Rising input costs have put paid to the £2 chicken and now further inflation could lead to shoppers paying even more for their poultry, says Nick Hughes


When Asda dropped the price of a whole medium chicken to £2 in 2007, NFU president Peter Kendall accused it of sending a “horrendous” message to consumers about the value of fresh poultry.

Asda’s response was characteristically pragmatic: the company pointed out that sales of fresh chicken had doubled during the three weeks it ran the promotion a result, it said, that showed just how important low prices were to shoppers.

Almost four years later, the debate about what constitutes a fair price for a chicken still rages, even though the £2 chicken itself has since been consigned to the history books, due to a combination of rising input costs and increased consumer interest in animal welfare.

In the big four, the cheapest whole chicken currently costs between £2.29/kg and £2.39/kg a stark differential when you consider that, weighing in at 1.55kg, Asda’s famous £2 chicken cost the equivalent of £1.29/kg.

“If you look at the average price from the beginning of 2008 to now, it has gone up from £3.66/kg to £4.12/kg, and for whole birds, it’s gone up from £2.28/kg to £2.52/kg,” says Stephen Lavery, category analyst at Kantar Worldpanel. “Some of that will be inflation, but it’s definitely a sign that people are buying at a higher price point.”

The average price may have crept up, but industry experts agree that price remains what drives chicken’s broad public appeal. Chicken is the UK’s bestselling protein by some distance, recording volume sales of 456,275 tonnes in the 52 weeks to 20 March [Kantar], up 0.4% on the previous year, with value sales up 3.5% year-on-year to £1.8bn, driven by a mixture of higher retail prices and shoppers buying more often.

NFU chief poultry adviser Rob Newbery admits: “There’s no getting away from the fact that chicken’s popularity is down to its price.” Shoppers are prepared to pay more than bargain basement prices, however. And the proliferation of assurance schemes such as Red Tractor, Freedom Food and Soil Association Organic has given them the confidence to move between different pricing tiers without feeling they have to compromise on their ethics, he believes.

The Co-operative had already started to replace standard chicken with its higher-welfare Elmwood British chicken before the latest slew of awareness campaigns started, but agricultural development manager Andrew Nicholson says high-profile campaigns such as Hugh’s Chicken Run “have certainly helped draw customers’ attention to livestock rearing systems”.

All of the chicken ranges stocked by the Co-op are seeing growth, Nicholson adds, but the biggest increase has been on the Elmwood range, which includes own-brand fresh chicken fillets and portions, as well as whole fresh chicken products.

Morrisons, too, says animal-welfare awareness campaigns have been influential in driving volume sales of higher-welfare chicken, but trading manager John Hornby believes recent retail price inflation could be halting this trend. Unprecedented levels of input cost inflation for chicken producers look set to continue and could spell trouble for chicken sales further down the line.

“It’s not that consumers will suddenly switch to beef or lamb,” says Peter Miller of Vion Poultry. “The threat to poultry is things like sausages and beans on toast.”

The British Poultry Council estimates the main input costs for producing poultry feed, fuel, utilities, ingredients and packaging have risen 20% since the autumn, with much of these increases yet to be reflected in the price paid to suppliers and, in many cases, the prices paid by consumers in the supermarket. “Some market price rises have been achieved, but prices across all sectors have to rise by more than half as much again in order to properly address input cost increases,” warns BPC chief executive Peter Bradnock.

According to Newbery, a liveweight chicken currently costs 83p/kg to produce, but the average return to the producer is just 75p/kg a shortfall of nearly 10%.

He admits that retail pricing is “none of our business, and neither is the margin”, but stresses retailers have to pay a fair price to ensure a fair profit for everyone in the chain. “As far as farmgate prices are concerned right now, it’s not enough.”

That problem is not just a UK problem either, says Bradnock. Commodity prices and production costs have risen around the world as key poultry-producing and exporting countries such as Brazil and Thailand experience increasing competition for labour and growing domestic demand for poultry meat.

Against this background, many UK retailers are now making constructive, long-term working relationships with British producers a priority as they seek to ensure the UK’s poultry supply chain is sustainable.

Newbery points to the work Sainsbury’s is doing with dedicated poultry supply groups as an example of the kinds of improved retailer-producer relationships that are starting to emerge. “It’s at its early stages, but it’s a bit like the work in milk a real engagement between retailers and farmers,” he says.

The test of these projects, the NFU believes, will be whether they incorporate a real, dynamic pricing model that ensures farmers’ costs of production are being covered when the commodities markets move dramatically.

Whether the supermarkets will ultimately agree to that is a different matter, meaning that even though the £2 chicken may have disappeared from shelves, the debate over fair chicken prices is likely to continue for a long time to come.

Posh birds come back into favour Consumer demand for high-welfare and highly priced free-range and organic chicken dropped significantly during the worst of the recession. But the latest 52-week sales data gives reason for hope, with evidence of growth returning to higher-end poultry.

At Sainsbury’s, free-range chicken is doing particularly well, with volume sales up in 2010 over 2009, says fresh poultry buyer David Whiffen. Currently, the most expensive whole chicken on sale in Sainsbury’s is an organic chicken costing £6.49/kg not that the price is putting off shoppers.

“Organic chicken is back in growth and we also sold 4.6% more corn-fed chicken year-on-year,” says Whiffen. 

Over the past year, chicken sales have gone up 3.5% in value to reach £1.8bn [Kantar, 52w/e 20 Mar 2011], with breast meat seeing an increase of 6.3% in value sales a sign that higher-end cuts are coming back into favour with shoppers.

Morrisons’ recent experience, however, could be cause for caution, with the retailer saying it has started seeing consumers shift back out of more expensive cuts and into cheaper products such as thighs. When the full brunt of government cuts start to hit consumers’ pockets, shoppers’ tastes could quickly swing back towards the value end of the chicken market and the resurgence of the posh bird could be short-lived.

Read the full Meat & Fish Supplement 2011

Topics