How to destroy an industry?
In the International Egg Commission International Egg Market Annual Review a distinguished economist and consultant to the IEC Professor Hans-Wilhelm Windhorst documents the effect of a ban on cages in the EU. What has occurred is an obvious application of The Law of Unintentional Consequences. During the period 2002 through 2007, egg production in the EU fell by 2.5%. This aggregate figure disguises the fact that the loss in domestic output was considerably higher in countries that followed directive 1999/74/EC in advance of the 2012 implementation date.
According to Dr. Windhorst the problem has been exacerbated by a number of prominent supermarket chains in Germany refusing to stock eggs derived from caged flocks. In Germany and Austria all cages will be banned from 2010, hastening the demise of conventional flocks. The German Bundesrat (legislature) has waivered over whether to allow or ban colony cages. Farmers who invested in this system in anticipation of the ban on conventional cages are now faced with being excluded from major markets and will not in any event recover a premium for their additional costs. It is anticipated that by the end of 2009 the total number of hens in Germany will be reduced by 6 to 7 million.
The cost of replacing conventional cages with non-confined systems in the EU is estimated to be $10 billion. Raising capital to replace egg production facilities is regarded as unlikely given the current restrictions on loan capital to agricultural enterprises. The longer the delay in deciding on alternative systems, the greater will be the escalation in cost and the eventual impact on profitability.
Estimates of the differential in production cost between eggs derived from conventional cages and a non-confined barn system depends on individual perspective or bias. Figures ranging from 5% to 20% in incremental costs have been published. There is little substantiation of either the direct production costs (including fixed and variable components) or the indirect costs involved in purchase of additional land and environmental impact of less sustainable systems. It is axiomatic that if the cost of a commodity increases demand will be reduced, especially if substitute products are available.
Are EU consumers to be deprived of eggs based on the misplaced perceptions of flock wellbeing by extremists intent on destroying established intensive livestock production? Will EU consumers be supplied with eggs from countries with a lower cost of production from cages or cage free systems or even eggs labeled as "cage free or free range" but derived from conventional cages? Either way consumers will be deprived of the nutritional value of eggs or will be required to pay more for their purchases.
We should carefully monitor events in the "old world" and be careful not to emulate the folly of the EU in our industry.
According to Dr. Windhorst the problem has been exacerbated by a number of prominent supermarket chains in Germany refusing to stock eggs derived from caged flocks. In Germany and Austria all cages will be banned from 2010, hastening the demise of conventional flocks. The German Bundesrat (legislature) has waivered over whether to allow or ban colony cages. Farmers who invested in this system in anticipation of the ban on conventional cages are now faced with being excluded from major markets and will not in any event recover a premium for their additional costs. It is anticipated that by the end of 2009 the total number of hens in Germany will be reduced by 6 to 7 million.
The cost of replacing conventional cages with non-confined systems in the EU is estimated to be $10 billion. Raising capital to replace egg production facilities is regarded as unlikely given the current restrictions on loan capital to agricultural enterprises. The longer the delay in deciding on alternative systems, the greater will be the escalation in cost and the eventual impact on profitability.
Estimates of the differential in production cost between eggs derived from conventional cages and a non-confined barn system depends on individual perspective or bias. Figures ranging from 5% to 20% in incremental costs have been published. There is little substantiation of either the direct production costs (including fixed and variable components) or the indirect costs involved in purchase of additional land and environmental impact of less sustainable systems. It is axiomatic that if the cost of a commodity increases demand will be reduced, especially if substitute products are available.
Are EU consumers to be deprived of eggs based on the misplaced perceptions of flock wellbeing by extremists intent on destroying established intensive livestock production? Will EU consumers be supplied with eggs from countries with a lower cost of production from cages or cage free systems or even eggs labeled as "cage free or free range" but derived from conventional cages? Either way consumers will be deprived of the nutritional value of eggs or will be required to pay more for their purchases.
We should carefully monitor events in the "old world" and be careful not to emulate the folly of the EU in our industry.
Comment
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Comment by Marty on January 2, 2010 at 4:05am -
Dear Nancy,
Happy new year and thank you for your response to my rather long thread posted on 29/12/2009. I fully agree with you about free choice and the importance of eggs as animal protein, especially for the poorer classes. My quote regarding cage egg probelms and children has been reported frequently in various journals i have read and there seems to be an intollerance to these eggs on behalf of children, not allergy. Numbers are quite high, but like all scientific evidence needs further examination prior to coming to more definite conclusions.
This though does raise an issue, cage eggs are cheap, so from a certain view point if you are poor and have children, in theory you cannot give eggs to them and hence either you pay a higher price for free range or you go without.
Packaging in the EU vaires betwen country and country. For example in Italy egg packaging is commonly six, but the four package is also popular and some years back i got a request from a retail outlet if we could provide packaging for single people i.e. 2 eggs per pack! The company i worked for at the time bowed their head and accomodated the request, needless to say, it was a failure. Price also varies depending on retial outlet where you buy cage, free range and organic eggs. However the price differential is not double in all cases between cage and fre range, but can be pending where you buy. Over here some farmers have marketed their cage eggs as being fed only with natural grains and this has been quiet a success, on the other hand some retial outlets have sold free range eggs in and close to cage egg prices, so that they can be competitive and sell more, this has also been popular and is commonly adopted by discount stores.
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Comment by Nancy Novak on January 2, 2010 at 12:06am -
I have never been to Europe so I can't respond to the economic in Europe. I am not sure what the price difference there is between Free range and caged bird eggs. Here in the U.S. the cost is over twice the cost for 12 eggs. Eggs have always provided a cheap form of quality animal protein: with the projected cost increase: a lot of middle class and impoverished people might be without any form of animal protein. I am all for a free market, but let me as a consumer have the right to choose. I know for a fact that vaccines are made with caged chicken eggs so I don't know of all the science you are using for your child reactions to caged vs. non caged. All I ask is that we be allowed the choice. If in fact the consumers prefer cage free eggs let them buy them and put the caged eggs out of business or make them change their practice. However I think society does a great diservice to its people when they take away free choice.
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Comment by Marty on December 29, 2009 at 12:03am
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Dear Dr. Shane, an interesting article indeed and you raise quite a few matters for debate. Here in the EU farmers have known for years what was going to happen regarding cages, but as always have delayed any proactive intervention so when the time comes, they can take to the streets ( see what they have done in terms of milk), put pressure on the political system and get a release from the rather generous EU CAP. Market demand is the driver and it is obvious that cages are not tolerable any more by many consumers for a whole series of reasons, one of which is quality. It is interesting to note that there have been many cases in recent years of child intolerance to battery eggs, but strangely no sign of intolerance to free range and / or organic eggs. Further from a purely economic perspective, and i consider my views in the matter from an economic perspective that also considers environmental and social impact i.e. environmental economics, the cage system has long term economic costs that are burdened by society at large, but in the short term favour costs reductions to farmers, simply because the impact on the environment and on society is forgone so that all have in society have to pay the price. Cage systems have long been found to be unsustainable in simple economic terms and should be banned outright, why should a farmer’s profit jeopardize future environmental and healthcare benefits, turning them into costs and hence raise tax expenditure? Why should i pay more taxes to eat eggs that are not in tune with what i demand from nature? I have worked and spent some of my life in the EU egg industry and what I have seen is a mixed bag of beans, however the majority of cases I have seen are simple and pure piracy: dubious feed quality, fraudulent labels, use and misuse of illegal immigrant slave labour...the motto being cut costs at all costs...I think its high time that producers pull there socks up and really become market oriented, as well as wholesalers and retailers...in terms of total quality there is no comparison between cage and free range egg and I am not an extremist and I do not think my old mum is either ( Note my mum’s idol was and is former UK PM Margaret Thatcher!) and she only buys free range...is she an extremist?
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Comment by Nancy Novak on December 28, 2009 at 9:41pm
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I couldn't agree with you more. Hopefully, CA won't fall prey to the extremist, however it looks that way. It is time that logic and science rule animal ag and not emotion. I know the groups wanting to pass Prop 2 kept saying that eggs would only go up .01 a dozen, that isn't true. People already pay over $1 more a dozen for "range eggs"
People we need to regain our common sense.
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