The British eat their way through 11 billion eggs a year but now UK producers have just over two years to scrap battery farms. Are farmers and manufacturers ready for tighter rules, higher prices and fundamental changes to the UK egg industry? Michael Barker reports

In Roger Hargreaves' Mr Men books, Mr Strong gets his power by devouring an improbable number of eggs. But any Olympic athlete planning to limber up for the London 2012 games with a similar diet should look away now the supply of eggs could be in jeopardy thanks to new regulations that are forcing a transformation in the way the iconic staple is produced.

In the history of British eggs, 1 January 2012 is set to be the most significant date since 3 December 1988, when Edwina Currie sent the industry into meltdown with her infamous comments on salmonella. Unlike that very public spectacle, however, few consumers are aware of the enormity of what is happening at production level. Farmers have essentially been asked by EU diktat to rip out their entire production systems and switch to a higher-welfare method that will ensure hens are better cared for and make the battery cage a symbol of intensive food production ever since its introduction a thing of the past. This means any UK battery farms in operation past that point will become illegal under EU law and will no longer be allowed to be sold under the Lion code, which is used by all the major UK retailers.

With little over two years to go until the deadline, will the UK and Europe be ready, and what will this new law mean for UK farmers, manufacturers and retailers, not to mention consumers, who eat their way through 11 billion eggs every year?

The European Commission had been deliberating for years the merits of banning battery cages for animal welfare reasons, but it was not until January 2008 that it announced producers would have to switch to a so-called enriched colony system by 2012. That left European producers, who put 65% of their 390 million hens in battery cages, just four years to find billions of euros and switch over to the new system.

The task is an eye-watering one for suppliers. Britain's biggest egg producer, Noble Foods, says that it and its contracted producers are having to stump up £95m to fund the change, the kind of money they would prefer not to have to find in a recession.

"The investments are enormous," says technical director Andrew Joret. "You're looking at about a cost of £20 a bird to convert, and your typical large enriched colony farm contains 750,000 birds. It's not easy to find cash in the current climate and all of us are looking for a certain amount of comfort from customers."

Consolidation appears inevitable as smaller farmers decide against making the move and instead quit the industry, Joret claims. "People are either going to reinvest or drop out. I'd expect a bit of both, but we'll see fewer, larger caged farms."

With the average age of egg farmers now 56, and succession planning a major issue in the industry, many will take early retirement rather than put themselves through the hassle and expense of switching, according to Martyn Gibbons, owner of Knowle End Farm.

"That will leave the UK in a situation where it is very short of eggs," he warns. "Farmers don't have the confidence to go and invest, and there's not many people for whom a minimum of a million pounds is cheap."

The British Egg Industry Council is more upbeat, insisting all British producers under the Lion code will be ready for 2012, at which time 43% of eggs produced will come from the enriched colony system, 50% will be free-range, 4% barn reared and 3% organic. "UK ministers have made it clear this directive will be implemented, and major companies are fairly well advanced," says chief executive Mark Williams.

Trying to estimate what consumer demand will be in 2012 has been a real headache for producers, particularly with free-range sales having risen 25% in the past two years alone. Currently in the UK there are some 18 million hens in the caged system, but between those farmers dropping out and the rise in free-range, only about 12.5 million birds are expected to be in the enriched system from 2012.

The biggest fear from BEIC's point of view is that European producers will not be so far advanced, warns Williams, with as many as 100 million EU birds expected to still be in conventional cages come January 2012. While Scandinavian, Dutch and German producers are all expected to be ready for 2012, there are fears the Mediterranean nations, Poland, Czech Republic and other newer EU members will not. Southern European countries in particular are understood to be struggling to meet their obligations and are expected to call for a derogation.

Williams fears the British industry could find itself in the same position as the pig sector of the 1990s when British producers raised standards but Continental rivals did not all follow suit. "Quite rightly UK producers will be fairly miffed if the UK is totally compliant and other countries are not," he says.

This is an area of real concern for manufacturers of ready meals, sandwiches, quiches and countless other everyday food items. While all the mainstream supermarkets only source British shell eggs, up to one third of the 75,000 tonnes of eggs used in UK products are currently imported, and there are fears that manufacturers will be using non-compliant ingredients.

Manufacturers could even be tempted to go outside the EU for cheap egg products that may not reach the standard. "The liquid egg market is ready to get hold of any cheap source they can from 2012," warns NFU poultry chairman Charles Bourns.

Defra insists it is lobbying for an intra-EU trade ban which would prevent battery eggs being exported to the UK post-2012, thus preventing countries that have been given more time to meet the new rules gaining an unfair advantage over UK farmers. But critics warn that might only accelerate the number of non-EU eggs flooding into this country, with solutions to this key issue not close to being found. "The UK and other member states will continue to press the EC to discuss how to handle the possibility of an influx of eggs being imported from third countries in 2012," says a Defra spokeswoman.

To help identify battery eggs, the UK industry is pushing for a Code 4 to be introduced on eggs to flag up the enriched colony system and ensure retailers and manufacturers are fully aware of what they are buying. Currently '0' signifies organic, '1' is free-range, '2' is barn reared and '3' is battery-farmed, but there is no indication for the new system. The idea has been well received in Brussels and producers are hopeful that legislation will be passed in time for 2012.

BEIC is calling on retailers and manufacturers to hold urgent discussions with their suppliers to ensure they have a guaranteed supply of legal-standard eggs. Lion producers say they can increase production to meet higher demand provided their customers give them firm commitments that their products will be bought.

While the BEIC reckons British producers still need to find another £270m to make sure the whole industry converts on time, EU-wide that cost could be as high as £4.5bn. With such a significant investment, it is inevitable the cost will have to be passed on to retailers and ultimately consumers. A six-pack of British Lion value eggs from caged hens currently costs an average of 88p, but producers say that price may have to pass the £1 barrier to compensate for the higher production costs. "The increased cost of enriched colony eggs over standard caged eggs is 10%, so there is a real cost increase involved," says Joret.

BEIC agrees producers will have no alternative but to ask their customers for higher returns. "Producers need a return on investment," says Williams. "The cost of production will also go up and they'll need to recoup that, otherwise why make the investment?"

Supermarkets have so far been supportive and some have made their own moves towards higher welfare. Marks & Spencer is held up as a torch-bearer for higher welfare for its policy of only using free-range eggs in both its shell eggs and egg products, while earlier this year Sainsbury's stopped selling eggs from battery caged hens and also pledged to stop using caged eggs as an ingredient in its food and drink lines from 2012. Waitrose and Pret a Manger have also been praised for their commitment.

Olympic year will be huge for many reasons, but for the egg industry, it's more than just the Olympic breakfast that's at stake. UK producers insist they can cope, but say now more than ever they need long-term commitments from customers to ensure demand is met.