How British chicken got caught in the country’s economic storm

On an intensive poultry farm in North Herefordshire, farmer Jo Hilditch is walking through one of her 22 chicken sheds, picking up flapping birds and checking for signs of illness and injury.

The 20,000 plump five to six-week-old chickens occupying the shed will shortly be transported to a series of nearby facilities by the farm’s processor, Avara, where they will be stunned, slaughtered, cleaned, packaged and then delivered to supermarket shelves.

It is a well-oiled process, with one critical flaw: Hilditch, a fourth-generation farmer, says she is not being paid enough to do anything more than get by.

The same message echoes across a sector that operates on ultra-low margins. The price of chicken, producers argue, is simply too low to keep up with an aggressive rise in input costs. A medium chicken from Tesco that feeds up to six people is priced at £4.20, for example. At discounter Lidl, a similar-sized product is £3.79.

“The profits, even historically when it was going well, have not been fantastic,” says Hilditch, whose farm produces 5.5mn chickens a year yet generates a turnover of £9mn. “I find it extraordinary that you can buy a chicken for the same price as a latte.”

Hilditch’s chicken farm is a microcosm of many of the pressures that British companies are currently facing — not just in the food industry, but across large parts of manufacturing.

For much of the postwar period, poultry was one of the fastest growing and productive sectors in UK farming. Meat consumption tripled between 1960 and 1980, with the average consumer today eating 35kg of the protein a year.

However, in recent years it has faced a flurry of different upheavals that together have thrust the sector into crisis — from Covid-19 and its economic after-effects to Brexit and the war in Ukraine.

More than most other products, the industry’s problems encapsulate not only the fragility of the UK’s food systems but the issues plaguing the broader economy: inflation, labour shortages and rising wages.

As a result, chicken farms and processing plants have closed or scaled back operations. Production of broiler chickens, those reared exclusively for meat production on an industrial scale, dropped 11.4 per cent in July compared with 12 months ago, according to official statistics. Exports have almost halved, from 375,000 tonnes in 2020 to 200,000 tonnes last year.

Food producers, including in dairy and horticulture, are begging retailers to put up the price of staple foods. This, they hope, will allow them to turn a profit and help boost productivity.

“The last two years have really been a perfect storm,” says Hilditch. “Chicken is too cheap and we are not able to reinvest.”

Yet as people grapple with the worst cost of living crisis in memory, the prospect of asking consumers to pay more for food is hard to swallow. Doing nothing, however, may be even harder to digest.

Younger, cheaper, faster

Meat was not always so easily affordable. Before intensive farming spread to the UK from the US in the 1950s, poultry was considered a luxury that families ate no more than once a week.

It was Anthony Fisher, the founder of free market think-tank the Institute of Economic Affairs, who transformed a cottage industry into one of Britain’s fastest-growing sectors. By 1964, Fisher’s company Buxted Chickens was processing more than 500,000 birds each week across three plants.

Buxted was sold to a company that was later acquired by 2 Sisters Food Group. Alongside processing giants Avara and Moy Park, 2 Sisters has continued Fisher’s legacy, increasing productivity and driving down the price of chicken through a relentless process of supply chain consolidation, selective breeding and cheap labour.

As a result, poultry supply chains are among the most integrated in the agricultural sector. The biggest processors manage an end-to-end system that encompasses farming, feed manufacturing, egg hatcheries, butchery, packaging and transportation.

Supermarkets played a big role in the standardisation of products, marketing and pricing. In the 1950s, retailers such as Sainsbury’s urged producers to reduce the size of the birds from 5lb to 3lb in order to increase yields — achieved by slaughtering chickens at 10 weeks old rather than 12.

Today, because of genetic selection techniques, broiler chickens can grow four times larger than in the ’50s. Over 90 per cent of the chickens in the UK today are bred to grow quickly, and slaughtered at under six weeks, according to the RSPCA.

“Processors have made the supply chain extremely efficient and made chicken affordable for consumers,” says Adam Couch, chief executive of Cranswick, one of the UK’s big meat producers. “But that competitive nature means margins have been wafer thin.”

For farmers like Hilditch, this narrow margin is becoming unsustainable. This year, her poultry business was operating at a loss amid soaring agricultural input costs.

Her usual electricity bill of £160,000 a year has almost tripled, labour costs rose 10 per cent, while additional costs like cleaning and replacing equipment rose 20 per cent. Though the cost of energy, feed and fertiliser have fallen since their highs at the end of last year, they remain well above pre-Ukraine war levels.

Hilditch and other farmers that supply Avara secured an 8 per cent price increase over the summer, which has offered some breathing room. But this only covers input costs, she says, with nothing left over to invest in innovation, maintaining equipment to a high level or to fund sustainability projects.

The farmer took out a £3mn loan to install boilers that convert chicken faeces into energy which is then used to heat her chicken sheds, with the help of the government’s Renewable Heat Incentive scheme. Hilditch planned to repay the loan in seven years, but now estimates it will be closer to 10.

“A lot of our members feel they are taking all the risk with little reward,” says Aimee Mahoney, a poultry adviser at the National Farmers Union. “Farmers are being forced to absorb costs without getting anything back from the market. And without hope of making profit, some are choosing not to restock at all and use their farm buildings for other produce.”

“It feels like everything is stacked against them,” she adds.

Devastating consequences

The financial pressures are being felt across the sector.

In March, 700 people in Anglesey, Wales, lost their jobs when 2 Sisters shut down a 50-year-old processing site in Llangefni. Similarly, Avara, which is co-owned by US agricultural group Cargill, will close its site in the Welsh market town of Abergavenny later this month, citing increasing costs.

Richard Griffiths, chief executive of the British Poultry Council, an industry body, says the financial burden was not being passed on to the marketplace. “This is having a devastating effect on our members, who are being forced to reduce production because they cannot afford to grow birds they will not get paid for,” he says.

In the year to May 2022, Avara posted a loss of £16.1mn, compared to profits after tax of £16.9mn the year before. Their competitor 2 Sisters reported an operating loss of £29.5mn in the year to July 2022, an improvement on a loss of £44.85mn a year earlier.

“Today’s trading environment reinforces the need for commodity food businesses to look for opportunities to mitigate inflation through increased productivity and efficiency,” says Avara. “We’ve made some significant steps in this regard . . . but it will take some time for the benefits of our actions to be fully realised.”

The cost of fuel has been particularly difficult for poultry, one of the most energy-intensive agri-food sectors, as it relies on high quantities of gas to provide the temperature controls in chicken sheds. Producers are also exposed to fluctuations in feed prices, which rocketed last year alongside the cost of wheat.

Couch, the Cranswick chief executive, says while feed costs were subsiding, the uncertain situation in Ukraine, one of the world’s largest producers of grain, is causing extreme volatility in the feed markets. “It depends how long your feed book is and how much you’ve paid forward,” he adds. “We’re all extremely nervous.”

He also worries that the “huge indebtedness” in the wider food manufacturing sector is stymying innovation, with long-term consequences such as falling British production and a growing reliance on imports. “That’s a real concern with rising interest rates, especially when it comes to refinancing,” he says. Cranswick itself reported better than expected profits this year, having invested early in automation to boost efficiency.

Food producers have been quick to point the finger at supermarkets for driving down costs, but some in the poultry processing industry acknowledge that grocers are facing their own pressures.

“It seems there’s a tendency to try and pit different members of the supply chain against each other, which isn’t our experience,” says Avara. “Over the last 12 to 18 months retailers have raised prices, but it’s been near impossible to keep pace with unprecedented inflation, brought on by unprecedented circumstances.”

Supermarkets use products like chicken as so-called loss leaders — products that are sold at a lower price than the cost of production — in order to draw customers away from competitors. Since the arrival of German discounters Aldi and Lidl to the UK, which have undercut prices at traditional supermarkets such as Tesco and Morrisons, the grocery sector has been locked into a race to the bottom on prices.

This is “driving disinflation into the country’s food system”, argues Clive Black, an analyst at Shore Capital.

“If you look at the food system today there is very little new capacity because the return on capital is not there,” he adds, blaming intense competition in the retail arena. “It’s the most affordable protein but in terms of a sustainable food system, the UK consumer does not pay enough for [chicken].”

The Brexit factor

Beyond the supermarket price wars, there is another factor exacerbating the poultry industry’s woes: the UK’s departure from the EU.

Like many industries across the food and farming sector and beyond, business leaders are crying out for the government to broaden its seasonal worker scheme to lower the cost of labour. Since the end of freedom of movement, some businesses are currently paying more than £10,000 to secure each migrant worker not covered by the scheme.

Cranswick’s Couch says he went to Priti Patel, then home secretary, in 2020 to warn the company would have trouble recruiting workers unless the government relaxed its post-Brexit immigration policy, but feels industry’s pleas have been dismissed.

In the past few years, thousands of healthy pigs were culled on farms due to a shortage of abattoir workers. Similarly, millions of pounds’ worth of fruit and vegetables were left rotting in fields.

Since then, Cranswick has replaced European labour with butchers from the Philippines, which costs £12,000 to bring each worker to the UK.

Avara, who says the challenge of finding workers “remains very difficult”, is making changes to manage the shortage, like opening a site in an area with a stronger labour market.

The government’s own review into labour shortages in the food supply chain found that the UK’s “chronic” lack of workers must be addressed if the country is to increase its self-sufficiency.

The report concluded that insufficient labour could lead to supply shortages of certain essential foods and that without a ready supply of migrant labour, there was a danger that production may relocate abroad. Some businesses had already started to relocate their production overseas, the report found.

The risk of lower production in the UK is that supermarkets become more reliant on imports from other countries.

“When the environment stabilises we’ll have to go back to finding a way of being more productive,” he added. But that may be easier said than done. “As soon as you start losing capacity, it is very difficult to rebuild.”

‘A cesspit of poultry production’

For experts and animal welfare groups, a more pertinent question is whether the country should be aiming to increase poultry production at all.

The sheer volume of chicken produced in the UK has become an environmental issue, notably in the lush Wye Valley, on the England-Wales border, where phosphates from chicken manure have contributed to the growth of harmful algal blooms in the river Wye. The algae kills off the natural river weed that serves as nurseries for fish and is contributing to the decline of endangered species.

“That area has become a cesspit of poultry production,” says Tim Lang, emeritus professor of food policy at City University, who advocates for processing to be decentralised and dispersed across regions to prevent pollution. “The ecological damage has been an illustration of anarchic — not orderly — capitalism.”

Campaigners took the government to the high court this year over the legality of fast-growing broilers they call Frankenchickens, bred to produce as much meat in as little time as possible. Such is their size, their legs often cannot support their weight. The Human Society accused the Department of Environment, Food and Rural Affairs (Defra) of allowing the practice in breach of animal welfare regulations — a claim a judge rejected.

Hilditch, the farmer, says consumers would need to pay more if they wanted things to change. “If enough consumers said, ‘we really care about the welfare of the chickens we eat’ and were prepared to pay more, then you could rear chickens with even more space and even better conditions,” she argues. “But when consumers continue to buy chicken for £2, there’s no price incentive [for farmers].”

Yet even though the UK has some of the cheapest food in the world, many people are struggling to afford protein. The number of children in food poverty has doubled to 4mn during the cost of living crisis, according to data from non-profit the Food Foundation.

“It’s easy for me to say [chicken] is too cheap,” says Lang, who advised the government on food and sustainable development in the 2000s. “But it is also unaffordable, depending on which figures you are looking at.”

Prices do not necessarily need to rise, he adds, but more of the share needs to go to primary producers, to help them “do the right thing”.

Farming minister Mark Spencer says the government has taken action to support the poultry sector, including confirming 2,000 seasonal worker visas for 2023 and 2024. “We know they have faced pressures given the impact of the war in Ukraine on input costs, as well as global market volatilities,” he adds.

One thing producers, processors and campaigners agree on is the need for a joined up strategy encompassing food security, health and environmental issues. In 2010, then prime minister Gordon Brown introduced the Food 2030 strategy, but it was abandoned when the coalition government was elected later that year. 

Another effort was made in 2019, when then environment secretary Michael Gove asked Leon Restaurants co-founder Henry Dimbleby to come up with a national food strategy. This was largely watered down, delayed or ignored, and Dimbleby subsequently resigned earlier this year.

“The British tradition has been a reluctant food policy,” says Lang. “They’ll only respond to crises.” 

For poultry farmers, the crisis is here, but there is no sign of a solution.

Data visualisation by Keith Fray