In its response to the Competitions Commission inquiry into the merger of Deans and Stonegate the Association says that the deal between the two giant packers threatens to create serious difficulties for members in the future.

In a letter chairman Tom Vesey tells the Commission that prior to the merger, the majority of BFREPA members have been supplying eggs under contract to one or other of the companies. They now find themselves supplying Noble Foods.

“A major concern arising from the merger,” the letter says, “is the lack of choice producers now face when it comes to finding an outlet for their eggs. Although there are other egg marketing companies in the UK, none of them are on the scale of Noble Foods or provide the national coverage that Deans or Stonegate did. Effectively this means that for the overwhelming majority of our members they have no choice when it comes to finding a market for their eggs as there are very limited opportunities for direct marketing to retailers.

“In the past it has been competition between packers for supplies that has ensured producers receive the market value for their eggs. In the main, that situation no longer exists and it is one that has the potential to create serious difficulties for our members in the future.

“We therefore believe it is important that the Competition Commission considers this aspect of the merger.”

The letter accepts that the merger has the potential to bring benefits to all involved in the egg supply chain—including producers— by way of improved efficiencies resulting from cost-savings. And that this could create an environment where extra money can be passed back to producers by the new company.

It points out that financial returns have been depressed in the free range egg sector for the past 18 months and, in the face of increasing production costs, producers now find themselves losing money. “For our members’ businesses to remain viable an improvement in returns is vital,” it says.

The new company could also bring improved stability to the free range market, the letter says. It goes on: “Historically producer prices have fluctuated, significantly at times, according to supply and demand. With a lead-in time of between 12 months and two years to bring new production on stream, matching supply volumes to sales forecasts has never been an easy task for the packers. With the new company now controlling the majority of the free range egg market, we believe the ability to match supply with demand will be much improved.”

The NFU has welcomed the merger. In its submission it says that the potential savings that can be made by the merged companies will help “achieve efficiencies and keep down costs in the supply chain”.

In a letter to the Commission John Bowler, managing director of John Bowler (Agriculture), says he does not believe that the merger will have any detrimental effect on the continued growth of the free range market.

One customer—whose identify has been kept anonymous—writes with “serious concerns about the reduction in choice that major purchasers now have in terms of UK-sourced shell eggs.”

The letter points out that the availability of choice to egg purchasers has already been reduced significantly over the past six years by the Stonegate takeover of Thames Valley Eggs and by the Deans takeover of Freshlay.

Major customer demand for Lion brand eggs and extra protection against salmonella has meant the company “can only effectively source eggs in the UK—precluding the imports of eggs from continental Europe”.

As a consequence the company says it also has “serious concerns as to the effect this merger will have on our cost prices.”

An independent free range egg producer has told the Commission: “I have now lost any option as to where I can sell my eggs.” He says he invested £150,000 to establish his unit and that the price he receives for his eggs do not reflect the cost of production. Even as separate companies Deans and Stonegate had forced down prices, he claims, and Noble Foods is now in complete control of the industry. “I only fear the worst,” he says.

Inquiry will probe producer fears
The Competition Commission will investigate the way producers have been affected by the Deans-Stonegate merger.

The assurance was issued after publication of the Office of Fair Trading report into the deal which revealed that officials there had decided not to consider shell egg production.

But John Banfield, Inquiry Director at the CC told the Ranger, “Although the OFT believed there were no concerns for shell egg production, the CC would have to reach its own view on this point. Aspects of shell egg production will also be important in our consideration of the other issues raised.”

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