Additional file 1 is offered as supplementary material to this article, and can be accessed to examine the input values and verify the calculations made for the partial budget and income statements.
We start by presenting the partial budget results for the five months as laid out in Table 1. An unaffected laying hen farm operating under ‘normal’ circumstances in 2017 had no additional or reduced costs. The only way Fipronil impacted the financial performance is via the revenue side: these farmers received over the last five months of 2017 a substantially higher price for their eggs (on average € 0.026 per egg). The change in net operating result for an unaffected laying hen farm is estimated at € 150 886.
Table 1
Partial budget over the period 31-7-2017–31-12-2017 of the impact of fipronil on the net operating result (50 000 laying hens).
| Unaffected farm | Affected farm |
Additional costs | € 0 | € 113 965 |
Fipronil manure disposal | | € 10 180 |
Poultry house cleaning | | € 10 000 |
Contaminated eggs disposal | | € 8 056 |
Old flock disposal | | € 40 000 |
Old flock lump-sum-write off | | € 45 729 |
Reduced costs | € 0 | € 204 894 |
Feed | | € 200 099 |
Manure disposal | | € 4 796 |
Additional revenue | € 150 886 | € 0 |
Selling eggs | € 150 886 | |
Reduced revenue | € 0 | € 477 946 |
Selling eggs | | € 459 796 |
Slaughter value hens | | € 18 150 |
Change in net operating result | € 150 886 | € -387 017 |
In contrast, an affected laying hen farm had considerable additional costs. About 40 per cent of these costs relate to depreciation, more specifically the lump-sum write-off of culled hens. Instead of 52 weeks of depreciation in a normal year, the full useful life (production cycle) of 68 weeks had to be depreciated. The other 60 per cent entailed specific costs made for the cleaning of the poultry house and the disposal of hens, eggs, and manure.
However, there were fewer additional costs than reduced costs. With the latter, costs are meant that could be avoided as a result of the Fipronil crisis. With the culling of the flock, feed was saved while less manure had to be disposed of the farm. The biggest cause for the negative change is at the revenue side, i.e. the production standstill of about 5 months causes an estimated drop in revenue of € 477 946. A small fraction of the reduced revenue is due to the slaughter value forgone as the hens had to be culled and disposed of the farm. The change in net operating result for an affected laying hen farm is estimated at € -387 017.
Table 2 presents the income statement over the whole year of 2017 in which we report first of all the net operating result estimation of a laying hen farm in a ‘normal’ year. The net operating result we estimated in a normal year is € 17 729. One should note that there have been quite some fluctuations in the annual net operating result figures over the last years in the laying hen sector including €-112 600 in 2013, € 20 200 in 2014, € 130 200 in 2015 and € 101 100 in 2016 [9]. Note also that the average of the aforementioned income figures slightly differs from our estimation due to the different income format used to calculate depreciation of the flock.
The outcomes of the partial budget were inserted into the income statement figures, allowing to calculate the net operating result for a laying hen farm being unaffected or affected by the Fipronil crisis. Due to the higher selling prices, the returns for an unaffected farm increased with more than 15 per cent compared to the returns in a normal year. Since the cost structure is not impacted, the net operating result is more than nine times higher, while the EBITDA almost doubled.
Table 2
Income statement over 2017 of a laying hen farm in a 'normal year', in a Fipronil unaffected and affected state (50,000 laying hens).
| Normal year (baseline) | Unaffected farm | Affected farm |
Revenue | | | |
Turnover (eggs) | € 987 350 | € 1 138 236 | € 527 554 |
Other returns (meat, other business activities ) | € 94 600 | € 94 600 | € 94 600 |
Total returns | € 1 081 950 | € 1 232 836 | € 622 154 |
Variable costs | | | |
Feed | € 596 250 | € 596 250 | € 396 152 |
Manure disposal | € 9 625 | € 9 625 | € 15 010 |
Other allocated costs (e.g. maintenance) | € 79 600 | € 79 600 | € 79 600 |
Poultry house cleaning | | | € 10 000 |
Disposal contaminated eggs | | | € 8 056 |
Disposal costs old flock | | | € 40 000 |
Total allocated costs | € 685 475 | € 685 475 | € 548 817 |
Gross margin | € 396 475 | € 547 361 | € 73 338 |
Fixed costs | | | |
Depreciation flock | € 148 621 | € 148 621 | € 212 500 |
Other non-allocated costs | € 230 125 | € 230 125 | € 230 125 |
Total fixed costs | € 378 746 | € 378 746 | € 442 625 |
Estimation of the profitability: | | | |
Net operating result | € 17 729 | € 168 615 | €-369 287 |
Estimation of the repayment capacity: | | | |
EBITDA (excl. depr. flock) | € 155 154 | € 306 040 | €-231 862 |
For an affected farm, both revenue and costs changed considerably. The turnover from selling eggs for an affected farm decreased by more than 40 per cent. Allocated costs initially increased because of the additional costs of the cleaning of the poultry house and the disposal of hens, eggs, and manure. But the reduced cost factor of feed of € 200 099 resulted in an overall decrease in the allocated costs of € 136 658 compared to the allocated costs in a normal year.
The gross margin (revenue minus variable costs) is not large enough to cover fixed costs. The latter increased substantially for an affected farm as the Fipronil contaminated flock was culled, and the remaining book value and anticipated slaughter (salvage) value had to be written off as a lump sum. The net operating result of an affected laying hen farm is estimated at €-369 287 and the EBITDA at €-231 862.
The profitability calculated under a normal year is too low to provide satisfactory returns to the unpaid production factors of the owner’s capital, management and labour. The average equity of a Dutch laying hen farm over 2013–2016 was € 743 175 [9]. A net operating result of € 17 729 is not enough to provide remuneration for this amount of capital as well as for the labour hours spent of the farmer. However, due to the fipronil crisis, unaffected farms had a profitable year with decent returns, increasing the owner’s equity and working capital. Affected farms, on the other hand, most likely had to increase debt or use their financial reserves to counterbalance the negative income and make a continuation of the business possible and restart egg production with a new flock. The EBITDA estimation indicates that these farms have likely experienced financial distress after the fipronil crisis.