High egg prices due to ‘collusion scheme’ with suppliers, according to groups

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Eggs for sale at high prices in New York on January 21, 2023.

Fatih Aktas/Anadolu Group via Getty Images)

Egg prices soared to record highs in 2022 – and one group claims the move is due to something more serious than simple economics.

Across all types of eggs, consumers saw average prices jump 60% last year — among the largest percentage increases of any good or service in the US, according to the consumer price index, a measure of inflation.

Large, Grade A eggs cost $4.25 per dozen in December, on average — a 138% increase from $1.79 a year earlier, according to U.S. Bureau of Labor Statistics data.

Industry commentary has largely focused on a historic outbreak of bird flu – which has killed tens of millions of egg-laying hens – as the main driver of these high prices. .

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But Farm Action, a farmer-led advocacy group, says the “real culprit” is a “collusive scheme” among major egg producers to fix and fix prices, it said. ‘ group in a letter to the Federal Trade Commission.

By doing so, he has helped producers “deliver outrageous profits reaching as high as 40%,” according to the letter, published Thursday, which calls on FTC Chairman Lina Khan to investigate for possible profit and “cheat play”.

An FTC spokeswoman declined to comment because of general agency policy regarding letters, petitions or complaints received from third parties.

Here's why eggs cost so much

However, food economists are skeptical that an investigation would uncover wrongdoing.

“I don’t think we’ve seen anything that makes us think there’s anything other than normal economics going on right now,” said Amy Smith, vice president at Advanced Economic Solutions.

“I think it was just kind of a perfect storm of stuff that came together,” she said.

Economics or ‘profit’?

The US suffered the deadliest bird flu outbreak in history in 2022.

“Highly pathogenic avian influenza” killed an estimated 58 million birds in 47 states, according to the US Department of Agriculture. The previous record was set in 2015, when 50.5 million birds died.

The disease, which is contagious and fatal, affects many types of birds, including laying hens.

In December, the average number of “layers” was down 5% from a year earlier, at a total of 374 million birds, according to USDA data released Friday. Total production of table eggs fell 6.6% over the same period, to 652.2 million, data showed.

These industry figures don’t seem to square with last year’s double- or triple-digit percentage spike in egg prices, according to Farm Action.

“Contrary to industry claims, the increase in the price of eggs has not been an ‘Act of God’ – it has been a simple gain,” the group said.

For example, the profits of Cal-Maine Foods – the nation’s largest egg producer and an industry bellwether – “increased in lockstep with egg prices rising through every season of the year,” Farm Action said. The company reported an increase tenfold in profit over the 26-week period ending November 26, for example, Farm Action said.

Although other major producers do not report such information publicly, “Cal-Maine’s willingness to raise its prices — and profit margins — to unprecedented levels indicates foul play,” Farm Action wrote.

Max Bowman, Cal-Maine’s vice president and chief financial officer, denied the allegations, saying the US egg market was “very competitive and very volatile even under normal circumstances.”

The significant impact of bird flu on chicken supply has been a key driver, and egg demand has been strong, Bowman said in a written statement.

Costs for feed, labor, fuel and packaging have also “increased significantly,” flowing through to higher overall production costs and, ultimately, wholesale and retail egg prices, he said. Cal-Maine also does not sell eggs directly to consumers or set retail prices, Bowman said.

‘Complex effect’ of bird flu on egg prices

Charlie Triballeau | Afp | Getty Images

Cal-Maine’s statement appears to square with the general view of food economists reached by CNBC.

“We’ve never seen [these prices]”, said Angel Rubio, a senior analyst at Urner Barry, a market research company that specializes in the wholesale food business. “But we also did not see [avian flu] break out month after month after month like this.”

In economics, markets are almost entirely “elastic,” Rubio said. In this case, that means there is generally not a 1:1 relationship between egg or chicken supply and egg prices.

During the previous bird flu outbreak in 2015, wholesale egg prices rose by about 6% to 8% for every 1% decrease in the number of hens laying eggs, on average, Urner Barry found in a recent study.

About 42.5 million series (about 13%) have died since the 2022 revolution, according to Urner Barry. Prices have increased about 15% for every 1% drop in egg yields over that time, on average, Rubio said.

The price market is already coming down after the holidays.

Amy Smith

Vice President at Advanced Economic Solutions

The dynamic is largely due to the “compound effect” of demand, Rubio said.

For example, let’s say a supermarket chain has a contract to buy eggs from a producer at a wholesale price of $1 per dozen. But that egg supplier then suffers from an outbreak of bird flu. All supplies from that source will be temporarily offline. Therefore, the supermarket chain must then source eggs from another supplier – increasing the demand for the other supplier’s eggs, which could ultimately sell eggs to the supermarket for $ 1.05 or more than twelve.

Once a farm suffers from influenza, it may not produce eggs again for at least six months, Rubio said.

This dynamic is happening simultaneously across several farms and supermarkets. Bird flu usually dissipates in the summer, but new cases began last fall heading into the peak season around the winter holidays, said Rubio.

Good news ahead?

Easter is usually another time of high seasonal demand for eggs.

Fj Jimenez | Minute | Getty Images

There may be good news for consumers ahead, however, economists said.

Wholesale egg prices had fallen to about $3.40 per dozen as of Friday, down from a peak of $5.46 per dozen on Dec. 23, Rubio said. (Current wholesale prices are still nearly three times the “normal” level, Rubio said.)

On average, it takes about four weeks for wholesale price changes to be reflected in the retail market for consumers, Rubio said.

“The price market is already coming down after the holidays,” said Smith at Advanced Economic Solutions.

The Easter holidays are usually another period of high seasonal demand, however, meaning prices could remain up through March, assuming the outbreak doesn’t grow bird flu worse, economists said.

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