IT’S BECOMING too expensive for some farmers to produce eggs as costs soar due to everything from bird flu to cage-free mandates — and that’s paving the way for giant companies to get even bigger.
Deadly avian influenza is spreading across the US and is hitting commercial egg farms, forcing farmers to kill millions of hens. Feeding the birds is also pricey, with grain costs around decade-highs, partly due to supply chain chaos caused by Russia’s invasion of Ukraine. Meanwhile, the US egg industry is making a historic shift toward producing mostly cage-free eggs, a move that’s better for chickens but bad for small farmers who can’t afford to make the costly transition.
Ironically, the higher costs could be a positive for Cal-Maine Foods, Inc., the biggest US producer, which has 20% of the market. It’s been on an acquisition spree in recent years, and all signs point to more consolidation in the fractured egg market. The company said last week that it’s putting $82 million into expanding its cage-free operations, bringing the egg giant’s total investment in cage-free to about $625 million.
The signs are not so great, on the other hand, for a small farmer like Eli Berkowitz.
Berkowitz has been in the egg business for more than six decades, but he’ll have to close shop within four years rather than pay $1.8 million to convert his farm in Foster, Rhode Island, of 45,000 hens to a cage-free operation, thanks to a recent state law that require the transition by 2026.
“Small guys like me, we’re going to get squeezed out,” said Berkowitz, who laments that he won’t be able to pass the business down to his son.
The trend toward consolidation highlights a tension: Consumers are demanding farmers raise animals using more humane production methods. Yet as costs rise, it’s big, industrial producers who are able to step in to supply that demand, and the emergence of giant egg farms brings its own issues. Over in the chicken, beef and pork world, ‘Big Meat’ is coming increasingly under scrutiny, with the Biden administration taking companies like Tyson Foods, Inc. to task on antitrust issues, including criminal probes for price-fixing.
The behemoths of animal agriculture are also being blamed for inflation, with democrats criticizing meat companies for exploiting their domination of processing capacity to gain record profits amid recent supply-chain disruptions. Four companies control 85% of beef processing and 54% of the poultry market.
Now, egg consolidation is set to speed up, especially with the transition to cage-free going at full tilt. Most hens live in the confines of what are called battery cages, where they have 67 square inches of room, about the size of a sheet of paper. In cage-free production, hens are held in indoor spaces where they can turn around and stretch their wings, as well as perch, scratch, nest and take dust baths. The number of operations has shot up about 40% in the last year, comprising roughly 34% of the total flock. That’s up from about 12% just five years ago, said Karyn Rispoli, egg market reporter at Urner Barry.
In January, a law went into effect in California — which consumes about 12% of the eggs in the US — that prohibits eggs from caged hens being sold in the state. Eight other states are following suit.
There’s a switch “to a much more commercialized industry of egg companies that are either publicly traded, or they have broad management pools,” said John Brunnquell, chief executive officer of Egg Innovations, one of the biggest US producers of free-range eggs. “Middle class producers that had three to five million chickens, a lot of those will be casualties.”
Private equity firms have begun to step in to help capitalize some farms, but without that, small-scale growers like Berkowitz would have to go into debt to make the switch. Then, it would take at least a year and a half to convert the facilities, including a remodel and installation of new equipment. Without any place to house his flock, Berkowitz would have to sell off each bird during that time — and lose half of his revenue stream in the process.
“I don’t know how many banks would be willing to lend me over a million dollars,” he said. “I’ll never be able to pay it back.”
Meanwhile, Cal-Maine’s pouring hundreds of millions into becoming the leading cage-free producer. Max Bowman, chief financial officer, said the industry as a whole needs 60% of the flock to be cage-free by 2025 in order to meet the growing demand, which will cost over $6 billion. That’ll be a tough task, especially as the pandemic has put further pressure on labor and logistics costs, he said.
But the march toward cage-free eggs — and consolidation — will continue. Josh Balk, vice-president of Farm Animal Protection at the Humane Society, said that the cage-free is what more and more consumers will want.
“It certainly costs money to shift to cage-free,” Balk said. “What is more economically painful is to produce a product that no one wants. And that’s what eggs produced from caged chickens will be in the coming years.” — Bloomberg
