Just as inflation cools, bird flu is driving up the price of eggs

Simone Del Rosario: Inflation may be cooling, but eggflation is on the rise again. The price of a dozen eggs is up 19.1% compared to the same period last year. Now that’s a far cry from the 70% annual increase in January of last year, but grocery prices as a whole only rose 1.1% annually in July, still a package of what is this, Brent, sorry, I’m reading it’s fine, but still a package of this food staple will run you a full dollar more today than it did last year, but still nearly two bucks below inflation. Highs. Why? Well, it’s the same reason prices have spiked at times in the last few years. The bird flu, according to the USDA, more than 18 million birds have been affected by the outbreak. In turn, millions of chickens have been cold. Joining us now to discuss is host of the business of agriculture podcast, Damian Mason. Damien, what do we need to know about the status of the bird flu today. I thought this was a problem from, you know, years past, but we’re still in it this summer.

Damian Mason: It’s interesting, because they generally will tell you, people in poultry [that is], I’m an ag guy, I’m not going to be the poultry expert here, because there’s people that spend their entire careers in chicken barns, but I work with them. I’ve worked for them. I’ve consulted and spoke to their audiences, and I try to learn as much as I can. The one thing that they’ll tell you is winter is actually good because it generally kills bugs. However, it also creates migration. And then all of a sudden, when you have migrating waterfowl, migrating birds, they spread this stuff. And it’s like, Wait a minute. How does that get into a confined, modern day production facility? Well, generally, that’s why they have such amazing biosecurity on these modern poultry operations. But they still do have leaks, and that’s the tough part. You gave a number 18 million hens, and people might be listening to saying, okay, so you got some sick hens. Why does that increase the price of eggs? Well, the tough part is, there’s really no cure for bird flu, and even if there were, it would be so cost prohibitive. So prevention is really what these farms have to do Simone. They’ve got to keep the bird flu out of the facility. And when you’re talking about a barn that maybe has 1 million hens in it, these things are massive. They’re big, they’re modern. That’s why our eggs are generally so cheap and sanitary, etc, because it’s [a] very modern facility. But if you get bird flu in that building, you have to kill [or] cull off the entire barn, and that way it keeps the spread from going to the next barn, the next barn, the next barn. So that’s a really tough situation. There’s more than 300 laying hens, so if we lose a million of them, we’re still going to make it up. But the thing that a lot of people don’t realize is the tightness of the supply chain in egg production. It’s a perishable product. It’s not like you can have these things warehoused for the last year or so, and then bring them out when there’s a slowdown. So that’s why you’ll see these moves like this [in price].

Simone Del Rosario: Okay, given what you’re talking about with the conditions in which these hens are. We’re getting these bird flu outbreaks. It kind of doesn’t seem to leave the news, it feels like. Is it time to rethink the structures that these hens are being kept in, are the conditions too crowded when it comes to having diseases like this spread throughout an entire community of hens?

Damian Mason: Yeah, that could be an argument. I’m sure the Humane Society the United States or the PETAs would make that argument. The thing is that would then predispose that say cage free facilities don’t have the same risk. The truth is, bird flu is more prevalent in smaller, outdoor penned type birds because they have more exposure to wild birds that then can spread the avian influenza and the bird flu. I get it where that sounds appealing, and then let’s bring up the other part of it. So first off, there’s not a lot of proof that that would be the case from a sanitation standpoint. Then there’s the other one. If you had 1/4 amount of birds per barn space, that means that barn still has an 8% loan on it, and that worker that goes out there and work still wants to make $18 an hour, and that truck still burns $3.89 cent diesel fuel, but they’re hauling 1/4 the eggs and producing 1/4 the eggs per unit of building. And so then you start talking about a $3 dozen egg, maybe becoming a $6 for a dozen eggs. And that’s, that’s something that’s the harsh reality of modern production, that we’re we’re massively efficient, and we are pretty stacked in there.

Simone Del Rosario: Would you say bird flu is the sole reason for the recent increase in egg prices?

Damian Mason: That’s what the headlines scream, we just spiked over $3 so I’m holding up this wonderful egg right here and $3 is where we just spiked. So you know, I love my visuals, when I talk to you, we just spiked $3 a dozen. And they’re going to say it’s because of bird flu. But again, some of those other reasons we just talked about labor’s still a little bit tight. If you read the Wall Street Journal, you’ll hear that white collar workers are less in demand now than they were. But those that want to show up and work at a chicken facility and go out and take care of hens and make sure the eggs are being gathered, washed, packaged into the crates, they’re still a little bit hard to come by. And like I said, there’s a big cost on energy. You look at what your energy bill has done, even in your home, Well, imagine now if you’re doing this across the whole entire supply chain. Eggs have to be refrigerated because they’re a perishable product, so there’s energy. They have to be transported, obviously, in a pretty timely manner, so there’s a lot of energy that goes into a price of egg also.

Simone Del Rosario: We know that eggs are like this really low price source of protein, right? When we talk about people trading down when prices get high, eggs are, you know, the cheapest bottom of the barrel, great protein for a low price. So given that information, does this dollar spike in a price of a dozen eggs, is that going to change consumer habits at all? Are people just spending the extra money knowing it’s still the cheapest way to get protein?

Damian Mason: The term that we use in agricultural economics, or in any economics, is inelasticity or elasticity of demand, something that if suntan lotion doubles in price, you can probably just not use it right. You can say, ‘Oh, hey, I’ll take my chances about getting skin cancer. I won’t have as beautiful of a tan.’ When eggs double in price, you still want to feed your babies. You still want to make sure that your family has food, so they tend to be fairly inelastic, meaning you’re going to pay up. You’re going to pay for the price of eggs. And as you pointed out, and this is the thing that I think is heartbreaking, we know that this is about the most affordable protein that there is this egg that I’m holding my hand right here. So if you’re talking about who gets hurt by $3 per dozen eggs, it’s maybe not you or me, but it’s the mother with two or three children. It’s very digestible product. It’s very convenient. You can cook an egg in about two minutes and feed your kids. There’s a lot of downside to expensive eggs. And I should point out that when we hear things like what’s going on politically right now, that there’s talk of price gouging, or we need to have price controls. You hear one of the political candidates saying that. I know poultry producers. I know large scale poultry producers. I do business with them. I can tell you that they’re still making, you know, a penny an egg, so you’re not talking about $3 a dozen. I can tell you that the farms that are producing these by the 10s of 1000s per day. There’s a big poultry farm that eggs just, you know, 20 miles from my property here in Indiana. They’re not making that money. So the spread is generally somewhere else, especially now, when you figure disease mitigation practices that they have to put in because of the pressure of bird flu, they don’t want to lose their flock.

Simone Del Rosario: All right. Damian Mason, host of the business of agriculture podcast. Thank you so much, Damian.

Damian Mason: Thank you have me.