US bird flu causes egg shortage, emergency measures

CHICAGO/NEW YORK (Reuters): As a virulent avian influenza outbreak continues to spread across the Midwestern United States, some egg-dependent companies are contemplating drastic steps - importing eggs from overseas or looking to egg alternatives. A spokeswoman for Archer Daniels Midland Co said that as egg supplies tighten and prices rise, the food processing and commodities company has received numerous inquiries from manufacturers about the plant-based egg substitutes it makes. With a strong dollar bolstering the buying power of U.S. importers, some companies are scouting for egg supplies abroad.

“The U.S. has never imported any significant amount of eggs, because we’ve always been a very low-cost producer,” said Tom Elam of FarmEcon, an agricultural consulting company. “Now, that’s no longer the case.”

The United States is grappling with its biggest outbreak of bird flu on record, which has led to the culling of 40 million birds. The virus has been confirmed on commercial farms and backyard flocks in 16 U.S. states and in Canada.

The highly infectious virus has not crossed over to humans in the United States, as it did in Asia following a 2003 outbreak, but transmission to humans is possible, according to the Centers for Disease Control and Prevention.

An industry group representing U.S. bakers began pushing the U.S. Department of Agriculture and Congress this week to speed up approvals for egg imports.

“We have members whose egg suppliers are already cutting back how much they’ll receive in the next few weeks, while others are not getting any,” said Cory Martin, vice president of government relations for the American Bakers Association. “They’re looking for eggs everywhere. And the problem is, too, there’s not enough egg substitute available right now to make up for the demand.”

Still, companies wanting to import eggs may have to look far afield.

“Canada is short on eggs and has been buying heavily from the U.S. for the last several years,” said Rick Brown, a senior vice president of Urner Barry, a commodity market analysis firm. “Mexico has been dealing with its own outbreaks of avian influenza, so they’re banned from importing into the U.S. The logical place people will be looking now would be Europe.”

Avril, a farmer-controlled agri-food group that owns France’s largest egg brand, Matines, said it has seen an increase recently in demand from the United States and elsewhere in the Americas and plans to start making shipments to the Americas in June.

A spokesman for Avril told Reuters on Friday most of its exports would be heading to Mexico, though he noted that shipments to the United States were a possibility.

ECONOMIC BITE

Exporting eggs into the United States from Europe will not be easy. Regulatory differences mean European Union egg producers must seek an individual license to export and sometimes change procedures to bring safety standards into line.

But it is still an attractive business opportunity.

The French embassy in Washington is helping one French egg company start the process to obtain an export certificate, a French farm ministry spokesman said.

The Dutch also are positioning themselves as an egg exporter to the United States too, French egg industry group SNIPO said.

“The bird flu epidemic developing in the U.S. means it is necessary to start discussions as quickly as possible to benefit from opportunities in this market,” SNIPO said in an emailed statement, adding that French authorities had not responded as swiftly as their Dutch counterparts.

PRICES SOAR

Meanwhile, companies sticking with egg suppliers closer to home are facing sharply higher prices as a result of the outbreak. Nearly 30 percent of U.S. breaker eggs - which includes liquid, dried or frozen eggs used by food manufacturers - has disappeared due to the outbreak, according to Martin and federal data.

The outbreak has led to a sharp uptick in the wholesale price of such eggs, from 63 cents a dozen in late April, when the first egg-laying flock was reported infected, to $1.83 a dozen this week, Brown said.

The wholesale price of “shell eggs,” typically sold in cartons at grocery stores, has also risen, from $1.19 a dozen in late April to $2.03 a dozen this week, Brown said.

Nevertheless, some food makers are turning to the more expensive shell eggs to supplement supplies, although that means an additional cost to send the eggs to a breaking facility that will crack the shells, Elam said.

Analysts at Goldman Sachs predict consumers will ultimately spend an additional $7.5 billion to $8 billion because of the egg supply squeeze.

Nestlé SA - which uses eggs for some of its Dreyer’s, Edy’s and Häagen-Dazs ice cream products - said it is braced for shortages and working with suppliers to help protect hens.

Dunkin’ Brands Group Inc told Reuters it will leave it up to franchisees to decide whether to swallow the cost hikes they’re seeing or pass them on to consumers.

A MATTER OF LIFE OR DEATH

For some companies, having an adequate supply of fertilized eggs can be a matter of life or death. Some vaccine makers, including Merck & Co Inc, maintain their own hen flocks to produce eggs used for incubating vaccines that protect against diseases such as measles and mumps.

Merck said it is taking no chances with its chicken flocks as avian influenza continues to spread - security is tight around the birds, and the health of the hens is continuously monitored.

Sanofi Pasteur, the vaccines division of Sanofi, said it too is keeping close tabs on the outbreak - particularly with the state agriculture department in Pennsylvania, home to some of its suppliers and the fourth-largest U.S. egg-laying flock. So far, no avian influenza cases have been identified there.

“We continue to maintain preventive measures for our egg supply system, including biosecurity and physical security procedures, to provide our suppliers with protection from being affected by this or any avian outbreak,” the company told Reuters in a statement.

And GlaxoSmithKline Plc told Reuters it is reinforcing biosafety standards at more than 30 Canadian egg-laying farms that are dedicated to producing eggs for the company’s human flu vaccines.

The company has more egg supplies than it needs for its flu vaccine production in Canada and Germany, a spokeswoman said.

But as the bird flu outbreak spreads in the United States, she added, “we are monitoring the current situation closely and have alerted all of our supply farms.”

Gulf producers to resist cuts

at OPEC meet: analysts

KUWAIT CITY (AFP): Gulf oil producers, led by Saudi Arabia, will resist attempts to cut output at an OPEC meeting next month as preserving market share remains their top priority, industry analysts said. A decision by the 12-member Organisation of Petroleum Exporting Countries not to cut production in November sent prices crashing 60 percent before a partial recovery in recent weeks. Gulf and other OPEC members said they wanted to safeguard their share of a market that has faced a supply glut as a result of sharp increases in the production of shale and sand crudes. “Preserving market share still remains a top priority for Gulf states,” Saudi economist Abdulwahab Abu-Dahesh said.

“This time they are even encouraged by signs their November strategy is working after a drop in US shale oil production and in the number of rigs,” Abu-Dahesh told AFP.

In the face of the sharp drop in their earnings, some OPEC members, led by Iran and Venezuela, have publicly called for the cartel to cut production to support prices.

“I don’t thing that any change will happen at OPEC’s meeting,” a former member of Kuwait’s Supreme Petroleum Council, Musa Maarafi, said.

“Gulf states will continue to defend their market share and it is their right to do so,” Maarafi told AFP.

“They will not accept to cut output at their own expense unless an agreement is reached with non-OPEC producers.”

The burden of any cut in OPEC output would likely fall on the cartel’s Gulf members — Saudi Arabia, Kuwait, the United Arab Emirates and Qatar — whose production has risen by around 3.5 million barrels per day since 2011.

Currently, they pump 16.8 million bpd, or 55 percent of OPEC’s total, with Saudi Arabia accounting for 10.3 million bpd. They export around 12.5 million, almost two-thirds of the cartel’s total.

- Mounting competition -

Head of marketing at national oil conglomerate Kuwait Petroleum Corp. (KPC) Jamal al-Loughani told a symposium last week that a change in the global energy map has made market share a highly sensitive issue.

He said the sharp rise in US production to 9.4 million bpd had allowed Washington to stop light crude imports from Africa.

It also cut imports of heavy oil from Latin America, substituting it with Canadian sand oil.

“That led African and Latin American exporters to seek new markets in the east,” said Loughani, adding that more than 3.0 million bpd of additional high good quality crudes are being pumped into these markets in competition with Gulf exports.

“That places additional pressure on OPEC members, especially Gulf exporters, to cooperate to maintain market share and even ensure new takers for additional quantities in the future,” he said.

A relative rebound in prices and a drop in US shale oil output is likely to convince OPEC to continue with its strategy.

Data from the US Department of Energy showed US crude production dropping 112,000 bpd to 9.26 million bpd in early May.

“Prices are improving, growth in supplies from outside OPEC — especially shale oil — is lower than before and demand is recovering,” Kuwait’s governor at OPEC Nawal al-Fuzai told reporters last week.

Over the past few weeks, oil prices have climbed about 40 percent but remain well below their levels of more than $100 a barrel in June last year.

Fuzai said crude oversupply dropped from around 2 million bpd late last year to between 1 million and 1.2 million now.

But Commerzbank warned in early May that “the oil market will continue to be oversupplied until OPEC significantly cuts its output.”

And the International Energy Agency reported that the cartel’s output hit 31.21 million bpd in April, the highest level since September 2012.

“It would thus be premature to suggest that OPEC has won the battle for market share,” the IEA said. “The battle, rather, has just started.”

Brazil unveils cuts as IMF urges fiscal discipline

RIO DE JANEIRO (AFP): The IMF urged Brazil to get its fiscal house in order to emerge from five years of low growth as South America’s largest economy late Friday unveiled a package of budget cuts in a move to kickstart a recovery. Brazil has lost ground since a period of high growth largely fueled by Chinese-led demand for commodities came to an end and the International Monetary Fund (IMF) forecasts GDP will contract by around 1.0 percent this year. The downturn has forced leftist President Dilma Rousseff to agree to a measure of austerity, while promising to protect social programs that have lifted tens of millions out of poverty over the past decade.

Planning minister Nelson Barbosa duly announced budget cuts of 69.9 billion reais ($23 billion) designed to put the country on track toward achieving surpluses of 1.2 percent of GDP this year and 2.0 percent in 2016-17.

The cuts are the largest in the 12 years that Rousseff’s Workers Party has been in office — predecessor Luiz Inacio Lula da Silva having served two terms from 2003.

Barbosa said the cuts were necessary “in order for the economy to bounce back.”

“We are currently in a phase of macroeconomic rebalancing... this fiscal effort is the first necessary step if growth is to recover,” added Barbosa.

Brasilia now forecasts that GDP will fall 1.2 percent this year, which would be the country’s worst performance in some 25 years.

Visiting IMF chief Christine Lagarde said Brazil could pull out of its slide with a judicious mix of fiscal discipline, a flexible exchange rate and policies that target inflation.

Such an approach, Lagarde said, “constitutes a unique combination to restore growth and put it on a sustainable path.”

But she added investors must be convinced that Brazil is “solid and serious” about getting its fiscal house in order, anchoring inflation and developing investment and trade.

“We believe that the policy mix that has been identified is the right recipe to actually start a good recovery and establishing sustainable growth,” Lagarde said.

Croatia launches tender for major resort near Dubrovnik

ZAGREB (AFP): Croatia on Saturday launched an international tender to develop a major tourist resort on former military-owned property near the chic vacation spot of Dubrovnik along the southern Adriatic coast. The overall investment into the Kupari complex, several kilometres south of Dubrovnik, has been estimated at around 100 million euros ($110 million). “Kupari (resort) is a good example how we will put former military property at attractive locations into a tourism function,” Tourism Minister Darko Lorencin said in a statement. The binding offers were to be submitted by August 25, said the tender published by the state property management administration (DUUDI).

The Kupari resort was once owned by the former Yugoslav People’s Army and had some 1,600 beds, but was devastated at the start of the 1990s war.

The area involved in the tender covers some 13 hectares (32 acres), with several destroyed hotels. The plan is to renovate one and build new four and five-star facilities which could have up to 1,500 beds.

So far six investors have voiced informal interest for Kupari including Turkish Group Rixos, Russia’s Avenue Group and a consortium including tourism giant TUI, Lorencin said earlier.

Tourism is a key segment of the former Yugoslav republic’s economy and accounts for some 20 percent of its gross domestic product.

Last year Croatia welcomed more than 12 million visitors, nearly triple the number of its 4.2 million inhabitants, heading mostly to its pristine Adriatic coast.

Dollar surges on rise in US inflation

NEW YORK (AFP): An unexpected jump in US core inflation in April sparked a surge in the dollar Friday, capping a week-long rebound by the greenback. The dollar added more than 1.5 cents against the euro immediately after the US Commerce Department reported that core consumer prices — those excluding food and energy — jumped 0.3 percent in April from March, the largest one-month rise in more than two years. While core prices were up a modest 1.8 percent year-on-year, the pace for the past three months is 2.6 percent, the fastest in almost four years, noted Ian Shepherdson of Pantheon Macroeconomics. “Upside inflation risk is no longer a crazy idea,” he said.

The dollar’s gain was further supported when Federal Reserve Chair Janet Yellen said she expects economic growth will be good enough to merit a rise in the federal funds rate “at some point this year.”

“Delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy,” she said.