Better times forecast for egg sector despite tough outlook

2021 will still see COVID-19 impacting the egg market, but 12 months from now the outlook should be brighter.

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Supply discipline will remain necessary to cope with market disruptions and a highly competitive environment. (settaphan | iStock.com)
Supply discipline will remain necessary to cope with market disruptions and a highly competitive environment. (settaphan | iStock.com)

Egg producers will need to keep a tight eye on supply this year if they are to remain profitable as markets will continue to be directly and indirectly impacted by COVID-19.

While the extreme volatility of 2020 may be behind us, COVID-19 disruptions will continue in 2021. This, together with rising feed prices and the ongoing economic downturn, will contribute to highly competitive market conditions. By 2022, however, stronger growth and investment should be evident, and the world economy returns to expansion.

Speaking at the International Egg Commission’s Global economic outlook for the egg sector, Rabobank’s Global Specialist Animal Protein Nan-Dirk Mulder noted that, while difficult times may remain for the egg industry, looking beyond the end of this year the picture is much brighter.

Varying influences

2020 was a year of change and disruption like no other and these changes will continue well into 2021.

Price volatility, demand spikes, and significant loss of food service demand have impacted the industry over the last 12 months. Additionally, logistics have suffered and worker absenteeism, while not at the level seen in the broiler industry, increased. These issues will continue, to varying degrees, through 2021.

Not all the changes to emerge, however, have been negative. Panic buying during the first months of the pandemic helped, in some cases, to improve markets where eggs may have been in oversupply, and the adoption of new technologies has created new relationships between food producers and consumers.

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Feed prices are rising which may squeeze margins, particularly if the market enters oversupply. | chee gin tan | iStock.com

2021 may not see the large disruptions experienced last year, but the return to normal will be gradual and COVID-19 will continue to cause difficulties. 2020 may have drawn to a close with a number of COVID vaccine announcements, but vaccine distribution will be slow, and its application will have only a gradual impact on any return to normality.

Looking at the broader market, Mulder noted that 2021 will be a year of recession. While there will be growth globally this year, it may not be enough to make up for what was lost in 2020.

The growth that does occur will be unevenly spread, with the best performing markets likely to be in Asia. Unsurprisingly, consumers will alter their purchasing habits in response to weak economies and there will be a trend towards trading down. This may not, necessarily, be negative for the egg sector, given that eggs are the cheapest animal protein.

The poor state of the world economy, however, will not be the only factor impacting the egg market. Feed grain prices are rising, and this will affect all animal protein producers.

Droughts in Latin America and some parts of Eastern Europe have put pressure on feed grain supplies and demand for feed from China is expected to rise throughout this year.  

The role of China in feed markets is expected to continue rising as its swine production moves toward expansion. In response to the damage done to its herd by African swine fever (ASF), China has invested heavily.

The county’s swine facilities are increasingly modern and highly profitable, and they need modern feed ingredients. As production continues to recover demand for feed from the Chinese pig industry will grow, placing more strain on international markets.

For the Chinese egg industry, the difficulties experienced in the swine sector have proved beneficial. However, some of these benefits may start to be eroded as the swine industry recovers.

COVID-19 and ASF, however, are not the only diseases affecting the egg sector. Avian influenza is again spreading, particularly in the northern hemisphere, bringing its own disruption.

Brighter times in 2022

Looking beyond the difficulties that will persist in 2021, by 2022, Mulder believes that a different environment will be emerging. This will be typified by higher levels of investment and with changing consumer demands. While expansion may be concentrated in developing markets, particularly Asia and Latin America, developed markets will also return to growth.

However, the new expansionary environment will be influenced by changes that have occurred during the pandemic. For example, concerns over security of supply will remain, and the changes in consumers’ purchasing habits that were accelerated by the pandemic, will be more firmly entrenched.

Digitalization of the supply chain will continue to grow, offering more channels between producers and consumers, as will home delivery. This is already booming in some developing markets, such as China, Vietnam, Colombia and Peru, and it will continue to change the market.

Online and supermarket sales will continue to be strong, with the restaurant and food to go sectors continuing to suffer. In developed markets the increase in home working will have a huge impact on where eggs are consumed.

While only approximately 3% of eggs are currently traded internationally, markets are expected to become more international, as are trends in consumer demands. This will give producers the opportunity to add value to products.

This may be particularly visible in the move away from cage production, and this change which is already spreading from developed to emerging markets. Large scale food producers and quick service restaurant chains wanting to harmonize their purchasing policies will be the driving force for this change.  Although cage production in developing markets will remain the dominant practice over the next decade, the number of cage-free farms can be expected to increase.

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New technologies are changing consumer purchasing habits, offering producers new opportunities but necessitating investment. | martin-dm | iStock.com

 

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