Egg Makers Are Freaked Out By The Cage-Free Future


Business

The majority of the US egg supply will become cage-free within
a decade, but the egg industry says the economics don’t make
sense.

Posted on March 21, 2017, 17:06 GMT

One of the most dramatic changes in the American food
production system is now underway in the egg industry.

A wave of big restaurants and grocers have committed to
switch entirely to cage-free eggs, setting up the industry
for a broad transformation. The problem, critics say, is that
while the industry is preparing to flood the market with
cage-free product, what consumers still overwhelmingly choose
to buy are the cheaper, battery-farmed options.

Since the mid–20th century, when farmers started bringing
hens indoors, the system has become so efficient that people
can now buy eggs for less than 10 cents each, and the average
Americans now eats an estimated 267 eggs per year.

But that efficiency came at a price: Life is miserable for
hens in battery cages, and opposition to the system became a
core concern of the animal rights movement, which has
succeeded in turning dislike of the battery egg system into a
mainstream issue.

Businesses have felt the pressure and responded. So far,
about 100 grocery chains, 60 restaurant chains, and dozens of
other major food businesses have promised to switch to
cage-free in the next decade, according to the US Department
of Agriculture. Together, they represent an estimated 70% of
US egg demand.

That change will require egg farms to make big investments in
new facilities and equipment to support hundreds of millions
of cage-free hens. In certain cases, the farms will need to
take on a lot of debt. Yet some egg producers worry that
after they make huge investments to meet the new standards,
consumers might end up being reluctant to buy a more
expensive product just to feel a little better about
themselves.

“All companies that have made public, cage-free pledges seem
to be making their decisions based on brand perception,
rather than current demand or scientific findings.”

Only about 10% of eggs sold today are cage-free, and while
pressure campaigns have succeeded in convincing businesses
and the public that the battery farming system needs to
change, people are not yet willing to vote with their
wallets.

“The ability for the industry to do this conversion is truly
subject to the demand for cage-free eggs from the consumer,”
said Jeff Coit, a poultry industry specialist at Farm Credit Services of
America. “Today, we’re not there. The vast majority of
consumers are still buying the cheaper eggs on the shelf.”

The cost of building a cage-free system averages out to about
$40 per bird, which for a 1-million-hen operation — a common
size in the business — gets expensive fast. About 86% of the
country’s eggs are produced by just 63 companies that have at
least 1 million hens each.

In total, the industry estimates it could cost at least $6
billion to build enough cage-free housing to satisfy
commitments made by retailers, restaurants, and food service
providers over the next decade.

Coit said capital requirements vary, but some egg producers
may need to come up with 40% or more of the cost, with the
remaining funds subject to available debt financing.

While shoppers already have the option to buy cage-free, “90%
of consumers stand in front of the egg case, and they pick
conventional caged eggs because they’re economical,” said
Chad Gregory, CEO of United Egg Producers, the egg industry’s
lobbying group, to BuzzFeed News. A dozen conventional eggs
in March cost an average of $1.05, or about 9 cents per egg.
That’s less than half as much as a dozen cage-free eggs,
according to price data from the USDA.

Even if the price of cage-free eggs declines as they become
the standard, Gregory said they will never be as cheap as
today’s regular eggs since labor costs are higher in
cage-free farms and hens produce fewer eggs when taken out of
the cage.

“All companies that have made public, cage-free pledges seem
to be making their decisions based on brand perception,
rather than current demand or scientific findings,” Wells
Fargo consultant Matt Stommes
wrote in a report. “Since food and agriculture production
is a low-margin business, until cage-free demand proves
itself, it’s going to be tough to cost justify expensive
changes to egg-laying chicken barns.”

Two big problems stand in the way of the cage-free
transition: First, egg prices are low right now, making big
investments less attractive to producers. Even the country’s
largest egg producer, Cal-Maine Foods, saw net sales decline
by about 57% and reported a loss in the six months ending in
November. “The number of new cage-free projects has slowed
down recently due to the current low egg price environment,”
Coit said.

Due to oversupply, at the end of 2016, Cal-Maine
said the average selling price for regular eggs was down
64.9% year on year, while the average price for specialty
eggs (like cage-free) was down 13.2%. Grocery stores ran more
sales for cage-free eggs, according to USDA. Yet consumers
opted for cheap, conventional eggs, not cage-free ones, said
Coit. That pattern calls into question how much demand there
is for the pricey alternative.

“This is a mess, and it all started because activist groups
forced food companies to do this,” said Gregory. “By and
large, egg farmers are still in a state of shock, and
definitely in a state of paralysis.”

Egg prices recently
tumbled.

Despite the uncertainty, animal rights activists are
celebrating a major win for the movement. “The fact is that
the largest egg buyers all have clear policies requiring
their suppliers to stop locking hens in cages by 2025,”
Humane Society spokesperson Matthew Prescott told BuzzFeed
News. “Unless egg producers want to lose business, they’ll
simply need to convert.”

The industry’s transition ramped up in 2015 after McDonald’s
(which buys about 3% of all the eggs in the US) announced it
would transition to cage-free eggs by 2025 “to improve the
treatment of animals.” Walmart made the same commitment the
following April, and months later grocery chain Publix said
its egg selection would go cage-free by 2026. The rest of the
food business followed.

Yet egg industry representatives claim builders and equipment
suppliers will have a hard time keeping pace with these
pledges. Some believe it simply won’t work. “The 2026
deadline for 220 million hens to transition from conventional
cages to cage-free is physically and financially impossible,”
said Gregory.

The Center for Food Integrity / Via youtube.com

An example of cage-free housing.

Not too long ago, the industry was very close to heading in a
different direction. In 2011, United Egg Producers formed an
unlikely partnership with the Humane Society to try to pass a

federal egg bill that would transition the entire
industry, by law, from conventional cages to “enriched
colony” cages, which offer more space and amenities like
perches, nesting boxes and scratching areas.

The cost for enriched colony housing would average out to
$20–25 per bird, more than the $15 average for conventional
cages, but still half as much as a cage-free system. The
proposal was to make the industry-wide switch by by 2030.

The proposal didn’t work, and the industry now faces a
costlier transition.

Cal-Maine Foods, which accounts for about a quarter of US egg
consumption, broke out the projected costs of a number of
cage-free projects in its last annual report, ranging from
$3.1 million to $49.6 million. Cal-Maine also estimated its
joint venture for 1.8 million cage-free hens will cost $73
million to build and start up.

An oft-cited case study is California, where voters banned
battery cages in the state starting 2015. Not long after,
Modern Farmer reported, “The
legislature recognized that the law would put California egg
farmers out of business, forcing them to spend lots of cash
to upgrade their facilities while competing with out-of-state
producers that weren’t subject to the regulation (and the
attendant investments and price increases it would entail).
So the law was expanded to cover all eggs sold in the state.”

In effect, to guarantee the success of cage-free eggs,
California had to make them the only option. By some
estimates, the law
caused egg prices to rise between 33% and 70%.

Still, the movement has continued to spread. In November,
Massachusetts voters
approved a ballot to prohibit the sale of eggs, pork, and
veal from animals raised in small, confined spaces.

Activists say public opinion eventually overrides the
difficult economics of the cage-free business. “At the end of
the day,” said Prescott, of the Humane Society, “the least
profitable or economical type of product to produce is the
kind no one will buy.”

Paul J. Richards / AFP / Getty Images

Venessa Wong is a business reporter for BuzzFeed News and
is based in New York. Wong covers the food industry.

Contact Venessa Wong at venessa.wong@buzzfeed.com.


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