California’s egg producers to take profit hit from Prop 12

The economic impact of cage-free egg state mandates, company commitments, supply chain challenges, COVID-19 and workforce issues have been, to date, not been fully explored. However, a study conducted by the NC State economists, Dr. Tom Vukina and Eve Oh, gives some answers.

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Egg nest of hundred dollar bills
Egg nest of hundred dollar bills
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California’s egg industry can expect to see their profits decline by almost 18% due to implementation of Proposition 12. Now that the cage-free law has gone into effect, the average retail cage-free egg price in the state is expected to reach $5.12 per dozen.

Compared to the average cage-free egg price before the ban, this represents a decrease of 3.4%. Compared to the price of previously conventionally produced eggs, this represents an increase of 65%, according to a study from North Carolina State University (NC State)

The economic impact of cage-free egg state mandates, company commitments, supply chain challenges, COVID-19 and workforce issues have, to date, not been fully explored. However, a study conducted by the NC State economists, Dr. Tom Vukina and Eve Oh, gives some answers. 

‘The Price of Cage-Free Eggs: Social Cost of Proposition 12 in California,’ published in the American Journal of Agricultural Economics, sought to “to estimate the welfare effects of Proposition 12 in a partial equilibrium setup where both the supply and the demand side of the market are simultaneously modeled.” 

Additional results

The study found that the state-level expected annual welfare loss to households will amount to $72 million and the industry welfare loss at the retail level is projected at 17.6% of their original estimated profits.

After estimating the demand model, Vukina’s team found that California’s consumers prefer cage-free eggs. However, the average marginal willingness to pay for all households is quite small and amounts to only 5.9 cents per package. Based on the counter-factual simulation, the economists were able to predict that the new marginal cost of originally conventional eggs will increase by 56.5% on average, contributing to industry’s lower profitability. 

The study also found cage-egg consumption is favored by specific groups including those with a higher level of income and education, females and younger households. 

In 2015-2017, households with a higher annual income ($100K salary) consumed 15.72% cage-free eggs, while households earning $25K - $50K annually consumed 5.54%. The percentage of cage-free egg consumption of total egg consumption in younger households was more than double compared to older households. 

Consequently, the burden of regulation is disproportionately levied on poorer and older households. For example, the average welfare loss measured in consumer surplus for households with income between $25-50K is 7.68 cents per dozen eggs, per trip to the store, whereas the welfare loss for households with income over $100K is only $4.7 cents.

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