PROMISES to egg producers of written agreements, pricing transparency, and an end to contracts being changed unilaterally form part of the proposed new rules for fairness in the supply chain.

These were the details unveiled to the industry last week at the Pig & Poultry Fair, the day after Defra published the results of its recent review of the sector.

See also: Planning and profitability highlighted as major poultry sector challenges

Work on this new regulatory framework for the egg supply chain should begin this summer, said John Powell, head of the poultry, eggs, dairy and meat team at Defra. 

In the wake of the industry consultation, he noted: “Roughly a quarter of respondents felt that contracts entered over the last five years didn’t meet their needs. 

“We now intend to work closely with the egg industry to ensure whatever is put in place is the solution that best meets the needs of sector, and all of the players there,” said Mr Powell.

Egg sector crisis

Outlining the reasons for the new rules, he said that there had recently been “somewhat of a crisis in the egg sector”, with producers unable to share the increased costs that occurred as a result of the war in Ukraine. 

“And as they weren’t able to pass on the costs along the supply chain, they took the decision to lower the number of laying hens they had, and therefore reduced the number of eggs that were available.”

“It was clear to the Government from that particular situation that a supply chain review was appropriate for the egg sector.”

Good relationships

“Many of those who responded confirmed there were good relationships within the supply chain, and many examples of mutually beneficial agreements were given

“However, we did find a number of aspects of concern that led us to commit to introducing a regulatory framework for contracts.”

Most respondents did confirm that they had written contracts, but there was also a “relatively high rate of verbal agreements” within the industry.

Verbal agreements

“We know from this and previous supply chain reviews that verbal agreements are where issues can occur if disagreements arise.”

The review also found that contract changes occur quite frequently, with unilateral changes being particularly concerning. 

He continued: “Pricing has been a primary concern for producers. We are not going to regulate for what prices should be. 

Market dynamics

“That must be left to market dynamics and commercial negotiation. 

What we are seeking to do is address areas of potential unfairness within contracts to ensure they work for both parties.”

“We heard from many producers that when the ’22 crisis occurred, and the shortage of eggs was seen on retail shelves, that this was due to the rapid rise in input costs above the cost of production and resulting lack of confidence. 

Feed trackers

“Many producers now have access to contracts that track feed prices and other costs, but we know that dynamic can shift.”

There were also calls for contracts to include clear termination and notice periods; for transparent pricing mechanisms; defined grading standards, payment terms, and dispute resolution processes. 

Respondents also agreed that unilateral changes should be prohibited.

New regulations

In response to these issues, the review document published by Defra now states: “These regulations will propose that written agreements are used between all producers and their buyers. 

“We anticipate that they will ensure clear notice or termination periods are included, transparent pricing mechanisms and grading standards, prohibit unilateral changes, mandate a dispute resolution process and introduce a new enforcement process to ensure contracts comply with the new regulations.

“We will work closely with industry to explore what other provisions if any, should be mandated as part of these agreements and whether specific limits on notice periods should be set.”

Respondents also raised many other issues relating to the sector, though no issue was raised by more than a few respondents, according to the review.

Assurance schemes

“The most frequently raised issue was about how changes to assurance schemes can trigger additional costs to producers, often as a result of new elements to schemes being added, with one example raised including a new carbon audit as part of the Lion code.”

Other issues that were raised included the difficulty in producers gaining planning permission for new or expanded egg farms, and concerns over poor standard imports competing against UK-produced eggs.

The consultation was launched on 31 October last year and closed on 22 December. 

There were 40 direct responses, more than half from producers, plus packers, wholesalers and retailers. 

The views of another 200 egg producers were represented by submissions from the NFU, BEIC, and BFREPA.

Follow this link for a full summary of the responses given.