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Poultry Marketplace

Profile of The Canadian Egg IndustryChapter 1: Introduction

Index

Chapter 1: Introduction o 1.1 Supply management in the egg industry o 1.2 Legislative framework

1.2.1 Farm Products Marketing Agencies Act 1.2.2 Farm Products Council of Canada (FPCC) 1.2.3 Egg Farmers of Canada 1.2.4 Federal-Provincial Agreement (FPA) 1.2.5 Export and Import Permits Act

o 1.3 International trade agreements 1.3.1 Canada-United States Free Trade

Agreement (FTA) and North American Free Trade Agreement (NAFTA)

1.3.2 General Agreement on Tariffs and Trade (GATT), the Uruguay Round and the World Trade Organization (WTO)

Chapter 2 : Global Economic Environment in the Egg for Consumption Sector

Chapter 3 : Stucture of the Canadian Egg Industry

Chapter 4 : International Trade and Canada

Bibliography

Schedule A: The Import Control List and Non-Import Control list

Tables, Graphs and Charts

1.1 Supply management in the egg industry

During the Great Depression in the 1930s, farmers in Canada faced a constant struggle to maintain, stabilize and increase farm revenue. That struggle led the federal and provincial governments to implement legislation promoting a collective marketing environment for agricultural products while respecting the constitutional jurisdictions of the various levels of government.

The modern foundation of the national egg supply management policy dates back to the late 1960s. Over the years, producers banded together to form marketing boards for milk, eggs and chicken. These marketing boards operated under provincial government authority. However, in the 1970s, the limitations of implementing supply management at the provincial level became apparent. The export vocation of some provinces and management of surpluses resulted in trade tensions between the provinces. It quickly became evident to egg producers that there were limits on what supply management could do without coordination by the provinces and the federal government.

Box 1. Definition of supply management

The agricultural supply management policy in Canada is based on production that is planned to match demand through production quotas, producer pricing that reflects production costs, and control of imports.

In 1968, the Canadian Egg Producers Council and the Canadian Federation of Agriculture sponsored the first national conference of egg producers in Canada. It recommended immediately establishing a national agency supported by federal legislation.

The federal government of the day initially responded with Bill C-107, a predecessor of today’s Farm Products Agencies Act. Bill C-197 was subsequently introduced. Bill C-197 would have enabled a national marketing agency to control the amount of agricultural commodity marketed based on consumer demand through a production quota system and to allocate a portion of the national market to each province. The national agency would also have prohibited production surpluses in one province from being sold in other provinces and would have set the price to producers based on the production costs of a plurality of them. However, the Bill died on the order paper due to opposition from groups who maintained that the Bill did not give agricultural producers enough control over decisions of the national agency. Other groups were also strongly opposed to the principle of government regulation of a segment of the market economy.

Ultimately, Bill C-197 was reintroduced as Bill C-176. There was substantial debate and reaction in government and in the agriculture community, and passage was delayed. It was necessary to determine if a majority of farmers producing any given commodity wanted to be headed by a national marketing organization for that commodity. The National Farm Products Marketing Council, now known as the Farm Products Council of Canada, was established by the federal government to pave the way for the creation of the Canadian Egg Marketing Agency. The Farm Products Agencies Act received royal assent in January 1972 together with provincial legislation enabling poultry producers to establish national marketing boards, and supply management emerged on the federal scene. Egg Farmers of Canada came into being in December 1972 and began operating in June 1973. In 2008, the producer’s organization changed its corporate name from the Canadian Egg Marketing Agency (CEMA) to Egg Producers of Canada (EPC).

1.2 Legislative framework

In Canada, supply management is governed by provincial and federal legislation as well as federal-provincial agreements. Some provincial and federal initiatives are presented below for reference purposes.

The Ontario Egg Producers’ Marketing Board was established in 1964. In Quebec, a joint marketing plan for egg producers was launched in 1966. In western Canada, in 1967 egg

producers in British Columbia came under the British Columbia Egg Marketing Scheme, 1967, while producers in Alberta created their own marketing board in 1968.

At the federal level, the enactment of the Farm Products Agencies Act (FPAA) in 1972 signalled the starting point of the model for supply management. Various federal initiatives are presented in the following subsections.

1.2.1 Farm Products Marketing Agencies Act

The Farm Products Marketing Agencies Act (1970-71-72, c. 65, s. 1) was enacted in 1972 for poultry to establish the National Farm Products Marketing Council and to authorize the creation of national farm products marketing agencies. The Act was subsequently replaced by the Farm Products Agencies Act (FPAA) (R.S. 1985, c. F-4).

With the inception of the FPAA, the Farm Products Council of Canada (FPCC) and national marketing agencies were created. These marketing agencies are assigned authority to implement and administer national marketing plans, allocate quota and market share and generate revenue through levies. The FPCC was then placed in charge of overseeing these agencies and administering FPAA legislation.

1.2.2 Farm Products Council of Canada (FPCC)

The FPCC reports to the Parliament of Canada through the Minister of Agriculture and Agri-Food. Its mission is to promote the efficiency and competitiveness of Canada’s agriculture. The FPCC also helps to improve farm-product marketing between Canadian provinces and territories and internationally. In addition, it supervises the operations of four national marketing agencies, including Egg Farmers of Canada. The FPCC is composed of at least three members, and may have up to nine. At least half the Council’s members must be agricultural producers. The Council’s responsibilities are given below.1

In its operations, the Council consults the agencies as well as provincial and territorial governments and other branches of the Government of Canada. The Council approves agency orders and regulations. It also hears complaints about agency decisions.

1.2.3 Egg Farmers of Canada

Egg Farmers of Canada is a national marketing agency that manages Canada’s supply of eggs for consumption. It estimates the demand required for the table and processing markets in Canada to meet their needs, in partnership with provincial and territorial marketing boards. The agency implements its national quota order upon the FPCC’s approval. It allocates this quota among the provincial and territorial boards. These boards then allot quotas to their registered producers.

Egg Farmers of Canada was created in1972. It elects a chairperson each year from its 15-member Board of Directors. The Board comprises 11 representatives from the provincial and territorial marketing boards, 3 representatives from the Canadian Poultry and Egg Processors Council and 1 representative from the Consumers’ Association of Canada.

1.2.4 Federal-Provincial Agreement (FPA)

Along with other legislation, the Federal-Provincial Agreement for Eggs is a partnership designed to foster the smooth operation of supply management in the Canadian egg sector.

The Federal-Provincial Agreement was adopted in 1976 following negotiations among the provinces to amend the text of the overall agreement of November 20, 1972. The provincial and the federal government signed the agreement, which sets forth the responsibilities and delegation of powers to the provinces, Egg Farmers of Canada and provincial marketing boards.

In 2003, the contracting parties agreed that a new federal-provincial agreement was desirable. However, negotiations to reach a new agreement have since come up against a stumbling block. Progress towards an agreement was slowed by a Court challenges mainly due to Saskatchewan’s disagreement on the proposed method of allocating the overbase allocation. In 2004, Saskatchewan sought judicial review in Federal Court to have the 2004 quota order quashed and to prohibit Egg Farmers of Canada from using factors other than the Federal Provincial Agreements overbase criteria in future quota allocations. The province also sought judicial review of the 2005 quota order on the same grounds.

1.2.5 2 Export and Import Permits Act

In Canada, the Export and Import Controls Bureau of the Department of Foreign Affairs and International Trade is responsible for administering the Export and Import Permits Act(EIPA), which gives authority to the Governor in Council to regulate the import and export of designated products. This is an important piece of legislation for commodities under supply management as it provides import control, one of the three pillars of supply management with production control and price setting abilities. Under the EIPA, the Governor in Council may establish the Import Control List (ICL), the Export Control List(ECL), and the Area Control List (ACL). With regard to agricultural products under supply management such as poultry and egg products, the ICL portions of the Act are the most pertinent. Permits are required for the importation of commodities covered by the ICL. The sections of the ICL that pertain to eggs and egg products are outlined in Schedule A.

1.3 International trade agreements

The international trading system changed drastically in the 1980s and 1990s. The implementation of the Canada-United States Free Trade Agreement (CUSTA), the North American Free Trade Agreement (NAFTA) and the outcome of the Uruguay Round negotiations that led to the creation of the World Trade Organization (WTO) affected not only the global economy but also the Canadian supply management policy. This section provides a brief overview of these important international agreements and some of their implications for supply management.

1.3.1 Canada-United States Free Trade Agreement (FTA) and North American Free Trade Agreement (NAFTA)

The Canada-United States Free Trade Agreement (FTA) was signed in 1988 and implemented in 1989. Under the FTA all tariffs were to be phased out over a 10-year period, from 1988 to 1998. The objective was to create a Canada-U.S. free trade area so trade between the two countries would be uninhibited by border measures, with the exception of certain commodities such as Canadian dairy and poultry imports of which could be controlled under Article XI of the General Agreement on Tariffs and Trade (GATT).

In 1994, the FTA agreement was expanded to include Mexico, which led to the creation of the North American Free Trade Agreement (NAFTA). NAFTA called for immediately eliminating duties on half of all U.S. goods shipped to Mexico and gradually phasing out other tariffs over a period of 14 years. NAFTA did not affect the phasing out of tariffs agreed to under the FTA, and that process was completed on January 1, 1998. NAFTAremoved restrictions on many categories of products, protected intellectual property rights and favoured investment. Supplemental agreements were added later to NAFTA to include provisions regarding workers and the environment.

Agriculture has been a controversial topic within NAFTA, as it has been with previous and later agreements. Agriculture is the only section of the agreement that was not negotiated trilaterally. Three separate agreements were signed for agriculture, including two bilateral agreements that Canada negotiated with the U.S. and Mexico to preserve border controls for its supply-managed commodities. In the U.S., tariffs remain in place for certain products such as sugar, dairy, peanuts and cotton. On January 1, 2003, the final tariff reduction between Canada and Mexico was completed, except for certain products, including those under supply management.

1.3.2 General Agreement on Tariffs and Trade (GATT), the Uruguay Round and the World Trade Organization (WTO)

General Agreement on Tariffs and Trade (GATT) history began in 1948 as part of a larger plan for economic recovery after World War II. The countries highly involved in international trade signed an agreement known as the GATT that was developed through a series of eight trade negotiations or rounds (Geneva 1947 to the Uruguay Round, 1986-1994). The GATT’s main purpose was to reduce barriers to international trade while allowing a certain level of flexibility so that countries can adopt special measures for certain sectors of their economies. Early GATT rounds provided special treatment for agriculture that virtually absolved agriculture from most disciplines applied to industrial trade. It was only during the Uruguay Round that agriculture was fully integrated into the international trade system.

The Uruguay Round commenced in September 1986 and was finalized in December 1993. The intent of the trade round was to expand the jurisdiction of the GATT to new areas such as services, capital, intellectual property and agriculture. With the Uruguay Round, the World Trade Organization (WTO) came into being on January 1, 1995.

Under the terms of the Uruguay Round, quotas on agricultural imports had to be converted into TRQs (tariff equivalents) by July 1, 1995, and tariffs reduced over a 6-year period commencing in 1995 by a minimum rate of 15% per product. Overall, tariffs on agricultural goods, including tariff equivalents, had to be lowered by 36% over the 6 years but by a minimum of 15% per tariff line. To fulfill its obligations under theGATT/WTO agreement, the Canadian government replaced its system of import quotas for products under supply management, such as poultry, eggs and dairy products, with tariff rate quotas (TRQs). It was also agreed by the WTO members that domestic market access within a TRQwould increase from 3% of domestic consumption to 5% over the implementation period. Currently, under the 1994 WTO agreement, Canada has committed to allowing a world import level for eggs and egg products of 21,370,000 dozen (egg equivalent).

For eggs and egg products, the Canadian market access level provided to Canadian importers is the higher limit between the levels negotiated under NAFTA or the WTOUruguay Round Agreement. Under NAFTA, Canada provides an import access level for eggs and egg products of 2.988% of the previous year’s domestic egg production. That amount is split

among shell eggs (1.647%); frozen, liquid and further processed eggs (0.714%); and powdered eggs (0.627%).

However, under the World Trade Organization (WTO), the tariff rate quota (TRQ) established for 2007 and 2008 is 21,370,000 dozen (egg equivalent). The Canadian market access level is the higher limit between the levels under the WTO and NAFTA. The general allocation of the TRQ between the various segments in the sector is illustrated in Table 1.

Table 1 : Allocation of Canadian Market Access Level forEggs and Egg Products

Product NAFTA Percentage Sample Calculation

1. Shell eggs1.647% of total domestic production from the previous year

A

2. Egg products0.714% of total domestic production from the previous year

B

3. Powdered eggs0.627% of total domestic production from the previous year

C

Total NAFTA (1+2+3)2.988% of total domestic production from the previous year

D

WTO access Not applicable21,370,000

dozen (equivalent)

Remainder allocated to the breaking egg segment

Not applicable (21,370,000 dozen – D)

Source: Foreign Affairs and International Trade Canada and AAFC.

Other areas in which the Uruguay Round negotiations on agriculture have had an appreciable impact are domestic support, export subsidies, sanitary and phyto-sanitary measures, biotechnology and improvement in WTO dispute settlement mechanisms.

In 2000, new multilateral trade talks started at the WTO, namely the Doha Development Agenda (DDA). The Ministerial Conference of November 2001 established the mandate for negotiations. Talks aimed at achieving a new multilateral agreement are still ongoing.

Footnotes:

1 Translator’s note: sentence is incomplete.2 Translator’s note: 1.2.6 in French but should likely read 1.2.5.

Date Modified: 2012-02-28

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Poultry Marketplace

Profile of The Canadian Egg IndustryChapter 2: Environnement Économique mondial dans le secteur des œufs de consommation

Index

Chapter 1: Introduction


o 2.1 Global laying hen flocks o 2.2 Global egg production o 2.3 Value of farm production in select egg producing countries o 2.4 Prices paid to egg producers internationally o 2.5 Comparison of select production costs o 2.6 International trade in the egg industry o 2.7 Per capita egg consumption in various countries o 2.8 A look at the U.S. egg industry o 2.9 Standards for laying hen cages in the United States and in the European

Union



Bibliography



2.1 Global laying hen flocks

According to data from the Food and Agriculture Organization (FAO) of the United Nations, global laying hen flocks comprised an estimated 5.7 billion birds in 2006. Countries with the highest laying hen flocks were, in order, China (2.2 billion), the European Union (EU-27: 539.7 million)1, the United States (344 million – all eggs), Brazil (236 million), India (215 million), Indonesia (171 million) and Mexico (165 million). Within EU-27, Luxembourg, France, Romania and Poland had the highest inventories of laying hens among EU members.

Figure 1 : Distribution of Global Laying Hen Flocks in 2006

In 2007, Canada ranked between 30th and 35th in the world with an average annual national inventory of 19.4 million hens under the federal quota allocation (Canadian Egg Marketing Agency, 2008).

2.2 Global egg production

According to the FAO, global egg production totalled 61.1 billion dozen eggs in 2006. That year, China was the world’s biggest egg producer, at 25.3 billion dozen, followed by the EU-27 (6.6 billion), the United States (5.3 billion), India (2.6 billion), Japan (2.5 billion) and the Russian Federation (2.1 billion). Canada ranked between 20th and 25th in the world, with a supply of 542 million dozen in 2007 (Egg Farmers of Canada , 2008).

Over the past 20 years, China has increased its egg production by 450%, from 4.6 billion dozen to more than 25.3 billion dozen. That agricultural sector in China is expanding rapidly. China has switched increasingly from a multitude of small breeding operations in the past to U.S.-style production complexes with facilities that can house more than one million laying hens (World Poultry, 18-1, 2002). China is nonetheless heavily dependent on animal feed imports and is thus vulnerable to price fluctuations in international markets. U.S. production rose by 33% over the same period (see Figure 2).

In Europe (EU), between 2000 and 2005, egg production in the EU rose at a much slower rate compared to the global average. In contrast, growth in the 10 new member countries was higher than in all the original countries of EU-15. Eastern European countries posted higher absolute and relative growth than EU countries.

Figure 2 : Egg Production Trends in Main Producing Countries, 1986 Compared to 2006

Over the medium term, according to OECD2 economic forecast models, global egg production and consumption between 2007 and 2016 is expected to rise by 20%. Of the leading global producers, China is forecasted to increase its production by 33%; the UE-27, by 1%; and the United States, by 6%, while India should see a 13% increase. Also according to the OECD, egg production in Canada is forecast to increase by 9% by 2017, with consumption expected to rise by 6%.

2.3 Value of farm production in select egg producing countries

According to OECD data for 2005, farm egg production in China was worth approximately C$21.5 billion. In 2006, EU-25’s production was valued at $10.1 billion, followed by the United States at $5.1 billion. In Canada, farm cash receipts in the egg sector were valued at $560 million.

Figure 3 : Value of Farm Cash Receipts in the Egg Sector for Various Countries, 2005 or 2006(C$ billions)

Source: OECD, Statistics Canada and Bank of Canada.

2.4 Prices paid to egg producers internationally

Farm-gate prices in India, China and the United States are among the lowest of the world’s main egg producing countries. The price of eggs paid to producers in Canada is comparable to rates in effect in Germany and the United Kingdom. In contrast, prices in Japan are substantially higher. Figure 4 provides a timeline for prices paid to producers in U.S. dollars per metric tonne in a few main producing countries from 2000 to 2005.

Figure 4 : Comparison of Farm-gate Egg Prices in Various Countries (US$/tonne), 2000 to 2005

Source: FAO.

2.5 Comparison of select production costs

From time to time, World Poultry3 publishes an estimate of select production costs in U.S. dollars for eggs in a number of countries to provide a common basis for comparison. According to its analysis for 2006, the cost to Canadian producers to purchase a single day-old chick was 96.86 cents U.S. In contrast, the cost of animal feed for a single laying hen was 16.86 cents U.S. per kg, and the cost for a 16-week-old hen was approximately US$3.75.

The analysis shows that among the leading egg producing countries, it costs less to purchase a one-day-old chick in India and Mexico. In contrast, 1 kg of animal feed can be procured more cheaply in India, the United States and Canada. With regard to the cost of 16-week-old laying hens, India, Mexico and the United States would seem to have a competitive advantage. Results of the World Poultry analysis are presented in Table 2.

Table 2 : Cost of Chicks and Animal Feed for Egg Production in Select Countries in 2006 (in U.S. cents)

Country Currency

Exchange Rate/US$

Chick (1 Day Old)

1 Kg of Animal Feed

16-week-old Hen

Australia A$ 1.35 185.56 22.27 504.71

Canada C$ 1.12 96.86 16.86 374.89

France Euro 0.78 77.94 21.98 383.29

India Rupee 45.88 37.27 14.71 163.45

Mexico Peso 11.29 31.00 19.58 168.31

United Kingdom

Pound 0.54 83.19 22.00 489.92

USA US$ --- 57.00 16.00 220.00

Source: World Poultry 23-1, 2007.

World Poultry also produced a comparative analysis for 2003. The magazine estimated that of 49 countries studied, the lowest production costs per laying hen4 were in India, the United States and Brazil. Canada ranked 12th of the 49 countries studied.

The analysis for 2003 also estimated profitability and competitiveness levels by country. The findings of the analysis show that Spain, Serbia, Canada and Denmark had the highest average levels of profitability per laying hen of all the countries studied. The United States had a higher level of profitability than the average for all the other countries. The findings of this study must be interpreted with caution, however, and are intended for general information purposes only because the study analyses only certain variable costs, and those

costs can fluctuate from year to year depending on prevailing economic forces and economic conditions in each country.

2.6 International trade in the egg industry

Shell eggs

International trade in shell eggs is relatively small when this sector is compared to other highly globalized agricultural markets, such as grain and beef.

In general, shell eggs are exported to countries close to the exporting country and are shipped overland. The Canada-U.S. market is a prime example, as eggs intended for human consumption imported into Canada all come from the United States. Another example is trade trade inside the EU. Intra-European trade exceeds extra-European trade.

In 2005, the main shell egg exporting countries (in order) were the Netherlands (US$331 million), the United States (US$161 million), Germany (US$130 million), Spain (US$92 million) and France (US$80 million). Figure 5 illustrates shell egg exports for those countries.

Figure 5 : Main Shell Egg Exporting Countries (US$ Millions)

Source: FAO.

For that same year, in terms of imports, Germany was the country that imported the most shell eggs (US$335.6 million), followed by the Netherlands (US$96 million), China (US$73.4 million), France (US$64.9 million) and the United Kingdom (US$61.8 million). Canada ranked 7th among importing countries, and the United States, 22nd. Figure 6 shows the chief importing countries.

According to the International Egg Commission, for several decades Germany was the leading importing country. Between 2000 and 2005, German imports rose by more than 53,000 tonnes. The increase in German imports is the result of the gradual withdrawal by 2009 of conventional laying hen cages in Germany. This gradual withdrawal is being carried out two years ahead of the rest of the EU member countries. In the Netherlands, avian influenza outbreaks resulted in an increase in egg imports.

Figure 6 : Main Shell Egg Importing Countries (US$ Millions)

Source: FAO.

Powdered eggs

The chief powdered egg exporting countries were India (US$25.5 million), France (US$25.4 million), the United States (US$25.3 million), the Netherlands (US$20.8 million) and Germany (US$14.5 million).

In terms of imports, Germany (US$36 million), Japan (US$27.1 million), the United Kingdom (US$21.3 million), Denmark (US$14.6 million) and the Netherlands (US$6.5 million) were the chief powdered egg importing countries.

Liquid eggs

The top liquid egg exporting countries were the Netherlands (US$101.3 million), the United States (US$29.3 million), Belgium (US$28.3 million), France (US$23.9 million) and Germany (US$14.7 million).

The leading liquid egg importing countries were Germany (US$52.4 million), Japan (US$45 million), Belgium (US$24.5 million), France (US$24.3 million) and the United Kingdom (US$22.9 million).

2.7 Per capita egg consumption in various countries

Per capita egg consumption varies around the world. For example, in several East European countries, consumption is lower than in the EU as a whole. In contrast, consumption in Russia is similar to that in a number of European countries.

The sensitivity of European consumers to avian influenza accounts in part for the decrease in consumption in some European countries even if it did not affect the safety of food.

For example, egg consumption in Denmark was 18.7 kg per capita compared to 15.4 in France, 14.3 in the United States, 13.6 in Poland and 10.4 in Canada.

Figure 7 : Egg Consumption in Several Countries in the World, 2000 and 2005

Source: International Egg Commission, The Center for Market and Price Reporting (ZMP), Egg Farmers of Canada and calculations by AAFC5.

2.8 A look at the U.S. egg industry

U.S. market

In 2006, according to United Egg Producers, the egg laying flock in the United States averaged 288 million birds, with production totalling 3.2 billion dozen eggs. In the United States, most laying hens are housed in farm buildings comprising between 40,000 and 100,000 birds or even larger. It is estimated that 95% of commercial egg production in the United States takes place in cage systems.

The top 10 U.S. states that produce eggs are (in terms of number of laying hens) (1) Iowa (51 million), (2) Ohio (25.6 million), (3) Indiana (23.6 million), (4) Pennsylvania (20.7 million),

(5) California (18.7 million), (6) Texas (14 million), (7) Nebraska (10.9 million), (8) Minnesota (10.1 million), (9) Florida (9.9 million) and (10) Georgia (9.4 million).

In terms of concentration in the U.S. industry, there are more than 60 companies in the egg sector that have more than 1 million laying hens, and there are 12 companies with more than 5 million hens. Accordingly, there are approximately 245 companies with 75,000 or more laying hens. Those companies account for approximately 95% of the laying hen flock in the United States.

In 2006, the United States exported US$144 million in egg products and US$57.2 million in table eggs. In terms of processed egg products, Japan and Canada were the main U.S. markets, whereas Hong Kong was the chief destination for U.S. table egg exports.

Between 2000 and 2006, prices paid to U.S. egg producers fluctuated between 34.7 U.S. cents a dozen and 57.6 U.S. cents a dozen. Over the same period, the prices paid to producers in Iowa (the U.S. state with the highest production) were lower than the U.S. average, with prices ranging from 29.2 cents to 50.9 cents a dozen. By comparison, prices in Ohio were slightly higher overall than the national average. While the latest compilations of farm-gate prices for 2007 had yet to be released as of this writing, there was a continuing upward trend.

Figure 8 : Change in Farm-gate Egg Prices in the United States and in the States of Iowa and Ohio (US$ per dozen), 2000 to 2006

Source: Agricultural Statistics Board, NASS, USDA.

Lastly, the wholesale price in the United States for table eggs fluctuated considerably in 2006. In the U.S.Midwest, which includes the states of Iowa and Ohio, wholesale prices fluctuated from 34 U.S. cents to 94 U.S.cents a dozen. In the northeastern United States, which includes the states of Pennsylvania and New York, prices ranged from 40 cents U.S. to 101 cents U.S. Several economic factors drove prices upward in 2006. First, in 2005 and in the first half of 2006, the U.S. industry had to cope with difficult market conditions, with supply outstripping demand. However, egg prices in the United States have since risen as a result of various factors, including the United Egg Producers requirement to improve animal welfare, the depreciation and reinvestment in new production cages and a strong external demand (increase of US exports).

In 2007, egg supply remained tight and demand high, exerting additional upward pressure on the wholesale price of eggs. In addition, the price of animal feed rose considerably in

2007, adding to producers’ costs. U.S. egg exports to other countries continued to be significant due to fears of avian influenza in various countries and the fact that Europe is switching its farm production methods to cageless buildings, thus reducing supply in the U.S. market.The wholesale price of eggs in the United States trended sharply upwards in 2007. Figure 9 shows that the lowest average monthly price was 66.8 cents U.S./dozen in the Midwest in June and that the highest price recorded was 155.2 U.S. cents/dozen in the northeastern United States in December.

Figure 9 : Average Monthly Wholesale Price for Large, Grade A Eggs in the Midwest and Northeastern United States in 2006 and 2007

Source: USDA Egg Market News Report and calculations by AAFC.

U.S. organic egg market

The organic egg market is growing in the United States. The U.S. Congress passed the Organic Foods Production Act in 1990 to establish national standards for organic products. The United States Department of Agriculture (USDA) allowed labelling of organic poultry products in 1999, well after other agricultural products. The USDAimplemented organic standards for agricultural products in October 2002.

While organic eggs can be found on shelves in traditional supermarkets and in specialty food stores, there is also a movement in both the United States and Canada to support local agriculture. Direct sales by farm producers to consumers have increased significantly. In the last decade, the number of farmers’ markets has risen by approximately 1,000 to nearly 3,700 across the United States. In addition, the number of farms supported by local communities, that is, farms that sell part of their harvest or production to local consumers, rose from 800 in the late 1990s to more than 1,100 in 2006. The sale of organic chicken and egg products is therefore more and more common at those points of sale.According to the USDA, farm producers in 35 states produced organic chicken and eggs in 2005. In contrast, producers in only 17 states did so in 1997. Four states account for 54% of laying hens for organic production in the United States: North Carolina, California, Pennsylvania and Iowa.

In 2005, retail sales of organic eggs in the United States totalled an estimated US$161 million, an increase of 15% over 2004. By 2010, sales of organic eggs are forecast to reach US$263 million.

Price premium for organic eggs

In the last decade, premiums paid for organic products have contributed to the growth of this niche market. Prices of organic products are generally higher because production, processing and distribution costs are more than those of so-called conventional products. Organic products have additional costs associated with product certification and segregation throughout the food chain. In addition, the increasing demand for these products and consumer perceptions of their health and environmental benefits generate premiums.

Between 2004 and 2006, premiums for organic eggs ranged from 113% in the first four months of 2004 to 414% in the second quarter of 2005. The average premium over regular eggs during that period was 278%. Over the period from 2004 to 2006, the average price of organic eggs for retailers and processors was $2.34 a dozen, with a price interval ranging from $2.17 to $2.50 a dozen. For its part, the average price of conventional eggs rose from $0.43/dozen to $1.14/dozen over the same period.

2.9 Standards for laying hen cages in the United States and in the European Union

In 1999, United Egg Producers (UEP) commissioned an independent scientific committee to conduct an animal welfare study. The Committee stated among its findings that when the space per laying hen in production cages was less than 67 to 86 square inches, egg production fell and mortality rose. Consequently, UEP decided to make numerous changes in its animal production code of practice in order to raise standards, including animal welfare. Accordingly, by 2010 all cages under the UEP program must provide a minimum space of 67 square inches per bird. Since the initiative is being carried out over eight years, it is currently estimated that approximately 29% of space available in 2002 was lost as a direct consequence of the increase in available space per bird (Krouse, 2008). That loss of available space for breeding at facilities contributed to the increase in the price of table eggs in the United States in 2007 and 2008.

For its part, the European Union has decided to ban conventional cages in its production systems by 2012. Germany is, as it were, a precursor of this change, as it made a final decision on standards for the egg production system in April 2006, that is, two years ahead of the other European Union countries.

Footnotes:

1 With its 27 members.2 http://www.oecd.org/document/53/0,3343,en_2825_494504_39550901_1_1_1_1,00.html3 World Poultry 23-1, 2007 and World Poultry 20-1, 2004.4 Chick and animal feed5 For Canada and the United States, the calculations were based on the hypothesis that a large egg weighs 56 g.

This pie chart depicts the Distribution percentage of Laying Chicks for the year 2006.China had 39.3%. The European Union(27) had 9.4%. The USA had 6%. Brazil had 4.1%. Other countries made up 41.1%.

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This Bar Chart depicts Egg Production Trends in Main Producing Countries. It compares 1986 to 2006. In 1986 China produced 4.6 billion dozen eggs and in 2006 produced 25.3 billion dozen eggs.In 1986 The European Union 6.57 billion eggs and in 2006 produced 6.61 billion eggs.In 1986 The United States produced 4.03 billion eggs and 2006 produced 5.36 billion dozen eggs.In 1986 India produced .95 billion dozen eggs and in 2006 produced 2.6 billion dozen eggs.In 1986 The USSR produced 4.47 billion dozen eggs and in 2006 Russia produced 2.1 billion dozen eggs.

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This Bar Chart depicts the value of farm cash receipts in the egg sector for various countries for either 2005 or 2006 in Canadian Dollars.The value of farm cash receipts in China for 2005 was 21.5 billion dollars.The value of farm cash receipts in the European Union (25) for 2006 was 10.04 billion dollars.The value of farm cash receipts i the United States for 2006 was 5.10 billion dollars.The value of farm cash receipts in Russia for 2005 was 2.47 billion dollars.The value of farm cash receipts in Mexico for 2006 was 1.92 billion dollars.The value of farm cash receipts in Canada for 2006 was .56 billion dollars.

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This Line graph depicts the Comparison of Farm-gate Egg Prices in various countries from 2000 to 2005 in US dollars per tonne.

2000 2001 2002 2003 2004 2005

Canada 1500.9 1536.07 1570.11 1178.9 1306.12 1277.91

China 517.85 459.1 555.76 557.08 585.58 618.87

India 521.92 502.41 491.36 523.43 553 580.31

Japan 1631.32 1285.29 1286.41 1205 1498.23 1748.17

United Kingdom

979.23 951.98 1021.85 1269.77 1385.39 1479.26

United States

891 858 852 1048 979 765

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This bar chart depicts the amount of shell egg exports in millions of US dollars for 5 main shell egg exporting countries for the years 2000 and 2005.

2000 2005

Pays-Bas 290.36 331.414

United States 108.497 161.176

Germany 70.413 130.54

Spaine 39.03 92.479

France 59.156 80.275

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This bar chart depicts the shell egg imports in millions of US dollars in 2000 and 2005 for the following countries: Germany, The Netherlands, China, France, and The United Kingdom.

2000 2005

Allemagne 201.082 335.59

Pays-Bas 45.021 96.029

Chine 73.616 73.362

France 48.379 64.873

Royaume-Uni 33.023 61.8

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This bar chart shows the egg consumption of Denmark, France, The Netherlands, Poland, The United Kingdom, Germany, Russia, Canada and The United States for the years 2000 and 2005.

2000 2005

Denmark 13.9 18.7

France 15.6 15.4

Netherlands 14.7 14

Poland 11.8 13.6

United Kingdom 10.3 13.5

Germany 13.8 12.6

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Russia 12.8 13.8

Canada 10.5504 10.416

United States 14.1792 14.3136

This line graph depicts the change in Farm-gate Egg Prices in the United States and in the States of Iowa and Ohio in cents per US dollar for the years 2000 through 2006.

2000 2001 2002 2003 2004 2005 2006

Iowa 35.9 36.5 31.9 50.9 49.1 29.2 33.6

Ohio 49.1 48 43.8 58.1 53.9 35.7 45.2

United States

44.6 45.4 41.2 57.6 55.9 34.7 40.2

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Mid-West Low Mid-West High North-East Low North-East High

January 2006 61.13 64.13 70.00 72.75

Febebruary 2006 43.25 46.25 52.25 54.50

March 2006 62.78 65.78 68.56 72.56

April 2006 55.25 58.25 61.50 65.50

May 2006 39.22 42.22 45.00 49.00

June 2006 53.67 56.67 59.89 63.89

July 2006 38.78 41.78 46.11 50.11

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August 2006 55.00 58.00 59.00 63.00

September 2006 52.78 55.78 58.56 62.56

October 2006 53.67 56.67 60.44 64.44

November 2006 82.00 85.00 87.88 91.38

December 2006 83.89 86.89 89.89 93.89

January 2007 87.00 90.44 94.44 98.44

Febebruary 2007 90.25 93.25 96.63 100.63

March 2007 86.75 89.75 92.75 96.75

April 2007 78.75 81.75 85.13 89.13

May 2007 81.57 84.71 89.71 93.57

June 2007 66.75 69.75 74.75 78.75

July 2007 97.67 100.67 104.22 108.22

August 2007 94.67 97.67 101.78 105.33

September 2007 115.00 118.00 122.25 126.13

October 2007 99.11 102.11 106.11 110.11







Poultry Marketplace

Profile of The Canadian Egg IndustryChapter 3: Stucture of the Canadian Egg Industry

Index



Chapter 3 : Stucture of the Canadian Egg Industry o 3.1 Structure of the agri-food egg sector o 3.2 Production quota allocation and value in the egg industry in Canada o 3.3 Canadian egg production o 3.4 Egg grades and sizes in Canada o 3.5 Change in the number of egg producers and average flock size o 3.6 Productivity gains o 3.7 Pricing trends for grain (corn, wheat, barley), soya and canola meal used

in animal feed o 3.8 Pricing system and trends for eggs in Canada o 3.9 Hatcheries o 3.10 Graders o 3.11 Egg processing in Canada

3.11.1 Production of liquid processed eggs 3.11.2 Production of liquid frozen eggs 3.11.3 Powdered egg production 3.11.4 Production of cooked shell eggs

o 3.12 Egg consumption in Canada, retail sales and egg price elasticity


Bibliography



3.1 Structure of the agri-food egg sector

Figure 10 comprises a simplified diagram of egg production in Canada. The first step involves selecting the animal genetics needed to optimize table egg production. Consequently, commercial layer strains used in Canada include strains from all the major primary breeders on the international scene. The birds in these flocks then produce hatching eggs, from which commercial layer chicks are hatched a few weeks later. Some strains are imported as commercial hatching eggs or chicks. Other egg layer strains are used, but these are all small or dual-purpose flocks.

Eggs from breeding flocks are then sent to hatcheries and placed in incubators. After 21 days, the eggs hatch and the chicks are sent to a barn or breeder of young hens (usually referred to as pullets). Started pullet producers raise chicks from 1 day to about 17 weeks just prior to the chicken coming into lay. Started pullets ranging in age from 2 or 3 days to 17 weeks are also imported. Started pullets are raised in barns either on the floor or in cages, depending on the facilities available and on the egg producers’ preferences. According to the most recent information, which is a few years old already, 80% of pullets in Canada are raised in cages and about 20% of started pullets are raised on the floor. At 19 weeks of age, the hens are transferred to another barn or to an egg producer to begin production. In Canada, hens continue to lay eggs for almost 12 months, and the average producer has 18,583 hens. For such a production scale, the producer must be registered and adhere to the supply management system. However, in most provinces, producers who have fewer than 100 laying hens do not have to be registered. All commercial flocks are kept in environmentally controlled barns, the majority in cages, although there is an increasing demand for aviary systems where the hens are allowed the full use of the barn floor or pens within. Producers follow the Canadian Recommended Code of Practice for the Care and Handling of Poultry from Hatchery to Processing Plant.

On most egg farms, eggs are collected twice daily and stored in a cooler to maintain their quality. There is some consumer demand for “free range” and “organic” eggs (from hens “raised naturally”), but the cost of producing these is considerably higher than regular eggs and is reflected in high retail costs. This is a speciality market, but producers are still part of the supply management system and need to obtain quota.

The eggs that are collected are then sent to grading stations across Canada, where the eggs are washed and sanitized using automated equipment. Their quality is then examined using a process called “candling,” where the quality and characteristics of the inside of the egg can be determined. Following a few other steps, including packaging, the eggs are then sent to retail stores, restaurants and the institutional market and ultimately end up on consumers’ plates.However, on leaving the farm, eggs may also be sent to the processing market, where they are broken by automated machines in plants (breaking stations). At the plant, the eggs are pasteurized before being further processed or packaged in liquid, frozen or dried form. These egg products may then be sold to other food processors, further processors, retailers or to the hotels/restaurants/institutions before reaching consumers. Statistics and more detailed explanations on the egg sector are presented in the following sections.

Figure 10 : Egg Production Diagram

3.2 Production quota allocation and value in the egg industry in Canada

Managing the national egg supply, or supply management, and the process for allocating provincial shares of production quotas, require open lines of communication between Egg Farmers of Canada and its provincial egg board partners.In 2007, national quota allocation totalled 542.5 million dozen. The chief provinces such as Ontario held 37.4% of the quota, followed by Quebec at 17.9% and British Columbia at 12.2%.

In the 1970s, production quotas were distributed free of charge to farm producers. The quotas were then traded between producers and had value. In Quebec, between 2002 and 2007, the value of egg production quotas rose from $118/hen to more than $260/hen, an increase of 120% (Commission sur l’avenir de l’agriculture et de l’agroalimentaire québécois, 2008). In Quebec, the average quota per farm is 34,830 laying hens, with an average value per farm of $9,056,216. The value of this asset, a prerequisite for obtaining production rights, is significant in terms of agricultural succession.

3.3 Canadian egg production

Egg production in Canada is divided mainly into three market segments: table eggs, eggs for the food processing sector and egg production for the manufacture of vaccines.

In 2007, egg production in Canada totalled 521.1 million dozen (Egg Farmers of Canada , 2008) , an increase of 0.6% over the previous year. Of that number, approximately 75% was sent to the table egg market. The other 25% was utilized in the food processing industry through Egg Farmers of Canada’s Industrial Product Program (IPP). The IPP is a program that provides eggs to processors based on the prices in force in the United States.

Ontario is the province that produces the most eggs in Canada, with a 38.9% share of production. Quebec and British Columbia account, in order, for 17.8% and 11.9% of production in Canada. Eggs produced in the various provinces are sold at a fixed price to graders, who grade, package and sell eggs to wholesalers, retailers, hotels and restaurants. If graders cannot sell all of their eggs to their customers, they must notify their provincial egg marketing board in order to be able to sell their surplus supply to other graders and meet their demand requirements. In cases where graders are unable to sell their eggs to other Canadian graders, they sell them to processors, who turn them into dried, frozen or liquid products. Those eggs are, however, sold at the market price in effect in the United States, that is, at lesser price, even though they were purchased from Canadian producers at the price set in the province of origin. Data regarding provincial production and provincial market shares are given in Table 3.

Table 3 : Egg Production by Province in 2007

Province/Territory Production (Million Dozen) Proportion of Canadian Production (%)

Canada 521.1 100%

Northwest Territories 1.89 0.36%

British Columbia 62.14 11.9%

Alberta 43.0 8.2%

Saskatchewan 22.31 4.3%

Manitoba 55.54 10.7%

Ontario 201.46 38.9%



Quebec 92.83 17.8%

New Brunswick 11.16 2.1%

Nova Scotia 18.69 3.6%

Prince Edward Island 3.27 0.63%

Newfoundland 8.86 1.7%

Source:Egg Farmers of Canada, 2008.

In 2007, egg supply handled through the IPP totalled 125.6 million dozen. Products developed through food processing include liquid eggs, omelette mixes, powdered eggs and frozen eggs. These products can also be used in the preparation of various food products such as mayonnaise, egg pasta and even animal feed products.

Figure 11 : Canadian Egg Production (Table and for Processing) for 2006 and 2007

Source:Egg Farmers of Canada, 2007 and 2008.

The Canadian egg industry also supplies the pharmaceutical industry segment specializing in the manufacture of vaccines. Eggs for that specialty market are produced within the supply management system but require particular production methods and processes different from those used in table egg production. Vaccine eggs constitute a niche market in which nearly 800,000 birds, or 3% of Canada’s flock, are used for such production. The egg vaccine market is concentrated mostly in Quebec (66%), followed by Ontario (26%) and New Brunswick (8%).

3.4 Egg grades and sizes in Canada

The regulations governing egg production include the Egg Regulations under the Canada Agricultural Products Act. These Regulations govern the grading, packaging, marking, inspection and interprovincial and international trade in eggs. The grades of eggs used in Canada are Canada A, Canada B, Canada C, and Canada Nest Run and rejects. Where eggs are graded Canada A or Canada B, the grade name must be marked on the container within the outline of a maple leaf. Where eggs are graded Canada C or Canada Nest Run or are rejects, the grade name or the word “rejects” must be marked on the container but without an outline of the maple leaf on the container.

Eggs graded as Canada A must be designated as Jumbo Size, Extra Large Size, Large Size, Medium Size, Small Size or Peewee Size, as shown in Table 4:

Table 4 : Canada A Size Designation

Size Designation Egg Weight

Jumbo 70 g or more

Extra Large 63 g or more

Large 56 g or more

Medium 49 g or more

Small 42 g. et plus

Peewee Less than 42 g

Source: Egg Regulations

In 2007 in Canada, 46.5% of production consisted in Canada A Large Size, while 24.3% were Canada A Extra Large eggs. The proportion of categories and sizes in relation to production in Canada is illustrated in Figure 12. Year after year, those proportions follow a certain regular trend whose main factor depends on the animal laying cycle.

Figure 12 : Classification of Eggs in Canada as a Percentage of Total Production in 2007

Source:Egg Farmers of Canada (does not include processing eggs).

3.5 Change in the number of egg producers and average flock size

From 1985 to 2007, the number of registered egg producers fell from 1,848 to 1,045, a drop of 44%. The number of producers declined in all provinces in Canada. Currently, Ontario and Manitoba boast the highest numbers of egg producers in Canada (Figure 13).

Figure 13 : Change in the Number of Producers in Canada, 1985 to 2007

Source:Egg Farmers of Canada annual reports.

In contrast, over the same period, the average number of laying hens per producer rose substantially from 10,535 to 18,583, an increase of 76%. Quebec and Nova Scotia account for the highest number of laying hens per producer in Canada, averaging more than 30,000 (Figure 14). In contrast, the average in Ontario is approximately 21,000. Flock size is smallest in Alberta, where the average is about 9,800.

Figure 14 : Average Number of Laying Hens in Canada, 1985 to 2007


3.6 Productivity gains

Productivity in the egg industry can be measured by such factors as rate of lay, feed conversion ratio and labour time per dozen eggs.

In the industry in Canada, the rate of lay per layer rose from 16.5 dozen per year in 1970 to 20.5 dozen in 1986. According to the most recent analyses conducted in 2004, each layer now produces 24.99 dozen eggs in one year, a rise of 52% over 1970.

The feed conversion ratio, that is, the number of kilograms of feed required on average to produce one dozen eggs, improved by 4.8% between 1999 and 2004. In 1999 it took 1.5759 kg of feed to produce one dozen eggs and in 2004, it only took 1.4999 kg (Meyers Norris Penny, 2006).

Lastly, the amount of time it takes in labour to look after 1,000 layers improved between 1999 and 2004, falling from 225.3 hours to 189.9 hours per year (Meyers Norris Penny, 2006).

3.7 Pricing trends for grain (corn, wheat, barley), soya and canola meal used in animal feed

According to Martin et al. (1998), layer feed rations in eastern Canada and in the United States are based mainly on a combination of corn and soya meal, whereas in western Canada, rations consist of mixtures of wheat, barley and soya and canola meal.

In 2007, the farm-gate price of corn rose to more than $140.69/tonne; wheat, $177.83/tonne; and barley, $179.60/tonne, while canola traded on average for $422.85/tonne. Those prices marked significant increases over the previous 10-year average. The widespread rise in the price of grains and oilseed crops is being driven by a number of factors. For example, the increased consumption of meat in emerging economies such as China; the sharp rise in global demand for oil, on which the agricultural model in industrialized countries is heavily dependent; droughts in recent years affecting wheat harvests in Australia; and the intensive development of agrofuels in various countries are driving grain and oilseed prices higher and raising the cost of inputs for breeders. Figure 15 illustrates the change in the cost of the main inputs used in feed for laying hens.

Figure 15 : Farm-gate Prices for Grain and Oilseed Crops, 2000 to 2007

Source: Statistics Canada and AAFC.

3.8 Pricing system and trends for eggs in Canada

Since 1975, the Canadian Egg Marketing Agency (Egg Farmers of Canada) has managed Canada’s central pricing system for eggs, which is based on a Cost of Production formula (COPf) designed to allow producers to recover costs, plus a reasonable return. Accordingly, when prices are set from time to time at the provincial level, the provincial marketing boards take into consideration a number of factors, including the periodic Egg Farmers of Canada survey on production costs. The grading stations pay these prices to producers and then sell these eggs to wholesalers at mutually negotiated prices. The Egg Farmers of Canada COPf components comprise:

pullet costs; feed costs; labour costs; depreciation costs;

environmental regulatory costs; overhead costs; and interest costs and producer returns.

Eggs intended for the processing sector are traded through the Industrial Product Program (IPP). Egg Farmers of Canada sells eggs to processors based on U.S. processing prices. To fund the IPP, Egg Farmers of Canada uses levies to make up the difference between this price and the price it pays to provincial boards (periodic fixed price) and prices received on the basis of prices in effect in the United States.In 2007, the average farm-gate price for Grade A Large eggs ranged from $1.55/dozen in Manitoba to $1.78/dozen in Newfoundland. In Ontario, the farm-gate price was $1.58/dozen, while in Quebec, producers received $1.61/dozen. The average wholesale price in Toronto was $1.89/dozen, while in Montreal it was $2.00/dozen.Lastly, the price to consumers was $2.21/dozen in Toronto and $2.50/dozen in Montreal. Figure 16 illustrates pricing trends in Montreal and Toronto since 2000.

Figure 16 : Price Trends for Grade A Large Eggs in Toronto and Montreal, 2000 to 2007

(from Farm to Table)

Source: AAFC.

3.9 Hatcheries

Production of eggs all starts at the hatchery, where eggs from breeding flocks are placed in incubators under ideal hatching conditions. After 21 days, the eggs hatch and the chicks, or pullets as they are commonly called in the industry, are housed in a pullet barn. The young chicks have either yellow or brown down. The yellow chicks are of the Leghorn strain (the most common in Canada) and will produce white-coloured eggs once they are of laying age. The brown chicks are of the Rhode Island Red strain and will produce brown-coloured eggs once they have reached maturity.

At 19 weeks of age, the hens are transferred to another barn to begin producing eggs. In Canada, hens continue to lay eggs for about 12 months before they are again replaced by young hens and the cycle begins anew.

There were 31 federally registered hatcheries in 2007. The majority are located in Ontario (8), Alberta (7) and Quebec (5). Companies in business in this sector in Canada include the Lilydale cooperative, Maple Leaf Foods Inc., Pinnacle Nutrition (a product of the merger of Clark Hy-Line Inc. and Nutri Health Group), Lohmann Tierzucht Ltd. and Coopérative Fédérée (e.g.: Couvoir Chabot).

In 2007, the number of eggs incubated in Canada at federally registered facilities for egg production was 70.2 million. Out of this number, 52.7 million chicks (males and females) hatched for egg production. Finally, 22.5 million female chicks that became pullets were place for egg production. Roughly 43% of the female chicks for egg production were placed in Ontario, followed by Québec (19.8%), Manitoba (10.5%) and British Columbia (8.8%). Table 5 summarizes the market for 2006 and 2007.

Table 5 : Eggs Set and Chicks Hatched for Egg Production at Federally Registered Hatcheries, in Thousands

(2006 and 2007)

Region 2006 2007

Canada

Eggs set and chicks hatched for egg production (males and females) 69,168 70,219

Chicks hatched for table egg production (males and females) 52,973 52,749

Hatching rate (%) 77% 75%

Placement of female egg production chicks 22,502 22,530

Ontario

Eggs set and chicks hatched for egg production 31,870 31,811

Chicks hatched for table egg production 22,788 23,073



Québec


Chicks hatched for egg production 10,225 10,880



Source: CFIA, AAFC and Bureau de la Statistique du Québec.

3.10 Graders

Once the eggs have hatched, they are sent to one of the 261 federally registered grading stations across Canada. At the grading station, the eggs go through an automated process where they are washed and sanitized. The eggs are then inspected using a candling process to determine their quality. In candling, the egg passes over a strong light so several criteria, including the condition of the shell and yolk, can be determined. Next, the eggs are divided into three grades: A, B or C.

3.11 Egg processing in Canada

As indicated earlier, the production of eggs for further processing accounts for roughly 25 to 30% of all eggs sold in Canada. According to data gathered by Agriculture and Agri-Food Canada’s Poultry Section, 158.8 million dozen shell eggs were broken in federally registered facilities in 2007. That includes eggs produced in Canada as well as imported eggs. The 158.8 million dozen total is the equivalent of 90.5 million kilograms of liquid broken eggs.

Table 6 : Eggs Sent for Processing in Canada (Broken Shell Eggs and Broken Liquid Eggs)

Year Eggs Broken (Million Dozen)

Total Broken Liquid Eggs (Million Kilograms)

2007 Total 158.8 90.5

2006 Total 164.2 92.9

Change (%) -3.3% -2.6%

The three companies that purchase the most shell eggs for breaking are Inovatech Egg Products of Abbotsford, British Columbia (subsidiary of Michael Foods); Global Egg Corporation, headquartered in Etobicoke, Ontario and created in 1996 from the merger of two companies; and Les Œufs Bec-O of Upton, Quebec, which belongs to Burnbrae Farms.

Processors adapt their products to meet their customers’ needs. Consequently, the marketplace comprises liquid, frozen and powdered eggs that have been previously fractionated during processing to extract only the albumen, the yolk or simply the whole egg. Processors can also modify their recipes to obtain egg products that are a mixture of substances contained in the egg, in accordance with predetermined criteria.

3.11.1 Production of liquid processed eggs

Production in Canada of liquid processed eggs totalled 65.3 million kg in 2007, an increase of 6.5% over the previous year. The chief processing companies in this processing sector are Global Egg Corporation, Les Œufs Bec-O and Inovatech Egg Products.

3.11.2 Production of liquid frozen eggs

In 2007, production in Canada of processed frozen eggs totalled 12.2 million kg, a decrease of 9.9% over 2006. Inovatech Egg Products, Burnbrae Farms Ltd. and Global Egg Corporation are the three main companies in Canada in this processing sector.

3.11.3 Powdered egg production

A total of 3.9 million kg of powdered eggs were produced in Canada in 2007, a sharp decrease in supply of 36% over 2006. Whole powdered eggs accounted for 29.7% of production, compared to 33.7% for powdered yolk and 32.2% for albumen. The remainder (4.5%) consisted in powdered egg products.

3.11.4 Production of cooked shell eggs

Production of cooked shell eggs totalled 6.3 million dozen in 2007, an increase in supply of 22.2% over the previous year. The main companies in Canada that produce cooked shell eggs are Burnbrae Farms Ltd., Inovatech Egg Products and Vitoeuf Inc.

3.12 Egg consumption in Canada, retail sales and egg price elasticity

Between 1985 and 2006, annual egg consumption per capita in Canada fell from 16.7 to 15.6 dozen. The industry experienced a period of negative growth in consumption between 1985 and 1995. Since 1995, egg consumption in Canada has rebounded, the result mostly of increased consumption of processed eggs.

Since 1985, consumption of processed eggs has risen from 1.3 dozen to 4.1 dozen per capita. Figure 17 illustrates the change in consumption of shell eggs and processed eggs and the total for both types since 1985.

Figure 17 : Canadian Consumption of Eggs and Egg Products in Dozens per Capita, 1985 to 2006

Source: Statistics Canada and Egg Farmers of Canada .

According to Nielsen data, consumption of table eggs sold in the retail market amounted to $505 million in sales in 2006. Accordingly, sales of regular eggs totalled more than $400.6 million, while sales of specialty eggs were valued at $104.7 million. Canadian consumers also purchased $18.4 million worth of liquid eggs (see Table 7). Those sales exclude the hotel, restaurant and institutional sectors as well as certain retailers. Sales in Newfoundland and in Canada’s Territories are not included in the data below.

Table 7 : Data Concerning Retail Sales for Eggs in 2005 and 2006 (in Dollars)

Product 2005 2006 Difference (%)

Regular eggs 408,889,915 400,630,777

Specialty eggs 90,713,331 104,721,122 +15

Total eggs 499,603,246 505,351,899 +1

Liquid eggs 15,272,842 18,398,408 +20

Source: Nielsen, as published by AAFC.

Lastly, economists use price elasticity to measure sensitivity of demand to variations in price. Price elasticity is defined as the relationship between relative changes in demand for a commodity and the relative variation in changes in its price. That relationship is generally negative because save for certain exceptions and certain commodities, when the price of a commodity rises, demand falls. For example, studies conducted by Agriculture and Agri-Food

Canada show that the price elasticity of eggs in Canada is -0.35. Accordingly, for each 10% increase in the price of eggs, consumer demand falls by 3.5%2.

Footnotes:

1 This figure does not include FPA eggs and eggs for special markets under the jurisdiction of provincial marketing boards. 2 AAFC. Estimate of elasticity of food demand in Canada.

This image shows the Egg Production cycle. [Breeders (genetic for laying hens)] to [Hatcheries (hatching eggs to produce laying hens)] to [Production of pullets which will become laying hens] to [Table egg production farm] to [Table egg grading station] to [Breaking station or plant] to [Further processors and other food processors] to [Sold to retail stores, hotels, institutions] to consumers]. [Table egg grading station] ca also go directly to [Sold to retail stores, hotels, institutions]

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This Bar chart depicts the Canadian table egg and processed egg production in millions of dozen for 2006 and 2007.In 2006 392.3 million dozen table eggs and 126 million dozen processed eggs were produced.In 2007 395.6 million dozen table eggs and 125.6 million dozen processed eggs were produced.

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This bar chart depicts the percentage of total production for eggs by classification and grade in 2007. Jumbo ''A'' eggs were 1.01% of total production. Extra Large ''A'' eggs were 24.34% of total production. Large ''A'' eggs were 46.5% of total production. Medium ''A'' eggs were 16.48% of total production. Small ''A'' eggs were 2.82% of total production. Extra Small ''A'' eggs were 0.45% of total production. Canada ''B'' eggs were 0.43% of total production. Canada ''C'' eggs were 2.41% of total production. Nest Run eggs were 3.65% of total production. Other eggs were 1.9% of total production.

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This line chart represents the change in the number of producers in Canada from 1985 to 2007.

1985 1990 1995 2000 2005 2007

Canada 1848 1626 1387 1147 1069 1045

Ontario 800 652 541 407 375 351

Québec 170 171 136 111 105 104

Manitoba 239 231 211 178 168 168

Autres 639 572 499 451 421 422

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This line chart depicts the Average Number of Laying Hens per producer in Canada, Ontario and Quebec at 5 year intervals from 1985 to 2007.

1985 1990 1995 2000 2005 2007

Canada 10535 11285 13028 17596 17596 18583

Ontario 9311 10560 12608 18504 19313 20837

Québec 18991 12008 22112 29828 32215 33443

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This line chart depicts the Farm-gate Prices for Grain and Oilseed Crops in metric tonnes from 2000 to 2007.

2000 2001 2002 2003 2004 2005 2006 2007

Price of Corn, East

119.64 132.9 145.34 137.18 99.63 96.25 138 140.6937

Price of Wheat, Canada

108.817 131.4344 158.9887 119.0417 92.35542 88.97639 111.0067 177.8287

Price of Barley, Alberta

128.85 158.6 171.88 135.8 112.15 109.64 165.14 179.6048

Price of Canola, Canada

290.7 357.45 415.09 387.04 309.15 278 370 422.8468

Price of Canola meal,

Canada

204.825 222.7842 214.3767 240.7642 166.2175 156.8117 166.155 191.5489

Price of Soybean

Meal, Canada

312.0074 312.1306 311.2461 381.543 277.8236 251.8463 267.946 300.8418

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This bar graph depicts Price trends from farm to table for Grade A Large Eggs in Toronto and Monteal from 2000 to 2007. Price per dozen for Farm-gate price, Wholesale price and Retail price are shown for each year.

Year City Farm-gate Price Wholesale Price Retail Price

2000

Toronto 1.3 0.224 0.215

Montreal 1.32 0.344 0.151

2001

Toronto 1.3885 0.1708 0.2479

Montreal 1.4094 0.3588 0.2113

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2002

Toronto 1.4388 0.1827 0.2606

Montreal 1.4658 0.3655 0.2787

2003

Toronto 1.51 0.17 0.32

Montreal 1.552 0.384 0.294

2004

Toronto 1.528 0.207 0.305

Montreal 1.566 0.402 0.292

2005

Toronto 1.42 0.316 0.311

Montreal 1.44 0.415 0.432

2006

Toronto 1.456 0.316 0.34

Montreal 1.496 0.373 0.492

2007

Toronto 1.576 0.318 0.317

Montreal 1.608 0.392 0.494

Figure 17 is a line graph which depicts the Canadian consumption of eggs and egg products in dozens per capita from 1985 to 2006.

Year Œufs en coquille Œufs transformés Total œufs

1985 15.4 1.3 16.7

1986 14.7 1.9 16.6

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1987 14.3 1.9 16.2

1988 13.8 1.9 15.7

1989 13.3 2 15.3

1990 13.1 2 15.1

1991 12.8 2.2 15

1992 12.6 2 14.6

1993 12.4 2.1 14.5

1994 11.9 2.6 14.5

1995 11.7 2.7 14.4

1996 11.9 3.1 15

1997 12.1 3 15.1

1998 12 3.3 15.3

1999 12 3.3 15.3

2000 11.9 3.8 15.7

2001 12.2 3.7 15.9

2002 11.5 3.9 15.4

2003 11.8 3.8 15.6

2004 11.8 3.4 15.2

2005 11.9 3.7 15.6

2006 11.5 4.1 15.6







Poultry Marketplace

Profile of The Canadian Egg IndustryChapter 3: Stucture of the Canadian Egg Industry

Index



Chapter 3 : Stucture of the Canadian Egg Industry o 3.1 Structure of the agri-food egg sector o 3.2 Production quota allocation and value in the egg industry in Canada o 3.3 Canadian egg production o 3.4 Egg grades and sizes in Canada o 3.5 Change in the number of egg producers and average flock size o 3.6 Productivity gains o 3.7 Pricing trends for grain (corn, wheat, barley), soya and canola meal used

in animal feed o 3.8 Pricing system and trends for eggs in Canada o 3.9 Hatcheries o 3.10 Graders o 3.11 Egg processing in Canada

3.11.1 Production of liquid processed eggs 3.11.2 Production of liquid frozen eggs 3.11.3 Powdered egg production 3.11.4 Production of cooked shell eggs

o 3.12 Egg consumption in Canada, retail sales and egg price elasticity


Bibliography



3.1 Structure of the agri-food egg sector

Figure 10 comprises a simplified diagram of egg production in Canada. The first step involves selecting the animal genetics needed to optimize table egg production. Consequently, commercial layer strains used in Canada include strains from all the major primary breeders on the international scene. The birds in these flocks then produce hatching eggs, from which commercial layer chicks are hatched a few weeks later. Some strains are imported as commercial hatching eggs or chicks. Other egg layer strains are used, but these are all small or dual-purpose flocks.

Eggs from breeding flocks are then sent to hatcheries and placed in incubators. After 21 days, the eggs hatch and the chicks are sent to a barn or breeder of young hens (usually referred to as pullets). Started pullet producers raise chicks from 1 day to about 17 weeks just prior to the chicken coming into lay. Started pullets ranging in age from 2 or 3 days to 17 weeks are also imported. Started pullets are raised in barns either on the floor or in cages, depending on the facilities available and on the egg producers’ preferences. According to the most recent information, which is a few years old already, 80% of pullets in Canada are raised in cages and about 20% of started pullets are raised on the floor. At 19 weeks of age, the hens are transferred to another barn or to an egg producer to begin production. In Canada, hens continue to lay eggs for almost 12 months, and the average producer has 18,583 hens. For such a production scale, the producer must be registered and adhere to the supply management system. However, in most provinces, producers who have fewer than 100 laying hens do not have to be registered. All commercial flocks are kept in environmentally controlled barns, the majority in cages, although there is an increasing demand for aviary systems where the hens are allowed the full use of the barn floor or pens within. Producers follow the Canadian Recommended Code of Practice for the Care and Handling of Poultry from Hatchery to Processing Plant.

On most egg farms, eggs are collected twice daily and stored in a cooler to maintain their quality. There is some consumer demand for “free range” and “organic” eggs (from hens “raised naturally”), but the cost of producing these is considerably higher than regular eggs and is reflected in high retail costs. This is a speciality market, but producers are still part of the supply management system and need to obtain quota.

The eggs that are collected are then sent to grading stations across Canada, where the eggs are washed and sanitized using automated equipment. Their quality is then examined using a process called “candling,” where the quality and characteristics of the inside of the egg

can be determined. Following a few other steps, including packaging, the eggs are then sent to retail stores, restaurants and the institutional market and ultimately end up on consumers’ plates.However, on leaving the farm, eggs may also be sent to the processing market, where they are broken by automated machines in plants (breaking stations). At the plant, the eggs are pasteurized before being further processed or packaged in liquid, frozen or dried form. These egg products may then be sold to other food processors, further processors, retailers or to the hotels/restaurants/institutions before reaching consumers. Statistics and more detailed explanations on the egg sector are presented in the following sections.

Figure 10 : Egg Production Diagram

3.2 Production quota allocation and value in the egg industry in Canada

Managing the national egg supply, or supply management, and the process for allocating provincial shares of production quotas, require open lines of communication between Egg Farmers of Canada and its provincial egg board partners.In 2007, national quota allocation totalled 542.5 million dozen. The chief provinces such as Ontario held 37.4% of the quota, followed by Quebec at 17.9% and British Columbia at 12.2%.

In the 1970s, production quotas were distributed free of charge to farm producers. The quotas were then traded between producers and had value. In Quebec, between 2002 and 2007, the value of egg production quotas rose from $118/hen to more than $260/hen, an increase of 120% (Commission sur l’avenir de l’agriculture et de l’agroalimentaire québécois, 2008). In Quebec, the average quota per farm is 34,830 laying hens, with an average value per farm of $9,056,216. The value of this asset, a prerequisite for obtaining production rights, is significant in terms of agricultural succession.

3.3 Canadian egg production

Egg production in Canada is divided mainly into three market segments: table eggs, eggs for the food processing sector and egg production for the manufacture of vaccines.

In 2007, egg production in Canada totalled 521.1 million dozen (Egg Farmers of Canada , 2008) , an increase of 0.6% over the previous year. Of that number, approximately 75% was sent to the table egg market. The other 25% was utilized in the food processing industry through Egg Farmers of Canada’s Industrial Product Program (IPP). The IPP is a program that provides eggs to processors based on the prices in force in the United States.

Ontario is the province that produces the most eggs in Canada, with a 38.9% share of production. Quebec and British Columbia account, in order, for 17.8% and 11.9% of production in Canada. Eggs produced in the various provinces are sold at a fixed price to graders, who grade, package and sell eggs to wholesalers, retailers, hotels and restaurants. If graders cannot sell all of their eggs to their customers, they must notify their provincial egg marketing board in order to be able to sell their surplus supply to other graders and meet their demand requirements. In cases where graders are unable to sell their eggs to other Canadian graders, they sell them to processors, who turn them into dried, frozen or liquid products. Those eggs are, however, sold at the market price in effect in the United States, that is, at lesser price, even though they were purchased from Canadian producers at the price set in the province of origin. Data regarding provincial production and provincial market shares are given in Table 3.



Canada 521.1 100%



Northwest Territories 1.89 0.36%

British Columbia 62.14 11.9%

Alberta 43.0 8.2%

Saskatchewan 22.31 4.3%

Manitoba 55.54 10.7%

Ontario 201.46 38.9%

Quebec 92.83 17.8%

New Brunswick 11.16 2.1%

Nova Scotia 18.69 3.6%

Prince Edward Island 3.27 0.63%

Newfoundland 8.86 1.7%

Source:Egg Farmers of Canada, 2008.

In 2007, egg supply handled through the IPP totalled 125.6 million dozen. Products developed through food processing include liquid eggs, omelette mixes, powdered eggs and frozen eggs. These products can also be used in the preparation of various food products such as mayonnaise, egg pasta and even animal feed products.

Figure 11 : Canadian Egg Production (Table and for Processing) for 2006 and 2007

Source:Egg Farmers of Canada, 2007 and 2008.

The Canadian egg industry also supplies the pharmaceutical industry segment specializing in the manufacture of vaccines. Eggs for that specialty market are produced within the supply management system but require particular production methods and processes different from those used in table egg production. Vaccine eggs constitute a niche market in which nearly 800,000 birds, or 3% of Canada’s flock, are used for such production. The egg vaccine market is concentrated mostly in Quebec (66%), followed by Ontario (26%) and New Brunswick (8%).

3.4 Egg grades and sizes in Canada

The regulations governing egg production include the Egg Regulations under the Canada Agricultural Products Act. These Regulations govern the grading, packaging, marking, inspection and interprovincial and international trade in eggs. The grades of eggs used in Canada are Canada A, Canada B, Canada C, and Canada Nest Run and rejects. Where eggs are graded Canada A or Canada B, the grade name must be marked on the container within the outline of a maple leaf. Where eggs are graded Canada C or Canada Nest Run or are rejects, the grade name or the word “rejects” must be marked on the container but without an outline of the maple leaf on the container.

Eggs graded as Canada A must be designated as Jumbo Size, Extra Large Size, Large Size, Medium Size, Small Size or Peewee Size, as shown in Table 4:

Table 4 : Canada A Size Designation


Jumbo 70 g or more

Extra Large 63 g or more


Large 56 g or more

Medium 49 g or more

Small 42 g. et plus

Peewee Less than 42 g

Source: Egg Regulations

In 2007 in Canada, 46.5% of production consisted in Canada A Large Size, while 24.3% were Canada A Extra Large eggs. The proportion of categories and sizes in relation to production in Canada is illustrated in Figure 12. Year after year, those proportions follow a certain regular trend whose main factor depends on the animal laying cycle.

Figure 12 : Classification of Eggs in Canada as a Percentage of Total Production in 2007

Source:Egg Farmers of Canada (does not include processing eggs).

3.5 Change in the number of egg producers and average flock size

From 1985 to 2007, the number of registered egg producers fell from 1,848 to 1,045, a drop of 44%. The number of producers declined in all provinces in Canada. Currently, Ontario and Manitoba boast the highest numbers of egg producers in Canada (Figure 13).

Figure 13 : Change in the Number of Producers in Canada, 1985 to 2007


In contrast, over the same period, the average number of laying hens per producer rose substantially from 10,535 to 18,583, an increase of 76%. Quebec and Nova Scotia account for the highest number of laying hens per producer in Canada, averaging more than 30,000 (Figure 14). In contrast, the average in Ontario is approximately 21,000. Flock size is smallest in Alberta, where the average is about 9,800.

Figure 14 : Average Number of Laying Hens in Canada, 1985 to 2007


3.6 Productivity gains

Productivity in the egg industry can be measured by such factors as rate of lay, feed conversion ratio and labour time per dozen eggs.

In the industry in Canada, the rate of lay per layer rose from 16.5 dozen per year in 1970 to 20.5 dozen in 1986. According to the most recent analyses conducted in 2004, each layer now produces 24.99 dozen eggs in one year, a rise of 52% over 1970.

The feed conversion ratio, that is, the number of kilograms of feed required on average to produce one dozen eggs, improved by 4.8% between 1999 and 2004. In 1999 it took 1.5759 kg of feed to produce one dozen eggs and in 2004, it only took 1.4999 kg (Meyers Norris Penny, 2006).

Lastly, the amount of time it takes in labour to look after 1,000 layers improved between 1999 and 2004, falling from 225.3 hours to 189.9 hours per year (Meyers Norris Penny, 2006).

3.7 Pricing trends for grain (corn, wheat, barley), soya and canola meal used in animal feed

According to Martin et al. (1998), layer feed rations in eastern Canada and in the United States are based mainly on a combination of corn and soya meal, whereas in western Canada, rations consist of mixtures of wheat, barley and soya and canola meal.

In 2007, the farm-gate price of corn rose to more than $140.69/tonne; wheat, $177.83/tonne; and barley, $179.60/tonne, while canola traded on average for $422.85/tonne. Those prices marked significant increases over the previous 10-year average. The widespread rise in the price of grains and oilseed crops is being driven by a number of factors. For example, the increased consumption of meat in emerging economies such as China; the sharp rise in global demand for oil, on which the agricultural model in industrialized countries is heavily dependent; droughts in recent years affecting wheat harvests in Australia; and the intensive development of agrofuels in various countries are driving grain and oilseed prices higher and raising the cost of inputs for breeders. Figure 15 illustrates the change in the cost of the main inputs used in feed for laying hens.

Figure 15 : Farm-gate Prices for Grain and Oilseed Crops, 2000 to 2007


3.8 Pricing system and trends for eggs in Canada

Since 1975, the Canadian Egg Marketing Agency (Egg Farmers of Canada) has managed Canada’s central pricing system for eggs, which is based on a Cost of Production formula (COPf) designed to allow producers to recover costs, plus a reasonable return. Accordingly, when prices are set from time to time at the provincial level, the provincial marketing boards take into consideration a number of factors, including the periodic Egg Farmers of Canada survey on production costs. The grading stations pay these prices to producers and then sell these eggs to wholesalers at mutually negotiated prices. The Egg Farmers of Canada COPf components comprise:

pullet costs; feed costs; labour costs; depreciation costs;

environmental regulatory costs; overhead costs; and interest costs and producer returns.

Eggs intended for the processing sector are traded through the Industrial Product Program (IPP). Egg Farmers of Canada sells eggs to processors based on U.S. processing prices. To fund the IPP, Egg Farmers of Canada uses levies to make up the difference between this price and the price it pays to provincial boards (periodic fixed price) and prices received on the basis of prices in effect in the United States.In 2007, the average farm-gate price for Grade A Large eggs ranged from $1.55/dozen in Manitoba to $1.78/dozen in Newfoundland. In Ontario, the farm-gate price was $1.58/dozen, while in Quebec, producers received $1.61/dozen. The average wholesale price in Toronto was $1.89/dozen, while in Montreal it was $2.00/dozen.Lastly, the price to consumers was $2.21/dozen in Toronto and $2.50/dozen in Montreal. Figure 16 illustrates pricing trends in Montreal and Toronto since 2000.

Figure 16 : Price Trends for Grade A Large Eggs in Toronto and Montreal, 2000 to 2007

(from Farm to Table)

Source: AAFC.

3.9 Hatcheries

Production of eggs all starts at the hatchery, where eggs from breeding flocks are placed in incubators under ideal hatching conditions. After 21 days, the eggs hatch and the chicks, or pullets as they are commonly called in the industry, are housed in a pullet barn. The young chicks have either yellow or brown down. The yellow chicks are of the Leghorn strain (the most common in Canada) and will produce white-coloured eggs once they are of laying age. The brown chicks are of the Rhode Island Red strain and will produce brown-coloured eggs once they have reached maturity.

At 19 weeks of age, the hens are transferred to another barn to begin producing eggs. In Canada, hens continue to lay eggs for about 12 months before they are again replaced by young hens and the cycle begins anew.

There were 31 federally registered hatcheries in 2007. The majority are located in Ontario (8), Alberta (7) and Quebec (5). Companies in business in this sector in Canada include the Lilydale cooperative, Maple Leaf Foods Inc., Pinnacle Nutrition (a product of the merger of Clark Hy-Line Inc. and Nutri Health Group), Lohmann Tierzucht Ltd. and Coopérative Fédérée (e.g.: Couvoir Chabot).

In 2007, the number of eggs incubated in Canada at federally registered facilities for egg production was 70.2 million. Out of this number, 52.7 million chicks (males and females) hatched for egg production. Finally, 22.5 million female chicks that became pullets were place for egg production. Roughly 43% of the female chicks for egg production were placed in Ontario, followed by Québec (19.8%), Manitoba (10.5%) and British Columbia (8.8%). Table 5 summarizes the market for 2006 and 2007.

Table 5 : Eggs Set and Chicks Hatched for Egg Production at Federally Registered Hatcheries, in Thousands

(2006 and 2007)

Region 2006 2007

Canada

Eggs set and chicks hatched for egg production (males and females) 69,168 70,219

Chicks hatched for table egg production (males and females) 52,973 52,749



Ontario


Chicks hatched for table egg production 22,788 23,073



Québec


Chicks hatched for egg production 10,225 10,880

