Egg Supplies (and Prices) Scrambled by California Regulation

On January 1st, California’s Proposition 2 and Assembly Bill 1437 related to egg production go into effect. The regulations mandate that egg-laying hens be given adequate space to lie down, stand up, extend their wings, and turn around. 116 square inches—the approximate footprint of a MacBook Air—is apparently adequate to do so, ~75% greater than the current standard which provides for the ground space equivalent of an iPad. The regulation only applies to shell eggs sold in California and does not apply to liquid eggs or egg products.

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So what? Research conducted at California Polytechnic State University (click HERE) suggests that the new regulations imply a 40% reduction in birds within existing facilities (click HERE). Given that California imports more than 30% of its shell eggs, the regulations are likely going to impact the entire US egg industry. According to Bloomberg (click HERE), there are approximately 303 million egg-supplying hens in the United States. Experts estimate that at least 10 million hens will need to be culled immediately, generating a large and powerful supply shock. If every state adopts comparable regulations and if every facility is like those at Cal Poly’s Poultry Center (granted, these are two VERY BIG “ifs”), the industry would need to cull more than 100 million hens. Yikes!

On the demand side, animal protein consumption continues to boom (see my comment “King Morocco” HERE), making eggs an attractive alternative to increasingly expensive beef, pork and even chicken. In emerging markets, egg consumption has increased sevenfold over the past 40 years. The Egg Industry Center estimates that Americans will consume 266 eggs per capita next year, up from ~261 this year. Projections for emerging market demand indicate continued growth.

While higher egg prices seem virtually certain, there is the possibility that the egg industry opts to simply redirect supply to states other than California, creating a supply surplus and lower prices for consumers in other states. Or what if liquid eggs become the norm in California, allowing producers to avoid the costly regulations?  And even if prices do rise suddenly, won’t the industry quickly adjust to meet constantly rising demand?  Pardon the pun, but it’s not clear that price dynamics are what they’re cracked up to be!

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