Egg market comes to the boil

The UK egg market is undergoing huge upheaval, with the largest egg company set to be broken in two by 2008 and food manufacturers being hit by rocketing egg prices, which are up by half.

Egg giant Noble Foods was formed last year by the merger of Deans Food Group and Stonegate Farmers, creating a business that controlled almost half of the UK's egg production.

However, the Competition Commission felt that the merger would lead to a reduced level of competition and ordered Noble to sell Stonegate's parent company, Clifford Kent Holdings.

Livingstone Guarantee, the corporate finance firm handling the sale, said it was about to move into the second round of the process. Food sector boss Patrick Groarke said: "We're hoping to identify a preferred bidder by the end of October. The terms of the deal will then be thrashed out in the run-up to Christmas."

Before the merger, Deans had annual sales of £314M, against Stonegate's £103M.

Sources close to the deal declined to comment on how much Stonegate was likely to raise, but said the situation was "rather fluid" because of continuing uncertainty over feed costs - the biggest input cost in egg production.

Egg prices have been increasing this year, driven by soaring feedstock prices, prompting some producers to invest in fewer birds or even leave the industry (see p29). According to the British Egg Products Association (BEPA), food manufacturers and caterers face price rises of roughly 50%. In addition, egg producers are predicting rises in shell egg prices.

There were particular concerns about free range liquid egg, according to one leading own-label manufacturer.

"The situation is exacerbated by certain UK sources specifically creating shortages to drive up prices," claimed the manufacturer. "I am not naming names, but the capacity is there, it's just not being utilised."

Higher cereal prices have hit poultry and egg production particularly hard, as the cost of feed forms a large proportion of overall costs in comparison to other livestock, such as beef cattle, said the British Egg Information Service (BEIS).

The British Poultry Council has already warned that the unpredictability of feedstock prices meant shortages of poultry and poultry products were possible in 2008.