The overlap of cage-free pledges and housing laws are causing concerns for the U.S. egg industry due to the targeted number of layers needed and the amount of money required to get there. Financially, this has producers questioning what their next steps should be.
The details of the economic concern were the focus of Egg Industry Center Business Analyst Maro Ibarburu’s presentation at the 2022 Multi-State Poultry Feeding and Nutrition Conference and Danisco Animal Nutrition & Health’s Technical Symposium.
“Normally, when a company makes a huge investment in something new, it is because they will have lower operating costs,” stated Ibarburu. However, this is normally not the case with cage-free production.
The operating costs associated with cage-free housing have to do with inefficiencies in the system such as the need for more labor, higher feed conversion due to increased bird activity, more disease challenges since birds are exposed to feces in the scratch area and higher mortality rates, which leads to reduced egg production, explained Ibarburu.
“It's really critical to continue working towards improving these inefficiencies,” he stated. “For me, the only way this investment makes sense is if we get a price for cage-free eggs that is higher than conventional eggs.”
However, the industry is not confident that consumers will always choose to pay a higher price for cage-free eggs.
“When faced with two different price points, consumers tend to choose the less expensive one,” explained Ibarburu. If supermarkets cannot sell cage-free eggs at a higher price, they will not have enough money to pay their suppliers for the product.
In supermarkets, multiple egg options at various price points are offered, and consumers must make a choice concerning which one to purchase. Because there is usually one egg option at a restaurant, the chance of cage-free pledge completion for the sector is greater.
Additionally, there is a chance that retailers will reverse their cage-free pledges and continue purchasing conventional eggs or extend their pledges to allow more time for conversion, Ibarburu explained.
“Producers should think about if their customers will fulfill their cage-free pledges and take that into account when deciding whether to convert or not.”
Timing of the conversion can cause potential issues, as well. If a producer transitions to cage-free housing too early, they risk operating with an excess supply of cage-free eggs for an unknown time period. If a producer transitions too late, they risk not being able to supply existing customers with cage-free eggs by their pledge dates.
Previously, the niche market for smaller producers was cage free. Now, the bigger producers are competing with them, and usually have a lower average cost per unit due to the amount of eggs they can produce, making them more profitable.
“These small producers have to be very efficient in order to compete with the larger producers, or they might need to find a new niche,” he stated.