Selecting a strategy for coping with Proposition 2
Egg producers inside, outside California weigh options for 2015, but legal battles may keep us in suspense until after January 1
The Farm Bill was signed into law in the first week of February without either the Egg Bill or King amendment attached. But now we have the Missouri attorney general's lawsuit to block the state of California from imposing Proposition 2-like standards of production on shell eggs brought into the state for sale.
Options for California producers
Some animal rights groups have held the position all along that Proposition 2's language really intended for hens to be raised cage-free. There has always been the risk that some animal rights group or individual would sue an egg producer who maintained hens in cages on the grounds that the housing doesn't meet Proposition 2. The state has now established standards for how much space a bird needs to be given in a cage depending on how many other birds are in the cage and this is intended to satisfy Proposition 2. I think there is still a chance that these standards will be challenged in court.
Until the Missouri lawsuit is decided, California egg producers are at risk of operating in a marketplace where they are required to provide hens more space, and thus incur more cost per egg, than their out-of-state competitors. It can be argued that converting as much production as is economically feasible to cage-free would differentiate a California producer's egg from out-of-state cage-produced eggs.
Besides the icy weather, the No. 1 topic of conversation at IPPE in Atlanta recently was Proposition 2 and the future of U.S. egg production. When I spoke with proponents of the Missouri lawsuit and the King amendment and asked about what impact they thought this might have on California egg producers, I was reminded of the famous line from the movie "The Godfather": "It's not personal, it's just business."
Given the Missouri lawsuit, perhaps the best play for California egg producers is to mount a pro-Proposition 2 public relations campaign with its customers. This campaign should be targeted at getting major egg buyers, both food service and retail, in California to say they will only buy Proposition 2-compliant eggs.
In addition, California egg producers should, where possible, engage with animal welfare groups to get their endorsement for Proposition 2-compliant eggs. This effort really needs to start now and not wait for the outcome of the Missouri lawsuit.
Because of the bird density reductions resulting from the Proposition 2 housing standards, it is likely that California egg production will meet less than half of the state's shell egg needs after January 1, 2015. Given this fact, California producers only need to convince companies that represent about half of the egg demand in the state to agree to only buy Proposition 2-compliant eggs. Retailers in the U.K., Germany and the Netherlands have virtually driven egg producers out of cages in those countries. California egg producers might not like taking this approach, but they might not have a choice. After all, "It isn't personal, it's just business."
Options for the rest of the US
Companies that are already serving the California market might want to consider joining California egg producers' efforts to convince egg buyers that they should only buy Proposition 2-compliant eggs. In doing this, they may be able to maintain a market for their eggs that is different from generic cage-produced eggs sold in other states. Another option for these producers might to be to convert as much of their production as is economically feasible to cage-free.
Probably the most popular strategy for the rest of the U.S. seems to be sitting back and waiting for the dust to settle. If your operation has not sold to California on a routine basis in the past, this may be the smart play. But, if your operation is offline and/or has just a few hundred thousand birds, this might be the time to take the plunge and differentiate your operation by going cage-free.
Change + Uncertainty = Opportunity
There are big changes on the way in the U.S. egg market; California is just the first battleground. A look at what happened in Europe during the last decade is instructive. Conventional cages were the norm in Europe; now the U.K. is predominantly free-range; Germany and the Netherlands are predominantly cage-free; and France and Spain switched to enriched cages. But just as important as the changes are the facts that not every farm converted, and not every company is still around. There has been consolidation, operations have folded, and new ones have opened. Opportunity is going to come knocking, regardless of whether you want it to, so be ready.