Editorial

      

Will the Cage-Free Declarations Made by QSRs and Stores Become Reality?

May 5, 2017

    

The Director of Animal Welfare for the UEP commented on “commitments” in the December 22nd edition of the United Egg Producers’ weekly newsletter. The article maintains that many cage-free commitments announced in 2015 and 2016 were “made under pressure”. 

It is acknowledged that there was a lemming-like rush to concede to the demands of welfare activists and not be seen as lagging in the race to eliminate conventional cages. Many of the companies leading the charge were either subsidiaries or affiliates of EU or multinational restaurant chains or food manufacturers, with an intense concern over brand image  and experience in the transition from cages to cage-free egg production. 

 

The tone of the UEP article appears to question whether customers will follow through with their commitments to cage-free housing citing “retailers were under so much pressure but they made announcements before they were able to consider all the possible consequences – supply and demand issues, customer dissatisfaction and implications.”

This sentiment echoes much of what is being discussed in the industry and will obviously be a topic of concern at the IPPE in 2017.  It is clear that progressive egg-production companies and their customers are committed to converting from conventional cage housing to alternative systems over the ten-year period established in late 2015.  Not only are members of the Food Marketing Institute, the National Restaurant Association and the National Council for Chain Restaurants requiring conversion to cage-free production they are in fact expecting proof of conversion with proportional progress over the proximal ten-year period.

We should remember the tremendous disruption which occurred in the EU when January 1, 2012 rolled around and many producers on the Continent, especially in southern nations bordering the Mediterranean failed to make the necessary investment. During the notice period there was a presumption that an extension would be granted.  In contrast producers in the UK and Germany made the required conversions and were fully compliant on January 1st 2012.

Effectively the train has left the station.  The U.S. industry is inexorably moving towards alternatives to conventional cages.  There is sufficient knowledge and technology to implement aviary systems and slatted-floor or litter-floor barns. These systems will result in a higher cost of production and a correspondingly greater markup than conventional eggs. At the present time alternative systems housing 18 percent of the National flock producing shell eggs, supplies organic, “cage-free” and other specialty presentations.

Any producer who believes that the trend towards cage-free production is a passing fad will be disillusioned.  The imperative of re-housing from conventional cages will result in some operations, especially those operating under contract to cease production. Small and intermediate-sized farms will be purchased and it is expected that mergers will occur to achieve economies of scale and market strength. Unquestionably the U.S. egg-production industry will have fewer participants and different owners in 2025 than it did in 2015, mirroring the consolidation in the broiler and turkey industries from 1990 onwards.

Consumers will have to accept approximately 40 to 50 percent increases in the price of generic eggs at the shelf. Increases will be accepted as food inflation becomes a reality within a few years.  Consumers in California have been paying at least 50 cents per dozen more for eggs as a result of the California Proposition #2 Pacelle Tax, without an appreciable decline in the number of eggs sold, although there are now fewer hens in California than there were in 2014.

The extract from the UEP article States “this year I have learned that a commitment may not be a promise or guarantee; indeed, it may only be a temporary solution,” This is false hope. Progressive companies are moving towards the goal of complete conversion, and are prioritizing their projects.  There is a natural reluctance to commit capital expenditure from $35 to $45 per hen for new or refurbished facilities based on prevailing low wholesale prices but this is a temporary situation. Even a ten-month period of losses should not materially disrupt the conversion of our industry from conventional cages to alternative systems over a ten-year period.