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Egg producers skittish about cage-free investments

Annie Baxter Jul 7, 2016
Various companies are going cage-free, but premium eggs aren't selling well. nebarnix/Flickr

Egg producers skittish about cage-free investments

Annie Baxter Jul 7, 2016
Various companies are going cage-free, but premium eggs aren't selling well. nebarnix/Flickr

Over the past year, many big food companies like Wal-Mart, General Mills and McDonald’s have pledged to source their eggs from cage-free hens in coming years.

That has put a lot of pressure on egg producers to ditch their cages, which means higher costs. New equipment is expensive, and labor and feed costs spike, too.  

Despite the wave of companies going cage-free, those premium eggs simply are not selling well. And that’s making producers hesitate to invest in cage-free systems.

The situation is a reversal from what analysts observed last year following an outbreak of avian flu, which cost producers more than 30 million egg-laying birds. An egg shortage ensued, and prices shot up — so much so that the price difference narrowed between generic eggs and the usually much pricier cage-free ones.

“There were actually times during last year, during the peak price points, that cage-free eggs were actually cheaper at retail than the generic egg was,” said Brian Moscogiuri, an egg market analyst at Urner Barry.

Moscogiuri said as a result, many consumers temporarily traded up to cage-free eggs. 

But flocks have rebounded significantly since the bird flu outbreak. And food manufacturers have tweaked their recipes to use fewer eggs or egg substitutes, which lowered demand for eggs.

Now conventional egg prices are down considerably, making cage-free eggs pricey by comparison once again. Moscogiuri said consumers have taken note. 

“Now they go into a store and you can buy a couple dozen in some cases for under a buck,” he said. “Are you going to still pay $2-$3 for cage free eggs? The cage-free egg sales are suffering.” 

The changes have prompted some producers to delay or even cancel their orders for cage-free equipment from Big Dutchman, a leading provider of cage-free housing.

“If their customers are not taking the cage-free eggs, they simply have to back away from that,” said Terry Pollard, senior vice president of egg systems at Big Dutchman. “Just running a good business is going to tell you to not produce those types of eggs in large numbers, because you’re going to lose money.”

Pollard said the low demand for cage-free eggs means some producers are having to turn to the generic egg market to get rid of their cage-free inventory, selling those premium eggs in generic egg cartons at a steep discount.

The situation makes Pollard and others in the industry question how much consumer demand there really is for cage-free eggs.

On a recent trip to Kowalski’s, a grocery store in St. Paul, Minnesota, shopper Amy Toonen said she only buys organic or cage-free eggs. She said her 4-year-old son goes to a daycare that keeps chickens roaming free in a yard, and she wants to buy eggs from hens raised in a similar fashion. 

That means ignoring the price gap between generic and cage-free eggs. “I don’t even look,” she said. “I don’t want to know.”

But shopper Betsy Reveal spurned the $4 cage-free eggs, opting instead for a dozen conventional eggs for about $1.

“I’m much more price-conscious than I am anything else,” she said.

How many other consumers also prefer the cheaper option? That’s a big question for egg producers, even as many big food companies aim to go all in on cage-free.

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