Same doodoo, different flies
Lack of competition, consolidation, and price fixing are the new black.
I’m breaking with the theme of Florida-based bastards with this one to profile some different bastards. I wrote about the skyrocketing price of eggs last year for a publication I had a falling out with; therefore, this piece never ran. While it’s dated in its subject matter, the same principles currently apply to many food products. Market dominance, no competition, record profits, and a “who’s going to stop us” attitude.
As waves of increased prices for consumer goods continue to hit us, from used vehicles early last year to fuel in the summer, we now face a sharp spike in egg prices. Why eggs, of all things?
A wave of avian flu is the most significant reported culprit, with increased input costs following suit. From December 2021 through 2022, the average price of a dozen eggs jumped from $1.79 to $4.25, an increase of 137%. Avian flu isn’t an outlier; the last significant outbreak in 2015 resulted in the culling of over 50 million birds, according to a CDC report concluded in December 2017, with a 10% reduction in egg production. Prices jumped along similar lines, from $1.29 per dozen to $2.61, a 130% increase; they simply started at a lower price, so the jump wasn’t as shocking to consumers. The current outbreak has broken 2015’s record of culling and is still climbing, affecting 17% of the laying hen population.
Egg sourcing typically happens three ways: from small farmers, usually in a direct sale; an aggregator who sells eggs from small farms at grocery stores; or from large conglomerates that handle everything from hatching laying hens to sales to the grocery store. None of these three methods is immune to the pressure of higher input costs to produce their eggs; feed corn is up 14.37% this year, soy 12.85%, diesel for farm equipment and delivery up 54%, and the average farmworker wage in Florida up another 9%.
Travis Malloy of TrailBale Farms in Temple Terrace raises organic, cage-free chickens and other meat and poultry animals and has seen feed costs increase by 35% this year. Lacking an economy of scale enjoyed by bigger producers, he could only raise his price per dozen eggs by 12% to $9. After joking about his business acumen, he says, “There’s no money in eggs for me, but I need to have them around to sell chickens.” With his small farm and flock, the introduction of Avian flu isn’t a factor in his equation.
In the next tier of producers, companies like Vital Farms of Austin, TX, or Pete and Gerry’s of Monroe, NH, source their organic, cage-free eggs from dozens of smaller yet geographically diverse farms. The geographic distance between farms lends a degree of biosecurity in stopping the spread of Avian flu that spreads quickly in large flocks. These eggs enjoy a bit of a niche market, which some consider “boutique” brands. While they’ve had to yield to higher input costs, their price increases have not kept pace with the larger producers.
Corporate-level farms have shown the most significant increase in prices. These operations produce eggs in concentrated populations, with thousands of birds living together. The three most prominent players in this sector are Weaver Brothers of Versailles, OH, Cal-Maine Foods of Ridgeland, MS, and Eggland’s Best of Malvern, Pennsylvania. The three work separately and together. Eggland’s Best contracts franchise territories for production and distribution under their label, with Weaver and Cal-Maine owning multiple franchises nationwide.
Aside from Eggland’s Best, Weaver’s most prominent brand is Crystal Springs eggs, while Cal-Maine produces Farmhouse Eggs, Sunups, and Sunny Meadows and also distributes under the Land O’Lakes brand. Cal-Maine went on a buying spree in the last two decades, acquiring existing farms around the country, including the Zephyr Egg Company in Zephyr Hills in 2008, along with their Eggland territories. Cal-Maine also operates several other egg facilities in Central Florida, including Groveland, Lake Wales, Bushnell, Lacoochee, and Okeechobee.
Producing eggs in this method puts large populations of birds in close proximity, which increases the likelihood of Avian Flu spreading rapidly. When looking at the high input costs, the culling of birds that has caused a 10% decrease in production, enhancements to biosecurity, and the five months necessary for a hatchling to grow to a laying bird, higher prices at the grocery store result.
The price of a dozen eggs from the big three producers has approached that of the “boutique” brands. Economics rules rarely correlate to a 1:1 increase of costs to price, as a company’s goal is to show a profit in the face of increased inputs. Of the three primary players, Cal-Maine is the only publicly traded company with available financials. Corporate filings show a 65% increase in net revenue last fiscal year, even when faced with the challenges of cost and illness.
How does one show an increased profit like Cal-Maine in such challenging times? Simple economics rules say cutting costs and passing along increases to the customer. Grocery stores should be enjoying similar revenue growth were the concept of cost to price followed. But of the three largest Florida grocery chains, Publix and Walmart (Southeastern Grocers, parent of Winn-Dixie records are unavailable) showed a modest growth of around 4% by comparison. So why the spike in profits for Cal-Maine? The simple answer is that the market supports the price, so they’re running with it while they can.