Feature in The Farmer
Managing Risk is Essential
Poultry is an important sector within the agricultural economy, accounting for approximately 12% of gross agricultural output.
The outlook for the sector is positive. There are growth opportunities given the high demand for both poultry and egg protein, coupled with the fact that the supply chains are well integrated and unsubsidised. Expansion continues but the entry point is high, investment for a small to medium size enterprise is likely to be at least £1 million. Investment in technology and innovation continues to deliver efficiency improvements, with better feed conversion, reduced finishing periods, more prolific laying capabilities, helped by improvements in genetics and management. In fact, improved industry efficiency is the main reason poultry meat and eggs are so affordable.
VOLUME vs VALUE
Despite the continuing expansion within the sector, as with most industries it does not come without its challenges too! Continual investment to achieve competitive advantage does not come cheap and covering those costs, when faced with volatility, is a risk.
The consumer vision of both poultry meat and eggs is a high source of protein at a relatively low cost. Demand for meat and eggs may be growing intensively but the value is not the same, with both poultry meat and egg prices falling in value per unit of output as scale increases across the sector.
With continuing numbers of new entrants to the Poultry Industry volume versus value is going to be a challenge.
Poultry production systems face many challenges, but one of the main ones is associated with the introduction and propagation of infection. Infectious “agents” can cause a variety of diseases, whether clinical or subclinical, which can have a significant effect on the productivity and ultimate viability of the entire business.
Keith Fowles, Managing Director at KLF Insurance Brokers Limited said: “We are all too aware of the recent difficulties presented by the Highly Pathogenic Avian Influenza (HPAI) epidemic which hit the Poultry Industry this autumn/winter. It didn’t happen this year but the free range producers must be aware of the cost implications for down grading from free range status to barn. The question remains, would the supply chain let free range producers go bust if housing orders have to be extended in 2017/2018?
“Managing risks, wherever possible is essential and bio-security is top of the list, next includes putting in place an insurance policy that will cover the loss to your business for all risks of mortality, together with infrastructure and business interruptions.”
Keith concludes: “HPAI is one of the biggest challenges facing the Poultry Industry, with incredibly expensive consequences which could bankrupt businesses whether by down grading or incurring significant cleanup cost which are in the region of £10-£15 per bird. A solution must be found to avoid a repeat of the perpetual cycle of housing restrictions.”
Avian Influenza presents the threat of inestimable damage to the entire Poultry Industry. Bio-security is essential but to avoid being condemned to a perpetual cycle of housing restrictions solutions are required. Everyone has suffered but those in the Free Range sector experience a greater threat. It is accepted that producer level costs remain the same whether birds are housed or not. However, retailers have already warned that the over-stickered labelling solution used this year is unlikely to wash with trading standards, EMIs or retailers moving forward.
It is clear that there are many opportunities within in the industry but with the pressures of oversupply, tightening disease control, limited value growth and high feed costs the management of risk to avoid the threats is a must.