Recent economic shocks have likely convinced U.S. egg producers to back off from aggressively converting their operations to cage-free production, according to a major farm lender.
About 72 percent of the egg industry’s layer flock would have to be raised cage-free by 2025 to meet commitments made by major food buyers in recent years, according to CoBank, a member of the Farm Credit System.
Volatile swings in egg supplies and prices have reduced the chances egg producers will meet this ambitious target, said Trevor Amen, CoBank’s protein economist who wrote a report on the issue.
“The conversions are still happening but the expectation is it’s going to be a more cautious approach,” Amen said.
Due to pressure from consumers and animal activists, more than 200 major food companies have promised to switch to cage-free eggs within less than a decade, according to the CoBank report.
Those commitments have spurred conversions in the egg industry, which has seen the cage-free proportion of the national layer flock go from 4.4 percent in 2010 to 15.6 percent in 2017, the report said.
The trend particularly began accelerating in 2015, but it coincided with a major disruption to the egg industry — an outbreak of highly pathogenic avian influenza caused major losses of layers that same year.
Egg producers who weren’t affected by the disease saw their profits surge due to the resulting egg shortage, spurring more production. At that point, conventional prices were so high that the traditional premium for cage-free production was erased.
“The industry as a whole overshot the supply,” which then caused conventional prices to crater, said Amen.
Cage-free eggs have typically commanded a premium of 120 percent over conventional eggs, but the price plunge brought the premium to about 250 percent, he said.
However, the benefit was only felt by producers who contracted to sell cage-free eggs at a fixed price or under a cost-plus agreement, under which they’re reimbursed for expenses plus earn additional money to make a profit, Amen said.
Egg producers who converted to cage-free on spec, on the other hand, were forced to sell into the conventional spot market at low prices, he said.
It’s tough to compete with higher-priced cage-free eggs when conventional eggs are so cheap, Amen said. “It really hampered the demand for cage-free.”
This turmoil has caused egg producers to re-evaluate their strategy.
While producing “specialty eggs” — organic or cage-free — may still be their long-term plan, over the short term, egg producers are more likely to respond to actual increases in demand, he said.
For cage-free production to keep rising, major buyers will need to live up to their commitments and consumers must show an appetite for more expensive cage-free eggs as well, Amen said.
Converting existing laying houses and building new ones to be cage-free is conservatively estimated to cost the egg industry $10 billion, he said. “Ultimately, those costs will be passed on to the consumer.”