Eggs for sale at elevated prices in New York on January 21, 2023.
Fatih Aktas/Anadolu Agency via Getty Images)
Egg prices rose to historically high levels in 2022 – and one group claims the trend is down to something more nefarious than simple economics.
For all egg types, consumers saw a 60% increase in average prices over the past year — one of the largest percentage increases of any U.S. goods or service, according to the Consumer Price Index, a measure of inflation.
Large Grade A eggs cost an average of $4.25 per dozen in December — up 138% from $1.79 a year earlier, according to data from the US Bureau of Labor Statistics.
The industry narrative has largely focused on a historic outbreak of bird flu – which has claimed the lives of tens of millions of laying hens – as the main reason for these higher prices.
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But Farm Action, a farmer-led advocacy group, claims the “real culprit” is a “collusion scheme” between major egg producers to set and gouge prices, the group said in a letter to the Federal Trade Commission.
This has helped producers “reap outrageous gains of up to 40%,” according to the letter issued Thursday, which urged FTC Chairwoman Lina Khan to scout for potential profit and “foul play.”
An FTC spokesman declined to comment based on a general agency policy regarding letters, petitions or complaints received from third parties.
But food economists are skeptical that an investigation would uncover wrongdoing.
“I don’t think we’ve seen anything to make us think anything other than normal economics is happening there,” said Amy Smith, vice president at Advanced Economic Solutions.
“I think it was just a perfect storm of things coming together,” she added.
Economy or profiteering?
The US suffered the deadliest bird flu outbreak in history in 2022.
About 58 million birds in 47 states have died from “highly pathogenic avian influenza,” according to the US Department of Agriculture. The previous record was set in 2015 when 50.5 million birds died.
The contagious and deadly disease affects many species of birds, including laying hens.
According to USDA data released Friday, the average number of “layers” in December was down 5% from a year earlier, to a total of 374 million birds. Total production of table eggs fell 6.6% to 652.2 million during the same period, the data showed.
Those industry numbers don’t seem consistent with a double- or triple-digit percentage increase in egg prices over the past year, Farm Action claims.
“Contrary to industry narratives, the egg price hike wasn’t ‘force majeure’ — it was pure profiteering,” the group said.
For example, profits at Cal-Maine Foods — the nation’s largest egg producer and an industry leader — “rose every quarter of the year in step with rising egg prices,” Farm Action claimed. The company, for example, reported a tenfold increase in earnings over the 26-week period ended Nov. 26, Farm Action said.
While other major producers don’t publicly report such information, “Cal-Maine’s willingness to increase its prices — and profit margins — to such unprecedented levels suggests foul play,” Farm Action wrote.
Max Bowman, Cal-Maine’s vice president and chief financial officer, dismissed the allegations, calling the US egg market “very competitive and highly volatile even under normal circumstances.”
The significant impact of bird flu on chicken supply has been the most notable driver, while egg demand has remained strong, Bowman said in a written statement.
Expenditure on feed, labour, fuel and packaging has also “increased significantly” leading to higher overall production costs and ultimately higher wholesale and retail egg prices, he said. Cal-Maine also doesn’t sell eggs directly to consumers or set retail prices, Bowman added.
A “spiking effect” of bird flu on egg prices
Charlie Triballeau | AFP | Getty Images
Cal-Maine’s statement appears to align with the general view of food economists reached by CNBC.
“We have never seen [these prices]’ said Angel Rubio, senior analyst at Urner Barry, a market research firm specializing in wholesale grocery. “But we didn’t see it either [avian flu] Outbreaks month after month after month like this.”
In economics, markets are almost never perfectly “elastic,” Rubio said. In this case, this means that there is usually not a 1:1 relationship between egg or chicken supply and egg prices.
During the earlier bird flu outbreak in 2015, wholesale egg prices rose on average by about 6% to 8% for every 1% drop in laying hen numbers, Urner Barry found in a recent analysis.
According to Urner Barry, around 42.5 million laying hens (about 13%) have died since the outbreak in 2022. Prices have risen about 15% on average for every 1% decrease in egg layers during this period, Rubio said.
The price market is coming down already after the holidays.
AmySmith
Vice President at Advanced Economic Solutions
The momentum is largely due to a “compounding effect” of demand, Rubio said.
For example, suppose a large supermarket chain has a contract to buy eggs from a producer at a wholesale price of $1 per dozen. But this egg supplier then suffers an outbreak of bird flu. All deliveries from this source will be temporarily taken offline. So the supermarket chain has to source eggs from another supplier – increasing demand for the other supplier’s eggs, which could end up selling eggs to the supermarket for $1.05 or more per dozen.
Once a farm suffers a flu outbreak, it likely won’t produce eggs for at least six months, Rubio said.
This dynamic takes place simultaneously in several farms and supermarkets. Avian flu also generally disappears in the summer, but outbreaks started again last fall and went into the peak demand season around the winter holidays, Rubio said.
Good news ahead?
Easter is usually another time of high seasonal demand for eggs.
Fj Jimenez | moment | Getty Images
However, some good news for consumers could lie ahead, economists said.
Wholesale egg prices fell to about $3.40 a dozen on Friday from a peak of $5.46 a dozen on Dec. 23, Rubio said. (Current wholesale prices are still nearly three times “normal” levels, Rubio said.)
On average, it takes about four weeks for wholesale price movements to be reflected in the retail market for consumers, Rubio said.
“The price market is already collapsing after the holiday,” said Smith of Advanced Economic Solutions.
The Easter holiday is usually another time of high seasonal demand, meaning prices can remain elevated through March, assuming the bird flu outbreak doesn’t worsen, economists said.