 040891 Whole eggs, liquid CN 040899 Egg yolks, dried CN 040811Egg yolks, liquid CN 040819 Egg albumin dried CN 35021190 Egg albumin dried CN 35021990Figure A1.63: Structure of Polish egg and egg product exports 1995-2003Source: Polish Trade Statistics.The role of imports in the egg market is marginal. Compared to exports the structure of imports ofeggs and egg products shows a certain degree of stability, although shell eggs are gradually increasingin importance.261

APPENDIX 1: MEMBER STATE REPORTS100%80%60%40%20%0%1995 1996 1997 1998 1999 2000 2001 2002 2003Shell Eggs CN 040700 Whole eggs, dried CN 040891 Whole eggs, liquid CN 040899 Egg yolks, dried CN 040811Egg yolks, liquid CN 040819 Egg albumin dried CN 35021190 Egg albumin dried CN 35021990Figure A1.64: Structure of Polish egg and egg product imports 1995-2003Source: Polish Trade StatisticsThe age structure of Polish farmers is dominated by the 40-50 years old age category. There is nodata on the age profile of the egg producers but on the basis of interviews it can be assumed that theaverage for this group is lower than for farming as a whole.A1.11.2.1. Main producers/packersVertical integration is a typical feature of the Polish egg sector. The majority of large farms have eggproduction units integrated with packing facilities. In most cases egg producers base sales upon longterm delivery contracts specifying deadlines and volume for deliveries.A1.11.2.2. Production (packer) concentrationThere is no data available on concentration in this sector.A1.11.2.3. Main production systemsGenerally speaking, egg producers holding more than 2,000 laying hens operate cage productionsystems, producers holding between 100 and 2,000 laying hens tend to operate deep litter systemsand those farms holding fewer than 100 laying hens operate free-range systems. The estimated shareof total laying hens held in the different production systems estimated on this basis is shown in TableA1.92.262

APPENDIX 1: MEMBER STATE REPORTSTable A1.92: Estimated share of laying hens according to production system 1996 and20021996 2002No of hens Share (%) No of hens Share (%)Traditional cage 15,355,828 39.2 35,018,140 67.7Deep litter 1,059,329 2.7 1,356,494 2.6Free range 22,788,285 58.1 15,387,593 29.7Total 39,203,442 100.0 51,762,227 100.0Source: own calculations on the basis of the CSO agricultural censuses of 1996 and 2002A1.11.2.4. Technical dataTable A1.93 below presents Agra CEAS preliminary estimates 119for Poland.of the technical production factorsTable A1.93: Performance indicators for egg production in Poland (2003) in Euro centsCage systemLaying cycle (days) 395Empty period (days) 14Feed/bird/year (kgs) 38.04Feed/bird/day (grams) 108Eggs/bird/year 277Kg feed per kg eggs 2.20Mortality (%) 9%Number of hens/labourerHens housed per m2 houseSpace allowed/hen (cm2) 455Pullet cost (€/bird) 2.35End of lay hen weight (kgs)End of lay hen price (€/bird)Note: Data has been annualisedSource: Agra CEASA1.11.2.5. Production costsThe variable and fixed cost calculations presented below are based on the assumption that thesystem being used is a traditional cage system of production with Big Dutchman facilities.Table A1.94: Variable costs per kg eggs (in € cents) 2003Feed cost 36.00Medication/vet. 0.50MiscellaneousBird depreciation 12.14Total variable cost 48.63Source: Agra CEAS based on unpublished analysis of the Institute of Agricultural and Food Economy for the Ministry ofFinance elaborated by G. Nieweglowska (2002).Cage119 At the time of writing Agra CEAS were still awaiting clarification on some points of detail concerning costs.263

APPENDIX 1: MEMBER STATE REPORTSTable A1.95: Fixed costs per kg eggs (in € cents) 2003Labour 1.38Buildings 4.39EquipmentLandManure disposalInsurance 0.31Utilities 0.64CleaningMiscellaneous 1.77Total fixed costs 8.48Source: Agra CEAS based on unpublished analysis of the Institute of Agricultural and Food Economy for the Ministry ofFinance elaborated by G. Nieweglowska (2002).A1.11.2.6. Gross marginThe gross margin obtained in Poland would appear to be comparable with that for comparablesystems in the EU-15.Table A1.96: Gross margin (€ cents) 2003Egg returns 59.26Revenue from spent hensOutput (per year) 59.26Total variable costs 48.63Gross margin 10.63Source: Agra CEAS based on unpublished analysis of the Institute of Agricultural and Food Economy for the Ministry ofFinance elaborated by G. Nieweglowska (2002).A1.11.3. Egg processingFollowing a sharp decline in the initial period of transition, egg production since the mid-1990s hasbeen growing rapidly. Over the period 1995-2000 egg processing volumes increased 16 fold.However processing volumes still account for only 25% of the level reported in the 1980s whenabout 2.5 billion eggs per year were being processed.Table A1.97: Egg processing and production of selected egg products, 1995-2002Item 1995 1996 1997 1998 1999 2000 2001 2002Egg processing (mn pieces) 39.0 443.6 486.2 502.4 563.5 620.0 660.0 720.0Liquid eggs frozen 120 (t) 104 65 108 612 585 650Powdered eggs (t) 1,235 1,513 1,708 2,114 2,342 2,500Source: G.Dybowski, M. Kobuszyńska, Analiza przekrojowa rynku drobiu i jaj oraz strategia rozwoju do 2005 r., Studia imonografie vol. 109, IAFE, Warsaw 2002.120 Apart from frozen liquid egg chilled liquid egg is also produced, but CSO does not publish the data on its production. According to theestimates of the National Chamber of the Producers of Poultry and Feed it amounts to some 8,000 tonnes a year.264

APPENDIX 1: MEMBER STATE REPORTSIn 2002 egg processing utilised some 720 million eggs. Taking into account the substantialcontribution of the grey market (eggs processed by small companies operating mainly in theconfectionery industry) total egg processing is estimated slightly over 1 billion eggs per year.There was only one large egg processor holding a monopolistic position on the market at thebeginning of the 1990s, namely OVOPOL, originating from a former state owned enterprise.Recently several new companies have entered the sector and the total now stands at 14, althoughOVOPOL remains the largest. The main competitors of OVOPOL are BASSO, the Lapy EggProcessing Plant and WEKO Polska.Powdered and liquid eggs (chilled and frozen) dominate the production structure of Polishenterprises. Over the period from 1995 to 2000, the production of powdered egg doubled (75%was manufactured by OVOPOL). Competition on the market for liquid egg (mainly frozen) is moreintense. There are 8 large manufacturers on the market, with the largest one accounting for 30% ofproduction.The majority of egg processors sell their products on the domestic market. The exceptions areOVOPOL, WEKO-POLSKA and an egg powder mixing plant operating in Free Trade Area atGliwice. Domestic trade is dominated by direct sales from the factory gate. The wholesale tradeaccounts for 30% of the market turnover for powdered products and 15% for liquid products.Foreign trade is mainly in liquid products. About 80% of exports are channelled to the EU. Therewere 4 egg processors in March 2004 approved for foreign trade.A1.11.3.1. Main egg processorsThere are 14 egg processors in Poland (2003). However, three main players account for over 95%of the market. As is indicated above, the largest is OVOPOL, which accounts for 75% of the market.OVOPOL manufactures dried sugar free proteins and gelling albumens for special purposes, used infood production in Asian countries. Annual production of these products amounts to 450 tonnes.According to the company’s investment plan following modernisation of production facilities in 2005OVOPOL will have a production capacity of 2,500 tonnes of powdered products and 2,200 tonnes ofliquid products.The other two significant processors are WEKO Polska (a company with Dutch capital) and BASSO.All of the 3 market leaders fulfil the EU requirements and are export approved by the Commission.265

APPENDIX 1: MEMBER STATE REPORTSBox A1.23: Profile of OVOPOLOVOPOL The largest processor of eggs in Poland, accounting for 75% of Polish processed egg productionEmployment 155 staffOwnership Formerly state owned, now limited companyMain markets Domestic 50% to 60%,Exports mainly to the EU.Other exports to Argentina, Australia, China, Japan, CEFTA countries and othersMain product Powdered eggs, plain liquid egg (frozen and chilled), albumin, dried proteinsA1.11.3.2. Processor concentrationThe processing sector in Poland is extremely concentrated with one single producer, (OVOPOL)accounting for 75% of market share. The share of two other largest companies (WEKO Poland andBASSO is approximately 20%).A1.11.3.3. Trade in egg productsThe importance of exports in the market for processed egg products is much more important thanin the case of shell eggs (share estimated at 40-60% depending on year). Polish exports of eggproducts concern mainly dried egg albumin (CN 35021119 and 35021990). Dried albumin (CN35021190) was the second largest export (after shell eggs) of eggs and egg products between 1999and 2001, contributing 40-45% of total value of exports. Dried albumin was exported mainly to theEU and CEFTA. In 2003 it was phased out and replaced by albumin (CN 35021990) but due topeaking exports of shell eggs, its share in overall exports was relatively insignificant.The structure of egg product imports is dominated by egg yolks, previously dried but more recentlyin liquid form. Nevertheless, their role in overall imports in the sector has been declining. CEFTAand the EU are the main suppliers.A1.11.4. Egg marketsA1.11.4.1. Primary demandAccording to the CSO data over the period between 1989 and 1999, egg production, consumptionand exports declined considerably. Egg production fell from over 8 billion to 7.5 billion pieces,domestic use from 7.8 billion to 7.4 billion pieces. Exports declined sharply to 19 million pieces.This period can be subdivided into three stages: 1989-1994 initial shock of transition; 1995-1999 slow recovery; 2000-2003 accelerated recovery; Finally in 2001 production recovered to the level recorded at the end of the 1980s.In terms of consumption, a significant decline in demand occurred in the first half of the 1990s as aresult of the reduction in real incomes and a reduction in supplies. By the mid 1990s, demand266

APPENDIX 1: MEMBER STATE REPORTSstarted to recover and over the last few years production and utilisation of eggs in Poland hasincreased substantially as a result of the growth in egg processing, rising human consumption andstrong export development.Human consumption of eggs in Poland in 2003 was about 8.2 billion pieces (including about 1.0 billionfor processing). There is no data for sales broken down by packaging type, but direct observationindicates that the bulk of shell eggs are being traded through the retail sector in boxes. The share ofshell eggs sold in bulk is marginal and concerns mainly open air markets and small shops (groceries,corner shops). Approximately 3.5-3.6 billion shell eggs were sold direct from farms or were used onfarm. The remaining surplus shell eggs are mainly exported or go into feed and hatching. For humanconsumption, the share of processed eggs in total consumption is estimated at a about 15% butgrowing as a result of increases in real income and higher demand for further processed products.Direct use of eggs in households is also declining as food service demand increases.Per capita consumption off eggs is subject to strong variations according to the type household seeTable A1.98. In 2002 it ranged from 228 eggs per capita in farmers' households to 157 eggs in thefarm employees’ households. This reflects the level of incomes and traditional patterns ofconsumption within each social group.Table A1.98: Per capita consumption of eggs 1989-2002Households 1989 1994 1999 2000 2001 2002Average 215 176 181 175 177 181Employees 190 153 157 151 154 157Employees with a farm 242 198 193 193 190 194Farmers 276 222 223 220 218 228Entrepreneurs n.a. 150 153 156 157 163Retired and pensioners 253 209 218 207 212 213Living out of none-income sources (social benefits – mainlyunemployed)n.a. 129 154 153 155 167Source: CSOA1.11.4.2. PricesAverage retail and producer prices are presented in Table A1.99 and Figure A1.65. As can be seenfrom these despite some fluctuations there is a clear upwards trend in the 1990-1996 periodfollowed by relative price stability with producer price staying in the range 0.17-0.20 PLN (€0.037-0.043) per egg while retail prices have stayed in the range 0.27-0.31 PLN (€0.059-0.067). It isunderstood that there are no price premiums for the eggs produced in the deep litter system. Somepremiums are available for speciality eggs (e.g. vitamin enriched or organically produced) but this typeof output is marginal.267

APPENDIX 1: MEMBER STATE REPORTSTable A1.99: Average annual prices of eggs (PLN/egg) 1990-2002Source: CSOYear Producer price Retail price1990 0.04 0.051991 0.05 0.091992 0.06 0.101993 0.12 0.181994 0.15 0.251995 0.14 0.231996 0.20 0.311997 0.20 0.301998 0.19 0.321999 0.17 0.272000 0.21 0.332001 0.18 0.342002 0.17 0.300.40.350.30.25PLN0.20.150.10.0501990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Procurement price Retail price MarginFigure A1.65: Retail and producer prices 1990-2002A1.11.4.3. Demand and supply elasticitiesThere are no econometric studies on egg demand and supply elasticities in Poland. Neverthelesssome authors have attempted estimates based on household budget studies. On this basis thedemand elasticity for households was estimated at 0.145. This elasticity is below that for other fooditems containing animal proteins and has a range from 0.07 in high-income households to 0.43 in thepoorest households. This implies the following:268

APPENDIX 1: MEMBER STATE REPORTSeggs are not considered to be a staple food;the increase in egg consumption as a result of rising incomes is likely to be insignificant;any increase in income amongst higher income households will not result in significant changes indemand for eggs, but if the incomes of low income households increase, egg consumption is likelyto increase strongly.As in other countries the increase in the consumption of processed egg is strongly correlated withincome, as eggs are the basic component of many snacks, salads, sauces and ready-to-eat products,consumption of which has been growing rapidly in Poland in recent years.A1.11.5. The impact of Directive 1999/74/ECDirective 1999/74/EC was introduced into Polish legislation on the 2 nd September 2003 by anamendment to Article 7 of the 1997 Law on Animal Welfare. This has been implemented via theMinistry of Agriculture’s Directive on the Conditions Livestock Production (Dz. U. N o 167/2003 pos.1629). There is as yet no clear evidence of how the Directive has been implemented or is expectedto be implemented.269

APPENDIX 1: MEMBER STATE REPORTSA1.12. PortugalA1.12.1. OverviewPortugal has fully transposed Directive 1999/74/EC with effect from January 2003 and will implementthe prohibition on egg production in unenriched cage systems from 2012. If holdings which primarilyproduce for their own consumption are excluded Portugal typically produces around 100,000 tonnesof eggs annually. These are produced on 175 holdings 121 and packed by 93 packing stations over halfof which are directly linked to the producer. The bulk of production is concentrated in the centralcoastal region (Beira Litoral) and the Ribatejo region east of the Tagus. These holdings had a total of7,566,930 hen places (including breeding pullets) in 2003 with an average size of holding amounting to43,240 birds. With capacity utilisation estimated at 75% this would equate to 5,675,198 hens inproduction 122 . In 2003 an estimated 98.5 % of the national flock was held in traditional cages with thebulk of the small balance remaining being held in barn systems. In 2002 Portugal was more or lesscompletely self sufficient with a small positive net export balance of 2000t.In addition to the farms producing at a commercial level there is a very large number of holdings withhens which are primarily used for the producers’ own consumption. In 2000 there were 234,760such holdings which had between 1-99 hens.There is only one processing company in Portugal, Derovo, which produces liquid egg.A1.12.2. Egg productionAnnual to industry data Portuguese production of eggs for consumption in 2003 amounted to100,700 tonnes 123 from a laying flock of 7,566,930 birds.From 1990 to 1994 the egg production in Portugal rose more than 30%. From 1994 onwardsproduction has been on a modest downward trend and in 2003 egg production amounted to100,700t (1.612 million eggs 124 ).121 Holdings with more than 350 hens.122 The DG AGRI estimate for total hens in 2001 comes to 6,778,000.123 From producers with flocks larger than 5,000 hens.At an average egg weight of 62.4 grams this equates to 1.612 billion eggs.124 Using a conversion rate of 62,4 grams per egg.271

APPENDIX 1: MEMBER STATE REPORTSTable A1.100: Egg production , Portugal, 1991-2003.Year bn eggs ‘000 t1991 1.468 100,71992 1.574 107,01990 1.377 95,41993 1.546 105,41994 1.831 122,11995 1.715 115,31996 1.652 112,51997 1.626 105,61998 1.704 106,81999 1.691 106,12000 1.811 110,52001 1.768 107,92002 1.682 105,52003 1.612 100,7Note: From units with more than 5,000 laying hensSource: ANAPOThere has also been significant concentration in the production sector as illustrated in Figure A1.66which presents the evolution of proportion of flocks by flock size category. In 1990 there were387,160 holdings with hens, of which 290 had more than 3000 hens. By 2000 the overall number ofproducers had fallen to 235,280 and those with more than 3,000 hens came to 200. In 2000, the 90holdings with more than 30,000 hens accounted for just over 70% of the total number of laying hens.256 producers with flocks in excess of 5,000 birds accounted for 91% of all laying hens.272

APPENDIX 1: MEMBER STATE REPORTS100%90%80%Percentage of all laying hens70%60%50%40%30%20%10%0%1990 1993 1995 1997 20001-99 100-2,999 3,000-9,999 10,000-29,999 over 29,999Figure A1.66: Evolution of proportion of flock by flock size categories 1990-2000Source: EurostatA1.12.2.1. Main producers/packersThe largest Portuguese producers (and packers) are CAC with about 8% of the commercial layingflock and Zezerovo with 7%. The top four companies have some 24% of commercial laying henplaces and the top 8 account for 35%. This illustrates the relatively small scale of most units withinthe Portuguese egg production sector.273

APPENDIX 1: MEMBER STATE REPORTSTable A1.101: Portugal, main producers, by number of laying hens* 2003.Company 2003 %CAC 637.800 8%Zêzerovo 525.000 7%Aviava/ACA 340.000 4%DamasOvo 238.500 3%Total 4 1.842.800 24%Aviário do Rosouro 220.000 3%Agrosel 210.000 3%MelRui 197.480 3%Aviava 189.272 3%Total 8 2.659.552 35%Total Portugal 7.566.930 100%Note: (*) – Maximum capacity for laying hens.Source: ANAPOA1.12.2.2. Production (packer) concentrationThe Portuguese packing sector is made up of 93 packing stations. As is indicated in Table A1.102below the largest packer is CAC with 13% of the market. The four largest packers account for 30%of the market and the top 8 account for 41%.Table A1.102: Main packers in Portugal 2003Rank Company Output 20031 CAC 16,921,6532 Zêzerovo 9,839,8423 Nutroton 8,000,0004 Ovolíder 5,678,8825 António Afoito 5,200,0006 Campovo 4,561,8967 Av. Rosouro 3,000,0008 Uniovo 1,872,000Total Portugal 134,362,000A1.12.2.3. Main production systemsAs is shown in Table A1.103 and Table A1.104 in 2003 the majority of holdings (89.1% or 156 out of175 holdings) operated with the traditional cage and the overwhelming majority of hen places wasalso in such cages (98.5%). The average size of unit on the conventional cage system comes 47,772hens per holding. The average size of the very limited number of holdings with alternative systems islarger for “free range” system (6,429 hens) than for hens held on organic farms (3,433 hens). Thebarn system has an average size of 5,560 hens.274

APPENDIX 1: MEMBER STATE REPORTSTable A1.103: Portugal - Number of holdings by production system 2003.Organic Free Range Barn/Deep litter CageHoldings Number 3 6 10 156% 1,7% 3,4% 5,7% 89,1%Laying hens* Number 10.300 38.575 55.600 7.452.455% 0,1% 0,5% 0,7% 98,5%* – Maximum installed capacity for hens. Holdings with more than 350 hens.Source: DGV – MADRPThere is no data on the evolution of alternative production but DG Agri estimates arrived at anumber of 30,000 hens in free range systems in 2002. Using the estimate that capacity utilisation is75% we would arrive at a total number of 78,356 hens in alternative production systems in 2003(41,700 in barn systems, 28,931 in free range systems and 7,725 hens in organic systems).A1.12.2.4. Technical dataDue to the very small number of units involved in alternative production there is no data on costs ofproduction in these systems in Portugal. The following tables therefore represent averages for aselection of relatively large producers running in size from a unit with 135,000 laying hens to 505,000laying hens. These results are likely to be marginally better than those for the average producer butnot significantly so.Table A1.104 Performance indicators for egg production in Portugal (2003) in EurocentsIndicatorTraditional cagesLaying cycle (days) 378Empty period (days) 35Feed/bird/laying cycle (Kg) 41.54Feed/bird/day (g) 120Eggs/bird/year (collected) 256Kg feed per kg eggs 2.59Mortality (%) 4%Number of hens managed/labourer 40,000Hens housed per m 2 house 73Space allowance per hen per cm 2 550Pullet cost 2.85End of lay hen weight Kg 1.95End of lay hen price 0.02Notes: some data have been converted from laying cycle to year to correct for the differing lengths of laying cycle bysystem.Source: Industry estimate.275

APPENDIX 1: MEMBER STATE REPORTSA1.12.2.5. Production costTypical variable costs of production are presented in Table A1.105 and fixed costs in Table A1.106.Table A1.105: Variable (running) costs of production 2003 (per kg eggs) (€ cents)Traditional cagesFeed cost* 39.86Medication/vet 0.27MiscellaneousBird depreciation/live pullets 15.72Total variable costs 55.85Note: *The feed cost has been standardised. Due to drought actual feed cost in 2003 was 0.53 cents per kg eggs.Source: Industry estimates.Table A1.106: Capital (fixed) costs 2003 (per kg eggs)Traditional cageLabour 3.60Buildings 2.18Equipment 4.35LandManure disposal 0.80Insurance 0.23Utilities* 1.20Cleaning 12.13Miscellaneous 0.40Total fixed costs 24.89Note: *Water and electricity.Source: Industry estimates.A1.12.2.6. Gross marginsBuilding on the cost data in Section A.1.95 & A.1.96, Table A1.107 presents revenue figures and fromthis calculates producer gross margin.Table A1.107: Egg producer gross margin 2003 (in € cents per kg)Traditional cageEgg returns 105.33Revenue from spent hens 0.11Output (per year) 105.44Total variable costs 55.85Gross margin 49.59Source: Industry estimates,276

APPENDIX 1: MEMBER STATE REPORTSA1.12.3. Egg processingThere is just one company processing egg in Portugal, Derovo. Since its launch in 1996 the companyand Portugal have seen substantial annual growth in processed product output which rose to some14,000 tonnes of product in 2003 see Figure A1.67.16,00014,00012,00010,000Tonnes8,0006,0004,0002,00001996 1997 1998 1999 2000 2001 2002 2003Figure A1.67: Processed egg product output, Portugal, 1996-2003 (tonnes)Source: DerovoA1.12.3.1. Main egg processorsAs is indicated above Derovo is Portugal’s sole processor of egg products. Derovo’s main product ispasteurised liquid whole egg. Its other production lines are pasteurised egg yolk and egg white, hardboiledand peeled eggs and egg in spray. Most of Derovo’s products are for the baking and cateringindustry.Derovo supplies mainly the national market, its share of the national market for processed productsis estimated to be above 90%. It also has significant exports to Spain where it is estimated to have a13% market share. The company has a unique structure in that 73 of the 120 major egg producersparticipate in the company’s capital, and this allows them to place most of the production which isnot marketed fresh to be bought by Derovo. A profile of the company is presented below.277

APPENDIX 1: MEMBER STATE REPORTSBox A1. 24: Profile of DerovoDerovo buys some 16,000 tonnes (weight without shell) of eggs per year and produces some 14,000tonnes of productOwnership: limited company owned by 73 large egg producersTurnover: not availableProfit: not availableEmployment:Main markets: domestic baking and catering. Exports to Spain and France (approx. 8,500 tonnes in2003)Main products: liquid whole egg , pasteurised egg yolk and egg white, egg in sprayA1.12.3.2. Processor concentrationThe Portuguese processing sector is extremely concentrated with just one operator beingresponsible for the entire domestic output.A1.12.3.3. Trade in egg productsDerovo is estimated to export over half of its production with a volume of some 8,500 tonnes in2003. The volume of exports has grown significantly in the last five years since in 1999 exports cameto some 1,500 t. The main export destination is Spain and in 2003 the main exports were egg yolkand whole egg. Imports by Derovo have also grown and came to some 1400 tonnes in 2003. Themain products imported were liquid whole egg and dried whole egg.A1.12.4. Egg marketsA1.12.4.1. Primary demandIt is estimated that just under half of all eggs marketed (49%) are sold to the retail sector, just underone quarter (24%) go to the processing sector, 14% to the food service sector and 13% into exports.Diret sales from producers are very limited.A1.12.4.2. PricesFigure A1.68 below tracks the evolution of EU and Portuguese prices since 1991. These havefollowed each other quite closely. Figure A1.69 shows the evolution of egg prices in Portugalbetween 1993 and 2003 and compares this to average EU prices. The initial gap between Portugueseand EU prices in the first half of the 1990s was very wide (30% higher in 1993) but by the second halfof the 1990s prices in Portugal started to be below the EU average and have remained between 5-10% below the EU average since 2001.278

APPENDIX 1: MEMBER STATE REPORTS160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003PortugalEUFigure A1.68: Evolution of egg prices 1991-2003Source: DG Agri35%30%25%Percentage difference from EU average20%15%10%5%0%-5%-10%-15%1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.69: Difference between Portuguese and EU egg prices 1993-2003Source: DG Agri.279

APPENDIX 1: MEMBER STATE REPORTSA1.12.4.3. Demand and supply elasticitiesWhilst there is no research on the elasticity of demand for eggs, the Portuguese industry considerseggs to be a staple product and therefore relatively inelastic. The proven willingness of Portugueseconsumers to pay a higher price for eggs produced under more animal welfare conditions supportsthis conclusion.A1.12.5. The impact of Directive 1999/74/ECA1.12.5.1. Implementation to datePortugal has transposed the Directive into national legislation. The effect of introducing the reducedcage density from 1 January 2003 has been to increase costs. The bulk of producers have notinvested in expanded facilities and there has therefore been a reduction in the stock of laying hens.This decline is, however, not reflected in the national statistics because of an increase in theproduction of pullets for export. There are currently no enriched cages but the main producerorganisation (ANAPO) and the national Veterinary Research Station are planning to introduce sometesting.280

APPENDIX 1: MEMBER STATE REPORTSA1.13. SpainA1.13.1. OverviewSpain will implement the prohibition on egg production in unenriched cage systems set out inDirective 1999/74/EC from 2012. The Spanish egg industry is relatively concentrated with 430producers with flocks of more than 30,000 birds (in 2000) accounting for just under three quarters(73%) of the 56.8 mn bird laying hen capacity. Egg production of eggs for consumption in Spain isaround 1.07 million tonnes (2003). Spain is a net exporter of eggs.Egg production and consumption in Spain is almost entirely based on traditional cages. Egg packing inSpain is not very concentrated with the largest four producers estimated to account for 13% ofSpanish laying hen capacity and the largest four packers for just over 17% of eggs marketed. Thereare twelve egg processors in Spain with the largest four companies accounting for some 63% ofprocessed product output.A1.13.2. Egg productionEgg production in Spain was 1.071 million tonnes in 2003 125 (approximately 11.1 billion eggs) from alaying flock of 45.8 million birds. The main production system used is the traditional cage accountingfor 99% of the total laying flock and 94.4% of commercial holdings 126 in 2003. Of the 2,051commercial producers recorded by MAPA 115 were engaged in alternative forms of production andthese were estimated to hold some 456,000 hens. There is no reliable data for the position inprevious years. The main producing regions are Castilla la Mancha, Cataluna, Castilla y Leon andAndalucia. These four regions account for some two-thirds of total production.Table A1.108: Laying hens, by type of production system, 2003Production system Holdings % of holdings Hens % of hensOrganic 21 1,0 25,149 0.1Free range 36 1,8 193,101 0.4Barn/deep litter 58 2,8 237,312 0.5Cage 1,936 94.4 45,337,139 99.0Total 2,051 100 45.792,701 100Source: MAPA.The evolution in production can be seen in Figure A1.70 which shows total production from 1990 to2003. After generally being more or less stable throughout the 1990s production appears to risesharply after 2000 but this is largely reported due to a re-basing of the statistics. Production125 Data sourced from DG Agri which records output at 1.114 mn tonnes in 2003. Taking out 43,000 tonnes of breeding eggs leaves 1.071mn tonnes available for consumption.126 The source for this data is MAPA but it has apparently been collected on a regional basis using different criteria for the size of holdingincluded.281

APPENDIX 1: MEMBER STATE REPORTSrecorded a significant surge in 2003 as Spanish exports to the rest of the EU, partially as a result ofavian flu in northern Europe, expanded sharply.1,200,0001,000,000800,000600,000400,000200,00001990199119921993Egg production in million kgs1994199519961997199819992000200120022003Figure A1.70: Egg production in Spain 1990 to 2003Source: Eurostat and Agriculture Directorate-General.Note: Usable production. 2003: estimate.The Spanish industry has also become significantly more concentrated since 1990 as Figures A1.71and A1.72, which show the evolution of proportion of flocks by flock size and the evolution ofproportion of laying hens by flock size, demonstrate. In 1990 there were 900 producers with morethan 10,000 laying hens. Ninety–nine per cent of the 387,160 enterprises with laying hens had lessthan 99 hens but these accounted for only 10% of the total national flock and were effectively notmarketing their eggs. By 2000 the top 1,010 producers with more than 10,000 birds accounted for89% of the national flock. National data from the Association of Egg Producers (ASEPRHU) showsthat in 2001 9 producers had more than 500,000 hens and a further 8 had between 250,000 and500,000 (average size of flock 312,500 hens).282

APPENDIX 1: MEMBER STATE REPORTS100%90%80%Percentage of all holdings70%60%50%40%30%20%10%0%1990 1993 1995 1997 2000Figure A1.71: Spain: Evolution of proportion of holdings by flock size 1990 to 2000Source ZMP 20041-99 100-2,999 3,000-9,999 10,000-29,999 over 29,999100%90%80%Percentage of all laying hens70%60%50%40%30%20%10%0%1990 1993 1995 1997 20001-99 100-2,999 3,000-9,999 10,000-29,999 over 29,999Figure A1.72: Spain: Evolution of proportion of laying hens by flock size 1990 to 2000Source ZMP 2004As is evident from the above a large proportion of egg production in Spain is currently carried out byrelatively large egg producers.283

APPENDIX 1: MEMBER STATE REPORTSIn Spain there are around 700 packaging and grading stations, almost all of which are attached toproducing holdings. This means that around 70% of the Spanish egg holdings have their own stationsand market their own eggs. The remaining 30% deliver their eggs to stations owned in general bygroups of producers. Vertical integration in the egg production in Spain is therefore not common.After sorting, grading and packaging the eggs are sold mainly to the retail market. There is nostatistical data on the egg destination, although industry sources indicated that one of the producingcompanies sells its eggs to retail (68%) and the processing industry (30%), the remaining 2% beingeggs sold directly to local populations, employees, etc. Only a very small quantity of eggs are solddirectly by producers.For the sector as a whole in 2003, according to INPROVO, 85% of the eggs marketed in the countrywent directly to human consumption, the remaining 15% going to the processing industry.Total human consumption of fresh eggs is divided as follows:households (76%, with a per capita of 161 eggs); and,hotels, restaurants and institutions (24%, with a per capita of 50 eggs).According to MAPA figures, per capita direct consumption in households has been decreasingsteadily since 1987, when it was 259 eggs/person. In 2001 the figure was just 162 eggs/person, adecrease of 37.5%.A1.13.2.1. Main producers/packersTable A1.109: Main egg producers, Spain, 2003Company ‘000 hens* % of total flockGrupo Cantos Blancos 2,000 4.4Camar 1,500 3.3Daga, S.A. 1,500 3.3Hibramer 1,000 2.2Padrino Sierra 1,000 2.2Granja Bailón 800 1.7Valin, S.A.T. 700 1.5Avicultores del Centro, S.A.T. 700 1.5Note: *Installed capacity.Source: Private communication.A1.13.2.2. Production (packer) concentrationAt the production level the Spanish industry is not particularly concentrated with the top 4producers accounting for 13.1% of the total flock and the top eight producers accounting for 20.1%.284

APPENDIX 1: MEMBER STATE REPORTSAt the packing level concentration is somewhat higher the top four packers in 2003 accounting for16.7% of eggs marketed and the top eight packers accounting for 27.2 %.Table A1.110: Main egg packers in Spain 2003Rank Company Output 20031 Dagu S.A. 684 million eggs2 Grupo Cantos Blancos 478 million eggs3 Huevos Pitas 408 million eggs4 Huevos Guilléen 336 million eggs (estimate)5 Camar 288 million eggs6 Guissona 284 million eggs7 Grupo Maryper 276 million eggs8 Matines Ibérica 270 million eggsSource: INE.Total production in SpainA1.13.2.3. Main production systems11.12 billion eggsThe main production system used is the traditional cage accounting for 99% of the total laying flockand 94.4% of commercial holdings in 2003. Of the 2,051 commercial producers recorded by MAPA115 were engaged in alternative forms of production and these were estimated to hold some456,000 hens or 1% of the national flock. see figure in section A1.3.5.1 There is no data on theevolution of use of the different production systems in Spain but for ease of reference the numbersfor 2003 are presented in Table A1.111 below.Table A1.111: Evolution of laying hen numbers by system 1990-2003Free range Deep litter Perchery Organic Caged Total layinghens19901991 49,492,000 49,492,0001992 46,588,000 46,588,0001993 45,727,000 45,727,0001994 46,698,000 46,698,0001995 48,634,000 48,634,0001996 2,024,000 44,351,0001997 278,404 42,605,4041998 40,994,893 40,994,8931999 39,607,999 41,717,8052000 36,391,071 39,438,7322001 42,327,000 43,636,3702002 44,400,000 44,400,0002003 193,101 237,212 25,149 45,337,000 45,793,000Notes:The figures represent the number of hens that houses are approved to contain rather than actual hens.1999 and 2000 total hen numbers are DG Agri estimates, 2001-2003 MAPA.Sources: DG Agri, MAPA, Agra CEAS Consulting.A1.13.2.4. Technical data285

APPENDIX 1: MEMBER STATE REPORTSTechnical data are based on data provided by some 25 producers responsible for approximately 3mnhens, Table A1.112 shows technical data for 2003. There is no data on alternative systems or forenriched cages due to their lack of significance in the Spanish context.286

APPENDIX 1: MEMBER STATE REPORTSTable A1.112: Performance indicators for egg production in Spain (2003) (prices in €)Traditional cagesLaying cycle (days) 392Empty period (days) 28Feed/bird/year (Kg) 39.11Feed/bird/day (g) 115Eggs/bird/year (collected) 282Kg feed per kg eggs 2.22Mortality (%) 1 7.5Number of hens managed/labourer 30,000Hens housed per m 2 house 111Space allowance per hen per cm 2 450Pullet cost 3 2.70End of lay hen weight Kg 2.00End of lay hen price 0.18Notes: some data have been converted from laying cycle to year to correct for thediffering lengths of laying cycle by system.1. Mortality can vary significantly from year to year.2. The space allowance is on the basis of non-attributable information obtained from industry operators in Spain andother Member States suggesting that in 2003 many Spanish producers were applying a space allowance of 450cm 2 incontravention of Directive 1999/74/EC.3. This is the cost of buying in a pullet, not the cost of rearing. It therefore includes a profit element for the rearer.Source: Industry sources and Agra CEAS estimates.A1.13.2.5. Production costsVariable production costs in Spain are presented in Table A1.113 and Table A1.114 presents fixedcosts.Table A1.113: Variable (running) costs of production (€ cents per kg eggs) (2003)Traditional cagesFeed cost 39.99Medication/vet 1.33Miscellaneous 4.00Bird depreciation/live pullets 13.29Total variable costs 58.61Note: Feed costs are generally in the region of €30.00 per 12 eggs, but wereexceptionally high in 2003 (around €37) as a result of drought. In September 2003COPA/COGECA (Committee of Professional Agricultural Organisations in theEuropean Union) estimated that poultry flock productivity in Spain had fallen by asmuch as 25-30% (‘Assessment of the impact of the heatwave and drought of thesummer 2003 on agriculture and forestry’). The typical figure is used here to allowcomparison with other Member States.Source: Agra CEAS estimates.287

APPENDIX 1: MEMBER STATE REPORTSTable A1.114: Capital (fixed) costs (per kg eggs) (prices in € cents) 2003Traditional cageLabour 1.67Buildings 1.07Equipment 2.13LandManure disposalInsurance 0.23Utilities 1.07Cleaning 12.13Miscellaneous 2.12Total fixed costs 20.41Note: Miscellaneous includes taxes at 0.4, rent and external services at 0.03.Source: Agra CEAS estimates.A1.13.2.6. Gross marginsTable A1.115 builds on the cost data in Section A1.13.2.5 and presents revenue figures and producergross margin.Table A1.115: Egg producer gross margin (€ cents per kg) 2003Traditional cagesEgg returns 94.64Revenue from spent hens 0.89Output (per year) 95.53Total variable costs 58.61Gross margin 36.91Source: Industry estimates.A1.13.3. Egg processingAlthough there is a slow trend towards greater integration, the egg producing and processingactivities are generally independent of each other, i.e., there are few companies operating in bothsegments.In contrast to the production sector the egg processing sector in Spain is more trade oriented andindeed foreign companies own, totally or partially, important players in this sector.According to the registration procedure conducted by MAPA and the Health Ministry, there arearound 30 companies operating in the Spanish processing sector. The eggs are mainly bought via thelarger packers but sometimes also directly from the production holdings.288

APPENDIX 1: MEMBER STATE REPORTSThe industry mainly buys eggs of second quality, although other kinds of eggs are also used – firstclass eggs, small eggs, eggs with some defect. 100% of the eggs used in processing come from henskept in cages.Eggs are usually cheaper during the summer and this is therefore the period when stocks areestablished. Summer is also the period of high demand, mainly by the food service sector(restaurants, hotels, catering etc.) which increases its activity during the summer due to thesubstantial number of tourists in Spain.One factor that has greatly contributed to the increase of processed egg product consumption inSpain and, consequently, to the growth of the industry is the national legislation (Royal Decree1254/1991) on food hygiene and salmonella prevention. This established that, for collective meals andpastry, all types of food, containing eggs, cooked at a temperature below 75ºc must include eggproducts rather than shell eggs. The increase in the consumption of pre-cooked food has alsocontributed to the growth of the consumption of egg products by the food industry.Within the processed egg product sector, pasteurised liquid egg is the most important product inSpain. Dried egg products and boiled eggs are produced in much smaller quantities of the 30companies in the sector only one is reported to produce egg powder.A1.13.4. Main egg processorsBased on data published by the National Statistics Institute (INE) it is clear that the processing sectoris relatively concentrated with the largest four companies accounting for some 54,000 tonnes ofprocessed egg production (in whole egg equivalent) out of a total of 85,000 t. The largest singleprocessor is Pascual de Aranda which had a market share of 17.6% in 2003 and processed some15,000 t.Table A1.116: Market share of the major egg processors, Spain 2002 and 2003Company 2002 2003Pascual de Aranda 14,500 20.1% 15,000 17.6%Derovo 8,000 11.1% 14,000 16.5%Induovo 12,300 17.1% 12,500 14.7%Grupo Maryper 7,500 10.4% 12,500 14.7%Alvarez Camacho 6,500 9.0% 6,800 8.0%Ovo 6,071 8.4% 6,430 7.6%Lleonart y Subirana 3,000 4.2% 3,300 3.9%Dion Vandenwiele 2,000 2.8% 3,200 3.8%Total volume/% of egg products 72,000 100.0% 85,000 100.0%Note: the total volume of processed egg products is an estimate provided by MAPA. Expressed in termsof whole egg equivalent.Source: INE.289

APPENDIX 1: MEMBER STATE REPORTSA1.13.4.1. Processor concentrationContrary to the egg producing sector, the egg processing sector is much more concentrated, almost100% of production being accounted for by some 12 companies. The following table shows themarket share of the 4 and 8 largest companies.Table A1.117: Processor concentration in Spain largest 4 and 8 firms, 20034-firm8-firmMarket share 63.5% 86.7%A1.13.4.2. Trade in egg productsSpain is a net exporter of consumption eggs and a net importer of processed egg products makingthe sector as a whole a significant net exporter. The country’s trading position has shifted sharplysince the mid 1990s when Spain was still a net importer. By 2003, which was an exceptional yeardue to the avian flu outbreak in the Netherlands, total exports came to 124,000 tonnes (almost allwithin the EU and mainly to France and Germany) while imports came a total of 21,000 t. In terms ofprocessed products Spain primarily imports more highly processed egg yolks as well as whole eggs(mainly from Portugal) while its exports mainly consist of egg albumin.A1.13.5. Egg marketsA1.13.5.1. Primary demandTable A1.118 below sets out the overall volume of production of consumption eggs (eggs forbreeding are excluded). It is estimated that some 2% of eggs are sold by producers directly, some 68% are sold by retailers (70% packed by producers, 30% packed by packing stations owned by groupsof producers). INPROVO estimates that 15-20% of egg production goes to industrial usage andprocessing but our own estimates based on the data for the volume of eggs processed (see SectionA1.1.4) suggests that the figure is closer to 10% 127 . Out of total fresh egg consumption 76% (or anestimated 588,000 tonnes in 2003 128 ) goes to households and 24% (or 185,000t) goes to the foodservice sector. It should be noted that there is no significant market demand for eggs sourced fromalternative production in Spain at present. This was underlined by a 2001 survey conducted on behalfof the sector suggesting only 4% of consumers considered this to be important 129 although it shouldbe noted that recent work undertaken by the University of Zaragoza suggests this position may bechanging 130 . This survey of just under 4,000 persons indicated that over 20% of those respondingconsumed free range eggs with 38% of respondents indicating they undertook the purchase foranimal welfare reasons. It was also noted that 75% of respondents indicated they would pay more forwelfare friendly eggs and that demand would be stimulated by better consumer education on welfareissues.127 Calculated as 4,000 tonnes industrial usage plus 72,000 tonnes processing usage in 2002, 4,000t industrial usage and 85,000t processingusage in 2003 which provides a combined usage percentage (as a % of consumption egg production) of 9.6% in 2002 and 8.3% in 2003.128 Estimated as total human consumption less industrial and processing usage and net exports (773,000t) multiplied by 0.76.129 INPROVO/Roche survey 2001.130 ‘Public perception of farm animal welfare in Spain’, Gustavo A. maria, animal Welfare and Food Quality Group, Faculty of VeterinaryMedicine, University of Zaragoza,, Spain.290

APPENDIX 1: MEMBER STATE REPORTSTable A1.118: Production and consumption of consumption eggs, Spain, 1990-2003,(’000t)YearProduction ofconsumption eggsNet tradeHumanconsumptionIndustrial usage1990 620 -18 632 61991 591 -9 593 61992 555 -12 561 61993 551 -28 574 51994 561 -5 562 51995 582 1 576 51996 527 11 511 51997 583 12 564 61998 561 13 543 61999 642 40 596 62000 762 46 709 72001 770 46 720 42002 784 65 715 42003 1,071 102 964 4Note: 2003 estimated.Source:DG Agri.A1.13.5.2. PricesFigure A1.73 presents egg price evolution in Spain and the EU between 1991 and 2003. Spanishprices are consistently higher than the EU average for the period to 1998 and since then they havebeen consistently below the EU average. The percentage difference between average prices in Spainand the EU is shown in Figure A1.74. The gap between Spanish and EU prices over the last threeyears has been more than 20%.291

APPENDIX 1: MEMBER STATE REPORTS140.00120.00Average of large and medium egg price (€/100kg)100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003SpainEUFigure A1.73: Evolution of egg prices 1991-200330%20%Percentage difference from EU average10%0%-10%-20%-30%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Source: DG Agri.Figure A1.74: Difference between Spanish and EU egg prices 1991 - 2003Source DG Agri292

APPENDIX 1: MEMBER STATE REPORTSA1.13.5.3. Demand and supply elasticitiesThere are no studies estimating supply or demand elasticities but as in the othercountries demand is considered to be relatively inelastic.A1.13.6. The impact of Directive 1999/74/ECA1.13.6.1. Implementation to dateThere has been no significant investment to date in enriched cages in Spain although 1-2 producersare reported as having introduced such a system. Generally no investment is such systems isexpected at least until the Commission reports in 2005.A1.13.6.2. Expected implementationThere was no evidence provided during the course of this study concerning Spanish producers’ plansto implement the ban on unenriched cages in line with Chapter II, Art.5.2 of Directive 1999/74.293

APPENDIX 1: MEMBER STATE REPORTSA1.14. SwedenA1.14.1. OverviewSweden has fully implemented Directive 1999/74/EC with effect from January 2003, including a banon the use of uneriched cages from this point. Sweden typically produces around 100,000 tonnes ofeggs annually, three quarters of which are packed by 25 central packers. Most of the remainder arepacked on farm for smaller retail outlets with a small proportion sold direct. There are around5,000 producers with a laying flock of 5.47 million birds. Commercial flocks are typically around10,000 birds for caged systems and less for alternatives. While Sweden was once a net exporter,there has been a net import requirement for a few years as producers have been investing in newfacilities. The industry expects Sweden to have a small surplus when this round of investment hasbeen completed.There were 150 registered packers in May 2004. The largest packer is Svenska Lantägg ABaccounting for approximately a quarter of all eggs packed. The large central Swedish packers ownsome production facilities, but source the majority of their eggs on contract 131 . These are typically 9month rolling contracts with packers and producers in long-term relationships.There are only two processing companies in Sweden, the largest is Källbergs 132 with about twice thecapacity of Svenska Lantägg as a result of the former importing eggs for processing, some of whichare then exported as powder.A1.14.2. Egg productionAnnual Swedish production in 2003 was 93,000 tonnes 133 from a laying flock of 5,471,330 birds.Enriched cages accounted for 26% of total laying hens at 16 December 2003 with 15% of laying hensstill in traditional cages 134 . Barn production accounted for 52% of laying hens with 6% in organicsystems. There are no free range systems in Sweden as a result of the climate. The industry expectsthere to have been changes since December with the proportion of layers held in enriched cagesincreasing and that of barn decreasing. Production from enriched cages is labelled as that from eggsproduced in cages with ‘nest boxes, perches and scratching area’ added to differentiate fromtraditional caged production.Around 90% of Swedish production is in the south of the country where cereals are grown and mostof the population is based.131 Around two thirds of eggs sourced by central packers are on contract with a third sourced from own production. The trend is awayfrom owning production.132 The majority owner is the Danish company Dænagg with Sanovo, Finland’s Munakunta, the Swedish co-operative Kronägg and theNorwegian co-operative Prior.133 At an average egg weight of 63 grams this equates to 1.476 billion eggs (source: www.eurobusiness.se/eggsweden).134 4% of these had permission to remain in traditional cages until January 2004, any remaining now are illegal pending the outcome of thelegal process.295

APPENDIX 1: MEMBER STATE REPORTSAlthough Swedish egg production has declined from its high points in the late 1980s, production in2004 was virtually unchanged from that in 1971. However, 2004 does represent an increase on theprevious year (9%) which was the end of a decline in production which began in 1997 and cutproduction by 8%. The evolution of egg production is shown in Figure A1. 75.140120Swedish egg production ('000 tonnes)1008060402001971 1976 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Figure A1. 75: Evolution of egg production 1971-2004Source: EuroEgg & Business AB.There has also been significant concentration in the production sector as illustrated in Figure A1. 76which presents the evolution of proportion of flocks by flock size. In 1976 there were 35,142producers, of which just over three quarters (80.0%) had a flock size of less than 50 laying hens. By2003 the total number of producers with laying hens had fallen to 5,422, although the proportionwith less than 50 birds had increased to 87.5%. In 2003, the 204 producers with flocks in excess of5,000 birds accounted for 91.5% of all laying hens. The average number of laying hens held increasedten-fold from 99 to 999 over the same period.296

APPENDIX 1: MEMBER STATE REPORTS70,00060,00050,000Number of flocks40,00030,00020,00010,000-1970 1980 1990 1995 20001-49 50-199 200-4999 5000+Figure A1. 76: Evolution of flocks by size categories 1970-2000Source: Statistiska Centralbyrån (SCB).This general trend is supported by concentration in the caged sector, although the growth ofalternative systems has applied some pressure in the other direction as barn systems are typicallysmaller scale.Whilst most large scale producers (typically using enriched cage systems) tend to be specialist eggproducers in that the egg enterprise is the most significant economically, producers using barn andorganic systems are generally more diversified. Another typical difference is in the age of theproducer with younger farmers, often new entrants to the sector and educated to a higher level,tending to use alternative systems.The central packers tend not to own production facilities with around two thirds of their eggssourced on contract. It is becoming increasingly less common for these large packers to ownproduction facilities as well. Whilst the relationships between producers and packers are generallylong-term, contracts are often on a 9 month rolling basis. The main packers are not generallyintegrated with the producers in that laying stock is sourced from independent hatcheries/rearersand producers are free to buy feed from whichever supplier they choose. Packers pay producersmarket price for their eggs with some quality bonus according to grades and cleanliness.The smaller scale producer/packers operate somewhat differently. Many of these also source acertain amount of eggs from other producers and some work co-operatively with their producers tosource feed. These packers tend to supply smaller scale and more local retailers and only a small297

APPENDIX 1: MEMBER STATE REPORTSproportion of their eggs enter the food service sector. Second quality eggs are sent to processors inshell form.Sweden is the only Member State where egg washing takes place and Swedish research shows thatthe incidence of bacterial contamination on the egg shell can be almost eliminated through thecombination of washing and the use of UV light. The Swedish industry considers one of the mainchallenges to be the distance over which eggs must be transported and the requirement that eggs canonly be stored for 21 days. The Swedish cold chain starts with the producer where eggs are storedat or below 12 0 C and with this system in place it is felt that a longer storage period would bepossible. The contention is that eggs stored for as long as 48 days at this temperature will remain inbetter condition than eggs stored for 21 days at the sort of temperatures experienced in moresoutherly parts of the EU.A1.14.2.1. Main producers/packersThe largest Swedish packer is Svenska Lantägg AB who account for around a quarter of total eggspacked. The Star Group (five companies working together) is not far behind. Svenska Lantägg AB isprofiled in Box A1. 25. Svenska Lantägg AB also processes eggs.Box A1. 25: Profile of Svenska Lantägg ABSvenska Lantägg AB is the largest packer in Sweden with a market share of around a quarterOwnership: Limited companyTurnover: SEK 370 million in 2003, €40.3 million 135 (three quarters of this, €30.2 million, is fromthe packing operation)Profit: not availableEmployment: there are 100 staff in total, 55 of whom are employed in the packing operation and25 in administration who work for both the packing and the processing operationsMain markets: domestic. Three quarters of the eggs received in are sold in shell to the retailand food service industries. The remainder are processed and sold to the food manufacturing andfood service sectorsOne of the largest of the farm packers is Väst Farm AB who market their eggs under theTorggummans Ägg label. This company is profiled in Box A1. 26.135 At an exchange rate of 1 SEK = €0.108956.298

APPENDIX 1: MEMBER STATE REPORTSBox A1. 26: Profile of Väst Farm ABVäst Farm AB is one of the largest farm-packers in Sweden with a market share of just over 1%.In addition to packing, this company also rears pullets and operates a barn production system ofjust under 20,000 laying hensOwnership: Limited companyTurnover: SEK 18 million, €1.96 million, in 2003Profit: not availableEmployment: 20 employees in total, some of whom are part-time yielding around 11 full-timeequivalents, 4.5 of whom work in the packing operationMain markets: domestic local retail sectorA1.14.2.2. Production (packer) concentrationThe Swedish packing industry is made up of 150 registered packers, of which just 25 account for 75%of all eggs packed. The largest of these, Svenska Lantägg AB, accounts for about a third of these, aquarter of the total. The Star Group (consisting of five packers) has a slightly smaller market shareand they are followed by Lokal Packers (consisting of five packers) and the co-operative Kronägg andas number five Skånesjuan. Between them these five account for 70% of total eggs packed in Sweden.The industry did not release market shares for the top companies Table A1. 119.Table A1. 119: Main egg packers in SwedenRank Company Output 20031 Svenska Lantägg AB Not available2 Star Group Not available3 Lokal Packers Not available4 Kronägg Not available5 Skånesjuan Not availableTotal production1.476 billion eggsA1.14.2.3. Main production systemsThe latest date at which figures are available by production system is 16 December 2003(www.eurobusiness.se/eggsweden). At this point, 44.5% of laying hens in Sweden were kept in cages.Of this, 64% (28.5% of total laying hens) were in enriched cages with the remainder (16% of thetotal) in traditional cages. Of those in traditional cages, just 4% had received permission to remain inthis system until January 2004. The majority are engaged in a legal battle with the Swedishgovernment over the right to use traditional cages until 2012. Around half (49.5%) of Swedish layinghens were in barn systems in December 2003 and 6% were kept according to organic standards.The industry expects that the proportion of laying hens in enriched cages has now increased at theexpense of those in barn systems as more producers have completed investment programmes.National Swedish legislation is more restrictive than that mandated by the EU. The main differencesare as follows:299

APPENDIX 1: MEMBER STATE REPORTSCaged production: Sweden prohibited the traditional cage at the end of 2002 with fully enrichedcages with 750cm 2 per hen now the only permissible caged system.The evolution of laying hen numbers by system is presented where data are available in TableA1.120. Whilst the proportion of laying hens kept in alternative systems has increased over theperiod shown, the trend has been somewhat erratic with a low of 10% in 1997 and a high of 21% in2001.Table A1.120: Evolution of laying hen numbers by systemCaged Free Range Semi-intensive Deep litter Perchery Total layinghens1995 5,420,000 550,000 130,000 6,100,0001996 4,774,000 800,000 135,000 5,709,0001997 5,599,082 324,012 301,306 6,224,4001998 5,106,883 356,987 476,243 5,940,1131999 4,649,306 500,169 430,350 5,579,8252000 4,649,808 2,720 472,865 415,086 5,540,4792001 4,195,800 15,552 30,093 396,759 698,796 5,337,0002002 41,170 1,643,121Sources: DG Agri, Agricultural Situation in the Community and Agra CEAS Consulting.Data showing the proportion of eggs from different systems purchased by Swedish packers ispresented in Figure A1. 77. This shows both the steady decline in the proportion of eggs fromtraditional cages as these are phased out and also the increasing importance of eggs from alternativesystems which grew from 15% of total eggs packed in 1998 to 58% in 2004. This growth mainlyresulted from increases in the share of barn eggs.300

APPENDIX 1: MEMBER STATE REPORTS100%Proportion of packer purchases by production system80%60%40%20%0%1998 1999 2000 2001 2002 2003 2004Traditional cage Enriched cage Barn OrganicFigure A1. 77: Packer purchases of eggs by system 1998-2004Note: 2004 is first quarter only.Source: www.eurobusiness.se/eggsweden.It is not possible to comment on the surplus of alternative eggs as DG Agri do not hold this data forSweden. However, the industry explained that there had been a structural surplus in alternative eggsand that this was a problem in the absence of cascading. Better management of this surplus is one ofthe justifications put forward for increasing the length of storage time permitted for eggs.A1.14.2.4. Technical dataThe only technical data made available from Sweden is for enriched cages. The source of this data isa large, fully automated, modern facility and as such the figures are likely to show greater efficiencythan might be achieved by producers of a smaller scale or with a lower degree of automation. Thedata are presented in Table A1. 121.301

APPENDIX 1: MEMBER STATE REPORTSTable A1. 121: Performance comparison of egg production systems in use in Sweden(2003) (prices in € at SEK = €0.108956)Enriched cagesLaying cycle (days) 532Empty period (days) 28Feed/bird/year (Kg) 30.63Feed/bird/day (g) 115Eggs/bird/year (collected) 238Kg feed per kg eggs 2.06Mortality (%) 1 5.4%Number of hens managed/labourer 40,000Hens housed per m 2 house 40Space allowance per hen per cm 2 750Pullet cost 3.92End of lay hen weight Kg 1.85End of lay hen price 2 -0.22Notes: Some data have been converted from laying cycle to year to correct for the differing lengths of laying cycle bysystem.1Although high in 2003, mortality is typically around 4%.2 This is relatively low because a spent hen processing plant is located virtually on site.A1.14.2.5. Production costsVariable costs of production are presented in Table A1.122 and fixed costs in Table A1. 123 for theenriched cage unit. Data for the other systems in operation in Sweden were not made available tothe researchers.Table A1.122: Variable (running) costs of production 2003 (per kg eggs) (prices in €cents at SEK = €0.108956)Enriched cagesFeed cost 55.39Medication/vet 0.11Miscellaneous 0.00Bird depreciation/live pullets 17.21Total variable costs 72.71Source: Industry estimates.302

APPENDIX 1: MEMBER STATE REPORTSTable A1. 123: Capital (fixed) costs for 2003 (per kg eggs) (prices in € cents at SEK =€0.108956)Enriched cagesLabour 5.71Buildings 7.02Equipment 7.61LandManure disposal 2.01Insurance 0.77Utilities 4.26Cleaning 1.47Miscellaneous 1.32Total fixed costs 30.16Source: Industry estimates.A1.14.2.6. Gross marginsBuilding on the cost data in Section A1.14.2.5, Table A1. 124 presents revenue figures and from thiscalculates producer gross margin. It should be stressed that the prices obtained in 2003 were higherthan normal for caged eggs reflecting a tightening of supply.Table A1. 124: Egg producer gross margin 2003 (in € cents at SEK = €0.108956 per kg)Enriched cagesEgg returns 95.74Revenue from spent hens -0.96Output (per year) 94.78Total variable costs 72.71Gross margin 22.07Source: Industry estimates, EuroEgg & Business AB.A1.14.3. Egg processingThere are just two companies processing egg in Sweden, Källbergs Industri AB, the largest, andSvenska Lantägg AB. The latter is linked in to the Swedish egg production sector as it is mainly apacker with processing as a subsidiary activity. Källbergs on the other hand is a food industrycompany which uses eggs as a raw material. Källbergs processes around 254 million eggs annuallyand tends to use a high proportion of first quality eggs as this is increasingly demanded by theirclients. Svenska Lantägg, on the other hand, uses processing more as a means of extracting valuefrom eggs which cannot be sold in shell. There is some differentiation of products according toproduction system, but most of this is destined for export markets of which Germany and the UKare the most important. Sweden produces both powdered and liquid egg products.A1.14.3.1. Main egg processorsThe market for egg products in Sweden is equivalent to 365 million eggs. Roughly 159 million eggsare sourced domestically with the balance imported either as shell eggs for processing or processed303

APPENDIX 1: MEMBER STATE REPORTSproducts 136 . Källbergs dominates the Swedish processing sector and usage of eggs in shell eggequivalent amounts to about 60% of total processed product consumption. However, around half ofthis volume is sourced as liquid egg and around half of the raw material is sourced from outsideSweden. Around a half of production is then exported. Svenska Lantägg breaks eggs equivalent to22% of consumer demand. Box A1. 27 profiles Källbergs and Box A1. 28 profiles Svenska Lantägg.Box A1. 27: Profile of KällbergsKällbergs is the largest egg processor in Sweden (also the largest in Scandinavia) processing theequivalent of 254 million eggs annuallyOwnership: limited company. Kronägg, Sweden own just over 50% of the company with Danæg,Scanegg Holding, Denmark, Scanegg Suomi, Finland and Sanovo/Lactosan, Denmark also owningshares. Given the nature of the links between these companies, Danæg owns around two thirds ofthe companyTurnover: €30 million in 2004Profit: not availableEmployment: 100Main markets: the domestic market accounts for just over half of turnover with the majority ofthe remainder being from the (enlarged) EU. Some products are also sold in the far eastMain products: liquid egg accounts for more than a quarter of output, dried standard productsfor approximately a fifth and dried speciality egg products for about 15%Box A1. 28: Profile of Svenska LantäggSvenska Lantägg breaks around 79.4 million eggs annuallyOwnership: limited companyTurnover: SEK 370 million in 2003, €40.3 million (one quarter of this, €10 million, is from theprocessing operation)Profit: not availableEmployment: there are 100 staff in total, 20 of whom are employed in the processing operationand 25 in administration who work for both the processing and the packing operationsMain markets: domestic. A quarter of the throughput is sold as product to the foodmanufacturing and food service sectorsMain products: liquid egg and blendsA1.14.3.2. Processor concentrationThe Swedish processing sector is extremely concentrated with just two players, the largest of which(Källbergs) produces a volume equivalent to 60% of domestic demand, although almost half of this issubsequently exported. A decade ago the industry had one more player (now merged withKällbergs), but was still very concentrated.136 There are some exports and the import requirement shown here is net.304

APPENDIX 1: MEMBER STATE REPORTSA1.14.3.3. Trade in egg productsKällbergs export around half their production and Sweden imports processed egg in both liquid anddried form.A1.14.4. Egg marketsA1.14.4.1. Primary demandSweden produced 99,525 tonnes of eggs in 2003. After imports of 19,838 tonnes and exports of10,137 tonnes, 109,226 tonnes remained. Based on the proportions of eggs packed by system (seeSection A1.14.2.3), 26% of these would have been from traditional cages, 24% from enriched cages,44% from barn systems and the balance, 6%, from organic production. The majority of barn andorganic eggs would have been sold in shell in the retail sector with a small proportion entering thedifferentiated processed egg product market. It is not thought that eggs from alternative systemsenter the food service sector in significant numbers.A1.14.4.2. PricesFigure A1.78 shows the evolution of egg prices in Sweden between 1995 and 2003 and compares thisto average EU prices. The initial gap between Swedish and EU prices narrowed following accession,only to increase subsequently. The percentage difference between average prices in Sweden and theEU is shown in (Figure A1.79). Swedish average prices have been an average of 33% higher than theEU average since Sweden joined the community. The impact of the increase in Swedish prices in2003 resulting from the restricted supply of caged eggs can be clearly seen (the increase in EU priceis most likely to be due to the Dutch Avian Influenza outbreak).305

APPENDIX 1: MEMBER STATE REPORTS160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003SwedenEUFigure A1.78: Evolution of egg prices 1991-2003Source: DG Agri.70%60%Percentage difference from EU average50%40%30%20%10%0%1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.79: Difference between Swedish and EU egg prices 1995-2003Source: DG Agri.306

APPENDIX 1: MEMBER STATE REPORTSA1.14.4.3. Demand and supply elasticitiesWhilst there is no research on the elasticity of demand for eggs, the Swedish industry considers eggsto be a staple product and therefore relatively inelastic. The proven willingness of Swedishconsumers to pay a higher price for eggs produced under more animal welfare conditions supportsthis conclusion.A1.14.5. The impact of Directive 1999/74/ECA1.14.5.1. Implementation to dateSweden is a special case within the EU. Swedish legislation in this area has been driven from theanimal welfare point of view for some time and the government believes that both consumers andproducers are in agreement that animal welfare is important and worth paying for. Swedenannounced in 1988 that caged egg production would be banned with effect from 1998. However, inthe meantime Sweden joined the EU and enriched cages were ultimately permitted with a ban on thetraditional cage from January 2003. Implementation in Sweden is nearly complete, although sometraditional caged producers did take the Swedish government to court on the grounds that it hadfailed to notify Brussels of the legislation. Whilst this legal challenge was successful, the governmentthen notified Brussels correctly and, following the decision by the third and fourth largest retailers inSweden to stop stocking eggs from the traditional cage system by the end of 2004 137 and thestrengthening of the inspection system, it is expected that all production in traditional cages will haveceased by the beginning of 2005. The outcome from this is that Sweden has adopted the ban onunenriched cages in line with Chapter II, Art.5.2 of some years in advance of the rest of the EU andthus provides an illustration of what might happen in the wider EU.A1.14.5.2. Impact on the industryThe Swedish egg sector has one crucial advantage shared only by Finland, namely a ban on imports ofshell eggs from non-salmonella free countries in order to protect Sweden’s salmonella free status.Despite the fact that only Finland can export shell eggs to Sweden, these imports are an issue, notleast because many Finnish producers bought decommissioned Swedish cages and are now usingthese to produce eggs which undercut the former owners of the cages in Sweden.The competitive position of Finnish producers is further enhanced as a result of the EU accessionnegotiations where Finland was authorised to grant state aid to its egg producers during a transitionalperiod of five years (1995-1999). This transitional period has been prolonged to 2003 and again to2007.Whilst the shell egg sector therefore has a degree of protection, the Finns not withstanding, this isnot the case for the processed egg sector and domestic market share held by Swedish companies isdeclining. A significant issue here is that whilst Swedish consumers are willing to pay for animal137 The top two retailers had already taken this decision. Between them these four retailers account for 98-99% of the Swedish retailmarket.307

APPENDIX 1: MEMBER STATE REPORTSwelfare improvements in shell eggs, they are not so willing to do so in products. This is thought toresult more from a lack of awareness of the use of eggs in products and/or the often smallproportion of egg in final products rather than an active decision not to choose animal welfarefriendly products. However, this issue is now being discussed in the press and the Swedish industrybelieves that this is likely to result in a higher demand for alternative eggs in products.At the producer level the introduction of the ban on traditional cages inevitably led to someproducers ceasing production rather than investing in enriched cages. However, a number of newentrants began production in barn systems 138 and there was no significant shortage of eggs. Packersassisted the change over by voluntarily paying a small premium to enriched cage producers to send aprice signal to those deciding when to time investments. A major retailer (Ica, with around 40% ofthe Swedish retail market) also helped by making it clear that they would cease to stock eggsproduced in traditional cages from a certain date.The Swedish experience therefore suggests that this change in production system can be made andthat once producers have experience of enriched cages the running costs are not likely to besignificantly higher than those associated with traditional cages (in fact mortality is often lower). Inmany cases cage manufacturers are working closely with producers to improve cage design andhence performance. That said, there are a number of lessons from the Swedish experience thatcould usefully be applied throughout the EU.The role played by the retail and packing sector is instructive. If producers are certain that there willbe no market for their eggs past a certain date then they are more likely to make sure that they haveplenty of time to change systems. The decision by the packers to help with the one off investmentcost through provision of a bonus also clearly helped to induce producer investment.The Swedish government considers it essential that the deadline for the implementation of the banon unenriched cages in line with Chapter II, Art.5.2 of Directive 1999/74/EC is adhered tothroughout the rest of the EU. The experience of increasing imports from Finland highlights theneed to have a common production framework across the Union 139 . As the policy framework inSweden is even more restrictive than that set out in the Directive it is considered to be especiallyimportant for the Swedish industry that other Member States ‘catch up’ as far as the Directiveenables this.Indeed, the Swedes would consider it very useful to have a different label for eggs produced inenriched cages to allow consumers to appreciate the fact that eggs from some producers/MemberStates have higher animal welfare attributes than others. Swedish research into consumer willingnessto pay for eggs produced in higher animal welfare systems suggests that where consumers perceive adifference in production system they will pay for it. Assuming that this applies to eggs produced in138 This was relatively easy in the Swedish context where planning controls are not as strict as in more densely populated parts of the EU.139 Or as common a framework as possible given some national additions to the Directive.308

APPENDIX 1: MEMBER STATE REPORTSenriched cages vis-à-vis traditional cages, then a clear labelling difference would probably help send asignal from the market to the producers.Although not directly related to Directive 1999/74/EC, the Swedish industry is very much in favourof washing eggs, operating a cold chain from producer to consumer and lengthening the time periodover which eggs can move along the supply chain. These issues are bound up together with thedistances over which eggs must be transported meaning that a cold chain and washing is desirable.The ending of cascading is another justification for increasing the time length of the supply chain as itallows surplus eggs from alternative systems to be retained to service future demand rather thanhaving to be sold without premium to the undifferentiated processed product market.309

APPENDIX 1: MEMBER STATE REPORTSA1.15. United KingdomA1.15.1. OverviewThe UK industry is highly concentrated. Whilst there were 30,580 producers in 2002, just 305producers with more than 20,000 birds accounted for 81% of just more than 30 million laying hens.Total production is just over 10 billion eggs 140 and the UK is a net importer (87% self-sufficient), mainsources for imports being Spain 141 , the Netherlands and France. There were some 1,700 registeredpackers in 2003.Deans Foods Ltd is the leading producer and packer in the UK. About two thirds of the eggsproduced for Deans Foods Ltd are produced on contract, the remainder from farms owned byDeans Foods. This is fairly typical across the industry with packers owning some production andprocuring the rest of their eggs on contract. Contracts are generally long-term in nature.There are eleven processors in the UK (some of whom operate together) and of these, Deans FoodLtd is the largest, followed by Stonegate Food Ingredients Ltd, Manton Group and Framptons Ltd.A1.15.2. Egg productionTotal egg production in the UK was just over 10 billion eggs in 2003 from a laying flock of around 30million birds. Caged production accounted for 69% of this total production (and will account for aslightly lower percentage of laying birds). Free range production is the main alternative systemaccounting for 25% of egg production (including 2% organic). Barn production is relativelyunimportant with 6% of egg production. There are some enriched cage systems in use commercially(totalling just under 100,000 laying hens) and some trial sites. There are an additional 1.5 millionenrichable hen places where the removal of panels and a hen and/or the addition of cage furniturewill ensure compliance with the Directive. Production from enriched cages is sold simply as eggsfrom caged hens and is undifferentiated from eggs produced in traditional cages.UK egg production is concentrated in the Midlands, mainly because this is close to the main centre ofgrain production, but this central location is also helpful for distribution.The evolution of egg production between 1992 and 2003 is shown in Figure A1.80 where it can beseen that production, having generally declined until 2000 is now increasing.140 Source: Defra. Packing station throughput. Farmgate sales and eggs delivered direct to processors will not be included.141 According to some members of the industry the result of recent expansion in cages which may not comply with the current 550 cm 2space allowance.311

APPENDIX 1: MEMBER STATE REPORTS1210Egg production in billion eggs864201992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.80: Egg production in the UK 1992 to 2003Source: Defra, packing station throughput.The UK industry has remained reasonably unchanged in terms of the structure of producers asillustrated in Figure A1.81 which shows the evolution of proportion of flocks by flock size. However,Figure A1.82, which presents the evolution of the proportion of laying hens by flock size, shows thatthere has been an increase in the proportion of the national flock kept in units in excess of 20,000birds. In 1991 there were 296 producers with flocks in excess of 20,000 birds (accounting for 71.8%of all layers) and 1.4% of layers were in flocks of less than 100 birds. By 2002 this position hadaltered to show that 305 producers had flocks with more than 20,000 birds (but now equivalent to80.5% of the national flock) and 1.2% of the national laying flock was kept in flocks of less than 100birds. This suggests that significant consolidation took place before the 1990s and since then themajor change has simply been an increase in scale at the larger end of the producer base.312

APPENDIX 1: MEMBER STATE REPORTS100%90%80%70%Proportion of flocks60%50%40%30%20%10%0%1991 1992 1993 1994 1995 1998 1999 2000 20021-24 25-49 50-99 100-199 200-999 1,000-4,999 5,000-19,999 20,000+Figure A1.81: Evolution of proportion of flocks by flock size 1991 to 2002Source: Defra June census.100%80%Proportion of laying hens60%40%20%0%1991 1992 1993 1994 1995 1998 1999 2000 20021-24 25-49 50-99 100-199 200-999 1,000-4,999 5,000-19,999 20,000+Figure A1.82: Evolution of proportion of laying hens by flock size 1991 to 2002Source: Defra June census.313

APPENDIX 1: MEMBER STATE REPORTSThis general trend does mask differences according to system. Whilst structural change in the cagedsector is increasing consolidation, the growth in alternative systems is applying pressure the otherway as alternative systems are typically of a much smaller scale than caged systems. This can bereadily appreciated by considering data on the 261 producers contracted to Deans. Figure A1.83shows the significant difference in scale between caged production and alternative systems,particularly free range and organic.100%90%80%Percentage of flocks contracted to Deans70%60%50%40%30%20%10%0%Cage Free Range Barn Organic Total0-24,999 25,000-49,999 50,000-99,999 100,000-249,999 250,000-499,999 500,000-999,999 1,000,000+Figure A1.83: Production size classes for Deans producers (2003)Source: Deans Foods Limited and Agra CEAS Consulting calculations.Data from Deans is considered to be representative of the commercial sector in the UK as Deansaccount for a significant percentage of total eggs packed and also illustrates some other useful points:314whilst 50% of the laying hens held by Deans contracted producers are in caged systems, theseaccount for just 5% of total producers with an average flock size of 374,500;84% of producers operate a free range system and these account for 35% of total layers at anaverage flock size of 14,437 laying hens; the average flock size in barn systems is 48,034 and that in organic systems 14,046; just over three quarter (77%) of producers contracted to Deans have only free range flocks; 11%have only organic flocks; 3% only barn flocks and 2% only caged flocks. The remaining 7% havemixtures, most commonly free range and barn followed by free range and organic and then bycage and free range.Whilst the majority of commercial caged egg production in the UK is carried out by specialistproducers, or at least producers for whom the egg enterprise is the most important economically,

APPENDIX 1: MEMBER STATE REPORTSproducers using alternative systems are more diversified. In the case of free range producers otherenterprises are typically grass-based livestock, although the egg enterprise is usually very importanteconomically.The way in which the industry works differs according to company. By way of illustration, Deanscontracts around three quarters of its eggs from independent producers who are on one of twotypes of contract:1. Deans supply the pullet and the feed and remove the bird at end of lay. The producer receivesmarket price for eggs, although Deans guarantee a minimum price.2. Market price is paid for eggs and producers are free to source pullets and feed from a listapproved by DeansThe remaining supply of eggs is sourced from farms owned by Deans. Stonegate operate similarcontracts, but own a smaller proportion of production facilities. As well as packing centrally,Stonegate also have a number of farm packing stations serving the retail economy egg lines. Thissaves double handling costs, some transport costs and reduces on losses through weight profiles asthese packs contain a minimum weight of eggs rather than grading into different size categories.A1.15.2.1. Main producers/packersThe main egg packer in the UK is Deans Foods Ltd who represent around one third of total eggspacked. Stonegate contribute approximately a further 15%. These companies are profiled in BoxA1.29 and Box A1.30.Box A1.29: Profile of Deans Foods Ltd (figures are for the whole group, including theprocessing division)Deans is the largest egg packer in the UK accounting for around 40% of all eggs packedOwnership: Limited companyTurnover: approximately £250 million in 2003 (€375 million @ £1 = €1.5)Profit: approximately £6 million in 2003 (€9 million @ £1 = €1.5)Employment: 2,250 (1,340 are employed in packing and on owned farms)Main markets: domestic retailers. A small proportion of shell eggs are used in the cateringsector315

APPENDIX 1: MEMBER STATE REPORTSBox A1.30: Profile of Stonegate (figures include the processing division)Stonegate is the second largest egg packer in the UK accounting for around 15% of all eggspackedOwnership: Limited companyTurnover: approximately £110 million in 2003 (€165 million @ £1 = €1.5)Profit: £700,000 in 2002 (€1.05 million @ £1 = €1.5)Employment: 335 staffMain markets: 90% large domestic retailers, remainder small retailers and catering sectorA1.15.2.2. Production (packer) concentrationThe UK industry is very concentrated with only some 2,000 commercial producers, with DeansFoods Ltd and Stonegate Ltd (and their contracted production) accounting for the vast majority(approximately 50%) of total eggs produced and packed. There are a few mid-sized packers afterDeans Foods Ltd and Stonegate Ltd and these are presented in Table A1.125.Table A1.125: Main egg packers in the UKRank Company Output 20031 Deans Foods Ltd 1 3,400 million eggs (estimate)2 Stonegate Ltd 1,200 million eggs (estimate)3 Friday’s Ltd 500 million eggs (estimate)4 Oakland Farm Eggs Ltd 500 million eggs (estimate)5 Glenrath Farms Ltd 500 million eggs (estimate)6 Skea Egg Farms Ltd 200 million eggs (estimate)7 Sunrise Poultry Farms Ltd 165 million eggs (estimate)8 J Rainford and Son Ltd 150 million eggs (estimate)Total production10,000 million eggsNote: 1 Deans acquired Freshlay in October 2003. Freshlay is not listed separately and output is included with Deans.Source: Agra CEAS based on industry estimates.The 4-firm concentration ratio for UK egg packers is high at 64% and the 8-firm concentration ratiois 67%. There has been a significant degree of concentration over the last decade. Even as recentlyas the late-1990s there were four packing companies of roughly equivalent size (Deans Foods,Daylay, Stonegate and Thames Valley Foods). However, Deans Foods acquired Daylay in 2000 andacquired the new entrant Freshlay in October 2003. Stonegate acquired Thames Valley Foods in2001.A1.15.2.3. Main production systemsThe vast majority (69%) of UK egg production takes place in traditional cages. Free range systemsaccount for the bulk of the remainder (25% (including organic)) with barn accounting for theremaining 6%.The technical specifications of UK systems are the same as stipulated under EU legislation for cagedproduction, but there are some differences for non-caged systems as follows:316

APPENDIX 1: MEMBER STATE REPORTS Stocking density: typical UK free range and barn systems operate a stocking density of 11.7birds per m 2 (inside) and are allowed to continue to do so (subject to being in production priorto August 1999) until the beginning of 2012. The EU Directive requires a stocking density of 9birds/m 2 from the beginning of 2007.However, the UK Lion Quality Scheme covers more than 80% of UK egg production (a greaterproportion of free range) and this has a number of additional requirements. The main features are asfollows:registration of breeding farms, hatcheries, pullet rearing and laying farms, packing centres andfeed mills;all pullets must be vaccinated against S. Enteritidis;strict bio-security for farms;full traceability of flocks, feed and eggs;maximum best before date 21 days after packing;Hazard Analysis and Critical Control Point (HACCP);six monthly Self Audit and 100% independent inspection;all feed produced to UK Agricultural Supply Trade Association Feed Assurance Scheme;outdoor stocking density for free range systems of 1,000 birds per hectare rather than the EUrequirement of 2,500 birds per hectare 142 .The evolution of the use of different production systems in the UK between 1990 and 2001 ispresented in Table A1.126 and Figure A1.84 below. The steady growth of the free range sector,fuelled by consumer demand and the relative price difference compared to caged eggs, can be clearlyseen as the share of this sector increased from 5% to 27% over the period. This increase inimportance is the result of both an absolute increase in the number of laying hens in free rangesystems and also the general decrease in the number of laying hens (30% over the period) clearlydepicted in Figure A1.85. This decline reflects to some extent the continuing impact of thesalmonella crisis.142 This is also the case under the RSPCA Freedom Foods scheme.317

APPENDIX 1: MEMBER STATE REPORTSTable A1.126: Evolution of laying hens 1990 to 2001TraditionalcagesDeep litter Perchery Barn Free range Total laying hens1990 45,000,211 14,276 403,683 417,959 2,325,830 47,744,0001991 40,403,388 8,161 979,364 987,525 2,649,087 44,040,0001992 38,997,788 31,661 1,218,899 1,250,560 3,271,652 43,520,0001993 38,100,000 1,230,000 1,230,000 3,760,000 43,090,0001994 37,254,000 1,180,000 1,180,000 3,790,000 42,224,0001995 36,296,735 1,066,604 1,066,604 3,993,661 41,357,0001996 36,032,986 1,066,183 1,066,183 4,192,831 41,292,0001997 29,615,177 1,222,207 1,222,207 4,589,317 35,426,7011998 29,267,750 1,338,392 1,338,392 5,153,516 35,759,6581999 25,251,353 50,637 1,953,774 2,004,411 6,019,357 33,275,1212000 23,528,336 44,421 2,039,050 2,083,471 6,281,793 31,893,6002001 24,659,652 2,031,365 2,031,365 6,555,983 33,247,000Note:1999 and 2000 total hen numbers are DG Agri estimates, 2001 and 2002 are Agra CEAS Consulting estimates. Perchery and deep litter systems are combined from 2002. Caged hens are calculated as total hens less the sum of those in alternative systems,they therefore include organic birds as these are not separately presented in the DGAgri data.Source DG Agri Agricultural Situation in the Community, Agra CEAS Consulting.504540Number of laying hens (millions)353025201510501990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Traditional cages Barn Free rangeFigure A1.84: Evolution of laying hens 1990 to 2001Source DG Agri Agricultural Situation in the Community, Agra CEAS Consulting.318

APPENDIX 1: MEMBER STATE REPORTSThe percentage of production accounted for by alternative systems is presented in Figure A1.85 overthe same time period. This shows that the proportion of the laying flock accounted for byalternative systems increased from 5.7% to 25.8% over the period. Although there have beenfluctuations year to year in the level of increase, the general trend is upwards fuelled by a mixture ofconsumer demand and retailer push as they seek to move towards a higher margin product. Whilstmost people expect this trend to continue towards 50% of the market, some members of theindustry feel that the demand for eggs from alternative systems will not last if there is an economicdownturn.100%80%Proportion of laying flock by system60%40%20%0%1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Traditional cages Barn Free rangeFigure A1.85: Evolution of importance of alternative systemsSource DG Agri Agricultural Situation in the Community, Agra CEAS Consulting.Figure A1.86 shows that there is a discrepancy between alternative eggs delivered and sold (theabsence of data for barn systems between 1993 and 1998 is exactly that and not an indication thatthe market was perfectly balanced). In some cases the surplus of alternative eggs is considerable (see1997 and 1998 in particular). A surplus is required to ensure that peaks in demand can be met for allsize grades of eggs. Traditionally this surplus has been ‘cascaded’ from free range to barn systemsand from barn to economy lines (which were predominantly cage) 143 . This is necessary to ensureefficiency in highly automated packing stations where it would not be practicable to stop productionand remove remaining free range eggs, etc. from the packing system prior to starting packing intobarn packs.143 Free range requirements are considered to be compliant with barn production as the housing requirements are the same.319

APPENDIX 1: MEMBER STATE REPORTSThis practice is no longer possible following the introduction of production system labelling on eggswhich should match the labelling on the pack.600,000500,000Difference in eggs delivered and sold (in '000 eggs)400,000300,000200,000100,00001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Free Range Deep litter/perchery All alternative systemsFigure A1.86: Difference between eggs delivered and sold by alternative system 1990-2002Source: DG Agri.It should be noted that the end of ‘cascading’, i.e. the end of the ability to move eggs from higherprice alternative systems into the retail chain as conventional caged output, as a result of the changedmarketing requirements may well have an adverse impact on the returns producers in suchalternative systems can obtain.A1.15.2.4. Technical dataTechnical data have been calculated from a range of industry estimates and are presented in TableA1.127. There are a number of points that need elaboration:Contributors are producing at different scales and degrees of automation (with an obviousimpact on the number of hens that can be managed per labourer) and with different objectives.For example, one producer operates a very long laying cycle and uses the outgrade eggsproduced towards the end of the period for processing. This producer therefore provides an320

APPENDIX 1: MEMBER STATE REPORTSupward bias on the laying cycle for both traditional and enrichable 144 cage production. Anotherimplication of this is the lower number of eggs collected in the enriched system.The difference between the caged systems in terms of pullet cost is a function of the pricesexperienced by the producers contributing data and there is no reason in reality why theseshould be different.Finally, hens housed per square metre of floor space is a function of space allowance per bird andthe number of tiers. Whilst the space allowance per bird is higher in the enriched cage system,there is no reason why the number of tiers should differ, although they do in the systemsexamined.Although the technical specifications differ between the two caged systems, this is a result of theway in which data have been averaged from multiple sources. The only real difference inperformance between the two systems noted by the supplier of this information was in mortalityrate with a lower rate in the enrichable system.Table A1.127: Performance comparison of egg production systems in use in the UK(2003) (prices in € at £ = €1.48358)TraditionalcagesEnrichablecagesBarn Free-range OrganicLaying cycle (days) 406 424 392 392 396Empty period (days) 18 18 21 19 21Feed/bird/year (Kg) 40.98 40.91 44.86 47.84 48.04Feed/bird/day (g) 115 115 125 133 135Eggs/bird/year (collected) 282 274 261 265 246Kg feed per kg eggs 2.33 2.39 2.75 2.89 3.14Mortality (%) 4.3% 4.0% 7.3% 7.8% 10.8%Number of hens managed/labourer 55,000 72,500 14,333 9,230 5,250Hens housed per m 2 house 72 95 12 12 9Space allowance per hen per cm 2 550 630 855 855 1,111Pullet cost (€) 3.51 3.41 3.75 3.88 3.93End of lay hen weight Kg 1.89 1.90 1.87 2.10 1.85End of lay hen price (€) -0.10 -0.07 -0.11 -0.12 -0.10Notes: some data have been converted from laying cycle to year to correct for thediffering lengths of laying cycle by system.The enriched system is currently operating at 630 cm 2 per bird, but can be increased to 750 cm 2 by removing a panel,although this will reduce the number of bids in a given area by 20%. The cost of this would be just under €3/bird. The cost of organic pullets will increase when organic standards stipulate use of organic rearing of pullets (due witheffect from January 2005).Source: British Egg Industry Council, industry estimates and Agra CEAS Consulting calculations.A1.15.2.5. Production costsVariable costs of production are presented in Table A1.128. Based on the technical factorspresented in Section A1.15.2.4, there is an additional cost for feed in the alternative systems. The144 The ‘enrichable’ system in use currently operates at a space requirement of 630 cm 2 and will require modification to conform fully withDirective 99/73/EC. The technical and cost data provided should not be taken as indicative of a fully enriched system.321

APPENDIX 1: MEMBER STATE REPORTSlow bird depreciation cost for the enrichable system is a function of scale rather than system in thatpullets can be bought more cheaply.Table A1.128: Variable (running) costs of production (per kg eggs) (prices in € at £ =€1.48358) 2003TraditionalcagesEnriched cages Barn Free range OrganicFeed cost 42.37 42.16 48.70 55.07 107.85Medication/vet 0.47 0.47 1.27 1.11 0.456372MiscellaneousBird depreciation 18.79 18.57 20.86 21.29 23.19Total variable costs 61.62 61.20 70.84 77.47 131.50Notes:Whilst medication and veterinary bills are considered to be insignificant per dozen eggs and are therefore omitted,they are nonetheless considerably higher in some alternative systems compared to caged systems. No miscellaneous costs are recorded.Source: Industry estimates.Table A1.129 presents fixed costs. As mentioned above, data have been contributed from a range ofsources. Whilst variable costs are little different given the fact that they are essentially made up offeed and bird depreciation, fixed costs are heavily influenced by scale and degree of automation. Itwould therefore be misleading to take into account the performance of a very large, modern andfully automated (in-line packing) system when this is not representative of the majority of theindustry. However, the fixed costs from such an enrichable system are presented on the groundsthat any enriched systems installed will be modern and are likely to be highly automated. Althoughthe total fixed cost for the enriched system is considerably lower than that of the representativetraditional caged system, where the traditional caged system is equally automated and modern, fixedcosts in the enrichable variant are approximately 50% higher. The reason for this is the higherequipment cost 145 .The fixed cost of the enriched system is lower than the alternative systems as a result of scale.Although not apparent at two decimal places, there are insurance and utility costs associated withthis system. The main point of difference is the labour cost, although it is interesting to note thelower cost for buildings (which includes equipment) and for utilities.145 The same building, with the same construction cost, could be used for either system.322

APPENDIX 1: MEMBER STATE REPORTSTable A1.129: Capital (fixed) costs (per kg eggs) (prices in € cents at £ = €1.48358) 2003Traditional cage Enriched cage Barn Free range OrganicLabour 7.26 3.35 18.18 26.16 32.04Buildings 3.60 3.35 4.70 5.06 6.97Equipment 7.20 6.70 9.40 10.12 13.93Land 1.61 0.79Manure disposalInsurance 0.40 0.20 0.40 0.54 0.40Utilities 2.54 0.87 1.74 2.29 1.80Cleaning 1.71 1.71 5.47 5.95 5.95Miscellaneous 4.15 0.01 2.57 4.70 5.85Total fixed costs 26.86 16.19 42.45 56.44 67.74Notes:Buildings includes equipment and both are written off over 10 years.Miscellaneous includes repairs and maintenance, manure removal, cleaning and office costs.Organic land has the same cost as non-organic land because a lot of people have converted to organic production andneed to have organic livestock on the land as a condition of payment depressing the rent they can charge. Under the Lion Code and Freedom Foods the stocking density is lower for the free range system. Producing to thesestandards would increase the cost of land by a factor of 2.5 (1,000 birds per hectare instead of 2,500).Source: Industry estimates.A1.15.2.6. Gross marginsBuilding on the cost data in Section A1.15.2.5, Table A1.130 presents revenue figures and from thiscalculates producer gross margin. The higher returns from alternative systems compared to cagedsystems outweigh the greater costs of production to yield a higher gross margin. Whilst the grossmargin for the enrichable cage system is the lowest, it should be noted that the price received foreggs is lower than for the traditional cage system. This is not a reflection on the value of the eggs,but simply results from the different market that the contributor of the figures operates in. On theother hand the scale of this producer makes the cost of disposing of spent hens insignificant and thiswould not be the case at a smaller scale. The main point is the cost of production which is onlymarginally higher.Table A1.130: Egg producer gross margin per kg (2003) (prices in Euro cents at £ =€1.48358)TraditionalcagesEnriched cages Barn Free range OrganicEgg returns 45 79.10 106.97 133.06 209.91Revenue from spent hens -0.54 -0.39 -0.57 -0.65 -0.60Output (per year) 83.54 78.71 106.40 132.41 209.30Total variable costs 61.62 61.20 70.84 77.47 131.50Gross margin 21.92 17.51 35.56 54.94 77.81Note: The enriched system also has a cost for spent hens, but this is insignificant in per dozen terms due to scale rather thanthe system.Source: Industry estimates.323

APPENDIX 1: MEMBER STATE REPORTSA1.15.3. Egg processingThe UK egg processing sector is concentrated with ten producers (some of whom operate jointly),dominated by Deans Food Group Ltd.. The main processed products are liquid; there are no eggdrying facilities in the UK, although one company was drying egg a year ago. According to thiscompany, drying eggs is no longer cost effective under the Directive. The UK processing sector hasa domestic focus and services around 70% of the UK’s processed egg demand. There is a net importrequirement of 46.9 tonnes of egg products (2003) and imports are drawn mainly from theNetherlands, France and Belgium.The size of the UK processing sector is equivalent to just over 2 billion shell eggs. This absorbs allUK second quality eggs (which make up around 10% of total egg production, i.e. 1 billion eggs in2003) and an equivalent number of first quality eggs. There is some differentiation by productionsystem, with most processors producing some free range and a small amount of organic processedproducts. These are sold to a range of food service organisations including Hilton Hotels,McDonalds, Brakes Brothers and 3663) at a premium. Whilst some second quality eggs fromalternative systems therefore attract a premium, the majority are not utilised in this way and arebought at the same price as eggs from traditional caged production and are used in undifferentiatedproduction.Given production of around 1.87 billion free range eggs per year, between 187 and 224 million freerange eggs are available as second quality 146 . When Marks and Spencer demanded free range eggproducts, the existing demand was already absorbing this supply, albeit with only a modest premium.The entry of Marks and Spencer doubled this demand, resulted in a significant increase in thepremium and, as a result, some existing users left the market, some first quality free range eggs werediverted into processing with a premium and a greater proportion of second quality free range eggswere utilised 147 . The expected entry of Waitrose to the free range product market will increasedemand, and premiums, still further.The largest producer of liquid egg products from alternative production systems is Stonegate whosupply, inter alia Marks and Spencer. This differentiated production accounts for between a quarterand a third of Stonegate’s processed egg output.A1.15.3.1. Main egg processorsThe UK egg processing sector is dominated by Deans Food Group with Stonegate Food Ingredients,Manton Group and Framptons Ltd in second, third and fourth place 148 . The market for processed eggproducts in the UK is around 2.9 billion in shell egg equivalents, of which, 30% is imported. DeansFood Group account for just under half of domestic supply of processed products (equivalent toaround 0.9 billion shell eggs). Stonegate Food Ingredients account for approximately a fifth of UK146 On the basis that second quality eggs account for between 10% and 12% of egg production.147 Prior to the entry of Marks and Spencer the premium for second quality free range eggs was insufficient to make it worth collection formany producers. These eggs were simply discarded.148 Whilst Stonegate use more eggs than Framptons, production of products is roughly equivalent.324

APPENDIX 1: MEMBER STATE REPORTSsupply (roughly equivalent to 400 million shell eggs), Manton Group account for approximately 16%of domestic supply with Framptons accounting for around 15% (280 million shell egg equivalents).Three of these main companies are profiled in Box A1.31 to Box A1.33 below.Box A1.31: Profile of Deans Foods Limited (egg processing)Deans is the largest processor of eggs in the UK with just under half of UK throughputOwnership: Limited companyEmployment: 424 staffMain markets: domestic (more than 90%). The balance is exported to the EU-15, mainly theNetherlandsMain product: plain liquid egg. Also produce blends of white and yolk, blends with added products,hard boiled eggs, extended shelf-life products, ready-cooked products. 90% of products are for thefood manufacturing sector, the residual for the catering industryNote: financial figures are provided for the whole group in Section A1.15.2.1.Box A1.32: Profile of Stonegate Limited (egg processing)Stonegate is the second largest processor of eggs in the UK with around 18% market shareOwnership: Limited companyEmployment: 400 staff, 65 in the processing side of the businessMain markets: domestic, 90% food manufacturing sector, remainder cateringMain product: 60%-70% whole liquid egg, remainder blendsNote: financial figures are provided for the whole group in Section A1.15.2.1.Box A1.33: Profile of Framptons LimitedFramptons is slightly smaller than Stonegate in volume terms with a market share of around 14%Ownership: Limited companyEmployment: 110 staffTurnover: £16.0 million, €23.7 million (2003/04)Main markets: domestic, 80% food manufacturing, the remainder food service industryMain product: 80% value-added products (blended, cooked, etc.), 20% standard egg products(whole liquid, etc.)A1.15.3.2. Processor concentrationThe processing sector in the UK is fairly concentrated with only four main producers, one of which(Deans Food Group) has around 40% of market share. There has been a considerable amount ofconsolidation in the processing sector in a similar fashion to that in the packing centre with thecurrent players absorbing other operators. Table A1.131 presents the top eight processors and theirmarket shares.325

APPENDIX 1: MEMBER STATE REPORTSTable A1.131: Main egg processors in the UKRank Company Output 20031 Deans Food Group Ltd 900 million eggs (estimate)2 Stonegate Food Ingredients Ltd 374 million eggs (estimate)3 Manton Egg Products 310 million eggs (estimate)4 Framptons Ltd 280 million eggs (estimate)5 Freshfayre Products Ltd 97 million eggs (estimate)6 Parker Foods Ltd 91 million eggs (estimate)7 Bumble Hole Foods Ltd 90 million eggs (estimate)8 D Wise Ltd 85 million eggs (estimate)Total productionSource: Industry estimate.2,300 million shell egg equivalentBased on the above, the 4-firm concentration ratio is 83.7% and the CR8 virtually 100%.A1.15.3.3. Trade in egg productsThe UK is a net importer of processed egg products and the trade balance has been worsening overthe years from imports of 24,041 tonnes, exports of 9,240 tonnes, net deficit of 14,801 tonnes in1995 to imports of 51,341 tonnes, exports of 4,433 tonnes and a net import requirement of 46,908tonnes in 2003. The UK imports a considerable amount of boiled egg, mainly from the Netherlands,Belgium and Denmark. The main reason for this is that white eggs are better for boiling and UK eggproduction is virtually all brown eggs. There are also net imports of albumin, whole egg and eggyolks. However, dried egg is the main import as there are no egg drying facilities in the UK.A1.15.4. Egg marketsA1.15.4.1. Primary demandThe UK egg production of around 10 billion eggs in 2003 is supplemented by net imports of 785million eggs 149 (841 million imports and 55 million exports) giving a usable production ofapproximately 10.8 billion eggs. The retail sector accounts for 64.0% of this total (6.9 billion eggs),processing 20.5% (2.2 billion eggs) and the catering sector 15.5% (1.7 billion eggs). Eggs sold directfrom farms or utilised on farm are not included in the above breakdown. Figure A1.87 illustrates theusage of eggs from different production systems by these sectors. The key point to note is the factthat barn eggs (as differentiated product) are utilised solely in the retail sector.149 2002 figures. January to October figures for 2003 show imports of 645 million eggs, exports of 90 million with a balance of 555 millioneggs.326

APPENDIX 1: MEMBER STATE REPORTS4,5004,000Demand for eggs by production system (millions)3,5003,0002,5002,0001,5001,000500-Retail Food service ProcessingCage Free range BarnFigure A1.87: Estimated demand for eggs by sector and production system 2003Source: Deans Foods and Agra CEAS Consulting calculations.Within the processing sector, 70% of products are destined for the baking industry (Northern Foods,RHM, Hazelwoods, United Biscuits), 20% to general food manufacturers (companies such as Nestlé,Geest, Mars, Cadbury’s, Terry’s) and the remaining 10% to the food service industry. As can be seenin Figure A1.87, approximately 12% of the processed market is free range (Marks and Spencer andMcDonalds both demand exclusively free range eggs). However, second quality free range eggs arein short supply and the market also draws on first quality free range eggs, some of which are sourcedfrom dedicated producers set up specifically to service this market. Whilst the demand for freerange eggs in the food service industry may grow, it is not thought likely that a similar trend will beseen in the baking industry where eggs are a major, but often unnoticed ingredient. The use oforganic eggs in processing as differentiated product is negligible at around a tenth of a percent.A1.15.4.2. PricesFigure A1.88 shows the evolution of egg prices in the UK between 1991 and 2003 and compares thisto weighted average EU prices. The UK price series tracked the EU weighted average closely upuntil 2000, albeit with less volatility, but after this point the series diverge with UK prices increasingand the EU average price decreasing. Finally, between 2002 and 2003 the series move in oppositedirections with the UK average price declining whilst the EU average price increases.The percentage difference between average prices in the UK and the EU is shown in Figure A1.89.The relatively close relationship between the two series can be seen with the UK price fluctuatingbelow and above the EU average.327

APPENDIX 1: MEMBER STATE REPORTS160.00140.00Average of large and medium egg price (€/100kg)120.00100.0080.0060.0040.0020.000.001991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003UKEUFigure A1.88: Evolution of egg prices 1991-2003Source: DG Agri.20%15%Percentage difference from EU average10%5%0%-5%-10%-15%1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A1.89: Difference between UK and EU egg prices 1991-2003Source: DG Agri.A1.15.4.3. Demand and supply elasticities328

APPENDIX 1: MEMBER STATE REPORTSWhilst there has been some work on egg elasticity in the UK, none is particularly recent. Theindustry considers egg as a staple product and therefore expects demand to be inelastic.Unpublished research carried out by the RSPCA suggests that there is a great deal of volatility in theretail prices charged for eggs from all systems and, given steady demand, the implication from this isthat consumers are not altering their purchasing patterns as a result. They may, however, movebetween eggs produced from different systems as the price gap gets larger and smaller.A1.15.5. The impact of Directive 1999/74/ECA1.15.5.1. Implementation to dateThere are some enriched cage systems in use commercially (totalling just under 100,000 laying hens),some trial sites and around 1.5 million enrichable hen places. However, the commercial systemsresult from delays in planning approval meaning that scheduled (traditional cage) investment had toconform to enriched cage standards rather than a deliberate policy of early introduction. However,some of the later investment before January 2003 was in cages which can be adapted to conform toenriched cage standards. The industry generally feels that the Directive is unlikely to beimplemented by 2012, mainly because the timing of this review gives a lead time from 2005 to 2012,i.e. six years rather than the period 1999 to 2012 intended. Producers are unwilling to invest beforethey are certain that the final form of the Directive is known.A1.15.5.2. Expected implementationInvestment in enriched cages is not expected to take place until a) it is clear that it will have to (i.e.there is a wait and see policy at least until the outcome of the 2005 review is known); b) it is clearwhat form of investment will be needed; and, c) the maximum use has been made of existing facilities.The industry would like to see an increase in the usable life of existing caged facilities past 2012, sothat investment does not need to be brought forward. However, if the Directive is to beimplemented as scheduled, then producers have indicated that some would switch into enrichedcages as close to 2012 as possible, but some would close down rather than reinvest leading to apossible shortfall in UK egg supply.A1.15.5.3. Impact on the industryThe cost of compliance with the Directive is estimated by the government in its Regulatory ImpactAssessment to be around €247,758 150 ) for holdings with 12,000 birds, €2,062,176 for those with100,000 birds and €8,263,541 for large holdings with 400,000 birds. These costs equate to a totalnet present value 151 of €606.78 million from 2000 to 2011, €68.24 million per year from 2000 intoperpetuity 152 , 153 .150 £ = €1.48358151 Including capital/investment and running costs and discounted at 6%.152 Broader estimates of the impact of animal welfare improvements are also contained in Bennett, R.M. and R.J.P. Blaney (2003). Estimatingthe Benefits of Farm Animal Welfare Legislation Using the Contingent Valuation Method, Agricultural Economics, 29: 85-98.153 Assumptions used in these calculations include a large switch into free-range production not envisaged by the industry. Caution shouldbe exercised when using these figures.329

APPENDIX 1: MEMBER STATE REPORTSThe additional production costs are likely to be passed on to consumers if there is sufficient borderprotection to stop imported third country shell eggs undercutting those produced in the EU. In theabsence of such protection, producers/packers would have to absorb some of the additional costs orface being undercut by eggs produced to lower welfare standards. The industry does not expectretailers to commit to buying domestically produced eggs if cheaper products are available.330

APPENDIX 1: MEMBER STATE REPORTSAppendix 2: Third Country ReportsA2.1. Brazil 154A2.1.1. OverviewBrazil is a substantial producer of eggs with a flock of some 60 mn laying hens in 2003 and productionof 14.4 bn eggs. The sector is not particularly concentrated with the largest producer holding some4mn hens (6.7% of the total) and the four largest companies accounting for only 11.5% of the flock.Commercial production takes place entirely in battery cages and animal welfare is not currently aparticular concern. Brazil is currently not a significant exporter of eggs and egg products with totalexports amounting to just over 4,000 tonnes in 2003. The potential in the sector is, however,significant since the scope to expand feed output and thus reduce costs is substantial.A2.1.2. Egg productionEgg production in Brazil has grown only modestly over the past 20 years despite a 40% growth inpopulation since 1986. As is indicated in Table A2.1, the trend in flock size and egg production since1990 has been uneven. Egg production reached a record high 16.5 billion eggs in 2002 but fellsharply in 2003. As a result, 2003 production was only 7.3 % above the level of production in 1990.The sluggish growth of the egg industry appears to be due to a combination of consumer perceptionsand the state of the general economy. As in other parts of the world, Brazilian consumers havebecome more sensitive to their intake of cholesterol, though this is said to be having a diminishingimpact. Perhaps more important has been the uneven state of the Brazilian economy. As indicatedin Figure A2.1 below, Brazil’s real per capita GDP has risen slowly and unevenly over the past 20years. This has had a negative impact on both consumer purchases and producer investment.154 Collecting information on the Brazilian egg industry proved to be a major challenge. The Sao Paulo Poultry Association (the suggestedcontact in Brazil) concluded after consultation with its members that they did not wish to provide information on their industry. In lieu ofgathering information from the APA, therefore, we collected information from governmental and university poultry specialists and fromselected producers. Information on egg and egg product exports was obtained from the Bank of Brazil. Despite the lack of industry cooperation,the information we have collected is thought to represent an accurate and reasonably complete description of the Brazilian eggindustry.331

APPENDIX 1: MEMBER STATE REPORTSTable A2.1: Trends in Brazilian egg production, 1990-2003YearNumber of laying hens(thousand birds)% change Egg production(million eggs)% change1990 55,884 13,4581991 56,520 +1.1 13,657 +1.51992 57,943 +2.5 14,188 +3.91993 52,554 -9.3 12,668 -10.71994 55,490 +5.6 13,464 +6.31995 58,251 +5.0 16,089 +19.51996 56,000 -3.9 15,932 -1.01997 52,074 -7.0 12,596 -20.91998 56,512 +8.5 13,635 +8.21999 61,033 +8.0 14,768 +8.32000 60,949 -0.1 14,796 +0.22001 63,607 +4.4 15,276 +3.2002 67,770 +6.5 16,488 +7.92003 59,879 -11.6 14,440 -12.4Source: UBA10000800060004000200001980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Constant 2003 prices in R$Figure A2.1: Brazilian per capita GDP, 1980-2003 (constant 2003 prices in ‘000 R$)Source: Central Bank of BrazilGeographically, Sao Paulo is the heart of Brazilian egg production. Bastos in Sao Paulo is consideredthe “egg capital” of Brazil and is home to about 15% of the nation’s egg production. The egg industryin Brazil is unique in that a very large share of all egg producers are ethnic Japanese.332

APPENDIX 1: MEMBER STATE REPORTSBoth white and brown eggs are produced in Brazil. In recent years, production has been dividedaround three-quarters white and one-quarter brown.A comparatively small share of Brazil’s egg production is processed. Based on our interviews, weestimate that 5 to 10% of output is processed. The International Egg Commission estimates that ofthe 94 eggs per capita consumed domestically in 2001, 89 eggs (94.7%) were consumed as shell eggs.A2.1.2.1. Main producers/packersWhile the largest 11 egg producers in Brazil account for over 30 % of total output, there are thoughtto be a relatively large number of medium and small-sized producers. Many small producers have leftthe business in recent years, as it has become evident that the adoption of new techniques has madeit necessary for growers to either enlarge their operations or leave the industry altogether. Many ofthe larger operations took advantage of a favourable market in the late 1990s to modernise.Nevertheless, the number of fully automated egg producers in Brazil is very small. Most producershave a hybrid system. Our estimates of the size and ranking of Brazil’s leading egg producing firmsappear in Table A2.2 below.Table A2.2: Leading egg producing firms in Brazil, 2004Firm Town, State* Number of layers (millions) Market share (%)Grupo Saito Ibiúna, SP 4.0 6.7Granja Yabuta Bastos, SP 3.5 5.8Aviário Mantiqueira Itanhandú, MG 2.5 4.2Avipal Porto Alegre, RS 1.5 2.5Granja Katayama Guararapes, SP 1.3 2.2Aviário Santo Antônio Belo Horizonte, MG 1.25 2.1Somai Nordeste Montes Claros, MG 1.2 2.0Coperbras Brasilia, DF 1.2 2.0Granja Shinoda Porto Feliz, SP 1.0 1.7Gaasa Goiás, GO 0.8 1.3Granjas ITO Campinas, SP 0.7 1.2Notes: * SP = Sao Paulo state; MG = Minas Gerais state; RS = Rio Grande do Sul state; CE = Ceará state; DF = DistritoFederal; GO = Goiás state.Source: Estimates of Fábio Mizumoto 03.2004, Agra CEAS Consulting estimates.A2.1.2.2. Main production systemsAs far as we can ascertain all commercial egg production takes place in battery cages.A2.1.2.3. Technical dataGiven the general lack of industry-wide information and the extremely heterogeneous nature of theindustry, the performance measures appearing in this section should be considered approximations.In general, they are representative of larger, better-equipped producers. However, even amonglarger producers, there are all degrees of automation with many using a combination of conventionaland automated systems.333

APPENDIX 1: MEMBER STATE REPORTSAnimal welfare is not a prominent issue in Brazil, and there is little evidence that it will soon becomeone. Although some producers are aware of the attention the issue is receiving in the EU and theUS, it seems unlikely that anything will be done unless required by importing countries. And, giventhe small role exports play, importing countries are not likely to exercise much influence in theforeseeable future.We were unable to find performance information that distinguished between different levels ofautomation. The information on Brazil provided by the International Egg Commission describesproduction as “100% caged”. However, we also know that most producers are not fully automated.Ideally, if the data were available, we would distinguish among systems on the basis of the extent towhich they were automated. We have provided separate information on the production of whiteeggs and brown eggs in both unmolted and molted flocks. As mentioned previously, approximately75% of Brazil’s production is comprised of white eggs. Layers of brown eggs are slightly larger andtherefore consume more feed and require more space. They also produce slightly fewer eggs percycle.We are told that in “normal times”, forced molting is used by 80% to 90% of producers in Brazil, atleast the larger, commercial producers. However, due to an outbreak of “laringotraqueite” inBastos, forced molting in that region is currently banned and will not be re-introduced for at least ayear.When molting is permitted, an estimated 60% of those who use the practice have integrated it intotheir systems and therefore molt their flocks regardless of the near-term economic conditions. Theremaining growers apply molting techniques from time-to-time, depending on near-term economicconditions. The “in-and-outers” usually gear their decision on molting to the price outlook for theEaster holiday, a customary period of heavy demand. When molting is used, producers commonlykeep their flocks laying through two or three cycles. The number of laying days can therefore rangefrom around 420 days (1-cycle) to around 567 days (2-cycles) to around 714 days (3-cycles).Table A2.3 below summarises performance measures of Brazilian egg production for one-cycle(unmolted) flocks in the production of white eggs and brown eggs and for two/three cycle (molted)flocks. The information on unmolted flocks is based on current performance records while that formolted flocks was collected in 1995 and is therefore somewhat dated. While we expect that thelaying cycle for molted flocks has not changed much (assuming this represents a blend of two andthree-cycle systems), we expect that feeding efficiency has continued to improve and is now close tothat shown for the unmolted flocks.334

APPENDIX 1: MEMBER STATE REPORTSTable A2.3: Performance measures for commercial egg production in BrazilMeasureOne cycle,white eggsOne cycle,brown eggsTwo-threecycleLaying cycle (days) 420 420 681Empty period (days) 14 14 14Feed/bird (kg) over laying cycle 44.1 48.7 74.1Feed/bird/day (g) 105 116 109Eggs/bird/laying cycle 320-340 315-335 494Kg feed per kg eggs 1.87-2.13 2.13-2.40 2.40Mortality (%) 8-10 6-8 n.a.Number of hens/labourer 20,000-200,000 20,000-200,000 n.a.Hens housed per m 2 house 12 8 n.a.Space allowance per hen (cm 2 ) 450 480 n.a.Pullet cost (R$) 5.50-6.00 5.50-6.00 n.a.End of lay hen weight (kg) 1.5-1.8 2.0-2.2 n.a.End of lay hen price (R$/kg) .60-.70 .60-.70 n.a.n.a. = Not availableSource: Sonia Martins, Ph.D. thesis.While egg production in Brazil has risen only moderately over the past 10 or 15 years, there isevidence that the industry has made important advances in genetics and production practices overthe period. Results of a study comparing the performance of several larger commercial producersbetween 1985 and 1995 are summarised in Table A2.4. As indicated, the upper bounds of eggproduction and length of life were greatly expanded while feeding efficiency was increased as well.The dramatic increase in the length of production, from 14 to more than 22 months, suggests thatsome if not most of these producers adopted molting practices during the period of study.Table A2.4: Changes in performance measures of selected Brazilian egg producersbetween 1985 and 1995.Measure 1985 1995 % changeGrow-out life (months) 6.0 4.4 -27Production life (months) 14.0 22.4 +60Feed consumption/bird/production phase 41.8 74.1 +77Kg feed per kg eggs 2.67 2.40 -10Total egg production 250.6 494.4 +97Source: Sonia Martins, Ph.D. thesis.A2.1.2.4. Production costsCost of production estimates for Brazilian egg production are particularly difficult to pin down giventhe heterogeneous nature of the production systems in use. We have relied primarily on estimatesderived from producer surveys and on poultry specialists operating in the primary egg-producingregion. This includes cost data collected in late 2002 and early 2003 by researchers at the Universityof Sao Paulo for 90 egg producers in the states of Sao Paulo, Minas Gerais, and Parana. Theestimates appearing in Table A2.5 represent a mix of automated and traditional production systems.335

APPENDIX 1: MEMBER STATE REPORTSAs indicated in Table A2.5, feed accounted for nearly three-quarters of average total cost in early2004. Given that the degree of automation varies greatly among producers, capital and labour costsvary widely too. To some extent, these disparities appear to be due to the use of older equipmentthat has been fully depreciated and to the use of family labour on some of the smaller operations.Table A2.5: Estimated commercial production cost (dozen white eggs), January 2004Variable Costs US$/dozen %Feed .285 74.0Vaccines .005 1.3Medicines .003 0.8Total variable cost .293 76.1Fixed Costs US$/dozen %Labour (including taxes) .020 5.2Buildings & equipment .009 2.3Miscellaneous .014 3.6Bird depreciation .049 12.7Total fixed cost .083 23.8Total Cost .385 100.0Source: Sonia Martins, Ph.D. thesis.A2.1.3. TradeBrazil is not a large exporter of eggs or egg products. Exports of shell eggs in 2003 were equivalentto less than 0.2% of total egg production. Exports of processed egg products in 2003 are estimatedto have been less than 0.1% of production in shell egg equivalents.Detailed trade data are not available for most egg categories prior to 1996. The volume of exportsfell sharply in 1997 and in the period since has gradually regained the lost ground.336

APPENDIX 1: MEMBER STATE REPORTS50004500400035003000250020001500100050001996 1997 1998 1999 2000 2001 2002 2003000 tFigure A2.2: Brazilian egg and egg product exports, 1996-2003, ‘000tSource: Bank of BrazilAs shown in Table A2.6 over half of the volume and 40% of the value of egg and egg product exportswas accounted for by liquid egg yolks in 2003. In value terms, the other products of greatestimportance were dried whole eggs (34%) and dried egg albumin (17%). The product composition ofegg product exports has varied substantially from one year to the next. In some earlier years,exports of dried and liquid albumin were somewhat more important than they have been in morerecent years.Table A2.6: Brazilian exports of table eggs and egg products 2003Product (kg)VolumeValueQuantity (‘000s) % US $ (‘000s) %Shell eggs 797 19.2 567 6.3Whole eggs dried 798 19.2 3,087 34.1Whole eggs liquid 34 0.8 36 0.4Egg yolks, dried 25 0.6 93 1.0Egg yolks, liquid 2,135 51.3 3,621 40.0Egg albumin, dried 333 8.0 1,571 17.3Egg albumin, liquid 37 0.9 80 0.9Total 4,159 100.0 9,055 100.0Source: Bank of Brazil.Japan is Brazil’s principal market for eggs and egg products, accounting for 87% of the value in 2003and 90% of the volume. While Japan’s share has not always been this large, it has been the most337

APPENDIX 1: MEMBER STATE REPORTSprominent market from the beginning of the period for which data are available. Of the EUcountries, Austria has been the leading importer. In 2002, Austria accounted for nearly 19% of thetotal value of Brazil’s egg and egg product exports, though in 2003 its share dropped to 7%.Table A2.7: Principal export markets for Brazilian table eggs and egg products 2003.Country Value (US $‘000s) Share (%)Japan 7,849 87Austria 590 7Belgium 232 3Peru 206 2Uruguay 84 1All others 94 1Total 9,055 100Source: Bank of Brazil.Full details of Brazilian exports by product and destination since 1990 are presented in Annex A.A2.1.4. Outlook for the industryThere is no evidence that the issue of animal welfare is likely to be a major concern in Brazil. As amajor supplier to the sector put it to us this is a ‘non-issue for the foreseeable future’.More significantly a major factor likely to affect the future of the sector is the tremendous capacity toincrease feed supply and thus reduce the cost of the most significant input.338

APPENDIX 1: MEMBER STATE REPORTSAnnex A: Brazilian egg and egg product exports, 1990 – 2003Table A2.8: NCM 0407.00.90 – Other birds’ eggs, with shell, fresh, conserved or cooked.YEAR IMPORTING COUNTRY USD (FOB) Kg2003 Total 567.094 796.514Japan 520.172 727.295Angola 46.922 69.2192002 Total 926.778 1.277.158Japan 924.836 1.274.551Angola 1.942 2.6072001 Total 173.001 215.415Japan 170.887 212.515Angola 2.114 2.9002000 Total 32.191 34.050Japan 29.144 31.700Angola 3.047 2.3501999 Total 0,00 0,001998 Total 98.610 105.843United Arab Emirates 80.000 99.777Angola 16.256 3.420Bolivia 2.354 2.6461997 Total 98.208 94.474United Arab Emirates 49.500 56.100Uruguay 15.130 672Kuwait 33.000 37.400Difference 578 3021996 Total 406.264 497.830United Arab Emirates 260.523 320.091Kuwait 145.741 177.7391995 Total 1.587 7.0561994 to 1990 n.a. n.a. n.a.n.a. = Not available.Source: Bank of Brazil.339

APPENDIX 1: MEMBER STATE REPORTSTable A2.9: NCM 0408.9100 – Bird eggs, no shell, dryYEAR IMPORTING COUNTRY USD (FOB) Kg2003 Total 3.087.024 797.960Austria 412.621 116.250Belgium 231.837 47.750Chile 2.599 760Japan 2.282.076 591.500Peru 142.091 37.700Uruguay 15.800 4.0002002 Total 2.320.211 785.670Argentina 0 0Austria 1.273.448 443.800Belgium 67.567 23.250Bolivia 60 20Equador 0 0Japan 639.460 223.100Paraguay 0 0Peru 282.446 77.200Ukraine 0 0Uruguay 57.230 18.300Venezuela 0 02001 Total 3.360.422 1.069.606Argentina 699.569 218.796Austria 1.532.770 492.800Belgium 139.804 44.800Bolivia 0 0Equador 363 100Japan 569.508 156.800Paraguay 0 0Peru 0 0Ukraine 193.634 89.600Uruguay 189.709 55.510Venezuela 35.065 11.2002000 Total 1.284.272 382.790Argentina 101.500 33.000Austria 66.648 22.400Belgium 0 0Bolivia 0 0Equador 0 0Japan 902.919 270.544Paraguay 190 46Peru 0 0Ukraine 0 0Uruguay 213.015 56.800Venezuela 0 0340

APPENDIX 1: MEMBER STATE REPORTSYEAR IMPORTING COUNTRY USD (FOB) Kg1999 Total 428.776 121.750Argentina 52.500 17.500Japan 321.205 91.100Nigeria 137 50Paraguay 0 0Uruguay 54.934 13.1001998 Total 118.990 33.897Argentina 0 0Japan 19.811 6.190Nigeria 0 0Paraguay 0 0Uruguay 99.179 27.7071997 Total 150.356 44.980Argentina 0 0Japan 35.200 10.000Nigeria 0 0Paraguay 5.060 1.100Uruguay 110.096 33.8801996 Total 175.746 37.4201995 Total 129.072 33.9201994 Total 0 01993 Total 9.480 2.000Uruguay 9.480 2.0001992 Total 5.670 1.500Uruguay 5.670 1.5001991 Total 0 01990 Total 63.900 20.000Germany 63.900 20.000Source: Bank of Brazil.Table A2.10: NCM 0408.99.00 – Other birds’ eggs, no shell, fresh, cooked in water etc.YEAR IMPORTING COUNTRY USD (FOB) Kg2003 Total 35.896 34.284Bolivia 33 8Paraguay 1.077 270Uruguay 34.786 34.0062002 Total 126.532 96.519Uruguay 126.532 96.5192001 Total 759.882 764.046Argentina 596.938 621.328Paraguay 20.160 3.551Uruguay 142.784 139.1672000 Total 553.730 499.297Argentina 529.200 480.000Paraguay 4.811 1.189Uruguay 19.719 18.108341

APPENDIX 1: MEMBER STATE REPORTSYEAR IMPORTING COUNTRY USD (FOB) Kg1999 Total 1.242.908 717.608Argentina 645.600 552.000Japan 587.300 155.600Uruguay 10.008 10.0081998 Total 1.242.960 740.800Argentina 1.085.280 696.000Japan 157.680 44.8001997 Total 1.177.920 792.000Argentina 1.177.920 792.0001996 Total 826.638 528.640Argentina 821.388 528.000U.S.A 5.250 6401995 to 1990 n.a. n.a. n.a.Source: Bank of Brazil.Table A2.11: 0408.11.00 – Egg yolks, driedYEAR IMPORTING COUNTRY USD (FOB) Kg2003 Total 92.749 25.050Argentina 0 0Austria 86.289 23.250Belgium 0 0Equador 0 0Japan 0 0Uruguay 6.460 1.8002002 Total 8.515 2.200Argentina 0 0Austria 0 0Belgium 0 0Equador 0 0Japan 0 0Uruguay 8.515 2.2002001 Total 262.577 77.108Argentina 173.500 50.000Austria 0 0Belgium 69.230 22.400Equador 2.414 500Japan 3.810 1.000Uruguay 13.623 3.2082000 Total 134.053 47.028Argentina 78.750 25.000Japan 26.325 6.200Nigeria 0 0Uruguay 28.978 15.828342

APPENDIX 1: MEMBER STATE REPORTSYEAR IMPORTING COUNTRY USD (FOB) Kg1999 Total 107.169 35.804Argentina 6.250 1.500Japan 3.040 800Nigeria 273 100Uruguay 97.606 33.4041998 Total 58.763 17.526Argentina 0 0Japan 87 20Nigeria 0 0Uruguay 58.676 17.5061997 Total 27.381 3.260Argentina 1.861 260Low Countries (Holland) 0 0Uruguay 25.520 3.0001996 Total 2.611 304Argentina 0 0Low Countries (Holland) 61 4Uruguay 2.550 3001995 Total 0 01994 Total 0 01993 Total 1.071 210Uruguay 1.071 2101992 Total 12.274 2.505Germany 0 0Uruguay 12.274 2.5051991 Total 209.058 60.000Germany 209.058 60.000Uruguay 0 01990 Total 0 0Source: Bank of Brazil.Table A2.12: 04081900 – Egg yolks, fresh, cooked in water or steam etc.YEAR IMPORTING COUNTRY USD (FOB) Kg2003 Total 3.620.854 2.135.120Japan 3.581.614 2.114.120Mexico 39.240 21.0002002 Total 2.520.778 1.578.664Japan 2.518.124 1.577.664Mexico 2.654 1.0002001 Total 900.043 624.304Japan 900.043 624.304Mexico 0 02000 Total 545.328 374.592Japan 545.328 374.592Uruguay 0 0343

APPENDIX 1: MEMBER STATE REPORTSYEAR IMPORTING COUNTRY USD (FOB) Kg1999 Total 347.225 237.559Japan 340.803 235.552Uruguay 6.422 2.0071998 Total 857.793 508.762Japan 855.160 507.952Uruguay 2.633 8101997 Total 952.259 689.536Japan 952.115 689.472Uruguay 144 641996 Total 1.215.740 961.632Japan 1.215.740 961.632Uruguay 0 01995 to 1990 n.a. n.a. n.a.Source: Bank of Brazil.Table A2.13: 3502.11.00 – Egg albumin, driedYEAR IMPORTING COUNTRY USD (FOB) Kg2003 Total 1.570.616 332.990Argentina 0 0Austria 91.089 23.250Chile 1.683 340Japan 1.457.244 306.400Peru 0 0Uruguay 20.600 3.0002002 Total 1.901.089 407.485Argentina 0 0Austria 269.585 77.225Chile 1.515 300Japan 1.310.089 253.960Peru 278.644 67.200Uruguay 41.256 8.8002001 Total 1.290.377 254.610Argentina 209.150 47.000Austria 193.584 44.800Chile 0 0Japan 790.176 147.200Peru 0 0Uruguay 97.467 15.6102000 Total 566.409 101.600Argentina 9.500 2.000Japan 510.869 92.400Uruguay 46.040 7.200Venezuela 0 0344

APPENDIX 1: MEMBER STATE REPORTSYEAR IMPORTING COUNTRY USD (FOB) Kg1999 Total 681.371 884.280Argentina 9.500 2.000Japan 652.991 879.080Uruguay 18.880 3.200Venezuela 0 01998 Total 562.575 964.588Argentina 0 0Japan 532.997 960.288Uruguay 29.568 4.200Venezuela 10 1001997 Total 311.943 459.700South Korean Republic 0 0Japan 271.720 454.000Paraguay 0 0Uruguay 40.223 5.7001996 Total 1.459.570 2.435.316South Korean Republic 60.858 108.864Japan 1.370.742 2.322.432Paraguay 220 20Uruguay 27.750 4.0001995 to 1990 n.a. n.a. n.a.Source: Bank of Brazil.Table A2.14: NCM 3502.19.00 Other egg albuminsYEAR IMPORTING COUNTRY USD (FOB) Kg2003 Total 80.409 36.604Bolivia 1.820 260China 0 0Japan 8.283 18.144Peru 64.156 17.200Uruguay 6.150 1.0002002 Total 304.921 256.224Bolivia 168 40China 0 0Japan 100.577 199.584Peru 200.176 55.800Uruguay 4.000 8002001 Total 479.595 798.656Bolivia 0 0China 9.953 36.288Japan 464.842 761.568Peru 0 0Uruguay 4.800 8002000 Total 1.369.340 2.525.877Japan 1.360.277 2.503.872U.K. 9.063 22.005Uruguay 0 0345

APPENDIX 1: MEMBER STATE REPORTSYEAR IMPORTING COUNTRY USD (FOB) Kg1999 Total 532.513 1.251.936Japão 532.513 1.251.939U.K. 0 0Uruguay 0 01998 Total 31.089 32.825Japan 9.400 18.144U.K. 0 0Uruguay 21.689 14.6811997 Total 332.590 474.144Japan 318.590 472.144Uruguay 14.000 2.0001996 Total 0 01995 to 1990 n.a. n.a. n.a.Source: Bank of Brazil.346

APPENDIX 1: MEMBER STATE REPORTSA2.2. IndiaA2.2.1. OverviewThe Indian egg production sector is relatively large and has been growing rapidly over the last 15years. Currently a large proportion of production is derived from small scale producers but the roleof larger companies is increasing. Trade accounts for a very small proportion of overall output andproduction of processed egg products for the domestic and export market is relatively low. The bulkof commercial production takes place in caged systems and there is no evidence that welfareconcerns are of significance in the Indian market.A2.2.2. Egg productionIndia is one of the largest egg producers in the world producing some 43.9 billion eggs in 2003. Since1990 output has been rising at a rate of 5.4% per year and is estimated to be likely to reach 46.2billion eggs in 2004. Almost 50% of eggs are produced in the following five states: Tamilnadu, AndrhaPradesh, Maharashtra, Punjab, Haryana. According to the Indian census of production in 2002 therewere a total of 108 million layers aged between 18 weeks and 20 months and a further 25.5 millionlayers over 20 months.500004500040000350003000025000200001500010000500001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Figure A2.3: India, egg production, 1990-2004 (billion eggs) 1Notes: 1 2004 forecast. Source: Agra CEAS347

APPENDIX 1: MEMBER STATE REPORTSA2.2.2.1. Main producers/packersThe bulk of egg production in India is derived from small scale units and there is very little verticalintegration in the sector. However, in recent years some larger scale production units with morethan 80,000 birds per unit have emerged and the largest producer is estimated to hold approximately1 million birds. Looking in more detail at the structure of commercial production it is evident thatsince 1990 the sector has concentrated significantly. In 1990 half of commercial producers were inunits with less than 16,000 hens while by 2004 this proportion had fallen to 15%. By contrastrelatively large units with more than 80,000 hens accounted for 6% of producers in 1990 and 25% in2004.Table A2.15: India, Evolution of structure of commercial egg production, Proportion ofproducers in different size categories (%)I990-2004*YearLaying hen numbers per unitUp to 8,000 8,000-16,000 16,000-40,000 40,000-80,000 > 80,0000% % % % %1990 24 26 31 13 61991 22 24 32 15 71992 22 24 32 15 71993 20 24 34 15 71994 19 23 35 15 81995 18 23 35 15 91996 17 22 35 17 91997 17 20 36 18 91998 15 20 36 20 91999 14 20 36 20 102000 14 20 36 20 102001 12 19 35 22 122002 10 16 34 25 152003 8 15 32 27 182004 5 10 30 30 25Notes: *Agra CEAS estimates based on daily number of eggs produced per unit.Source: Agra CEAS.A2.2.2.2. Main producersThe eight largest firms in the egg production business are listed in the Table A2.16 below. While nodetailed production figures are available for these enterprises if one assumes they held an average of500,000 birds each this would suggest 155 that in total they produce some 2.6% of total productionthus confirming the relatively low concentration level in the Indian sector.155 Agra CEAS estimate based on average annual production of 300 eggs per bird from 4 mn laying hens.348

APPENDIX 1: MEMBER STATE REPORTSTable A2.16: Leading egg producers in India 2004Name of companyLocationAnak Breeders NasikVenkateshwara Hatcheries Ltd.Pioneer Hatcheries P. LtdKasila Farms Ltd.Poona Pearls Breeders P. Ltd.Simran HatcheriesSuguna Poultry Farm Ltd.Trambka Hatcheries Pvt. Ltd.n.a.HyderabadCoimbatoreSecunderabadPoonan.a.Coimbatoren.a.A2.2.2.3. Main production systemsIn the commercial production sector it is estimated that currently 95% of units use cage systems andsome 5% retain deep litter or barn systems. This picture has evolved rapidly since 1990 since at thatpoint only 25% of units were cage based and three-quarters of production was derived from barnsystems.A2.2.2.4. Technical dataTable A2.17: Technical factors, India, commercial egg production, cage and deep littersystems 2003CageDeep litterLaying cycle (days) 365 365Empty period (days) 22 22Feed/bird/year (kgs) 37.00 40.00Feed/bird/day (grams) 101 110Eggs/bird/year 283 295Kg feed per kg eggs 1.97 2.17Mortality (%) 6.0% 10.0%Number of hens/worker 3,750 2,000Hens housed/cage n.a. 5.6Space allowed/hen (cm2) n.a. 345Pullet cost (€/bird) 2.10 2.10End of lay hen weight (kgs) 1.60 1.50End of lay hen price (€/kg) 0.81 0.38Notes: Some data have been converted from laying cycle to year to correct for different laying cycle lengths by system.Rupees have been converted at 120 Rs to €1.00.Source: Agra CEAS Consulting based on industry estimates.349

APPENDIX 1: MEMBER STATE REPORTSA2.2.2.5. Production costsVariable production costs are presented for caged production in Table A2.18. Feed costs accountfor 69% of total variable costs.Table A2.18: Variable costs of production (€ cents at INR55.82 to the €) 2003Caged systemFeed cost 18.56Medication/vet.MiscellaneousBird depreciation 8.40Total variable cost 26.96The only data available for fixed costs in India is for labour which equates to 0.41 Euro cents perdozen eggs. Using the ratio between labour and total fixed costs in Mexico, a total fixed cost of 1.97Euro cents is implied.A2.2.2.6. Egg marketsEgg consumption in India has been rising strongly and reached an average of 40 eggs per head in2002. The overall domestic market is constrained by religious preferences (eggs are deemed to benon-vegetarian) as well as the lack of refrigeration but is expected to grow strongly in the nextdecade. The majority of eggs in India are sold as shell eggs with only a limited percentage(approximately 5%) going into the processing sector. The share of total egg production produced forown consumption is estimated to be very high at some 40% of all eggs produced while a further 25%are sold to the food service sector which is growing rapidly. The balance of 40% of output is sold viathe retail sector.A2.2.2.7. Egg processingAs is indicated above the egg processing sector in India has not as yet developed significantly due tothe relatively small size of the domestic market for processed products. As a consequence eofsurplus capacity In recent years a number of significant plants have closed and those that remain relyon selling the bulk of their output on export markets. A listing of the main processors, theirestimated output and main product lines is presented below.Table A2.19: Main egg processors in India 2004Name of company Location Capacity ( product t/day) Main productsBalaji Foods Andhra Pradesh 10 Whole egg powderIndo Dutch Andhra Pradesh 6 Dried, liquid, frozenSKM Feeds Tamil Nadu 8 Dried egg powder, yolk, albumenOvobel Foods Karnataka 6 Dried powder and frozenWestern* Punjab 2 Dried powderNotes: *Under construction.Source: Industry interviews.350

APPENDIX 1: MEMBER STATE REPORTSA2.2.3. TradeIndian trade in eggs and egg products represents a very limited proportion of the country’s output,although volumes have been increasing. While there are no recorded imports of egg products it isestimated that India produced and exported 5,000 tonnes of dried egg products in 2002 (4,000tonnes in 2001,3,000 tonnes in 2000) and that in 2003 this would have more than doubled to over12,500 tonnes. There are no recorded shell egg imports but exports are estimated at 350 mn eggs in2003.Table A2.20: Egg and egg product exports, India 2000-20032000 2001 2002 2003Dried egg products (tonnes of product) 3,000 4,000 5,000 12,500Shell eggs (mn. eggs) - 200 400 350Source: National Egg Co-ordination Committee.A2.2.4. Policy and outlookThe Indian egg production and processing sector has been developing rapidly over the last decadeand technical efficiency in both production and processing has been improving. There are also signsthat larger vertically integrated production/processing units are emerging slowly. While the sectorenvisages a growth in exports, particularly of processed products, growing domestic demand is likelyto absorb the bulk of any increases in output. Animal welfare is not at present a concern in thesector and the bulk of commercial production is expected to be derived from caged systems for theforeseeable future.351

APPENDIX 1: MEMBER STATE REPORTSA2.3. MexicoA2.3.1. OverviewMexico’s output has been growing rapidly over the period since 1990 with output increasing fromapproximately 1 mn tonnes in that year to 1.85 mn tonnes by 2002. This has mainly been driven by astrong rise in per capita consumption from 12.1 kg per head in 1990 to the current 20.3 kg. As inmany other parts of the world, egg production in Mexico has shifted away from small-scale, barnyardoperations and toward large, vertically integrated production systems. It is estimated that very smallunits, though large in number, account for no more than 5% of total output. Mexico’s ten leading eggproducingfirms in 2003 were responsible for approximately 38% of the countries egg production.There are estimated to be some 30 firms with at least 1 million layers who collectively account forabout two-thirds of total output.Fresh shell eggs account for 93% of eggs sold and processing absorbs only 7% but this share is risingrapidly as incomes increase. Trade is equivalent to a very limited part of current production.Currently all commercial production of eggs takes place in cage systems. Animal welfare is not asimportant an issue in Mexico as in many developed countries. For most consumers, the principalconcern is price, according to the industry representatives interviewed in the context of this study.Nevertheless, the issue would appear to be coming on the industry’s radar.The National Poultry Union is currently developing what is called a “Mexican Official Norm”regarding the humanitarian treatment of farm animals. It will deal with such topics as appropriatefeeding, transportation, and ventilation practices. It will not address the issue of density or numberof hens per cage.Mexico is a competitive producer of eggs on an international scale but is not at present significantlyinvolved in trade although this could change in future. Animal welfare concerns are not expected tobe a significant issue for the sector in the near future although there is increasing awareness of thisconcern and some first steps are being taken to address some aspects of this.353

APPENDIX 2: THIRD COUNTRIESA2.3.2. Egg productionEgg production in Mexico has increased strongly over the past decade. Between 1990 and 2002, theannual rate of growth averaged 5.3%. According to the National Poultry Union (UNA), productionin 2003 stabilised near the 2002 level as producers reacted to lower prices. The trend in the volumeand value of egg production, as estimated by Mexico’s Ministry of Agriculture, is shown in TableA2.21.Table A2.21: Mexican egg production 1990 - 2002Year Volume (tonnes) Value ($million)1990 1,009,795 239.351991 1,141,381 272.111992 1,161,270 273.671993 1,233,559 334.321994 1,246,223 361.191995 1,241,987 527.591996 1,235,872 849.431997 1,328,935 954.771998 1,461,153 954.791999 1,634,793 985.022000 1,787,942 1,185.182001 1,892,143 1,354.962002 1,847,509 1,297.49Source: Information Service and Agricultural Statistics / SAGARPA.Geographically, egg production in Mexico is highly concentrated and is becoming more so. Asindicated in Table A2.22, two States (Jalisco and Puebla) accounted for 63% of production in 2002. In1990, they collectively accounted for 46% of output. Both states are located in the southern part ofthe country in close proximity to the major urban markets of Mexico City and Guadalajara.Table A2.22: Mexican egg production by State, 1990 – 2002 (‘000 tonnes)State1990199119921993199419951996199719981999200020012002share %MarketJalisco 232 258 284 305 322 302 302 322 374 472 633 760 750 40.6Puebla 228 274 251 282 286 288 297 318 371 400 402 408 416 22.5Sonora 112 123 138 147 131 127 122 122 111 120 114 120 118 6.4Nuevo Leon 63 59 60 64 73 78 63 66 89 116 101 110 106 5.7Yucatan 27 57 75 101 69 70 66 74 73 74 77 73 73 4.0Durango 48 49 27 27 44 49 52 57 74 76 81 69 70 3.8Guanajuato 40 42 44 46 50 48 55 63 66 67 67 70 70 3.8Others 259 280 283 260 272 280 279 307 303 309 313 281 244 13.2Total 1,010 1,141 1,161 1,234 1,246 1,242 1,236 1,329 1,461 1,634 1,788 1,892 1,848 100Source: Information Service and Agricultural Statistics / SAGARPA - Supply-demand situation.354

APPENDIX 1: MEMBER STATE REPORTSMexico’s egg industry is almost exclusively focused on the domestic market with only a fractionalshare (less than 0.1%) exported. Likewise, imports account for a relatively small share (0.5%) ofdomestic consumption.Table A2.23: Supply – demand trends for Mexican egg industry 1990 – 2001 (‘000tonnes)Year Production Imports Exports Domestic consumption1990 1,009.8 3.9 0 1,013.71991 1,141.4 11.8 0 1,153.21992 1,161.3 10.8 0 1,172.11993 1,233.6 9.8 0 1,243.41994 1,246.2 11.7 0.1 1,257.91995 1,242.0 7.6 0.1 1,249.51996 1,235.9 9.3 0.1 1,245.01997 1,328.9 12.4 0.1 1,341.21998 1,461.2 11.9 0.3 1,472.81999 1,634.8 8.5 0.4 1,643.02000 1,787.9 10.9 0.1 1,798.72001* 1,881.6 10.2 1.2 1,890.6Notes: *Preliminary.Source: SAGARPA.Per capita consumption of eggs in Mexico has trended unevenly higher in recent years. To someextent, countervailing forces have been at work. Urban populations have generally shifted their dietsaway from foods containing cholesterol and toward convenience breakfasts that don’t include eggs.On the other hand, large supplies have kept the price of eggs low, helping stimulate demand. Risingincomes have also contributed to a general upgrading of the diet. The net effect has been an increasein per capita consumption of about two-thirds since 1990.355

APPENDIX 2: THIRD COUNTRIESTable A2.24: Per capita consumption of eggs and egg products in Mexico, shell eggequivalent 1990 – 2001YearKilograms/year1990 12.11991 13.51992 13.51993 14.01994 13.91995 13.61996 13.31997 14.11998 15.21999 16.72000 19.92001 20.22002 20.22003 20.3Source: SAGARPA (1990–99) and USDA, FAS (2000–03).Most eggs in Mexico are sold in-shell, though the share going into processed products is growingrapidly. In 2002, 93% of Mexico’s eggs were sold in-shell. In-shell eggs are sold in two forms - inbulk or packaged. For bulk sale, 360 eggs of different sizes are packed in a single box. These boxesare merchandised through a variety of outlets and may go through two or more intermediariesbefore reaching the final consumer. Packaged eggs are sold in cartons of a dozen or dozen and onehalf.Most packaged eggs are sold through supermarkets or convenience stores. Most processedeggs (71%) are used in the baking and confectionery sectors. The remaining 29% are converted toother forms for use in a variety of applications.As indicated in Table A2.25 below the utilisation of eggs in Mexico is shifting away from bulk sale andtoward packaged sale and processing, though processing still accounts for a relatively small share ofthe total.Table A2.25: Utilisation of eggs in Mexico 1994 and 2002 (%)Form 1994 2002Bulk sale 93 71Packaged sale 6 22Processing 1 7Source: National Poultry Union.356

APPENDIX 1: MEMBER STATE REPORTSA2.3.2.1. Main producers/packersAs in many other parts of the world, egg production in Mexico has shifted away from small-scale,barnyard operations and toward large, vertically integrated production systems. It is estimated thatvery small units, though large in number, account for no more than 5% of total output.This leaves about 95% of national output that is accounted for by commercial operations of varyingsize. The very largest of these are vertically integrated operations that operate their own hatcheries,grow-out units, feed mills, packaging, and distribution systems. The distribution of these firms by sizeand market share is shown in Table A2.26. While these numbers suggest that concentration is stableand perhaps even declined slightly between 1996 and 2001, other evidence would suggest thatconsolidation, at least among the larger firms, is continuing. For example, Bachoco, one of Mexico’sleading producers of table eggs, recently acquired two other large firms and reported that its shareof the market had reached 8.5%.Table A2.26: Market share of leading egg producers 1996 and 2001Category Number of firms Market share (%)1996 2001 1996 20011 st tier 6 9 29 352 nd tier 34 33 50 363 rd tier 170 168 23 29Source: National Poultry Association.Mexico’s ten leading egg-producing firms in 2003 are listed in Table A2.27. Collectively they wereresponsible for approximately 38% of the countries egg production. The National Poultry Unionreports that there were 30 firms with at least 1 million layers and that they collectively accounted forabout two-thirds of total output.Table A2.27: Top ten Mexican egg producing firms 2003Firm Location Market share (%)El Calvario Tehuacan, Puebla 8.2Bachoco Celaya, Guanajuato 5.6Alimentos Balanceados PROAM San Juan de los Lagos, Jalisco 4.2Grupo San Juan San Juan de los Lagos, Jalisco 4.1Socorro Romero Tehuacan, Puebla 3.5Avicola Fernandez Yucatan 3.0Empresas Guadalupe Guadalajara, Jalisco 2.7Avicultores Unidos del Noroeste Cd. Obregon, Sonora 2.5Gigantes Tepa Tepatitlàn, Jalisco 2.3Nochistongo La Laguna 2.1Source: National Poultry Union (UNA).357

APPENDIX 2: THIRD COUNTRIESA2.3.2.2. Main production systemsIt can be assumed that all laying hens are held in conventional cages.Animal welfare:Animal welfare is not as important an issue in Mexico as in many developed countries. For mostconsumers, the principal concern is price, according to the industry representatives interviewed inthe context of this study. Nevertheless, this issue appears to be coming onto the industry’s ‘radar’.The National Poultry Union is currently developing what is called a “Mexican Official Norm”regarding the humanitarian treatment of farm animals. It will deal with such topics as appropriatefeeding, transportation, and ventilation practices. It will not address the issue of density or numberof hens per cage. According to the chief veterinarian of the National Poultry Union, producersgenerally follow the recommendations of the suppliers of cages regarding density and these oftenvary from one company to the next.A2.3.2.3. Technical dataAs in the US, moulting is used in egg production in Mexico. It is not clear how extensively it is usedthough UNA estimates that 25% to 30% of all eggs are produced in the second cycle of production.Since a second cycle of production generally accounts for no more than 40% of a flock’s overallproduction, the UNA estimate suggests that a significant share of the commercial flocks in Mexicoare moulted. The distribution of laying hens by age Table A2.28 is also indicative of a system that isapplying the moulting technique on a broad scale.Table A2.28: Number of birds in Mexico’s layer flocks, by age 1997 – 2003 (‘000)Age 1997 1998 1999 2000 2001 2002 2003Pullets (0 – 18 weeks) 26,644 28,215 32,316 32,851 34,076 34,586 33,205Hens (18 – 86 weeks) 73,876 75,292 84,137 92,521 94,590 96,286 91,681Hens (over 86 weeks) 18,000 22,000 19,000 17,350 19,000 19,000 19,000Total 118,520 125,507 135,453 142,722 147,666 149,872 143,886Source: National Poultry Association.Performance information for egg production in Mexico is not routinely collected and is thereforedifficult to find. The information displayed in Table A2.29 was obtained from three sources. The USagricultural attaché in Mexico City reports that the leading layer breeds in Mexico are Babcock 300(35%) and Hy-Line (33%). The UNA staff confirms that Babcock 300 is the most prominent breed.Thus, the key performance measures presented here refer to Babcock 300’s breeds, as obtainedfrom their management guides. In the case of Hy-Line W-36, Table A2.29 provides information forboth one-cycle and two-cycle approaches. It should be noted that these measures representperformance under prescribed management practices. While many of the best-equipped producersin Mexico can and do attain these levels, smaller, less well-equipped producers probably do not.These estimates should not, therefore, be considered representative of the entire industry.358

APPENDIX 1: MEMBER STATE REPORTSThe third source of information of performance is from a sample of large egg producers in the stateof Puebla. It is probably more representative of the entire industry, at least for one-cycle productionsystems. It will be noted that it is slightly less efficient than the other systems.Table A2.29: Performance measures for Mexican egg production systems 2003Performance MeasureBabcock B300One-cycleHy-Line W-36Two-cycleMexican farmrecordsLaying cycle (days) 406 434 616 392Feed/bird overlaying cycle (kg) 41.82 40.00 56.82 43.64Feed/bird/day (grams) 103 92.3 92.3 111Eggs/bird/laying cycle 322 337 455 313Kg feed per kg eggs 2.02 1.85 2.00 2.23Mortality (%) 6.5 4.1 8.0 6.5Number of hens/labourer (000) 160 160 160 160Hens housed/cage 7.5 7.5 7.5 7.5End of lay hen weight (kg) 2.18 1.59 1.59 1.59Source: Hy-Line and Babcock Management Guides and industry sources.A2.3.2.4. Production costsInformation on the cost of production was provided by the National Poultry Union. It isrepresentative of the larger, more highly mechanised operations. Since these units are verticallyintegrated, costs of packaging and marketing are included. The costs appearing in Table A2.30 havebeen converted to US cents per dozen from pesos per kilogram. Costs of feed and pullets are theprincipal expenses, accounting for 55% and 15%, respectively.Table A2.30; Cost of egg production in Mexico 2003Direct costsUS cents/dozenFeed 27.4Pullets 7.4Labour 2.0Medication 0.4Packaging 4.4Plant and equipment depreciation 0.8Miscellaneous (utilities, maintenance, etc.) 2.6Indirect costsTotal direct costs 45.0¢Marketing costs 3.1Administrative expenses 1.8Financing costs 0.2Assumptions: 1 US dollar = 11 pesos, 1 egg = 63 grams.Source: National Poultry Union.Total indirect costs 5.1¢Total cost 50.1¢359

APPENDIX 2: THIRD COUNTRIESA2.3.3. TradeAs noted earlier, Mexico is not a major exporter of eggs or egg products. Though exports of shelleggs and dried albumin have trended higher in recent years, as a share of total production theyremain relatively small.International trade data at the 10-digit level of detail is generally not publicly available in publishedform in Mexico. Thus, the data presented in this section comes from several different sourcesincluding the Ministry of the Economy, Bancomext, and the International Egg Commission. Though itis thought to provide a generally accurate picture of the level and trend in Mexican exports of eggsand egg products, it is incomplete. The sources of information are not always consistent and onlylimited information is available regarding the destination of Mexico’s exports.An overview of the volume of Mexican exports during 1990-2002 is displayed in Table A2.31. Inrecent years, dried albumin has become the country’s principal egg product export. The AvibelCompany in Jalisco is reportedly a leading source of this product. In recent years, Canada has beenthe principal destination for these exports, though some has gone to EU countries. Information for2002 indicates that the principal destinations were as follows:Table A2.31: Principal export destinations 1990-2002CountryShareCanada 69%Japan 14%Austria 8%Germany 4%Italy 4%The US agricultural attaché in Mexico City reports that most of the recent trade between Mexicoand the European Union under their free trade agreement has been Mexican exports of “SPS eggs”,which enjoy a 50% reduction in the EU tariff. One of our contacts at the Ministry of Agriculturereported that Mexico also exports specific pathogen free (SPF) embryonated eggs for use in vaccineproduction and research. These eggs are not for food use.360

APPENDIX 1: MEMBER STATE REPORTSTable A2.32: Mexican exports of eggs and egg products 1990 – 2002 (tonnes)YearShelleggsWhole eggs Egg yolks Egg albuminDried Liquid Dried Liquid Dried Liquid1990 7.1 0 n.a. 0 0 n.a. n.a.1991 3.4 0 n.a. 0 0 n.a. n.a.1992 45.2 0 n.a. 0 0 n.a. n.a.1993 26.2 0 n.a. 0 0.1 n.a. n.a.1994 54.9 0 n.a. 0.6 1.0 n.a. n.a.1995 86.8 0 13.7 2.8 5.8 n.a. n.a.1996 9.4 0 1.5 11.2 3.1 n.a. n.a.1997 4.3 0 20.3 6.4 21.4 92.0 n.a.1998 21.2 0 0.5 3.4 1.1 281.0 n.a.1999 82.3 0 10.2 5.1 59.1 280.0 n.a.2000 58.3 0 0.2 7.3 0 787.9 n.a.2001 92.7 0 0 0 38.7 495.5 n.a.2002 78.4 216.1 0.3 0 0 581.1 n.a.n.a. = Not available.Source: SOCOFI, Bancomext, and International Egg Commission.A2.3.4. Outlook for the Mexican industryThe current trend in growth in production in Mexico is expected to continue in line with increaseddemand. As incomes grow the share of processed egg products in total consumption is expected tocontinue to rise.Mexico is a competitive producer of eggs on an international scale but is not at present significantlyinvolved in trade although this could change in future. Animal welfare concerns are not expected tobe a significant issue for the sector in the near future although there is increasing awareness of thisconcern and some first steps are being taken to address some aspects of this.361

APPENDIX 2: THIRD COUNTRIESA2.4. United StatesA2.4.1. OverviewSince 1989, the production of eggs has steadily risen in the U.S. reaching 74.4 billion eggs in 2003.Between 1990 and 2003, production rose 26% or by an average annual rate of 1.8%.The U.S. egg industry, like those in many other countries around the world, has undergoneenormous structural change over the past four or five decades. Egg production in the U.S. has gonefrom a small-scale, barnyard operation where in 1959 more than 1.1 million farmers (30% of thetotal) produced eggs for sale to the present day where the 260 largest egg producing firms accountfor an estimated 95% of all layers.Around 60% of shell eggs are produced through vertically integrated operations. Some of these arevery substantial. At the end of 2003 there were 62 firms with 1 million or more layers in production.Collectively, these firms accounted for about 84% of national production. The largest single producerCal Maine Food Inc. held 21.1 million layers. Of the leading firms, 13 had more than 5 million layersin production at the end of 2003 and 6 firms had more than 10 million layers in production.The trend in recent years is for a decreasing share of eggs to be marketed directly to the cateringsector and for an increasing share to be marketed through the processing industry which now takessome 30% of eggs produced.While an estimated 99% of output is in from caged systems the U.S. egg industry has taken aproactive approach to promoting the adoption of animal welfare standards. Beginning in 1999, theUnited Egg Producers (UEP), working in concert with McDonald’s Corporation, began working on aset of industry guidelines. The resulting guidelines were adopted by the industry in 2002 and havesince become the basis for the acquisition requirements of many of the largest buyers of eggs and eggproducts in the U.S., including McDonald’s.Adoption of the guidelines is voluntary. Firms that adopt the guidelines are recognised as ‘AnimalCare Certified’ companies and are authorised to display the Animal Care Certified logo on theirpackaging and to market their eggs as Animal Care Certified. The UEP reported in late 2003 thatmore than 200 egg producers representing 84% of U.S. laying hens had adopted the guidelines andwere implementing them. One of the main features of the guidelines is the requirement that:Depending on the size of the bird and the size and style of the cage, floor space of 432cm 2 to555cm 2 per hen are to be provided. This requirement is to be phased in over a 5-year periodending in 2008.363

APPENDIX 2: THIRD COUNTRIESLooking to the future the USDA projects that, compared to an average annual rate of growth inoutput of 2.7% in the last expansion, a rate of growth about half that level is likely over the next fouryears.A2.4.2. Egg productionEgg production in the U.S. is geographically dispersed, though it is increasingly moving toward theMidwest. For nearly 40 years, until 1998, California was the nation’s leading egg producer. In thatyear the lead shifted first to Ohio and then, three years later, to Iowa where it remains today. In aperiod of 15 years, from 1988 to 2003, Iowa has gone from a stock of 8 million laying hens to 40million. The major deficit and surplus egg producing states are as follows:Table A2.33: Leading egg producing States and the number of laying hens in flocks withmore than 30,000 birds 2004Deficit MarketsNew YorkCaliforniaIllinoisTexasSource: USDA, NASS, Chickens and Eggs, February 2004.IowaOhioIndianaPennsylvaniaNebraskaMinnesotaSurplus MarketsThe U.S. egg industry, like those in many other countries around the world, has undergoneenormous structural change over the past four or five decades. Egg production in the U.S. has gonefrom a small-scale, barnyard operation where in 1959 more than 1.1 million farmers (30% of thetotal) produced eggs for sale to the present day where the 260 largest egg producing firms accountfor an estimated 95% of all layers (see Table A2.34 and Table A2.35).Table A2.34: Number of U.S. farms with egg sales 1959 – 1997YearNumber of farms1959 1,114,5961964 526,5301974 304,8231978 308,8521992 12,2921997 9,794Source: USDA, ERS and NASS.364

APPENDIX 2: THIRD COUNTRIESTable A2.35: Leading table egg producing States, February 2004Rank State Number of table egg layers in flocks of 30,000 and above1 Iowa 39,9132 Ohio 26,8313 Indiana 22,5044 Pennsylvania 21,8825 California 20,2266 Texas 14,2597 Nebraska 11,6918 Georgia 11,4039 Florida 10,53010 Minnesota 10,498Source: USDA, NASS, Chickens and Eggs, February 2004.Though the egg industry lagged behind the broiler industry in consolidating and vertically integrating,it was eventually driven in this direction by many of the same influences. The development of highlymechanised technologies to accomplish such tasks as housing, feeding, environmental control, egghandling, and packaging combined with improvements in breeding, nutrition, disease control, andmanagement created an opportunity to realise substantial economies from large scale production. Itis generally considered that operations of 500,000 to 5 million birds are required to realise most ofthese economies.As a proportion of the eggs (for human consumption, i.e. not including hatchery production)produced in the U.S. in 2003, 70.5% were marketed in-shell while the remaining 29.5% wereprocessed (referred to as broken). Breaking in the U.S. is seasonal with the largest share of eggsbroken between May and October. In recent years, breaking has ranged from a seasonal low of 27%to a seasonal high of 33%. Although it has recently stabilised at about 30%, the share of table eggsbroken has approximately doubled over the last twenty years Figure A2.4.365

APPENDIX 2: THIRD COUNTRIES353025201510501983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Source USDA.Figure A2.4: Share (%) of U.S. table egg production broken for products 1983-2003The edible liquid that is produced from broken eggs is marketed in whole-egg form as well asseparated egg white (albumin) and separated egg yolk. By product weight, 64% was marketed inwhole egg form in 2003 with the remainder marketed in one of the two separated forms TableA2.36.Table A2.36: Egg products 2002 and 20032002 2003Shell eggs broken (billion eggs) 22.60 21.94Edible liquid from shell eggs broken (tonnes):whole 667,328 677,260white 266,747 248,724yolk 145,318 132,721Total 1,079,393 1,058,705Source: USDA, NASS, Egg Products, February 10, 2004.366

APPENDIX 2: THIRD COUNTRIESPrior to 1998, the USDA published data on the volume of egg products marketed in liquid, frozen, ordried form. The final year for which these data were published (1997) showed the followingdistribution by these categories:liquid: 546 million tonnes;frozen: 177 million tonnes; and,dried: 60 million tonnes.Nearly 60% of all shell eggs are marketed through retail outlets. Another 9% are directly marketedto the catering sector while less than 1% of table eggs are exported directly from producers withoutany processing Figure A2.5.Catering9.1%Export0.8%Processing30.6%Retail59.5%Figure A2.5: Shell egg market outlets 2002Source: United Egg Producers.As Figure A2.6 shows, the trend in recent years is for a decreasing share to be marketed directly tothe catering sector and for an increasing share to be marketed through the processing industry.Traditionally, as the breaker market becomes saturated, eggs are diverted to the shell market. Thus,with the large supply of eggs in 2002, the retail shell market absorbed an unusually large share of theoutput.367

APPENDIX 2: THIRD COUNTRIES100%90%80%70%60%50%40%30%20%10%0%1990 1995 2000Figure A2.6: Trend in distribution of table eggs among market outlets 1990-2000Source - American egg boardretail processing foodservice exportHistorically, egg production in the U.S. has responded to a variety of influences. Among others,changes in consumer tastes and preferences have had an especially profound influence. Looking backover the past several decades, at least four major swings in consumer demand can be identified.During World War II, when foodstuffs were in tight supply and food rationing was in effect, eggproduction expanded sharply. Eggs offered a convenient, relatively low-cost source of protein. Thiswas followed by changes in consumer diets in the 1950s and 1960s, including the move to lighter,more convenient breakfasts. This caused per capita consumption to stabilise at around 320 eggs peryear. This was followed in the 1970s and 1980s by growing concerns over the link between diet andhealth and the role of cholesterol, leading to a steady decline in per capita egg consumption. Morerecently, Americans have relaxed their restrictive attitude toward the consumption of fats andcholesterol, prompted in part by the popularity of low carbohydrate diets. As a result of this changein attitude, the per capita consumption of eggs (shell and processed) has risen about 7% since the late1990s (see Figure A2.7).368

APPENDIX 2: THIRD COUNTRIES35030025020015010050020032002200120001999199819971996199519941993199219911990198919881987198619851984198319821981198019791978197719761975197419731972197119701969196819671966196519641963196219611960No. eggs/personFigure A2.7: Trend in U.S. per capita consumption of shell eggs and egg products 1960-2003Source: USDASince 1989, the production of eggs has steadily risen in the U.S. reaching 74.4 billion eggs in 2003.Between 1990 and 2003, production rose 26% or by an average annual rate of 1.8% (see FigureA2.8).Egg production was only fractionally higher in 2003. The slower rate of growth in 2003 was due to acombination of producers scaling back their stocking densities in compliance with new animal welfareguidelines (discussed later in the report), an outbreak of Exotic Newcastle Disease in California, andat least two years of low returns. Production in 2004 is forecast by USDA to be up around 1.3%,partly in response to the record high egg prices in late 2003 and early 2004.369

APPENDIX 2: THIRD COUNTRIES800007000060000500004000030000200001000001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Billion eggsFigure A2.8: U.S. table egg production 1990 – 2003Note: December to November marketing year. Source: USDA, NASS.A2.4.2.1. Main producers/packersAs of December 31, 2003, there were 62 firms with 1 million or more layers in production.Collectively, these firms accounted for about 84% of national production. While the compositionand ranking of these firms changes slightly from year-to-year, the total number has remained fairlysteady, ranging between 54 (in 1999) to 63 (in 2002). Of the leading firms, 13 had more than 5million layers in production at the end of 2003 and 6 firms had more than 10 million layers inproduction. The largest ten companies are presented in Table A2.37 ranked by layers held in 2003.370

APPENDIX 2: THIRD COUNTRIESTable A2.37: Top ten U.S. egg producing firms 2003Firm Headquarters Number of layers in production (millions)1999 2000 2001 2002 2003Cal-Maine Foods, Inc. Jackson, MS 19.9 20.4 20.4 20.6 21.1Rose Acre Farms Seymour, IN 15.7 16.2 16.0 17.5 17.5Moark LLC Carthage, MN 6.5 6.5 6.4 8.4 14.2Michael Foods Minneapolis, MN 15.0 13.5 14.0 14.0 13.8Spareboe Companies Litchfield, MN 5.0 7.0 8.0 10.5 12.0DeCoster Egg Farms Turner, ME 12.6 12.6 12.8 10.5 10.5Dutchland Farms, L.P. Lancaster, PA 4.3 4.3 7.3 7.3 6.9Buckeye Egg Farm Croton, OH 10.5 10.5 10.5 11.0 6.7Fort Recovery Equity Fort Recovery, OH 8.0 8.0 6.3 6.5 6.7ISE America, Inc. Galena, MD 4.8 5.5 5.5 6.1 6.5Source: Egg Industry, various issues.The growing influence of the largest of these firms is indicated in Figure A2.9 below. While thenumber of firms with 5 million or more layers in production has gradually risen over the past 20years, their share of the national flock has risen about seven-fold, going from 6% in 1983 to 47% in2003.5050454540403535303025252020151510105501983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003% of layers Number of firms0Figure A2.9: Trend in large firm egg production, 1983-2003Source: Don Bell and Watt Publishing Co.In comparison with the production of broilers and turkeys, U.S. egg producers make somewhatgreater use of vertical integration as a means of co-ordinating production and processing. Of the371

APPENDIX 2: THIRD COUNTRIESremaining production, most is produced under production contracts while less than 3% is producedunder marketing contracts.There are also substantial differences in the degree of vertical integration among firms within the eggindustry. In part, this appears to depend on the extent to which firms are exposed to the relativeuncertainty of the shell egg market versus the more stable processed product market. Thisdifference is illustrated by the different approaches of two of the leading firms in the industry, Cal-Maine Foods, the largest producer for the shell egg market, and Michael Foods, the largest eggprocessor. Cal-Maine’s sales in 2003 were almost exclusively (99%) shell egg sales. (The companyestimates that their sales represented about 13% of all shell eggs sold in the U.S. that year.) Cal-Maine is highly integrated with company-owned facilities accounting for about 87% of its 2003 eggproduction.Michael Foods, in contrast, concentrates on the production of processed egg products and is theleading egg breaker. In 2002, 97% of its sales were from egg products and only 3% from the sale ofshell eggs. The firm is also less highly integrated. In 2002, it reported that it acquired about 70% ofits eggs through grower contracts and on the spot market.A2.4.2.2. Main production systemsMost commercial egg production takes place in battery cages. There are no legislative standards foregg production, however, the U.S. egg industry has taken a proactive approach to promoting theadoption of animal welfare standards. Beginning in 1999, the United Egg Producers (UEP), working inconcert with McDonald’s Corporation, began working on a set of industry guidelines. The guidelineswere developed by a scientific advisory committee chaired by the Dean of the College of Agricultureat Michigan State University. The resulting guidelines were adopted by the industry in 2002 and havesince become the basis for the acquisition requirements of many of the largest buyers of eggs and eggproducts in the U.S., including McDonald’s.Adoption of the guidelines is voluntary. Firms that adopt the guidelines are recognised as ‘AnimalCare Certified’ companies and are authorised to display the Animal Care Certified logo on theirpackaging and to market their eggs as Animal Care Certified. The UEP reported in late 2003 thatmore than 200 egg producers representing 84% of U.S. laying hens had adopted the guidelines andwere implementing them.Some of the main features of the guidelines are as follows:Depending on the size of the bird and the size and style of the cage, floor space of 432cm 2 to555cm 2 per hen are to be provided. This requirement is to be phased in over a 5-year periodending in 2008 (see Table A2.38).Humane disposal of unviable chicks and pipped eggs at the hatchery.On-farm ammonia levels not to exceed 50ppm and to work toward reduction to 25ppm.372

APPENDIX 2: THIRD COUNTRIESStandards to be followed for inducing molt with producers encouraged to consider methods thatdo not require feed withdrawal.Sick birds to be culled with an approved humane euthanasia method.In catching and transporting, a maximum of seven birds to be carried by hand and space intransport crates for all birds to sit at the same time.Holding time at the slaughter plant not to exceed 6 hours with adequate ventilation duringholding. Stunning efficiency of not less that 98%.Beak trimming should occur only when necessary to prevent feather pecking and cannibalism andbe carried out by properly trained personnel.The economic implications of the adoption of these standards and the degree to which they will allbe adopted by the sector remain unclear at this point 156 . In the near-term, reduced stocking densitycontributed to a slightly smaller flock during the second half of 2003 and record high egg prices. Thisinfluence is expected to be temporary as growers respond to the higher prices by expandingproduction.Table A2.38: Schedule for implementation of U.S. Animal Care Certified ProgramDateSpace allowance per henPrior to April 2002 342 cm 2April 2002 – September 2003 361 cm 2October 2003 – March 2005 381 cm 2April 2005 – September 2006 394 cm 2October 2006 – March 2008 413 cm 2From April 2008 432 cm 2Source: Don Bell’s Table Egg Layer Flock Projections and Economic Commentary – 2002, July 16, 2002.If those growers who are presently committed to the ACC program adhere to it, the industry willreduce the flock size by about 46 million hens or 20%. Expansion to meet future demand willrequire investment in new or rebuilt layer houses, estimated by Don Bell at the University ofCalifornia to cost as much as US $15 per bird. This will add to the cost of production. Otheractivities required by the guidelines could also entail additional costs.At least partially offsetting these added costs are some positive benefits of reduced cage density. Forexample, it is estimated that removing one bird from each cage will result in an increase of 5 to 10eggs or more from each remaining hen. Also, it is estimated that reduced density will lower eggbreakage by 5% and improve mortality by 2%-3%. However, with all factors taken into considerationindustry analysts consider that the adoption of the new standards is likely to result in higher per unitcosts.156 There is, for example considerable debate (ACC apart) about the issue of beak trimming. Producers are being advised beak trimmingmay not be required but since it is estimated to result in 5% feed saving and widespread cannibalism is thought likely if it is not done, fewproducers are thought likely to take the risk.373

APPENDIX 2: THIRD COUNTRIESIt is anticipated that the higher costs that result will be largely, if not entirely passed on to theconsumer. Urner Barry, a leading source of price information for the trade, has indicated theirintention to report separate price quotes for ACC and non-ACC eggs, to the extent the marketdifferentiates between them. Historically, the demand for eggs has been highly unresponsive tochanges in price. The USDA’s Economic Research Service estimates the retail elasticity of demandwith respect to price at only -0.15. It is this highly inelastic demand with respect to price that givesegg prices their volatility. This lack of price responsiveness suggests that additional costs associatedwith ACC are likely to be passed on to consumers with limited impact on demand. Since thedemand for processed eggs is more price-responsive, the impact could be somewhat greater in thatsegment of the market.As reported above, most egg production in the U.S. occurs in large, highly mechanised operations.About 60% of production comes from vertically integrated firms that include hatching and pulletraisingoperations, feed mills, and egg handling and processing facilities. To achieve the economies ofscale that are possible with current technology, operations of 500,000 to 5,000,000 birds arerequired. The individual layer houses within these operations commonly accommodate 105,000 to110,000 birds. Cages are used in nearly all large-scale commercial production. In its 1999 study ofthe table egg industry, USDA reported that less than 1% of commercial-scale (30,000 or more birds)layer houses were non-caged. While the configuration of these systems varies from firm-to-firm andsite-to-site, they are similar in most important aspects.Despite the dominance of large scale egg production systems in the U.S., there are small but growingniche markets for eggs produced through two alternative systems: organic and free-range. Whilethese systems account for a very small share of output, we have included them in the analysis forcomparative purposes.The USDA implemented national standards on organic production for a wide range of products,including eggs, in October 2002. The Department estimates that there were about 1.6 millionorganic layer hens in the national flock in 2001. While this represents a two-fold increase in thenumber estimated only four years earlier, it still represents only about 0.6% of the total table eggflock.Eggs produced by free-range hens are less precisely defined. As commonly perceived by consumers,these eggs come from hens that are able to roam in a less confined space. Some growers describethem as ‘cage free’ eggs. Free-range layers are also estimated to account for less than 1% of thetotal. So, in combination the alternative systems are very small relative to the large, commercialcaged systems.It should be noted that while many producers of organic and free-range eggs operate on a very smallscale, the industry leaders, such as Cal-Maine and Rose Acre Farms, are among the producersdeveloping their own branded organic and free-range products. Thus, they could become a moresignificant part of the market in the future, depending on consumer response.374

APPENDIX 2: THIRD COUNTRIESA2.4.2.3. Technical dataRaising pullets:Most flocks originate as day-old chicks that are brought to the grow-house for raising. A single layercage may contain as many as fifty chicks 157 . As they mature, the cage density is reduced. Usuallyduring the first week, beaks are trimmed. The period of light is reduced sharply over the first fourweeks and then more gradually. Feeding rations are adjusted over the period to promote fulldevelopment of the pullet in preparation for laying. Genetics companies provide detailedrecommendations on the ration to be fed to their breeds at different stages of the bird’sdevelopment. It is common for at least four different rations to be fed during the grow-out period.At an age of 17 to 18 weeks, pullets are moved to lay-houses.Large-scale commercial systems:Given their dominance of the U.S. egg industry, it is the large-scale commercial production systemsthat are of central interest to this study. Among these production systems, the principal differencelies in whether producers engage in molting and, if they do, the number of times they molt theirflocks. Historically, layers began producing at about 20 weeks of age. With the more rapidlymaturing strains that have been developed in recent years, production now begins at 16 to 18 weeks.Peak production now occurs around 24 to 26 weeks, compared to 32 weeks in the past. As flocksnear about 70 weeks of age, egg production slows and, depending on the price of eggs and the costof feed and pullets, approaches break-even for the producer. At this point, producers have twochoices. They can either send their hens to slaughter, replacing them with a new flock of pullets, orrecycle the existing flock by inducing a ‘molt’.Traditionally, molts are induced through reduced lighting and removing feed for 10 to 14 days,followed by the use of a special feed formulation for several days. For a period of two to four weekswhile molting, egg production drops to zero. With the removal of feed, birds lose 30% to 35% oftheir weight and drop at least a portion of their feathers. Mortality rates usually accelerate duringthe molt, though it is generally recommended that mortality rates not be allowed to exceed 1.25%during the period that feed is withheld. With the resumption of feeding and reintroduction oflighting, the birds gain weight and resume laying.Within 8 to 12 weeks after the molt is initiated, birds return to production and generally reach apeak egg production of 80% to 85% (compared to a peak of 85% to 95% during the first cycle).Production at this level does not continue long and falls to around 50% within 30 to 40 weeks afterthe molt was initiated.At this point, with production again approaching break-even, producers must decide whether to sendtheir flock to slaughter or to induce a second, and final molt. If molted for a second time, hensreturn to production for a period of about 30 weeks before being sent to a spent hen facility.157 While essentially all layers in the U.S. are housed in cages, around one-fifth (21%) of these layers were floor reared as pullets. SeeUSDA, APHIS, Layers ’99, October 1999.375

APPENDIX 2: THIRD COUNTRIESThe decision as to whether to molt and, if so, whether to molt once or twice, is an economicdecision. It is driven by a combination of factors including the price of eggs, the price of pullets, thequality or grade of eggs produced, and the price of feed. The number of ‘grow-houses’ required toprovide the needed number of ready-to-lay pullets is dependent of which production system is beingused. Under a no-molt program, it is generally assumed that one grow-house can supply three layhouses.With a two-cycle program, each grow-house can supply five lay-houses and under a threecycleprogram can supply seven lay-houses. Thus, to co-ordinate production so as to optimisereturns, it is necessary to plan several months, if not years, into the future.Comparisons of the performance of these systems under alternative conditions by Don Bell at theUniversity of California suggest that molting is most easily justified when egg prices are low and pulletprices are high. Since egg prices in the U.S. had been relatively low for an extended period prior tolast year, it is not surprising that around 85% of U.S. producers molt their flocks. We estimate thatonly about 15% of the flocks are unmolted while around 75% are molted once and 10% moltedtwice.With the high egg prices that were experienced in the U.S. earlier this year, some growers are reassessingtheir replacement programs and their decisions to molt. Genetic improvements that resultin improved persistency and the pressure of animal welfare interests for growers to discontinue thepractice of feed withdrawal are additional factors that point toward a future reduction in the use ofmolting in the U.S. At the same time, the uncertainty of future egg prices and the investmentrequired to build additional grow-out houses suggests that the reduction will probably be gradual.Free range/alternative system:Free range and organic egg production systems, as practised in the U.S. to date, have operated on afar smaller scale than the traditional, large-scale commercial operations. They are also far morediverse in how they are organised and operated. As the large, commercial firms gain prominence inthese markets, this will change, but for now, diversity rules. Since most operators of free range andorganic systems do everything – production, packaging, marketing, distribution, and sometimes retailsale – it is generally not possible to estimate the input requirements of production alone.For purposes of describing these systems, we have made extensive use of the technical advice ofresearchers at Pennsylvania State University. These systems differ from large-scale commercialsystems and/or among themselves in several ways. Free-range layers are commonly molted oncewhile organic hens are generally not molted. By their nature, both systems make more extensive useof space and substantially more extensive use of labour. As indicated below, this adds considerablyto their costs. Organically produced eggs require organic feed that is more expensive and lessaccessible. Finally, organic hens are commonly sold as roasters and are therefore of somewhatgreater value than other spent hens. As can be seen in Table A2.39 below, both of these systems aresomewhat less efficient than the commercial systems by most measures. As noted above, nearly allU.S. production is accounted for by the first three types, i.e. by the one-cycle, two-cycle, and threecycleapproaches.376

APPENDIX 2: THIRD COUNTRIESUnder the one-cycle or unmolted system, pullets are placed in laying houses at 17 to 18 weeks andremain in production until they are about 74 weeks of age. Under the two-cycle system, theprincipal approach to egg production in the U.S., a molt is induced as the birds approach 70 weeks ofage. After an interruption of about 4 weeks with no egg production, output resumes though not asstrongly as during the first cycle. Production continues until around week 105 when productivitydrops below break-even. Under the two-cycle approach, hens are retired from production at thispoint. Producers using a three-cycle approach induce a second molt at this stage, making it possiblefor hens to remain in production until they are around 140 weeks of age see Table A2.40 for typicalproduction cycle benchmarks).The laying cycle for free-range hens is essentially the same as the two-cycle approach since many ifnot most of these producers also molt their flocks. Growers of organic layers, however, generallydo not molt their hens and therefore mirror the one-cycle approach. Since organic spent hens arecommonly marketed as roasters, there is an economic advantage in sending them to slaughter at ayounger age.Table A2.39: Performance measures for U.S. egg production systems 2003Measure One-cycle Two-cycle Three-cycle Free-range OrganicLaying cycle (days) 392 581 798 616 364Empty period (days) 14 14 14 14 14Feed/bird/year (kgs) 37.09 36.59 35.60 38.24 40.89Feed/bird/day (grams) 102 100 98 105 112Eggs/bird/year 318 284 262 229 264Kg feed per kg eggs 1.87 2.07 2.17 2.67 2.48Mortality (%) 6.2% 10.2% 14.6% 13.8% 7.8%Number of hens/worker 138,700 138,700 138,700 2,540 2,000Hens housed/cage 5.6 5.6 5.6 n.a. n.a.Space allowed/hen (cm 2 ) 345 345 345 1,394 1,394Pullet cost (€/bird) 2.10 2.10 2.10 2.31 2.81End of lay hen weight (kgs) 1.54 1.54 1.54 1.66 2.20End of lay hen price (€/kg) 0 0 0 0.13 1.84Note: some data have been converted from laying cycle to year to correct for different laying cycle lengths by system.U.S.US $ have been converted to € at US $1 = €1.192. Source: Industry data.377

APPENDIX 2: THIRD COUNTRIESTable A2.40: Typical production cycle benchmarks for table egg laying operations of30,000 or more laying hens 1999ActionWeeks of ageFlocks placed in production 17.5Flock reaches 5% production 20Flock reaches 50% production 22.6Flock reaches peak production 28.6First molt initiated 67.6Unmolted flocks removed from production 73.7Molted flocks removed from production 1 111.41 This is the average age at which all molted flocks were removed from production. It is estimated on the basis of tradeestimates that about 88% of these flocks were molted once and that 12% were molted twice.Source: USDA, APHIS, Layers ’99, October 1999.By nearly every standard, U.S. layer performance has steadily improved over the past 15 years ormore. Don Bell, University of California, has been collecting records on a large sample of U.S. tableegg flocks since 1973. The resulting database represents more than 7,000 flocks and an estimated370 million hens and is one of the most comprehensive data sets available anywhere in the world.Trends in egg production and feed conversion, based on Bell’s data, can be seen in Figure A2.10below. The number of eggs produced per hen to 60 weeks of age increased by 23.1 (11.2%)between 1985 and 2001 while the feed required per dozen eggs declined by 12.4%. The averagemortality rate to 60 weeks of age was cut in half over this period, falling from 8.8% in 1985 to 4.4% in2001. The share of flocks averaging 230 eggs or more per hen during 60 weeks of age rose from0.4% in 1985 to 51.6% in 2001.378

APPENDIX 2: THIRD COUNTRIES2303.33.252253.22203.153.12153.0521032.952051990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 20012.9Eggs/hen (60 weeks)Lbs feed/doz.eggsFigure A2.10: Trends in U.S. layer performance 1985-2001Source: Donald bell, University of California, Feb 15 th 2004.A2.4.2.4. Production costsThe cost of egg production in the U.S. has been estimated on the basis of secondary informationdrawn from several different sources. Prior to March 2004, the USDA had estimated the total costof production per dozen eggs and the feed cost per dozen eggs on a monthly basis. Themethodology for these estimates was developed on the basis of information collected in 1984.While the feed cost component was updated monthly on the basis of changes in the key ingredients,all other costs were represented by a constant value (18.2¢/dozen) that hadn’t been changed for 20years. Neither had the technical coefficients, such as the feed conversion ratios, been updated.However, this remains the best available information and the key information relating to the make upof feed rations is presented in Table A2.41 below. In 2003, USDA estimated average feed costs of28.1¢/dozen and total production cost at 46.3¢/dozen 158 . USDA’s estimate of the cost of packaging,assembly, and distribution to wholesale markets had also remained fixed at 20.5¢/dozen since 1984.In 2003, the cost of eggs at wholesale averaged 66.8¢/dozen by USDA’s calculation.158 This includes other variable costs and fixed costs which we have split out separately.379

APPENDIX 2: THIRD COUNTRIESTable A2.41: Key production cost informationComponentPrice of cornPrice of soybeanRation at 81% corn, 19% soybean plus other ingredients at 5% value, millingand delivery at 10.6% value:PriceUS $150.00/tonneUS $170.20/tonneUS $140.71/tonneBased on the technical factors in Section A2.1.2.3 and the production cost estimates above, TableA2.42 summarises the variable costs of egg production in Euros per dozen eggs. The cost ofproduction in the organic system is cheaper than that in the free range system because more eggsare collected per bird per year as a result of different molting practices.Table A2.42: Variable (running) costs of production per 12 eggs (€)One-cycle Two-cycle Three-cycle Free range OrganicFeed cost 0.26 0.29 0.30 0.37 0.34Medication/vet. 0.01 0.01 0.01 0.01 0.01Miscellaneous 0.03 0.03 0.03 0.03 0.03Bird depreciation 0.11 0.11 0.11 0.11 0.11Total variable cost 0.40 0.43 0.45 0.52 0.49Note: U.S. $ have been converted to € at US $1 = €1.192.Source: Agra CEAS calculations.The cost of egg production, as measured by USDA, has trended irregularly lower over the past 23years, as indicated in Figure A2.11 below. Given that all costs other than feed were held constantover most of this period (since 1984), the variability in cost reflects variability in the price of cornand soybean meal. It will be noted that the feed conversion ratio has moved substantially lower since1984. This has almost certainly resulted in an upward bias in USDA’s estimates and is one reasonthey abandoned the series within the past few weeks in favour of an index measure of feed costs.Between 2001 and 2003, University of California researchers conducted an independent analysis ofthe cost of producing eggs. This analysis used a standardised set of non-feed costs and estimatedfeed costs on a monthly basis for each of six producing regions within the U.S. The cost ofreplacement pullets was allowed to vary monthly, depending on the cost of feed. Feed conversionrates were seasonally adjusted.380

APPENDIX 2: THIRD COUNTRIES7060504030201001980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Figure A2.11: Trend in cost of egg production in the U.S. 1980-2003 (€)Source: USDA ERSOn the basis of this analysis, the average national cost of production for 2001/02 was estimated at41.3¢/dozen. This compares to USDA’s average estimate of 43.8¢/dozen for the same period.Regionally, the average cost was estimated to range from a low of 38.8¢/dozen in the West NorthCentral region (Minneapolis/Kansas City feed delivery points) to a high of 44.7¢/dozen in the West(Los Angeles/San Francisco).Another basis of comparison are the publicly released operating results of Cal-Maine Foods, Inc., theleading producer of eggs in the U.S. In the firm’s 2003 Annual Report to Shareholders, (June 2002-May 2003), feed costs are reported to have ranged from 54% to 56% of the total cost of eggproduction over the period 1999 to 2003 with feed cost in 2003 reported to have been 21.3¢/dozeneggs sold. This indicates a total cost of 38.0¢/dozen to 39.4¢/dozen in 2003. The total cost of salesthat year, as reported by Cal-Maine, was 55.2¢/dozen while the average reported selling price was64.5¢/dozen. These results are generally consistent with those reported above. Given Cal-Maine’ssize and degree of integration, its per unit cost of production should be among the lowest in theindustry.A recent study of egg production by economists at Iowa State University developed cost ofproduction estimates for different production regions of the U.S. and under alternative feed costassumptions. For reasons that aren’t clear, the Iowa State total cost estimates are about 25% belowthose derived by the University of California for the same production regions. Discussions with thelead researcher at Iowa State suggest that their analysis probably excluded some overhead costs thataccount for at least part of the difference.381

APPENDIX 2: THIRD COUNTRIESThe Iowa State analysis provides a useful comparison of the relative cost of major inputs among thekey egg producing states. As indicated in Table A2.43, Iowa has a cost advantage over the otherproduction regions with regard to most inputs. The one exception is the cost of labour, thoughlabour accounts for a relatively small share of total cost.Table A2.43: Input cost index comparison of leading egg producing states 2000Iowa California Pennsylvania Ohio GeorgiaFeed Cost 1.00 1.22 1.07 1.06 1.07Electricity Rate 1.00 1.39 1.00 1.12 1.15Wage Rate 1.00 1.06 0.86 0.81 0.96Total Cost 1.00 1.11 1.03 1.02 1.03Source: John Lawrence, et al, Economic Importance of the Iowa Egg Industry, Iowa State University, March 2003.The cost estimates appearing in Table A2.44 below are based on several different sources includingthe USDA and Land Grant University poultry specialists at the University of California, PennsylvaniaState University, and Iowa State University. The estimates for the free-range and organic productionsystems are based on recommended production practices for very small-scale (1,000 hen)operations.As can be seen, production costs for the one-, two-, and three-cycle systems are very similar. Thefacilities and methods used in these systems are all essentially the same. Thus, it is not surprising thatmany of their costs are similar. The principal differences are in the cost of feed and pullets. Feedcosts are higher for those systems that engage in molting because older birds are less efficient atconverting feed into eggs. As a result, feed costs per dozen eggs under the three-cycle system areabout 16% higher than under the one-cycle system. Almost exactly offsetting this is the higher costof pullet depreciation for producers using the one-cycle approach. By recycling their flocks once ortwice, the two- and three-cycle systems are able to spread the cost of their pullets over greateroutput.The only available budgets for free-range and organically produced eggs represent the combined costof production and marketing. As indicated above, these are very small operations that market theireggs and spent hens locally. They are highly labour intensive with the imputed cost of labour (US$13.24/hour) accounting for 30% or more of total cost. Of course eggs from these flocks commonlycommand a substantially higher price than undifferentiated commodity eggs. In their budgets forthese flocks, Pennsylvania State University economists assume a price for free-range eggsapproximately double the price of conventional eggs and for organic eggs they assume a price aboutfour times the price of conventional eggs.382

APPENDIX 2: THIRD COUNTRIESTable A2.44: Cost of Egg Production in the U.S. (Euros 1 per 12 eggs)Fixed costs One-cycle Two-cycle Three-cycle Free-range OrganicLabour 0.04 0.04 0.04 0.40 0.75Buildings 0.03 0.03 0.03 0.04 0.05Equipment - - - 0.04 0.02Land - - - - -Insurance/taxes - - - 0.01 0.01Vehicles/fuel - - - 0.02 0.03Miscellaneous 0.06 0.06 0.06 0.03 0.04Interest 0.02 0.02 0.02 - -Pullets 0.10 0.08 0.06 0.10 0.18Total fixed 0.26 0.23 0.21 0.64 1.07Variable costsFeed (7.5 ¢/lb.) 0.28 0.30 0.32 0.54 0.75Medication 0.01 0.01 0.01 0.00 0.00Egg cartoning - - - 0.14 0.18Total variable 0.28 0.31 0.33 0.68 0.93Grand total 0.54 0.54 0.54 1.32 2.001 At an exchange rate of US $1 = €1.192.Sources: USDA, Land Grant University, poultry specialists at the University of California, Pennsylvania State University,Iowa State University and Agra CEAS Calculations.A2.4.3. TradeHistorically, the U.S. has exported a small share of its overall production of eggs and egg products,including hatching eggs. Prior to the late 1970s, exports accounted for less than 1% of output(measured as shell egg equivalent of the quantity of production). In the early 1980s, exports rosesharply for a few years, accounting for as much as 4% of production. The export of shell eggs andegg products has followed a similar path. In recent years, the share of production going into theexport market has generally remained in the vicinity of 2% to 4% (see Figure A2.12).383

APPENDIX 2: THIRD COUNTRIES4.54.5443.53.5332.52.5221.51.5110.50.501990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004proj.0Table eggsAll eggsFigure A2.12: Quantity of U.S. egg and egg product exports as share of production 1990-2004 (%)Source: USDAIn 2003, the U.S. exported US $69.7 million of shell eggs and egg products. Of this value, 38% was inthe form of shell eggs while the remaining 62% was as egg products Table A2.45. The composition ofexports has gradually shifted away from eggs in-shell and toward egg products. By comparison, shelleggs accounted for 43% of the value of exports in 1990.Table A2.45: U.S. Exports of Table Eggs and Egg Products 2003Volume (tonnes) Value (million dollars) % of total valueShell eggs 490.608 million eggs 26.552 38%Whole eggs dried, not in shell 3,778 6.887 10%Whole eggs liquid, not in shell 2,332 3.936 6%Egg yolks, dried 1,076 4.378 6%Egg yolks, liquid 9,377 18.765 27%Egg albumin, dried 981 2.690 4%Egg albumin, liquid 7,495 6.493 9%Total - 69.701 100%Source: U.S. Bureau of the Census.The principal export markets for U.S. eggs and egg products are Canada, Japan, Hong Kong and theEuropean Union (see Table A2.46). In 2003, the top two markets, Canada and Japan, accounted for384

APPENDIX 2: THIRD COUNTRIEStwo-thirds of the value of all U.S. egg and egg product exports. There is some variation amongproducts in terms of the leading market.In 2003, the EU-15 accounted for less than 10% of the value of U.S. exports of eggs and egg products.For the period 1990-2003, the leading egg products exported from the U.S. to the EU were wholedried eggs (30%), dried egg yolks (24%), and shell eggs (21%). The leading European destinations forU.S. eggs and egg products over this period were Germany (32%), Netherlands (21%), Belgium (20%),and the United Kingdom (18%).Table A2.46: Leading Markets for U.S. Exports of Eggs and Egg Products 2003Destination Value of exports (US $ million) Percent of total valueCanada 24.090 38%Japan 18.200 29%Hong Kong 8.326 13%European Union 5.614 9%Mexico 2.351 4%Korea 2.097 3%Singapore 1.140 2%All others 1.544 2%Total 63.362 100%Source: U.S. Bureau of the Census.The annual volume and value of U.S. exports for each of the major egg and egg product categoriesfor the period 1990-2003 can be found in the tables in Annex A. Information is provided for each ofthe 10 leading export markets (by value) in 2003 in addition to each of the EU-15 members acrossthe entire period.There are currently no significant egg imports in any form and there is no expectation that these willoccur in the foreseeable future.A2.4.4. Outlook for the US industryIn this final section, we briefly review some of the main issues confronting U.S. egg producers as theylook to the future.A2.4.4.1. Future expansionThe U.S. industry is at a particularly important crossroads regarding future expansion. Following thedrop in demand in the 1970s and 1980s, the U.S. egg industry downsized. However, as demandbegan to pick up in the 1990s, the industry reversed course and began expanding. In the late 1990s,the expansion accelerated. In every year from 1998 through 2001, the industry added 6 to 8 millionlayers to the national flock. While demand was growing, it was not growing that fast and industryprofits soon began to suffer. In 2002, producers added only about 1.5 million layers and in 2003reduced layer numbers by about 2 million birds.385

APPENDIX 2: THIRD COUNTRIESIn slowing production and allowing demand to catch up with supply, the industry returned toprofitability. The question now is, will the industry overreact to the recent high prices with a newwave of expansion? While there is some concern in the trade that this will happen, USDA is guessingthat the industry will pursue a more measured pace of expansion. Compared to an average annualrate of growth in output of 2.7% in the last expansion, the USDA is projecting a rate of growth abouthalf that level over the next four years see Table A2.47.Table A2.47: Long-term projections of the U.S. egg industry 2002 – 2013Production % change Exports Retail price Total cost2002 86.652 0.9% 2.088 1.23 0.742003 86.436 -0.2% 1.860 1.43 0.832004 87.120 0.8% 2.076 1.45 0.862005 88.596 1.7% 2.100 1.39 0.842006 89.928 1.5% 2.136 1.30 0.832007 91.008 1.2% 2.184 1.29 0.852008 92.100 1.2% 2.232 1.34 0.882009 93.120 1.1% 2.280 1.37 0.902010 94.140 1.1% 2.316 1.41 0.922011 95.172 1.1% 2.364 1.44 0.952012 96.216 1.1% 2.412 1.48 0.962013 97.188 1.0% 2.460 1.51 0.97Source: USDA, Baseline Projections, February 2004.U.S. egg producers already face a considerable investment challenge just to maintain the presentsupply/demand balance. Don Bell at the University of California estimates that the combination ofreplacing obsolete houses, reducing cage density in conformance with the new welfare guidelines, andincreasing production in line with population growth will require an additional 200 (100,000 hencapacity) houses each year for the next 5 years. At an estimated cost per house of US $0.7 to US$1.5 million, this will require an annual investment of US $140 to US $300 million. Should someproducers decide to reduce their use of molting, additional grow-out housing would also berequired.A2.4.4.2. Environmental issuesFederal regulations requiring the development and implementation of nutrient management plans forlarge confined livestock enterprises have recently been adopted. Although livestock production inthe Midwestern U.S. (where much of the egg industry is located) is relatively well positioned toaccommodate these regulations, their adoption will still result in added cost, inconvenience, andsome dislocation. A recent survey of leading egg producers found that environmental issues were atthe top of their list of concerns.A2.4.4.3. Animal welfareAs noted earlier, the U.S. industry has developed and is in the process of adopting a set of AnimalCertified Care Guidelines. While these guidelines have been widely adopted within the industry386

APPENDIX 2: THIRD COUNTRIES(85% of production), animal rights groups continue to press for additional changes. Partially inresponse to this pressure, the United Egg Producers has added a new feed alternative for inducingmolt to its Guidelines. Since the removal of feed continues to be viewed as a superior approach bymany experts, it would be surprising if many growers opt for the new alternative. Furtherrefinements in the industry’s approach to animal welfare can be expected nonetheless.It should be noted that the US voluntary programme has probably reached the ceiling it is likely toachieve in terms of participation particularly since prices have been falling recently.A2.4.4.4. Niche marketsMany producers are responding to the perceived opportunity to provide speciality eggs for nichemarkets. Some of these products are differentiated by the nutritional profile of the egg and some bythe practices used in their production. A recent story in the Wall Street Journal listed the followingterms as applied to various of these ‘designer eggs’: Omega 3 DHA/omega 3 Lutein Cage-free Free-range Certified organic No hormones No antibioticsIt remains uncertain if speciality eggs will capture a significant share of the market. The President ofHy-Line International, the leading breeder of layers, recently said that he does not anticipate that themarket would justify the development of strains for these characteristics.A2.4.4.5. ConsolidationFirm consolidation throughout the industry continues to be an issue, with no end in sight. Despitethe continuing rapid drop in the number of producers and the continuing industrialisation of eggproduction, the egg industry is not highly concentrated relative to many other U.S. industries. Thus,while the list of major players and their relative positions will continue to change, most of the changewill occur among smaller operations as they go out of business. Concentration at the top haschanged comparatively little in recent years. For example, the top four firms accounted for 23.4% ofthe layer flock in 1999 and 23.7% in 2003. Likewise, the number of producing firms with layer flocksof at least 1 million has held steady at 55 to 60 for more than 20 years.A2.4.4.6. Spent hen utilisationWhile spent hen utilisation is less important than some of the other issues confronting the industry,it has become an increasingly more costly problem. Prior to 1996, spent hens were sold to food387

APPENDIX 2: THIRD COUNTRIESprocessors such as Campbell’s and Stouffers, primarily for use in making soup. When thesecompanies switched to the use of broilers, the market for spent hens essentially evaporated. Whilesome producers had received as much as 5¢/pound for birds delivered to the plant, the value of thebirds is now zero if not negative. In some areas, disposal costs as high as 18¢/bird are being paid. Asa result, the industry is now searching for alternative uses that would at least permit it to break even.A2.4.5. ReferencesBell, Donald D., Bell’s Profile of the Commercial Layer Industry in the United States, Watt Publishing,January 2004.Bell, Donald, Don Bell’s Table Egg Layer Flock Projections and Economic Commentary and EggEconomics Update, various issues.Cal-Maine Foods, Inc., 2003 Annual Report to Shareholders.Easterling, Edward H. and Floyd A. Lasley, Estimating Costs and Returns for Poultry and Eggs, ERS,USDA, July 1985.Hy-Line International, Commercial Management Guides, 2004.Lawrence, John et. al., Economic Importance of the Iowa Egg Industry, Department of Economics,Iowa State University, March 2003.Martin, Larry et. al., Prospects for Expanded Egg Production in Western Canada, George MorrisCentre, October 1998.Martinez, Steve W., Vertical Co-ordination of Marketing Systems: Lessons from the Poultry, Egg, andPork Industries, USDA, ERS, April 2002.Patterson, Paul H. et. al., Agricultural Alternatives: Small-Scale Egg Production, Pennsylvania StateUniversity, 1999.USDA, Animal and Plant Inspection Service, Layers ’99, Reference of 1999 Table Egg LayerManagement in the U.S., October 1999 (Part I) and January 2000 (Part II).USDA, ERS, Poultry Yearbook, various issues.Watt Publishing, Egg Industry, various issues.388

APPENDIX 2: THIRD COUNTRIESAnnex A: US EGG AND EGG PRODUCT EXPORTS, 1990 – 2003Shell eggs (0407.00.0040)Whole eggs, dried (0408.91.0000)Whole eggs, liquid (0408.99.0000)Egg yolks, dried (0408.11.0000)Egg yolks, liquid (0408.19.0000)Egg albumin, dried (3502.10.1000 – 1990/95), (3502.11.0000 – 1996/2003)Egg albumin, liquid (3502.10.5000 – 1990/95), (3502.19.0000 – 1996/2003)389

APPENDIX 2: THIRD COUNTRIESA2.5. UkraineA2.5.1. OverviewUkrainian table eggs are entirely sourced from local production. The bulk of holdings are small scalefarms which generally use their output for their own consumption or for sale through local openmarkets in small towns or villages where they are produced. At the start of 2004 such holdings heldjust over three-quarters (77.3%) of the laying hens but accounted for only 56% of the total eggoutput of 11.477 bn eggs. The main system in commercial production is cage-housed.Concentration in the sector is relatively limited with the four principal producers accounting for21.95% of output and the top eight 34.76%.Over the period from 2001 to 2003 there has been a marked shift in distribution. The share of eggsales taking place via open markets has shrunk by 30% and the share of wholesalers andsupermarkets has doubled in the last three years.A2.5.2. Egg productionThe particular feature of Ukrainian egg production is that the main part of the national flock isconcentrated on private (backyard) holdings. At the start of 2004, 77.3% of the flock was on suchholdings but as is shown in Table A2.48 only 56% (6.437 bn eggs) out of total production of 11.477bn eggs were estimated to be produced by this sector. The former state farms ‘public’ sectorcommercial holdings accounted for the balance of output.Over the last few years the number of farms producing eggs on a significant commercial scale hasremained stable at approximately 100 holdings 159 .159 These numbers are approximate and it is not clear whether all these units are operating at full capacity. Some official statistics indicatethere were approximately 150 producers in 2001 but it is estimated that one third of such units are not in operation.391

APPENDIX 2: THIRD COUNTRIESTable A2.48: Egg production on private and commercial farms 1985-2004Year Total Public (commercial) Private (barnyard)1985 16644.9 10510.0 6134.91986 17297.1 11188.4 6108.71987 17425.1 11424.8 6000.31988 17672.3 11528.1 6144.21989 17393.0 11112.3 6280.71990 16286.7 10126.0 6160.71991 15187.8 9239.5 5948.31992 13496.0 7489.7 6006.31993 11793.8 6106.0 5687.81994 10153.7 4690.3 5463.41995 9403.5 4170.8 5232.71996 8763.3 3675.4 5087.91997 8242.4 3083.5 5158.91998 8301.4 3070.1 5231.31999 8739.7 3245.1 5494.62000 8808.6 2977.3 5831.32001 9668.2 3679.5 5988.72002 11309.3 4983.3 6326.02003 11477.1 5039.7 6437.42004 est 11270.00 4850.2 6419.8Note: Production includes hatching eggs, duck, goose and turkey eggs (million eggs).Source: Ukrainian Ministry of Statistics, Ukrainian Poultry Union.After reaching a peak in 1987-1989, commercial egg production plummeted due to financial instabilityand a sharp drop in GDP from 1992 onwards (see Figure A2.13). This situation was compounded bya lack of fundamental market oriented reforms which, inter alia, meant that the lack of access tocredit and other inputs for inputs hindered new investment. Other constraints on domesticproduction growth included the lack of modern technology and poor management.Starting in 1997 with some economic recovery and the beginnings of privatization in the sector manyegg producers started to modernize their operations and invested in equipment and technology.In contrast to broiler production that is concentrated at three districts, egg production in theUkraine distributed quite evenly through all regions. The Kiev region is the most significantaccounting for some 10% of total output (see Figure A2.13 and Table A2.49 below).392

APPENDIX 2: THIRD COUNTRIES5%6%34%9%5%10%4%6%5%6%5%5%AR Krimea Dnipropetrovska Donetska Zaporizka Kyevska Luganska Lvovska Odesska Poltavska Kharkivska Cherkasks OtherFigure A2.13: Egg production by region (%)Source: Ukrainian Ministry of Statistics, Ukrainian Poultry Union.393

APPENDIX 2: THIRD COUNTRIESTable A2.49: Total egg production by region (million eggs)Region 2001 2002 2003 2004 estUkraine 9668.2 11309.3 11477.1 11270.0AR Krimea 494.8 582.2 526.6 583.0Vinnitska 366.0 381.1 377.9 420.0Volinska 189.9 199.9 229.7 232.8Dnipropetrovska 603.2 714.7 676.2 600.0Donetska 885.4 1107.8 1039.4 1050.4Zhitomirska 317.1 378.8 426.7 400.0Zakarpatska 259.5 283.2 299.5 286.8Zaporizka 423.6 529.0 527.9 459.8Ivano-Frankivska 240.9 251.7 195.9 245.8Kyevska 795.8 1165.1 1183.2 1234.2Kirovogradska 194.6 227.9 274.9 220.0Luganska 417.8 525.9 570.1 580.0Lvovska 485.9 513.7 524.7 510.1Nikolaevska 185.6 220.3 225.3 225.1Odesska 670.5 710.7 710.3 600.0Poltavska 484.8 548.1 569.7 580.0Ribnenska 211.1 292.8 311.4 310.1Sumska 287.7 299.6 346.1 351.8Ternopolska 250.8 281.7 314.5 291.0Kharkivska 587.4 649.3 631.9 633.5Khersonska 216.9 279.7 223.4 232.3Khmelnitska 157.6 175.1 187.7 176.0Cherkasks 397.9 409.3 480.6 445.4Chernivetska 190.4 205.3 253.3 230.1Chernigovska 353.0 376.4 370.0 367.6Source: Ukrainian Ministry of Statistics, Ukrainian Poultry Union.A2.5.2.1. Main producers/packersUkrainian farms usually pack their own output or sell bulk on trays in cartons. There is no significantseparate packing function. Thus the largest producers are also the largest packers. The sector is notparticularly concentrated by EU standards with the largest producer, Inter-Zaporozhy, accounting for7.54 % of the commercial market. The concentration ratio for the top four and eight firms is 21.95%and 34.76% respectively (see Table A2.50).394

APPENDIX 2: THIRD COUNTRIESTable A2.50: Main producers 2003Producer Sales (million pieces) Market shareInter-Zaporozhy 380.0 7.54%Rozdon 344.0 6.83%Kievskaya 198.0 3.93%Poltavskay 184.0 3.65%Chervoniy Prapor 167.0 3.31%Zarya 165.0 3.27%Berezan 159.0 3.15%Ukraina 155.0 3.08%Total for all commercial farms 5,039.7Note: Data for market shares are estimates.Source: UkrPtitseProm, Ukrainian Poultry Union.Whilst some farms have processing equipment the majority does not. Overall we are not aware ofany large egg processing companies in Ukraine.A2.5.2.2. Main production systemsCommercial egg production takes place in battery cages while production on small private farmsgenerally holding less than 100 hens is extensive. We are not aware of any particular legislativestandards for egg production but we understand that commercial operators generally use one of twotypes of cages. These are the domestically produced BKN cages and cages imported from westernEurope.A2.5.2.3. Technical dataPrivate small scale farms:There is no reliable performance data for the private small scale producers. Hen yields are variouslyestimated at between 70-100 eggs per hen per year and 180-240 hens per year depending on thescale of holding being looked at. Average cost of production is estimated at Euro 0.33-0.42 per dozeneggs.Large-scale commercial systems:The analysis of the costs for larger commercial operations has been undertaken by averaging thecosts for four large producers generating output respectively of 300 million, 150 million, 90 millionand 70 million eggs. The costs for these farms varied by up to one-third, but this difference is largelyaccounted for by the fact that the farm with the lowest cost was producing its own grain andeffectively under costing this important factor. The following table presents the technical factors forthe four units reviewed in the Ukraine.The standard laying cycle is 55 weeks, with hens laying between 17 and 72 weeks of age. However,most farms keep hens up to 80 weeks. Pullets introduced into the cages at 16 weeks of age to allowacclimatization.395

APPENDIX 2: THIRD COUNTRIESTable A2.51: Performance indicators for commercial production 2003Indexes Farm 1 Farm 2 Farm 3 Farm 4Laying cycle (days) 441 441 385 413Empty period (days) 28 - 42Feed/bird (kg) over laying cycle 50.7 52.9 50.4 44.2Feed/bird/day (g) 115 120 130 107Eggs/bird/laying cycle (collected) 325 315 260 285Kg feed per kg eggs 2.53 2.73 3.07 2.52Mortality (%) 7% 5% 10% 6%Number of hens managed/labourer (1,000s) 15 15 11 9Hens housed per sq m house 25 -35Space allowance per hen per sq cm 450 - 540Pullet cost (USD) (production / buying in) 2.06 (B) 1.90 (B) 1.50 (P) 2.06 (B)End of lay hen weight (kg) 1.5 - 2.0End of lay hen price (USD) 0.85 - 1.00Source: Agra CEAS.A2.5.2.4. Production costsTable A2.52 below presents variable costs for the four production units covered in the Ukraine.Feed costs represent 67 – 72% of total variable costs (including bird depreciation). It should be notedthat this raw data has been harmonised in line with the Agra CEAS standardised calculations in themain report.Table A2.52: Variable (running) costs of commercial production (per 12 eggs) 2003Cost component Farm 1 Farm 2 Farm 3 Farm 4Annual production (million eggs) 300 150 90 70Feed cost 28.43 23.99 20.18 26.24Medication & vaccination 0.20 0.35 0.09 0.53Delivery 0.10 0.09 0.10 0.16Electricity 0.85 0.82 0.79 0.57Water 0.40 0.39 0.31 0.13Clean-up 0.10 0.11 0.42 0.02Salary (operations) 0.77 1.03 1.14 0.81Bird depreciation 8.30 7.23 6.74 8.97Other operating expenditure 0.41 0.25 0.16 1.09Total variable costs (US cent /dozen) 39.56 34.26 29.93 38.52Source: Agra CEAS.396

APPENDIX 2: THIRD COUNTRIESTable A2.53 below presents the fixed costs for commercial production. These include maintenance,depreciation and selling and general administrative expenses.Table A2.53: Fixed costs (per 12 eggs) 2003Cost component Farm 1 Farm 2 Farm 3 Farm 4Annual production (million eggs) 300 150 90 70Maintenance 0.20 0.54 1.10 0.20Depreciation 1.02 1.49 0.11 1.05Administration 1.60 1.50 0.52 5.04Miscellaneous 0.21 0.31 0.50 0.47Total fixed costs (US cent /dozen) 3.03 3.84 2.23 6.76Deadstock replacement 2.50 2.65 3.01 1.11Total cost (US cent / 12 egg) 45.09 40.75 35.17 46.40Source: Agra CEAS.A2.5.3. Egg marketThe size of the domestic market for shell eggs is estimated as 11 billion eggs in 2003 and asdisposable incomes increase demand is expected to rise.Table A2.54 below presents the supply balance for eggs since 1996. This indicates production hasbeen rising from a total of 8.7 bn eggs in 1996 to just under 11.5 bn eggs in 2003. Processing of eggsplays a very minor role accounting for 17 million eggs in 2003 (32 million eggs in 2002) or well under1% of overall output. It is estimated that eggs exported from the Ukraine have never exceeded 1,000tonnes, thus all eggs produced are assumed to be consumed within the country. There were norecorded imports of table eggs to the Ukraine over the last ten years. On the basis of this balancesheet consumption per head is estimated at 221 eggs per person in 2003.Table A2.54: Egg supply balance (in million pieces) 1996-2004Production 1996 1997 1998 1999 2000 2001 2002 2003 2004 estPublic (Commercial) 3,675 3,084 3,070 3,245 2,977 3,680 4,983 5,040 4,850of which: hatching eggs 250 250 250 300 300 350 500 500 500of which: processedeggs 10 10 10 10 15 30 32 17 16Private (backyard) 5,088 5,159 5,231 5,495 5,831 5,989 6,326 6,437 6,420Total domesticproduction 8,763 8,243 8,301 8,740 8,808 9,669 11,309 11,477 11,270Import (table eggs) - - - - - - - 0 0Export - - - - - - - (1) (1)Total consumption 8,503 7,983 8,041 8,430 8,493 9,289 10,777 10,962 10,755Total consumption percapita (pcs) 172 161 162 170 172 188 218 221 217Total consumption percapita (kg) 8.6 8.1 8.1 8.5 8.6 9.4 10.9 11.1 10.9Note: Egg consumption = Production – egg for hatching – Processed eggs + imports – exports. Conversion rate for eggs is20 to 1 kg.Source: Ministry of Statistics, Customs Offices and brokers397

APPENDIX 2: THIRD COUNTRIESTable A2.55 below indicates the egg output is utilised. While an estimated 36% of sales in 2003(mainly from backyard production) went through open markets there was a sharp shift in distributionchannels from 2001 to 2003. The share of open markets shrank by 14% and the share of wholesalersand supermarkets has doubled in the last three years. Since 2000 wholesale prices for commerciallyproduced eggs have averaged US $ 0.50 per dozen.Table A2.55: Table egg distribution channels 2001-2003Year Open markets Wholesalers &retailersInstitutionsincl. processorsFood service 1Barter2001 50% 29% 10% 7% 4%2002 42% 50% 1% 5% 2%2003 36% 60% - 3% 1%Note: 1 includes salary payments in the form of goods.Source: State Committee on Statistics.A2.5.4. Outlook for sectorTwo principal factors are likely to affect the outlook for production in the Ukraine. The first wouldbe that there is likely to be upward pressure on non- feed costs, particularly labour, as the economygrows. Current (2003, ILO data) average monthly wages amount to US $86.73 and these are forecastto rise to US $166.80 (EIU Country Forecast). In real terms this represents an increase of one-thirdover the period. Conversely Western investment in the sector is likely to improve productivity. Thekey factor affecting production costs will be grain costs and the outlook for these will be as muchdependent on world market factors as domestic developments in the Ukraine. Given that in realterms world market grain prices are not expected to rise significantly in the medium term this islikely to mean that production costs in the Ukraine will also remain relatively stable.398

APPENDIX 2: THIRD COUNTRIESAppendix 3: Technical description of the modelThis Appendix develops a generic Equilibrium Displacement Model (EDM) to examine animal welfareand other policy impacts on caged egg production and demand in the EU (15 and 25 member states).The objective of the EDM is to examine EU animal welfare legislation that will require the withdrawalof traditional cages (i.e., with a space allowance of 550cm 2 per bird) by 2012 and the introduction ofan enriched caged system with a space allowance per bird of 750 cm 2 and the provision of cagefurniture to allow the expression of natural behaviour. The importance of the changes to eggproduction as a result of this legislation is widely acknowledged by the egg industry in the EU. Forexample, Russell and Zhuang (2003) in a survey of egg producers in England found that many largeproducers are very concerned about the likely impacts of welfare legislation.To illustrate how EDM data and parameter values are determined we focus in this technicalAppendix on the UK. Having provided detailed information on the UK (data construction, modelperformance, interpretation of results) we then present results for the EU (15 and 25). Wherepossible all model estimates are placed in context with respect to existing research on the likelyimpact of animal welfare policy impacts.The use of EDMs to examine EU agriculture is limited. A previous and related piece of research isAlston (1986) who considered the impact of the CAP on international poultry markets. There is,however, a growing use of EDMs to examine important agricultural issues at the sector level (e.g.,Piggott, Piggott and Wright, 1995, Zhao et al., 2000a, Cranfield, 2002, Kinnucan and Myrland, 2003,and Wohlgenant and Piggott, 2003).The EDM that has been developed for this research draws on the work of Alston and Mullen (1992),Kinnucan (1999), Zhao et al., (2000a) and Kinnucan and Myrland (2003). The EDM captures thedemand and supply of caged shell eggs, shell eggs produced in alternative systems and processed eggsdomestically and internationally. The model is designed to allow examination of results in terms ofchanges in consumer and producer surplus.The model developed is parsimonious. By employing an EDM it is possible to characterise the eggsector in a relatively disaggregated manner. This model not only provides useful information(theoretical and quantitative), but it provides important insights into requirements for furthermodelling of the egg sector in light of possible future adjustments to legislation in order to furtherincrease animal welfare. Specifically the model is employed to undertake a quantitative analysis of theimpact of Directive 1999/74/EC on egg production and demand.The structure of this Appendix is as follows. In Section A3.1 we review the existing egg modellingliterature. Then in Section A3.2 we describe the egg model and develop the structural model that inturn yields the EDM. In Section A3.3 primary data needs and data sources are identified andreviewed. In Section A3.4 the various producer and consumer surplus measures we estimate to399

APPENDIX 2: THIRD COUNTRIESevaluate the policy scenarios of interest are derived. Finally, Sections A3.5 and A3.6 containreferences cited in this Appendix and an extensive sensitivity analysis, respectively.A3.1. Literature reviewThere is a limited literature that has previously modelled or econometrically examined eggproduction and/or marketing. Much of the recent research has been motivated by actual or proposedchanges in animal welfare legislation (Babcock, et al., 2002, and McInerney, 2004). A large proportionof this literature has been concerned with consumer reaction to changes in production systems andthe resulting impact on egg prices (e.g., Pesaran and Samiei, 1991, and Bennett and Blaney, 2003).There are only a few papers in the literature that are directly of relevance to the research presentedhere and very few have a European focus.A recent paper in the literature is that of van Horne and Bondt (2002). This research contains aprevious analysis of Directive 1999/74/EC. This paper provides descriptive information of the EU eggsector that is relevant to the research presented here. However, a significant weakness of thisresearch is that it does not model the egg sector specifically. A Computable General Equilibrium(CGE) model is employed. But, when an industry is small relative to the rest of the economy, suchas the egg industry, and the commodities in question have few close substitutes in production orconsumption then an EDM is more appropriate. Furthermore, many CGE models are highlyaggregated in nature and as such they do not provide the richness of detail that an EDM canincorporate and as result the breadth of industry specific results. This point in neatly borne out bythe work of van Horne and Bondt (2002) who employ the GTAP GCE model to consider the eggDirective. The GGTAP database not only aggregates many countries into regions, ignoring theimportance of intra-regional trade, but also it does not model eggs as a separate production activity.Instead eggs are subsumed into intensive livestock along with pigs and poultry. Also, eggs are notdisaggregated to include shell eggs from alternative production. Thus, this CGE model lacks asufficient degree of industry disaggregation to capture the egg sector adequately. As a result we canonly consider the results to be a very rough guide to the magnitude to the changes that we mightexpect to see as a result of the Directive. Another criticism of van Horne and Bondt (2002) is thatthe authors do not detail the key elasticities they have employed in their model and the impact of theelasticity estimates on the results presented.Outside Europe, the Australian egg industry has also been the subject of potential changes inproduction methods as a result of animal welfare concerns. For example, the ProductivityCommission (1998) considered how changes in production would affect egg consumption andproduction in the ACT. This research built on earlier work that examined this issue. Employing adynamic simulation model the Productivity Commission produced estimates of the impact onconsumers and producers. A potential limitation of this research is that it assumed that the supply ofeggs is perfectly elastic. This assumption has been challenged by Trewin (2002) who examined theeconomic impact of the introduction of more stringent animal welfare legislation in Australia. Thispaper provides a useful discussion of the many of the economic consequences of the policy change.It also estimates changes in consumer and producer surplus. Although the methods employed in this400

APPENDIX 2: THIRD COUNTRIESpaper are simple, the analysis contains important information (e.g., elasticities) for the analysisconducted here. As Trewin explains, increases in animal welfare result in an upward parallel shift inthe supply curve of eggs (see Figure 2, page 25). In an EDM this can be modelled as a change in anexogenous variable.There are also a number of papers in the literature that have attempted to model the egg productionindustry in the US more generally. Chavas and Johnson (1981) describe an econometric model ofthe US egg industry. This paper is informative regarding the necessity of viewing egg production as asequential business decision. In terms of their model, they find that the price elasticity of demand foreggs is -0.34. They also note that there is a price link between shell and processed eggs. As theprice of shell eggs increases, the production of processed eggs declines significantly. It is also notedthat as egg production increases more eggs are used in processing. Another interesting finding in thispaper is the responsiveness of production to changes in price and cost. It is clear that production ismore responsive earlier in the process and that at the point of egg production, egg producers arevery unresponsive to changes in feed costs (see Table 2, p. 328 for details).In related research, Babula and Bessler (1990) employed a Vector Autoregression (VAR) model tomeasure the response in US egg prices (farm and retail) to an increase in feed costs. They found thatupward shocks to the cost of feed (i.e., corn) led to increases in the farm gate price of eggs which inturn led to an increase in retail prices. They measured the magnitude of this response to be a 0.4%increase in farm-gate egg prices (0.32% for retail egg prices) for each 1% increase in feed costs. Theshock to the system lasted almost one and a half years, again indicating the inelastic nature of eggproduction to changes in input prices. Another egg model developed in the US by Salathe et al.,(1983) is the Food and Agricultural Policy Simulator (FAPSIM). This model includes a poultry/eggsectorsub-model. The model was validated using historical data and used to examine the effects ofan increase in broiler production.The distinction between farm-gate and retail in terms of price response has been considered inrelation to US egg production in several studies. Wohlgenant (1989) argued, and empiricallydemonstrated, that farm-level demand elasticities are as large or larger than retail elasticities for eggsas well as a number of other commodities. However, both elasticities are found to be very inelastic.At the farm level the derived demand is -0.15 (Table 5, p 251). Holloway (1991) employed the samedata as Wohlgenant to examine if there is evidence of imperfect competition in the food-marketingsector. He found no evidence of a departure from perfectly competitive markets for output for eggsas well as all other commodities examined.A different aspect of the US egg industry is modelled by Martinez and Norton (1986). They evaluatethe returns to research funded by private and public organisations. The relevance of this research isthat they examine the surplus implications of how research money is spent. To do this theyemployed various elasticity estimates. They used 0.13 for the supply of eggs and -0.22 for demand.They report consumer and producer surplus estimates for various industry scenarios and in additionthey conducted sensitivity analysis. The sensitivity analysis revealed that larger supply elasticity and401

APPENDIX 2: THIRD COUNTRIESsmaller demand elasticity for eggs yields lower producer surplus and increased consumer surplus.These findings support the observation that the overall benefits of research are a function of the shiftin supply, but that the distribution depends on the relative magnitude of demand and supplyelasticities.In a study of the California egg industry, Kinnucan (1999) employs domestic supply elasticities of 0,0.2 and 0.942 to capture different time horizons. For demand, elasticity values of 0.15 and 0.33where used. Also, because he examines issues of trade, import supply elasticities are employed andthese range between 3, 6 and 12.A3.2. Economic specification of the EDMIt needs to be acknowledged at the outset of this research that any model is subject to generallimitations because by design it is an abstraction of reality and modelling does not provide a panacea.The work of van Horne and Bondt (2002) is a good example in that highly aggregated analysis formsthe basis of sector specific observations regarding the egg industry. The model developed andemployed in this research is also an abstraction from reality, but it does model egg production morespecifically and in far greater detail and as a consequence its results are explicitly sector specific.Before the model structure is set out it is necessary to detail the egg industry structure. The eggindustry is relatively complex in all countries that are examined in this project, both in terms of eggproduction and egg consumption. There are a number of markedly different egg production systemsand egg demand represents a very good example of a differentiated product.The key policy issue that motivates this research is the removal of the traditional cage by 2012 andits replacement with enriched cages and/or alternative production systems. Enriched cages providemore space for the birds as well as allowing the bird to lay its eggs in a nest. In addition the birdshave a perch and can scratch and peck litter. Although there are some concerns expressed aboutthe animal welfare benefits of cages (for example, this has led to Germany announcing that it will banall forms of cage by 2012), it is likely that the enriched cage provides a compromise between theremoval of all cages and the exclusive use of alternative systems, i.e. barn and free range. Indeed,some research points to the possibility that enriched cages may well be the animal welfaremaximising production system (Farm Animal Welfare Council, 1997).As a result, the model developed here focuses on the production of eggs (shell caged, shellalternative and processed) and the likely impact of a range of policy scenarios manifested in priceincreases. The differentiation between caged shell, alternative shell and processed production andthe resulting demand for these products is a key feature of the sector as the relationship betweenthese types of eggs as a result of the introduction of the Directive is important.The model also includes trade in caged shell and processed eggs. The increasing importance of theinternational trade in eggs is apparent from a cursory examination of egg trade data (e.g., Gillin, 2003,EU and Defra statistics various). For example, in the UK in 1980 almost 100% of egg supply came402

APPENDIX 2: THIRD COUNTRIESfrom domestic producers with negligible imports or exports. By 2002 this situation had changedwith domestic supply contributing 87% of demand with the remainder evenly supplied from withinthe EU and third countries. Importantly, this trade is not restricted to processed egg products, thereis an almost equal contribution being made to the caged shell market (National Statistics, 2004).The inclusion of trade in EDMs, no matter how small the quantity or value of trade, has beenconsidered by Kinnucan (1999). Kinnucan examines the California egg industry with and without theincorporation of intra-US trade. He finds that the structure of the model, even for a commodity inwhich there is very little trade, does have an impact on estimates of producer and consumer surplus.The trade structure in our EDM draws on Kinnucan (1999) and Kinnucan and Myrland (2003) and isincluded because trade is becoming an ever more important feature of the egg market.Finally, the reason for building the EDM is to conduct policy analysis as it relates to Directive1999/74/EC and its impact on caged egg production. In the analysis a set of policy experiments thatcapture key policy changes that might be expected to occur are considered. These experimentsdescribe likely changes that will occur to exogenous variables (e.g., costs of production, trade tariffsand demand for different egg types) that result in changes in the initial equilibrium. In formulatingthese various policy experiments we have considered the most recent research regarding supply anddemand of eggs in the EU. In terms of trade relations, the EC Committee on Agriculture (2003) hasmade various proposals that impact on the egg sector and these are taken into account in thisresearch. In particular it is stated that import tariff reductions should on average be 36% with aminimum of 15%. For exports it is anticipated that subsidies will be cut by an average of 45%. Thesepercentage changes need to be borne in mind when modelling the policy experiments that arerelated to trade.Taking account of the above, Figure A3.1 provides a schematic representation of our EDM.403

APPENDIX 2: THIRD COUNTRIESInputsFeed, Labourand OtherEggProductionCagedShelldAlternativeTrade with ThirdCountriesProcessedFigure A3.1: Schematic Diagram of the EDM ModelA3.2.1. Model assumptionsTo implement the EDM we make the following assumptions:1. all sectors are profit maximisers;2. all multi-output production functions are separable in terms of inputs and outputs; and,3. all production functions are characterised by constant returns to scale.These assumptions allow us to characterise an industry allocation problem in two parts: costminimisation and revenue maximisation (Varian, 1994). Zhao et al., (2000a) derive the formaleconomic representation of a multi-input/output industry under these assumptions. Our model isbased upon the same formal structure. We are also assuming that the forces of supply and demanddetermine the price of eggs.A3.2.2. Model definitionsNext we define the variables, parameters and notation used in the modelNotation:Let:c = caged;p = processing; anda = alternative404

APPENDIX 2: THIRD COUNTRIESEndogenous Variables:Xi (i=1,2,3) are inputs (Feed, labour and other)Wi (i=1,2,3) are input pricesQ c Q p and Q a , are quantities demanded of caged shell, processed and alternative shellS c, S p and S a are quantities supplied of caged shell, processed and alternative shellQ tc Q tp and Q ta are the net import/export of caged shell, processed and alternative shellP c P p and P a are prices of caged shell, processed and alternative shellP tc P tp and P ta are world prices of caged shell, processed and alternative shellX is an aggregated input index of egg productionQ is an aggregated output index of egg productionExogenous Variables:N X – demand shifter in market Xn - Amount of shift in Nx as a percentage of price of xTx – supply shifter in market XT – Amount of shift in Tx as a percentage of price of xZ tx – tariff shifter in market Xτ tx – amount of shift as a percentage of priceParameters:Elasticities η – demand elasticity of variable x with respect to change in price y β xy – Allen’s elasticity of product transformation between output x and output y xy – Allen elasticity of substitution between input x and input y ε - supply elasticity of variable x with respect to change in price y ei – import supply/export demand elasticity (i=c,p,a) e ti – price transformation elasticity (i=c,p,a)Cost/Revenue Shares: κ X – cost shares of inputs γ – revenue share of outputsGiven the above assumptions and the description of the egg sector, the EDM consists of thefollowing 23 equations.A3.2.2.1. Domestic demand(1) Q c = Q c (P c , P p , P a , N Qc , N Qp , N Qa )(2) Q p = Q p (P c , P p , P a , N Qc , N Qp , N Qa )(3) Q a = Q a (P c , P p , P a , N Qc , N Qp , N Qa )405

APPENDIX 2: THIRD COUNTRIESN Qc N Qp , and N Qa are demand shifters representing changes in demand as a result of promotion ortaste changes.(4) Q tc = Q c – S c(5) Q tp = Q p – S p(6) Q ta = Q a – S aA3.2.2.2. Domestic net tradeWe assume that there is no trade in alternative shell egg production.Equations (4) (5) and (6) indicate whether the EU is a net importer or exporter of eggs (caged shell,processed and alternative shell).(7) Q tc = TC(P tc , N tc )(8) Q tp = TP(P tp , N tp )(9) Q ta = TA(P ta , N ta )A3.2.2.3. International net tradeIf a net importer of shell eggs, then Q tc

APPENDIX 2: THIRD COUNTRIESSo X is an aggregated input index and S is an aggregated output index. The value equilibriumequation sets the unit cost c Q of producing a unit of aggregated output equal to the unit revenue r Xearned per unit of the aggregated input X.A3.2.2.6. Output-constrained input demand of egg production(18) X 1 = c 1 (W 1 , W 2 , W 3 )S – demand for input X 1(19) X 2 = c 2 (W 1 , W 2 , W 3 )S – demand for input X 2(20) X 3 = c 3 (W 1 , W 2 , W 3 )S - demand for input X 3These equations are obtained by applying Shephard’s Lemma (Chambers, 1988) to the total costfunction.A3.2.2.7. Input supply to egg production(21) X 1 = g 1 (W 1 , T X1 ) - supply of input X 1(22) X 2 = g 2 (W 2 , T X2 ) - supply of input X 2(23) X 3 = g 3 (W 3 , T X3 ) - supply of input X 3These equations are the input factor supply equations.The model is estimated assuming that all types of eggs come from a single production sector which ischaracterised by the weighted average of the different systems in operation. We employ datacollected in Stage 1 of the study to apportion costs of egg production. When we ‘shock’ eggproduction by increasing or decreasing production costs we are explicitly assuming a change in themix of production systems. So, for example, an increase in other cost can be taken to mean lesstraditional cage egg production and more enriched or alternative (i.e., free range, barn) production.A3.2.3. Model in displacement formTo conduct policy analysis with our model it is shocked or displaced from its initial equilibrium as aresult of some exogenous change (e.g., demand or supply shift). By totally differentiating allequations in the model and expressing in elasticity form the model linearly relates changes in theendogenous variables to changes in exogenous variables (n Qc , n Qp , n Qa , n Qtc n Qtp , n Qta , t X1 , t X2 , t X3 ).Expressing as elasticities yields the following system of equations.(1*) EQ c = η (Qc Pc) (EP c -n Qc ) + η (Qc Pp) (EP p -n Qp ) + η (Qc Pa) (EP a -n Qa )(2*) EQ p = η (Qp Pc) (EP c -n Qc ) + η (Qp Pb) (EP p -n Qp ) + η (Qp Pa) (Ep a -n Qa )(3*) EQ a = η (QaPc) (EP c -n Qc ) + η (QfaPp) (EP p -n Qp ) + η (QfaPa) (EP a -n Qa )(4*) EQ tc = λ Sc ES c – λ Qc EQ c(5*) EQ tc = e c (EP tc -n tc )(6*) EP tc = e tc (αEP c + τ tc )(7*) EQ tp = λ Sp ES p – λ Qp EQ p(8*) EQ tp = e p (EP tp -n tp )(9*) EP tp = e tp (αEP p + τ tp )407

APPENDIX 2: THIRD COUNTRIES(10*) EQ ta = λ Sa ES a – λ Qa EQ a(11*) EQ ta = e a (EP ta -n ta )(12*) EP ta = e ta (αEP a + τ ta )(13*) ES c = -(γ Sp β (Sc, Sp) + γ Sa β (Sc, Sa) )EP c + γ Sp β (Sc, Sp) EP p + γ Sa β (Sc, Sa) EP a + EX(14*) ES p = γ Sc β (Sc, Sp) EP c - (γ Sc β (Sc, Sp) + γ Sa β (Sp, Sa) )EP p + γ Sa β (Sp, Sa) EP a + EX(15*) ES a = γ Sc β (Sc, Sa) EP c + γ Sp β (Sp, Sa) EP p - (γ Sc β (Sc, Sa) + γ Sp β (Sp, Sa) )EP a + EX(16*) κ X1 EX 1 + κ X2 EX 2 + κ X3 EX 3 = γ Sc ES c + γ Sp ES p + γ Sa ES a(17*) κ X1 EW 1 + κ X2 EW 2 + κ X3 EW 3 = γ Sc EP c + γ Sp EP p + γ Sa EP a(18*) EX 1 = -( κ X2 12 + κ X3 13 )EW 1 + κ X2 12 EW 2 + κ X3 13 EW 3 + ES(19*) EX 2 = κ X1 12 EW 1 – (κ X1 12 + κ X3 23 )EW 2 + κ X3 23 EW 3 + ES(20*) EX 3 = κ X1 13 EW 1 + κ X2 23 EW 2 - (κ X1 13 + κ X2 23 )EW 3 + ES(21*) EX 1 = 1 (EW 1 – t X1 )(22*) EX 2 = 2 (EW 2 – t X2 )(23*) EX 3 = 3 (EW 3 – t X3 )whereλ Si = S i /(S i +Q i )andλ Qi = Q i /(S i +Q i )and these are the relative share of domestic demand and supply for caged shell, processed eggs andalternative shell (i=c,p,a).The structural model (1*-23*) assumes equilibrium in all markets simultaneously. To solve the abovesystem of equations we re-express all equations by placing exogenous variables on the left hand side.To examine shocks (e.g., policy impacts) to the system we set an exogenous variable equal to a valuegreater or less than zero.A3.3. Data, parameters and elasticitiesTo solve the EDM (1*)-(23*) we require three sets of information:1. base equilibrium prices and quantities for all sectors and markets;2. market parameters that describe producer and consumer responses to any price change; and,3. the value of exogenous variables that quantity the shocks (the policy experiments in this case).408A3.3.1. Base equilibrium price and quantity valuesTo construct our base equilibrium prices and quantities we require annual data on prices andquantities (and total value) if possible over a given time period at all production and consumptionstages. Also, we require cost and revenue shares for the egg production sector. Where possible we

APPENDIX 2: THIRD COUNTRIEShave employed data averaged over a number of years so that we can be sure to avoidunrepresentative years biasing our results.A3.3.2. Egg production input costsOn the cost of inputs into the production of eggs use has been made of official EU egg industry dataand that produced in Stage 1 of this research project. From these information sources the total costof egg production for all types of eggs has been estimated. To do this we have it is assumed that eggproduction is based on three main inputs: feed, labour and other. Other captures a myriad ofactivities and costs associated with egg production (principally bird depreciation and building andequipment depreciation) that when taken together contribute a significant part of overall costs ofproduction. Based on this information we have assumed that feed accounts for 50% of costs ofproduction, labour 10% and other 40%.To be able to gauge the plausibility of the cost estimates (relative shares) we know from theProductivity Commission (1998) that in Australia for caged egg production feed costs represent 51%of variable costs, labour 5% and other 44%. We have also compared this data with informationavailable on UK egg production and published in Nix (2003). Nix indicates that feed costs areroughly 5 times greater than labour costs.A3.3.3. Market demandTo assess the total revenue from egg sales (for all types) and the share in revenue for each typeofficial EU egg statistics and information generated in Stage 1 of the project have been used. Giventhat both EU-15 and EU-25 egg production and consumption is being modelled we have madeadjustments to the share in total industry review for each type of egg. That is, in the EU-25 a lowershare of revenue is generated by alternative shell egg production because of the predominance of thetraditional cage systems in the new Member States.A3.3.4. Model elasticitiesThis section provides a discussion of the choice of various elasticities used in the model. A summaryof the elasticity estimates employed is provided in Table A3.1.409

APPENDIX 2: THIRD COUNTRIESTable A3.1: Summary of elasticity values for EDMDomestic Egg DemandCaged Shellη (Qc, Pc) -0.5η (Qc, Pp) 0.05η (Qc, Pa) 0.1Processedη (Qp, Pc) 0.1η (Qp, Pp) 1.0η( Qp, Pa ) 0.005Alternative Shellη( Qa, Pc ) 0.5η (Qa, Pp) 0.001η (Qa, Pa) 0.8Trade (Import demand)e c 5.0e p 5.0e a 0.0Price Transformatione tc 0.95e tp 0.95e ta 0.0Product Transformationβ (Sc, Sp ) 2.0β (Ss, Sa ) 0.05β (Sp, Sa ) 0.05Input Substitution 120.1 130.1 230.1Factor Supply 1 (Feed) 1.0 2 (Labour) 1.0 3 (Other) 0.75A3.3.4.1. Domestic marketOwn price (η)Values of market elasticities used in the analysis are drawn from existing econometric research,economic theory and discussion with various industry participants. Typically, the own price demandelasticity for eggs applied to eggs purchased by consumers and in most studies no distinction is drawnbetween caged and alternative modes of production. We require own-price and cross-price demandelasticities for caged shell, processed and alternative shell eggs.A very useful source of information for elasticities is Baltzer (2003). He presents disaggregatedelasticity estimates of own price demand for eggs own and cross price (battery cage, barn eggs, freerangeeggs, organic eggs and pasteurised eggs). The own price (uncompensated) estimates rangebetween –1.69 to –2.71. These estimates are significantly higher (i.e., elastic) than previously410

APPENDIX 2: THIRD COUNTRIESreported in the literature. For example, Trewin (2002) employs an own price demand elasticity foreggs of –0.1 to –0.3. These estimates are drawn from the literature, especially the work ofOczkowski and Murphy (1999). Given the range of these estimates we employ –0.5 for caged shelland –0.8 for alternative shell.In terms of the demand elasticity for processing there appear to be no elasticities currently availablein the literature. Given that the demand is from manufacturing/processing industries it can beexpected that they will have a relatively inelastic demand. However, processors do not need topurchase shell eggs and can buy egg products which will have the effect of making demand moreelastic. As a compromise we assume an own price demand elasticity of -1.Cross-price (η)In terms of cross-price elasticities Baltzer (2003) provides estimates for caged and alternative shelleggs. In relation to processed eggs there are no cross-price elasticities. As a result we haveemployed what we consider to be sensible estimates. Given that we assume that these goods aresubstitutes, Zhao et al., (2000a) details two important conditions for the cross-price elasticities tosatisfy. First,ηij = (λj/λi)*ηjiwhere λi and λj are the relative budget shares. Second, we need to ensure that ηii≤0 ηij≥0 andThe various cross-price elasticities presented in Table A3.1 have been chosen based on ‏.׀ηij׀

APPENDIX 2: THIRD COUNTRIESA3.3.4.4. Input substitution elasticities (σ)In the model we employ the Allen-Uzawa elasticity of input substitution (Blackorby and Russell,1989) and so estimates are required for all pairs of inputs. Again, there is very little empiricalevidence on the substitutability between various inputs in egg production. A useful source of Allenelasticities of substitution (AES) for European agriculture is Salhofer (2000) where Table 2 reportsAES between various inputs (land, labour, capital and operating inputs) for animal inputs. Thecapital/animal input estimates range from –2.3 to 3 with a mean of 0.1. Alternatively, we can assumezero substitution elasticity which implies a Leontief technology. However, allowing for somesubstitution might and frequently is very important in policy analysis (e.g, Alston and Scobie, 1983).This model follows Zhao et al., (2000a) (page 47) where they employ 0.1 for all industries in theirmodel.A3.3.4.5. Product transformation elasticity (β)Like Zhao et al. (2000a) (p. 48) there are few estimates in empirical literature to guide this choice ofelasticity. A relatively high degree of product transformation has been assumed between caged shelland processed (-2), but a very inelastic (-0.05) product transformation elasticity between all otherpairs of goods.A3.3.4.6. International price transmission elasticitiesThere is no empirical evidence that indicates how changes in world prices are passed onto domesticconsumers. However, theory dictates that this elasticity must be less than one (Bredahl, Meyers andCollins, 1979). Given the focus of this elasticity is to capture changes in import tariffs we assume anelasticity of 0.95 for caged shell and processed and zero for alternative shell eggs because we areassuming zero trade in this good.A3.4. Measuring economic surplusThe main purpose of building and employing the EDM is to examine and estimate changes ineconomic welfare for producers and consumers as a result of policy shocks. Like previous studiesemploying EDMs we accept the propositions of Willig (1976) in that changes in economic surplus aremeasured off Marshallian demand and supply curves. Furthermore, as only relatively small shifts indemand or supply curves are examined it is the trapezoid area of welfare change that is measuredand as such the errors from using changes in surplus to approximate changes in Hicksian welfare arerelatively small.The analysis conducted with the model is to make a change in one or more of the exogenousparameters. Importantly, the measures of surplus change take account of situations when there aremore than two sources of general equilibrium feedback. In this model the source of equilibriumfeedback occurs in the demand for caged shell, processed and alternative shell eggs demandeddomestically (i.e., there is a price of the substitute good in the demand equation). For all otherdemand and supply stations the measurement of economic surplus is straightforward. For more onthese issues see La France (1991) and Thurman (1991).412

APPENDIX 2: THIRD COUNTRIESA3.4.1. Domestic producer surplus change for exogenous factor suppliesFollowing an exogenous demand shock in the model to one market, demand curves shiftendogenously via demand interaction with other markets in the model which in turn produces achange in prices and quantities. However, the surplus curve remains fixed such that producersurplus can be measured. Zhao et al. (2000a) detail how to derive producer surplus changes in thiscontext. Given the similarities between the model structure here and that in Zhao et al., it can beverified that the following are the appropriate measures of producer surplus for each of the factorinputs.PSX1 W1X1( EW1 tX 1)(1 0.5EX1)PS X 2 W 2X2( EW 2 tX 2)(1 0.5EX2)PS X 3 W 3X3( EW 3 tX 3)(1 0.5EX3)The associated shift in X 1 , X 2 and X 3 is given by t X1 , t X2 and t X3 which we take to be a percentage shiftfrom the initial price, W 1 , W 2 or W 3 . So a 1% percentage change in X 1 requires t X1 to be set equal to0.01. Finally, for ease of notation in relation to model computationPSX 1 PSX 2 PSX 3 ESA3.4.2. Domestic consumer surplus changesOur three domestic markets for eggs are related in both demand and supply. For domesticconsumers there is some degree of substitution between caged shell, processed and alternative shelleggs, although this is likely to be asymmetric. That is, processed demand can be satisfied by eitherprocessing supply, or shell caged or alternative. Whereas, shell caged can only really be supplied byshell caged and shell alternative. There can only be minimal substitution from the processed supplythat will require changes to grading or quality of production.In this context there are two methods by which consumer surplus can be measured. The first is toemploy a measure of consumer surplus via a change in total surplus (ΔTS) from a general equilibriumcurve in a single market. We can estimate surplus to domestic consumers in this case by taking thedifference between ΔTS and the sum of all other surplus estimates (Zhao et al., 2000a). In this casethe measure of consumer surplus change for domestic consumers is calculated for all policy scenariosasCS Qd TS ESFor several of the policy scenarios we consider domestic consumer surplus and this requires that weestimate a different measure of TS as follows.413

APPENDIX 2: THIRD COUNTRIESFor a change in input X 1 (feed)TS PSX1 CSX1 W1*X1*tX1*(1 0.5EX1)For a change in input X 2 (labour)TS PSX2 CSX 2 W2*X 2* tX 2*(1 0.5EX2)For a change in input X 3 (other)TS PSX3 CSX 3 W3*X 3* tX 3* (1 0.5EX3)For a change in the demand of caged shellTS Pc * Qc * nQc *(1 0.5EQc)For a change in the demand of processedTS Pp * Qp * nQp *(1 0.5EQp)For a change in the demand of alternative shellTS Pa * Qa * nQa *(1 0.5EQa)For each of the above policy scenarios we can estimate the change in consumer surplus as theresidual.The second way to measure consumer surplus in this context is to measure the change directly fromthe partial equilibrium curves in individual markets. Following Zhao et al. (2000a) it can be shownthat the change in domestic consumer surplus isCSQp(1 0.5EQ P * Qcpc) P* ( naQc* Qa EP ) *(1 0.5EQ* ( ncQa) P EP ) *(1 0.5EQacpa* Q)p* ( nQp EPp) *This approach can be used in combination with the various measures of changes in producers surplusto yield an estimate of total surplus change. It needs to be borne in mind that this formula is derivedassuming that symmetry, curvature and integrability conditions are satisfied. We ensure that theseconditions are satisfied by judicious choice of own and cross-price elasticities.In terms of which measure to employ, we considered both when undertaking the analysis. We foundlittle difference in results.414

APPENDIX 2: THIRD COUNTRIESA3.5. ReferencesAlston, J.M. (1986). The Effects of the CAP on International Trade in Poultry Meat, European Reviewof Agricultural Economics, 13: 217-231.Alston, J. M. and J. D. Mullen (1992) Economic Effects of Research into Traded Goods: The Caseof Australian Wool, Journal of Agricultural Economics, 43(2): 268-278.Alston, J.M. and G.M. Scobie (1983). Distribution of Research Gains in Multistage ProductionSystems: Comment, American Journal of Agricultural Economics, 65(2): 353-356.Babcock, B.A., J. Miranowski and R. Carbone (2002) An Initial Analysis of Adoption of AnimalWelfare Guidelines on the US Egg Industry, Briefing Paper 02-BP 37, Center for Agricultural andRural Development, Iowa State University.Babula, R.A. and D.A. Bessler (1990) The Corn-Egg Price Transmission Mechanism, SouthernJournal of Agricultural Economics, 22(2):79-86.Baltzer, K. (2003). Estimating Willingness to Pay for Food Quality and Safety from ActualConsumer Behaviour, Paper presented at the 83 rd EAAE Seminar.Bennett, R.M. and R.J.P. Blaney (2003). Estimating the Benefits of Farm Animal WelfareLegislation Using the Contingent Valuation Method, Agricultural Economics, 29: 85-98.Blackorby, C. and R.R. Russell (1989). Will the Real Elasticity of Substitution Please Stand Up? (AComparison of the Allen/Uzawa and Morishima Elasticities), American Economic Review, 79(4): 882-888.Bredahl, M.E., W.H. Meyers and K.J. Collins (1979). The Elasticity of Foreign Demand for USAgricultural Products: The Importance of the Price Transmission Elasticity, American Journal ofAgricultural Economics, 61: 58-63.Chambers, R.G. (1988). Applied Production Analysis: A Dual Approach, CUP, Cambridge.Chavas, J.P. and S.R. Johnson (1981) An Econometric Model of the US Egg Industry, AppliedEconomics, 13: 321-335.Cranfield, J.A.L. (2002). Optimal Generic Advertising with a Rationed Related Good: The Case ofCanadian Beef and Chicken Markets, Canadian Journal of Agricultural Economics, 50: 117-133.Gillin, E. (2003). World Egg and Poultry Meat Production, Trade and Supply, Statistics Division,FAO.415

APPENDIX 2: THIRD COUNTRIESHoloway, G.J. (1991) The Farm-Retail Price Spread in an Imperfectly Competitive Food Industry,American Journal of Agricultural Economics, 73(4): 979-989.Kinnucan, H.W. (1999) Advertising Traded Goods, Journal of Agricultural and Resource Economics,24(1): 38-56.Kinnucan, H.W. and O. Myrland (2003) Free-Rider Effects of Generic Advertising: The Case ofSalmon, Agribusiness, 19(3): 315-324.LeFrance, J. (1991). Consumer’s Surplus Versus Compensating Variation Revisited, American Journalof Agricultural Economics, (5): 1496-1507.Martinez, S. and G.W. Norton (1986) Evaluating Privately Funded Public Research: An Examplewith Poultry and Eggs, Southern Journal of Agricultural Economics, 18:129-140.McInerney, J. (2004) Animal Welfare, Economics and Policy, Report on a Study Undertaken for theFarm and Animal Health Economics Division of DEFRA, February.Nix, J. (2003). Farm Management Pocketbook, 34 th Edition, Imperial College London, Wye Campus.Oczkowski, E. and Murphy, T. (1999). Influencing Factors of Domestic Egg Demand, RIRDCPublication, No. 99/16, RIRDC, Australia (http://www.rirdc.gov.au).Pesaran, M.H. and H. Samiei (1991) Persistence, Seasonality and Trend in the UK EggProduction, Applied Economics, 23: 479-484.Piggott, R.R., N.E. Piggott and V.E. Wright (1995) Approximating Farm-Level Returns toIncremental Advertising Expenditure: Methods and an Application to the Australian Meat Industry,American Journal of Agricultural Economics, 77(3): 497-511.Productivity Commission (1998). Battery Egg Sale and Production in the ACT, Research Report,Productivity Commission, AusInfo, Canberra.Russell, N. and Y. Zhuang (2003). The Structure of Egg production in England: Report on aNational Survey of Egg Producers, Special Studies in Agricultural Economics, Report No. 56, Schoolof Economics, University of Manchester.Salathe, L.E., J.M. Price and K.E. Gadson (1983). The Food and Agricultural Policy Simulator:The Poultry and Egg Sector Submodel, Agricultural Economics Research, 35 (1): 23-34.416

APPENDIX 2: THIRD COUNTRIESSalhofer, K. (2000). Elasticities of Substitution and Factor Supply Elasticities in European Agriculture:A Review of Past Studies, Discussion Paper No. 83-W-2000, University of Agricultural Sciences,Vienna, Austria.Thurman, W.N. (1991). Applied General Equilibrium Welfare Analysis, American Journal ofAgricultural Economics, (5): 1508-1516.Trewin, R. (2002). The Economic Impact of Changing Australian Egg Production Systems, A Reportfor RIRDC, Report No. 02/107, RIRDC, Australia (http://www.rirdc.gov.au).Van Horne, P.L.M. and Bondt, N. (2002). Impact of EU Council Directive 99/74/EC ‘welfare oflaying hens’ on the Competitiveness of the EU Egg Industry, Final Report, Project Code 63742,Agricultural Economics Research Institute, Wageningen.Varian, H.R. (1994). Microeconomic Analysis 4 th Edition, Norton, New York.Willig, R.O. (1976). Consumer’s Surplus Without Apology, American Economic Review, 66(4): 589-597.Wohlgenant, M.K. (1989) Demand for Farm Output in a Complete System of Demand Functions,American Journal of Agricultural Economics, 71(2): 241-252.Wohlgenant, M.K. and N.E. Piggott (2003) Distribution of Gains from Research and promotionin the Presence of Market Power, Agribusiness, 19(3): 301-314.Zhao, X., J.D. Mullen, G.R. Griffith, W.E. Griffiths, and R.R. Piggott. (2000a). An EquilibriumDisplacement Model of the Australian Beef Industry, Economic Research Report No. 4, NSWAgriculture, Orange, Australia.Zhao, X., W.E. Griffiths, G.R. Griffith and J.D. Mullen (2000b) Probability Distributions forEconomic Surplus Changes: The Case of Technical Change in the Australian Wool Industry, AustralianJournal of Agricultural and Resource Economics, 44(1): 83-106.417

APPENDIX 2: THIRD COUNTRIESA3.6. Sensitivity analysisThe approach we take to sensitivity analysis is that introduced by Zhao et al (2000b). The methodemployed is via the use of subjective probability distributions as in common in Bayesian inference.The basic method requires that we assign probability distributions for all parameters. In our modelthis means that we undertake this for all the elasticity estimates.The choice of probability distribution is subjective and somewhat arbitrary. However, either atruncated normal or uniform distribution have been found to yield meaningful results previously(Zhao et al., 2000b). By employing a truncated normal distribution we are assuming that a parameterhas a higher probability of taking values near the mode and less likely to values further away. Atruncated normal distribution also allows to specify the range over which we think the parameter canreasonably vary.The choice of mean and variance are also subjective, but can be partly determined by reference tothe literature and existing empirical applications of the methodology. We can also truncate theelasticities to be positive or negative depending on prior knowledge and views. Our choices aredetailed in Table A3.2 below.418

APPENDIX 2: THIRD COUNTRIESTable A3.2: Summary of sensitivity analysis valuesElasticity meanElasticity varianceDomestic Egg DemandCaged Shellη (Qc, Pc) -0.5 N(-0.5, 0.05 2 0 )η (Qc, Pa) 0.1 N(0.1, 0.025 2 >0 )Processedη (Qp, Pc) 0.1 N(0.1, 0.001 2 >0 )η (Qp, Pp) -1.0 N(-1, 0.1 2 0 )Alternative Shellη( Qa, Pc ) 0.5 N(0.5, 0.05 2 >0 )η (Qa, Pp) 0.001 N(0.001, 0.0001 2 >0 )η (Qa, Pa) 0.8 N(-0.8, 0.1 2 0 ) 2 (Labour) 1.0 N(1, 0.25 2 >0 ) 3 (Other) 0.75 N(0.75, 0.1 2 >0 )419