How the risky business of egg production is driving up prices

Rabobank’s global egg price monitor shows that egg prices around the world are 2.5 times higher than in 2007, and have more than doubled since this time last year.

There are six main supply and demand factors behind the exceptional egg price increases, said the analyst at Rabobank, which is a leading global lender to the food and agriculture sectors.

Firstly, upward movements in feed costs for poultry had a big impact, because it was difficult for producers to pass on these higher costs to customers. Feed represents 60% to 70% of an egg layer farm’s costs. Global animal feed prices doubled between mid-2020 and mid-2022.

Secondly, avian influenza outbreaks increased to very high levels over the past two years. In the US, more than 40m layers had to be depopulated during 2022, due to outbreaks. In Japan, more than 15m layers have been affected, and in Europe the laying hen flock is down between 3% and 5%.

Thirdly, many operations in the egg industry scaled down after Covid-19 measures restricted people’s movement, which reduced demand for eggs.

Fourthly, new regulations around the world reduced egg production. For example, the introduction of a cage ban for poultry farmers in New Zealand led to a 5% to 12% drop in laying hens in the country.

The introduction of male chick culling at the hatchery level in Germany in 2012 led to the loss of 20% of the country’s laying hens. As Germany is Europe’s largest importer of eggs, this affects the wider EU egg market.

Changing consumer behaviour has also affected the egg market. Pressure on consumer spending power, due to low economic growth and high inflation, has led to “trading down”, with consumers looking for cheaper protein sources, and opting for eggs. This has increased demand for eggs.

Lastly, egg producers are experiencing a lot of uncertainty, and this has also reduced the egg supply. Restocking hens on a farm represents a commitment of more than one year of production. This has become more risky, but many buyers at the next stage of the food chain do not want to offer volume and price contracts to offset some of the producers’ risks. As a result, the lower number of hens restocked by farmers has led to low supply in many markets.

In most markets currently facing high egg prices, a combination of these factors is affecting prices.

However, according to Mr Mulder, the egg industry can generally count on price peaks leading to price drops one or two years later. This is usually caused by producers’ response to periods of higher profit margins. 

They typically increase hen numbers to try to tap into higher prices, thus creating oversupply. 

“We saw this trend in 2009, following Germany’s ban on conventional cages, in 2012 after the introduction of the EU’s conventional cage ban, in 2015 after the US industry’s avian influenza crisis, and in 2017 after the Netherlands’ fipronil crisis,” he said.

“Can we expect a similar trend this year? We think prices will go down in countries and regions with extreme price peaks like the US, Europe, and Japan, but likely not to the sorts of lows we have seen following other crises.”

In 2023, prices will remain high in countries with persistent avian influenza pressure, restrictions on grandparent stock or breeding stock imports, financing challenges such as a large number of farms with limited access to finance or the US dollar, and countries undergoing regulatory change (like Germany), said Mr Mulder.

“The fast spread of avian influenza in Latin America, for example, has had a big impact, with prices spiking in the countries most affected by outbreaks”.

“Other countries will likely see a move back to historical price and volatility levels following these price peaks. Still, ongoing high input costs will mean prices will not return to the low levels seen before 2021”.

In the past year or so, egg prices increased by 155% in the US and 62% in the EU. In March, prices in Japan reached their highest level since 2003. There are also record-high egg prices in Thailand, the Philippines, Israel, New Zealand, Nigeria, Kenya, Brazil, Mexico, and Argentina.

However, egg prices rose by only 15% in China and 20% in India.

Around the world, prices rose faster for eggs than other foods when feed prices rose in 2021, and accelerated in 2022, after Russia invaded Ukraine. Since then, egg prices kept rising, even while other food prices have started to drop.

Mr Mulder said one of the main tools to stabilise markets is greater commitment from buyers to offset farmers’ high production risks.

The other main strategy is to better control avian flu in heavily affected countries.

The Rabobank analyst said there is great concern about high prices impacting the affordability of eggs for low-income consumers, especially in emerging markets. For these groups, eggs are an important staple food and source of protein and nutrients like vitamins B6, B12, and D. 

In these markets, eggs are positioned as the most affordable protein, and are easy to distribute, as cold chain transport is not needed. If eggs become more expensive and less available for these consumers, it could pose major social and health risks.