Egg production costs in enriched systems coming down

On January 1, 2012, all hens in the E.U. were supposed to be out of conventional cages. This transition didn't happen precisely on January 1, but by year's end it was mostly complete.

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On January 1, 2012, all hens in the E.U. were supposed to be out of conventional cages. This transition didn't happen precisely on January 1, but by year's end it was mostly complete.

The director general of the International Egg Commission (IEC), Julian Madeley, told the audience at the United Egg Producers' board meeting in Atlanta in late January that there is a common misconception that Europe has mostly gone cage-free as a result of the conventional cage ban. He said this misconception stems largely from what has happened in the north and west of Europe where around half of the hens are kept in colony cages. Located in this part of Europe are the U.K., Germany, and the Netherlands, which have gone to predominantly cage-free egg production. In the south and east of Europe, which includes France, Spain, Italy and Poland, the egg industry is now 90 percent in enriched colony cages. 
'Successful' transition 
Madeley characterized the E.U. experience moving out of conventional cages as a "physical success story." He said the E.U. egg industry still has 350 million layers and it managed to invest $6 billion in new technology during what he described as the worst economic environment in 50 years.
Madeley called this a "good news story for the egg industry." He said the industry didn't want to move out of conventional cages and was forced to do it, but he said the ability to execute the transition in the time frame allowed was a success story.
Greater capital investment 
In the E.U., enriched cages are required to provide 116 square inches (750 square centimeters) per bird, whether the bird is white or brown. Madeley said the typical colony size is 40 to 60 hens.
Based on farm results in northern and western Europe, Madeley said hens housed in enriched colony systems have good egg production, little or no extra feed intake, and lower mortality. "The fundamental (thing) is that, even though egg producers didn't want the system, it works very well," he said.
The higher egg production costs for enriched systems versus conventional cages stem from the greater capital investment per bird. He said the investment cost per bird is 37.5 percent higher in an enriched cage at 116 square inches (750 square centimeters) per bird versus a conventional cage at 85 square inches (550 square centimeters) per bird, which was the industry standard for conventional cages prior to their ban. The UEP-certified standard for conventional cages is currently 67 square inches (432 square centimeters) per hen. 
Enriched costs coming down 
Madeley said egg producers are innovators, and they have been able to offset some of the additional capital cost of enriched cages with lower costs in other areas and better bird performance. He said that in 2002 the first generation of enriched cages had 13 percent higher total operating costs than did conventional cages. Through changes in the designs of the enriched cages as well as improved management techniques, the cost of producing eggs in enriched cages has come down relative to the costs incurred in conventional cages. He shared data that estimated the cost of producing eggs in enriched cages as being only 7 percent higher than in conventional cages in Europe in 2011.
Madeley expressed confidence that the cost differential will continue to close. He described what he called "Generation 3 enriched cages" which have feeders and lights inside the enclosure. He said this allows for wider colonies, which means fewer rows across the width of the house, and this helps to reduce the capital cost disadvantage of enriched colonies versus conventional cages. 
Madeley said the latest average cost of production in the enriched Generation 3 colonies is just 6 percent higher than for conventional cages. He said this new generation of enriched colonies allows for more birds per cubic foot inside the house, improved bird inspection, and other potential benefits. Madeley said, "The point is that the industry is innovative and there is new technology."
He posed the question, "When will we be able to produce eggs in enriched systems for the same or better cost than in conventional cages?" Madeley said the egg industry is a dynamic and innovative industry and that enriched laying systems are fundamentally efficient at turning feed into eggs. These enriched systems are developing rapidly and are becoming increasingly cost effective. He said that that over the next decade, enriched systems will deliver better costs than conventional cage systems. When this happens, he said producers will start to adopt enriched systems out of choice.
EU problems to avoid 
Madeley said U.S. egg producers could learn a few pitfalls to try and avoid from the E.U. move out of conventional cages. He said the E.U. made the conversion because of legislation, but there was some uncertainty over the standards, and the industry really had only around four years to convert because the law wasn't "fixed" until 2008.
There was no phased implementation in the E.U. and this led to fluctuations in supply: The market was short and then long on eggs. He said the oversupply situation was particularly painful for E.U. egg producers because they had just invested in new facilities and were incurring high depreciation charges, which makes it difficult for them to reduce bird numbers.
Complicating the oversupply situation further was the fact that the E.U. gave egg producers in the Ukraine access to the E.U. market to sell eggs at the same time as the move out of conventional cages was taking place in E.U. member countries. This allowed a supply of low-cost eggs from conventional cages as E.U. producers were incurring the increased cost of converting their farms.
Madeley said another tough situation with the conversion was that the enriched colony technology is evolving rapidly. He speculated that what he called second-generation enriched colonies may already be obsolete because of the improvements in the third-generation designs.
Conversion shapes industry 
Madeley said there has been dramatic consolidation among egg producers in the E.U. He said, "It is not the normal consolidation that was seen before. Producers asked themselves, do I want to invest in the future?" He explained the egg companies and farms with strong succession planning are the ones still in the business.
In addition to consolidation of farms and companies within countries, Madeley said there has been a geographic shift to eastern Europe for egg production. In 2000, eastern European states produced 31 percent of Europe's eggs; by 2012, they produced 45.5 percent of Europe's eggs. Madeley said this movement of egg production was the result of lower feed costs and less regulation in the states of eastern Europe.

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