Oversupply sees egg trade treading on shells

AMID whistling winds and wet weeks, farmers and dealers still see the sunny side of the egg trade.

Their optimism, which has waned due to lower-than-expected prices in the past months, now comes from an unexpected source: young consumers.

In random interviews with Manila’s egg dealers, the BusinessMirror learned the slight uptick in prices of eggs arrives with the resumption of school.

Mary Grace Gajo, an egg dealer in Blumentritt, Manila, said egg prices have been falling due to lower demand in summer. With the resumption of classes this June, she felt a yoke has been lifted from the shoulders of her losing retail trade.

Siyempre mataas na iyong demand kasi magpapasukan na. Ganyan talaga. Sanay na ang mga namimili, na every June tumataas iyong presyo ng egg [Naturally, with the resumption of classes came the increase in demand. Consumers expect prices to increase every June],” the 34-year-old owner of Macelynce Egg Dealer told the BusinessMirror.

“There is already a big difference between the prices of eggs this month from last month’s level,” Gajo said in Filipino. According to her, there is already a P500 increase per case of eggs compared to last month’s price, “and every day the price is even increasing by P100 per case.”

A case usually contains 12 trays of eggs. Gajo, however, declined to reveal her price list to protect her own business.

Nonetheless, Gajo said when June came, she could sell about 3,600 trays of eggs (about 108,000 eggs a day), a far cry from her daily sales of about 1,000 trays a month ago.

Still, she observed something unusual with the price movement for table eggs: it has been slower compared to previous years.

Actually, the price should have increased in May, Gajo said. However, she noted the price last May was too low.

The upward crawl of the table egg prices is caused by a familiar woe in the layer industry: oversupply.

Breach

THERE is an anticipated oversupply of table eggs this year due to the higher number of layers.

The latter is seen as caused by the expansion of commercial farms. Thus, farm-gate prices have sunk below favorable quotations for layer farmers.

The industry first experienced this during the years 2007 and 2008. It appears history is repeating itself.

None other than the Bureau of Animal Industry (BAI) confirmed this scenario. The BAI has warned that farm-gate prices of egg this year would be below than profit due to more-than-expected production.

BAI data obtained by the BusinessMirror show that the number of imported parent-stock layer day-old chicks (PS-L DOCs) last year rose by 17 percent to 503,797 birds from 430,635 birds recorded in 2016.

The figure overshoots the 9-year average volume of 351,483 birds after the years 2007 to 2008.

The BAI estimates the 500,000 PS-L DOCs more or less imported a year ago would produce around 50 million day-old pullets (DOPs).

These pullets—a pullet is a young hen—would then be raised to lay eggs. The BAI says one PS-L DOC can produce at least 100 DOPs.

Boom

THE 50 million DOPs, once mature, would continuously lay eggs for at least the next 300 days of their lives, resulting in a total output of 15 billion eggs, BAI targets revealed.

This estimated volume of production is at least 25 percent more than the country’s estimated 10-billion to 12-billion egg demand.

Last year, the country produced 492,406 metric tons (MT) of chicken eggs or about 10.340 billion pieces, which was 6.65 percent higher than the 461,719 MT (9.696 billion pieces) recorded output in 2016.

“Chicken egg production registered a 6.65-percent growth in output,” the Philippine Statistics Authority (PSA) said. “This was due to the higher number of adult female and/or laying flock in both native and layer chickens.”

Of the total volume of eggs, about 83 percent were produced by commercial layer farms. The output of these farms in 2017 grew 7.41 percent to 409,506 MT (8.6 billion pieces) from 381,247 MT (8.006 billion pieces) in 2016.

“This year it is probable that table eggs would become cheaper,” an official of an attached agency of the Department of Agriculture told the BusinessMirror.

“In fact, a lot of backyard layer farmers closed last year due to unprofitable price margins,” said the person who was not authorized to speak in behalf of the agency.

Beaten

It was in 2007 when the layer industry first experienced a crack in its sales largely due to oversupply.

The latter, however, treaded on a natural path as business grew.

For one, a layer farmer would need to raise pullets to have his flock of laying hens. Usually, a farmer buys these DOPs from breeders. These breeders import PS-L DOCs to maintain the quality of their DOPs and to keep up with the layer farmers’ demand for the bird.

In 2007, imports of PS-L DOCs zoomed up by 65.25 percent to 442,326 birds from just 267,663 birds in 2006. The volume was more than double the 4-year average import volume of 258,351 birds from 2003 to 2006. Industry sources say the reason behind the increase in imports was the enticing profitability of the egg sector.

For the first time in history, the inventory of layers in 2008 breached the 25-million-head level. All because of the increase in PS-L DOCs imports. Since then, the expansion of layer farms became unstoppable.

Layered

The oversupply that time forced breeders of layers to calibrate their importation to reasonable levels to avert oversupply in the future, explained Rufina S. Salas, secretary-general of the Agriculture Sector Alliance of the Philippines.

The breeders who import PS-L DOCs agreed to limit their importation to about 300,000 birds annually, Salas added.

But she said the current level of the egg trade is “history repeating itself.”

However, Salas said some players from the Visayas and Mindanao area complained “that their supply of eggs was insufficient and they requested to be able to also import [PS-L DOCs].”

Salas noted that “the new importers are not members of the [group of] importers who agreed to limit importation.”

More than 500,000 imports came in in 2017, said Salas, “so that resulted in a lot of layers as stakeholders expanded their farm. And with expansion, of course, came the oversupply of eggs.”

This is the first time that the layer industry, particularly the breeder/layer importers, brought in more than half-a-million PS-L DOCs since 2003.

Expansion

The Philippine Association of Breeder Layers Inc. (Pabli) said last year’s hike in the imports of PS-L DOCs was a premonition of where the egg industry is heading this year.

“In 2016, day-old layer PS-female arrivals totaled 430,635, which increased to 503,797 heads in 2017,” Pabli President Leopoldo M. Mendoza told the BusinessMirror. “Compared with 315,165 heads in 2015, we can easily see where we are heading.”

Mendoza explained that the layer industry made a “big” expansion in the past three years as “encouraged by good profitability.” This, he noted, led to an overdrive in demand of DOPs and, hence, more PS-L DOCs.

“A big expansion in capacities in commercial layer farms in the past three years was encouraged by good profitability of the egg industry,” Mendoza said in an e-mail exchange. “Egg prices were high and the cost of feed grains, especially corn, wheat and soy bean meals was low; thus, excellent margins.”

He added that this expansion led to higher demand for day-old pullets allotted for commercial table-egg production, which prompted existing and new layer breeder farms to import more day-old layer PS.

Mendoza noted an imbalance in the supply-demand curve for table eggs as the expansion of layer farms outpaced the demand for the produce.

“Although the demand for eggs has materially grown in the past few years, in tandem with our good GDP growth, we feel that expansion in the supply side of eggs was too fast,” he said. “A correction is urgently needed.”

Boracay

Philippine Egg Board Association (Peba) President Irwin M. Ambal cringes at the word “oversupply.”

Ambal, a lawyer, explains that currently, the industry is having a hard time finding a market for small and medium eggs. And this resulted in declining prices for these specific sizes of eggs, he explained.

“It is an oversupply in a sense there seems to be a harder market for the smaller ones,” Ambal told the BusinessMirror. “The prices for small and medium sizes of eggs are declining, that is below 60 grams, which are mostly for supermarkets. But [for] the large ones, which are for industrial users, the prices remain okay.” Industrial users include bakeries and pastries.

Ambal estimates that the price difference between a medium-sized egg and a large one has ballooned by as much as 400 percent.

The Peba chief said that large eggs now cost 50 to 70 centavos more than the medium-sized ones. The price difference last year was only about 10 to 20 centavos, he said, adding that the stretch in the price difference is caused by the declining prices of medium-sized eggs.

“It is really [difficult]. The smaller the eggs we are getting, the more it hurts because of higher cause of production,” Ambal said. “The smaller the egg gets, the deeper the cut in prices.”

According to Salas, the break-even farm-gate price for chicken egg is around P3.50 to P3.75. But farm-gate prices today have fallen to the P2 quotation mark.

“The egg producers say they are now selling at a loss of about P1.50 to P2 per piece,” she said.

In April, some backyard layer farmers in the Calabarzon area were selling their produce at P1 a piece to dispose of their stocks, reports by news outfits said.

Furthermore, the six-month closure of Boracay island was another loss that the layer industry had to shoulder. The closure of the tourist spot left layer farmers looking for other markets for their unsold produce.

The bulk or about 90 to 95 percent of the egg supply of Boracay island comes from Calabarzon, particularly Batangas, according to Ambal. Layer farms supply restaurants in Boracay with medium-sized eggs, which are usually served at breakfast.

“Producers are now trying to divert their small-sized and medium-sized eggs to other markets. That’s a lot of slice of market they used to have,” Salas said.

‘Bagsakan’

One of the usual recourse for farmers is the Blumentritt market in Manila, referred to as “bagsakan,” or an area where commodities are dumped wholesale.

The people in Blumentritt, Ambal explains, have connections to a network of buyers of eggs in the National Capital Region and the Calabarzon area.

But selling at Blumentritt comes with a hefty price.

“Your last recourse if you want to sell your eggs is to sell it in Blumentritt. But the price [would make you cry],” Ambal said. “They will give you a low price in exchange for the advantage they have in the market network.”

Ambal explained that Blumentritt earned its moniker as “bagsakan” not because it is a trading post but because the buying price at this Manila market is “really, really, low.”

Salas says farmers are now dumping their produce eggs at Blumentritt at a price of P60 per tray, which is about P2 per piece.

“The layer farmers are already in a very serious situation,” she said. “Some are losing as much as P50,000 a day; some even P100,000.”

Burdensome

More than the problem of finding a new market for their fresh eggs, farmers are left with a big question: how will they recoup losses caused by higher cost of production?

On top of the current oversupply situation, Ambal pointed out the layer industry is suffering from increasing cost of production.

Ambal said their raw materials, such as corn and soybean meal, have become “very, very expensive,” going up by almost 20 percent.

On one hand, corn prices have gone up to about P18 per kilogram from the usual P13 per kilogram quotation.

On the other hand, the landed cost of imported soybean meal from the United States has increased to P28 per kilogram from P23 per kilogram.

According to Ambal, the increase in raw materials could be attributed to three factors: weaker peso; higher global prices for imported materials; and the lack of local corn supply.

“You have a 15-percent to 20-percent additional feed cost right there and then,” he pointed out.

Ambal said this easily translates to at least a 15-percent increase in the total cost of production of layer farmers as feeds account for about 70 percent of their expenses.

This, Ambal said, is the most crucial thing for the increase in their inputs is corn, which accounts for the bulk of their feed ratio.

“The quantity and quality of corn by April was bad. And that was supposedly the best corn you’ll harvest because of better drying due to summer,” he said. “That is also the time when you stock up for the rest of the year. Unfortunately, we were not able to procure and store our needed stocks.”

Batches

The lack of corn supply has forced some layer farmers to import wheat from Australia and Ukraine, which is cheaper than the locally produced yellow corn. The landed cost of imported wheat right now hovers around the P15-per-kilogram level.

Aileen Abanto, a table egg dealer, says they are now reeling from the upward movements of the farm-gate price of chicken eggs, which she observed has gone up by around P10 from last year’s quotations, caused by higher cost of production.

For example, a tray of small-sized eggs now costs P135 from last year’s P125 quotation, while farm-gate prices of medium-sized and large eggs are now at P145 and P155 per tray, respectively.

The price increase, Abanto noted, was caused by higher cost of production due to more expensive farm inputs such as feeds. She said she has no choice but to pass on to consumers the added costs.

“Prices never go down. It can only go up or be retained,” the 50-year-old owner of Alirem General Market told the BusinessMirror.

Abanto explained dealers like her just add P15 per tray on eggs they sell to retailers. The latter decide on the price if they choose to sell the eggs to consumers.

Broken

But if farmers reel from higher cost of production, low farm-gate prices and loss of market, consumers, on the other hand, are not benefitting from such decline.

“What is sad is the fact that in the market, consumers are still paying the same price while producers are selling at a very low price,” Salas said. “This is something we have to look into. This is another thing: the value chain is broken from producers to the retailers.”

Salas said if the retail prices of egg are reflecting the downward movement at the farm-gate level, then the demand for the commodity would increase.

“If the eggs are being sold at prices commensurate to what the producers sell, then the demand for eggs will increase,” she said. “But the prices remain the same. Hence, the demand does not pick up.”

Ambal echoed Salas’s sentiment: That is the sad part, the retail prices have not gone down.

PSA data compiled by the BusinessMirror showed the wholesale price of eggs in Metro Manila at the start of the year was almost P5 per piece.

However, the wholesale price of egg has been constantly declining since then. It has now sunk by 37 percent and fallen below the P3-per-piece price level.

Latest price monitoring by the PSA showed that as of the first week of June, the wholesale price of eggs is pegged at P2.76 per piece.

Throughout the more than five months of downward spiral movement of the wholesale price of egg, its retail price maintained at an average of P5 per piece.

PSA data also showed that even the low and high retail price of egg at P4 and P6, respectively, remained unchanged from January to June.

Brace

Salas, Mendoza and Ambal agreed on one thing: there’s a need to address oversupply.

For the first quarter alone, the country’s chicken egg output grew 7.42 percent to 130,550 MT due to “expansion of commercial farms in CAR, Ilocos Region, Cagayan Valley, Central Luzon and Caraga.”

Furthermore, the production was also fueled by increased laying flock inventory and improved egg-laying efficiency ratio in commercial layer farms in Ilocos Region, Cagayan Valley, Calabarzon, Mimaropa, Bicol Region, Eastern Visayas, Northern Mindanao and Soccsksargen.

The first-quarter figure translates to about 2.741 billion pieces of eggs, the highest January-to-March period output recorded by the country ever.

“We have seen it in 2008. A lot of layer farmers resorted to direct selling. They were on the highways marketing their produce,” Ambal said. “And for sure, this year, some backyard layer farmers may shut down.”

Mendoza said the oversupply may spell huge losses for his group as their production of DOPs largely depends on the demand of the layer farmers. And if this demand dwindles, so will their production.

“We consider our customers, commercial layer farms, as partners. If they are suffering [then] we also suffer,” he said. “In an egg oversupply situation, we won’t be able to sell some of our day-old pullets and we will be forced to cull early our PS breeders. These events will lead to huge losses for Pabli members.”

Breach

Salas, who is also the chairman of the Committee on Poultry, Livestock and Feed Crops of the Philippine Council for Agriculture and Fisheries, said they have held a series of meetings from April to May to address the oversupply issue.

One of the prominent solutions proposed during the meeting was to limit the importation of PS-L DOCs to a reasonable level, according to Salas.

“The importers are amenable to have a limit of importation of up to 400,000 birds,” she said. “Because if they will not limit their imports then the trend will continue and the number of imports this year will definitely breach the 600,000 mark. And losses will continue to be suffered at the end of the year and even beyond.”

Salas said limiting the importation would be effective right now as it was done in the past.

Mendoza confirmed that the members of his group agreed to limit their import of PS-L DOCs to “restore” the “viability” of the layer industry.

Barter

“Pabli does not control the volume of PS DOC importations. However, if egg prices fall due to oversupply of eggs, we seek to find a consensus among our members, on the reduced volume of future PS DOC importations,” he explained.

“We agree that limiting the volume of layer PS DOC imports is one of the solutions in restoring the viability of the layer industry. Pabli is a small group, compared to the number of layer farmers, thus for our group, it is easier to seek an agreement, as well as to monitor compliance,” he added.

Mendoza said they will limit their PS-L DOCs import to about 400,000 birds annually for the next four years. This volume, Mendoza explained, would produce at least 2.5 million “good quality” DOPs monthly, which would be sufficient to supply the replacement for 36 million to 38 million commercial layers nationwide.

Latest PSA data showed that as of April 1 the country has a total layer population of about 37.046 billion birds, which was 7.15 percent higher than the 34.575 billion birds recorded inventory in the same period of 2017.

Furthermore, the figure was also 4.155 percent higher than the 35.568 billion layer population recorded at the start of the year.

This is the first time that the total population of layers in the country breached the 37-billion mark.

Brokers

Among other solutions that the industry stakeholders came up with include: shipment of Luzon-produced eggs to the Visayas and Mindanao region; intensifying marketing; and early culling of hens.

“On the part of the stakeholders they requested the DA to be able to transport eggs to the Visayas and Mindanao, which are the regions they say do not have enough supply volume,” Salas said. “The DA said they will be making available a vessel for the layer farmers to transport their produce.”

However, this plan has not yet materialized to date.

Salas added there was a proposal to cull hens as soon as they reach eight weeks old. This, according to the proposal, would limit the supply of small and medium-sized eggs in the market.

Under the proposal, culling 8-week-old hens would result in immediate loss for the farmers but would be recouped by the recovery of farm-gate prices of eggs.

“This is what the egg producers are trying to sell to the smallholders,” Salas said. “But to [commit] all the egg farmers to do the same is quite difficult.”

She explained every member of the sector is cooperating, except that the proposals and plans have yet to materialize.

“In the meantime egg producers are incurring losses,” she said. “This is dangerous as small producers may not be able to sustain the losses and would resort to stopping [their production].”

“If the solutions they are offering would be forged, then I think they are enough to control the situation,” Salas added.

Balance

Ambal, however, is lukewarm to the idea of limiting the imports of PS-L DOCs and the early culling of hens. He said the layer industry is a free market and would “self-correct.”

Limiting the importation of parental stocks is not a short-term solution to the declining prices as the effect of such measure would only be felt in the next two years, according to Ambal.

“It will not have an immediate effect as the chicks imported last year are already here and laying eggs,” he argued. “I always believe the industry would self-regulate based on the demand. The industry will not import if they are going to lose.”

Ambal recommended that the government should regularly, if possible quarterly, inform farmers about the current situation of the layer industry so that they may come up with wise business decisions. The information should include but not be limited to price forecast, volume projection and estimated demand, he said.

“As I said, you cannot blame anyone. The farmers saw the price was increasing so they kept on building the industry until the production was too much,” Ambal said. “Then it is the time that the market will self-regulate or undertake technical correction. That’s the regular course of the cycle.”

He added that some layer farmers are opting to keep their older flock as they tend to lay the bigger-sized eggs which caused higher than the smaller ones. Layer farmers are also postponing now the loading of new birds as to limit the production of smaller eggs, Ambal said.

“It is the good thing about the layer industry. It self-adjusts.”

Bounce

But as the layer industry awaits the implementation of measures that would ensure the viability of the sector, Ambal said they are banking on seasonal things to aid them to recover in the short term: Class resumption and fiestas.

“Everybody is hoping that by June the demand would increase. And we are talking about a 50-percent increase or improvement in the demand,” he said. “June usually is the start of classes and when fiesta season comes in.”

But mothers interviewed by the BusinessMirror expressed varied statements on whether they would increase their consumption once classes resume.

For example, Leah Miguel, a mother of two, said they increased their egg consumption to 10 to 12 eggs weekly, compared to the 8 to 10 eggs they ate per week during the summer season.

“It’s more for convenience because it’s easier to cook, especially when preparing it during breakfast or for school baon [packed meal],” Miguel, 44, told the BusinessMirror.

However, for Myra Marie M. Muli, 45, their household’s egg consumption remains the same whether classes resumed or not.

“I don’t think it will increase now that vacation has ended because as for me, I regularly buy 1 tray every payday of the month,” Muli, a mother of a 10-year-old girl, told the BusinessMirror. “And I don’t increase the quantity of the eggs I’m buying when school year comes.”

The same is true for Salvadora Orating, 50, a mother of three: “It will remain the same; about 16 to 20 eggs per week.”

The PSA estimates that a Filipino consumes at least 1.61 piece of egg weekly or about 83.82 eggs annually.

But whether the resumption of classes and fiesta season would buoy the layer industry in the next following months, Gajo said it will just be business as usual.

Dadaanin na lang namin sa volume,” she said. “Mas maraming itlog; mas magandang kita [We’ll rely on volume sales because the more eggs we sell, the more we earn].”

With additional reports by Jenn Kiana Louise N. Cardeño and Monique Danielle A. Fernando, Interns

 

Image Credits: Nonoy Lacza

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Jasper Emmanuel Y. Arcalas is a graduate of the UST Journalism School (Batch 2016). He currently covers agribusiness for the BusinessMirror. He joined the news outfit in August 2016.