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“Freaked Out” Article from CNBC Deceptive

  

Mar 31, 2017

On March 23rd, Vanessa Wong posted an article on CNBC dealing with the intended transition to cage-free production by the U.S. shell egg-production industry.

The heading “Egg Makers are Freaked Out by the Cage-Free Future” is provocative intended to capture eyeballs but was entirely misleading.

  

There is no better refutation of the heading than the comments by Dolph Baker, Chairman, president and CEO of Cal-Maine Foods appended to the results of the third quarter of fiscal 2017 released on March 27th.  Baker noted, “We have continued to make significant investments across our operations to meet anticipated demand for cage-free eggs, as food service providers, national restaurant chains and major retailers, including our largest customers, have stated objectives to exclusively offer cage-free eggs by future specified dates.

While we expect the multi-year conversion to cage-free production will present new challenges and higher costs for our industry, we believe it also provides additional market opportunities.  We are working with our customers to facilitate a smooth transition to meet this demand.” These measured and purposeful comments by Baker and the reality of actual projects belie the impression created by the heading of the CNBC posting.

The second largest U.S. egg producer, Rose Acre Farms has embarked on an extensive program of conversions including joint ventures. Across the Midwest family-owned enterprises including Weaver Brothers, Cooper Farms, Konos, and many others have been investing in cage-free facilities despite negative profitability prevailing during 2016. On the Pacific Coast, Central Valley Farms is installing houses and equipment to hold up to 4 million hens.

Wong also comments, “Life is miserable for hens in battery cages and “opposition to the system became a core concern of the animal rights movement.”  One can dispute the characterization of a “miserable life” for hens since this is a subjective anthropomorphic evaluation.  If hens were in fact “miserable” they would not peak as a flock at over 93 percent and maintain production through the first cycle, to be either depleted or molted at a weekly production in excess of 80 percent. 

Irrespective of the validity of criticism of confined egg production, the industry is committed to transition from conventional cages to alternative systems with currently twelve percent of the nominal U.S. hen population of 310 million hens in alternatives to cages. At least an additional ten percent of capacity is in the process of conversion.

Wong is however correct in that there is uncertainty as to the willingness of consumers to pay more for their eggs based on housing system when offered cheaper eggs from conventional cages.  The Humane Society of the United States was the prime mover in bamboozling the voters of California to accept Proposition #2 in November 2008.  The net result of the legislation by ballot was an approximately 50 to 70 percent increase in cost to all consumers in California irrespective of housing system. 

This increase which can be referred to as the “Pacelle Tax” has not materially changed the status of hens since introduction of Proposition #2 in 2012 but the ballot measure has certainly increased cost.  The resulting rise in price is the manifestation of the willingness of those who, under the guise of “welfare” are intent on eliminating intensive livestock production while generating funds for salaries, benefits, and revenue expended on lobbying, fund-raising and litigation. 

It is an unfortunate reality that organized animal welfare advocacy groups appear to have assumed the right to transfer money from the budgets of consumers to their own self-serving coffers, indirectly benefitting the media and politicians.

The advent of cage-free production will inevitably result in the demise of a large number of small-scale farmers and will ultimately favor companies that will grow by acquisition.  The capital requirements for conversion of at least the shell egg component of the U.S. egg production industry amounts to over $10 billion at 2017 values. 

It is only large companies with integrated production and marketing that are in a position to raise loans or sell equity to finance conversion.  It is entirely possible that the industry will in fact have a lower aggregate production by 2020 and retail prices may even approximate the levels in Europe and Canada where there is far less competition and retail prices approximate twice the present U.S. value for generic white eggs.

As with all EGG-CITE Editorials and Commentaries, responsible rebuttals or contrary views are welcome and will be posted subject to acceptable logic and content.

Simon