New state law upends egg industry, affecting supplies and cost

Ten days before a groundbreaking animal welfare law takes effect in California, the price of conventional, “caged” chicken eggs has climbed so high that Sonoma County shoppers can pay less for cage-free brands.

Proposition 2, the animal welfare ballot proposition passed by voters in 2008, is just one of several factors responsible for the record price of conventional eggs around the country, experts said. But the initiative is largely credited for reshaping the nation’s egg industry and for prompting high-stakes legal battles and regulatory debates that continue to this day.

The law, which effectively banned standard “battery cages,” takes effect Jan. 1.

In Santa Rosa, shoppers last week could buy Uncle Eddie’s large, cage-free eggs for $2.69 a dozen at Oliver’s Market on Stony Point Road. That was $1 cheaper than for the same size of conventional eggs sold under the store’s own brand.

At G and G Supermarket on West College Avenue, Clover Stornetta’s cage-free eggs were selling for 30 cents cheaper than conventional eggs from Petaluma Farms. And at Safeway on Fourth Street, shoppers needed to pay only 10 cents more for Clover’s organic, cage-free eggs than for the Lucerne brand conventional eggs.

Cage-free and organic eggs normally garner a significant price premium over conventional eggs, experts said. But wholesale prices for conventional eggs in California and Nevada have jumped 79 percent in the past month to a record $2.66 a dozen, according to Urner Barry, a Bayville, N.J., publisher that tracks eggs and other food products.

The price increases, similar to those occurring nationwide, are blamed on such factors as increased domestic consumption and banner exports to Canada and Mexico. But Proposition 2 also “definitely is playing a role,” said Brian Moscogiuri, an egg market reporter with Urner Barry.

Prices here may stay higher in the first part of 2015 until out-of-state producers complete new facilities and increase supply to the Golden State.

On Jan. 1, Moscogiuri said, “California may not have all the eggs that it needs.”

Besides any shortages, prices may rise simply because of the multi-million dollar investments that state farmers have made to switch to larger cages or cage-free warehouse systems, observers said. All the new systems house fewer birds than the old cages did in the same space.

“It will cost the farmers money and those costs will be passed on to the consumer,” said Michael Moody, the natural products buyer for Santa Rosa-?based Oliver’s Markets.

The company’s three markets last week featured signs telling shoppers that the price of conventional eggs “is increasing due to costs involved with our local farmers having to comply” with Proposition 2.

In November 2008, California voters overwhelming approved the initiative. The lopsided, 63-percent “yes” vote followed a statewide campaign that pitted egg farmers against the proposition’s sponsor, the Humane Society of the United States.

The farmers sued but failed to overturn the law. They later failed to get Congress to pass national standards for confining laying hens - a joint effort of egg trade groups and the Humane Society.

But the farmers succeeded in getting the state Legislature to enact a law requiring that any out-of-state eggs sold in California also must be produced in compliance with Proposition 2.

Paul Shapiro, a Humane Society spokesman, said egg farmers must bear the blame for any lack of product next year.

“These guys had six years to prepare for this,” Shapiro said. “It’s an artificially manufactured shortage, if it does come to pass.”

Drastic changes in industry

In the six years since the initiative was approved, the state’s production methods and its hen population have changed dramatically, said Terry Pollard of Big Dutchman, the Michigan-based company that is the nation’s biggest supplier of hen housing systems.

When the initiative passed, California was home to more than 19 million laying hens, said Pollard, a senior vice president who tracks equipment installations and capacities at the nation’s major egg farms. To meet demand, out-of-state farmers shipped in eggs from about ?6 million more birds.

But today the state’s flock has declined roughly 46 percent to about 10.5 million hens, he said. The decrease is due partly to the provision of more space per bird and partly to the difficulty in winning permission to build new facilities in the state.

As a result, out-of-state egg producers have rushed to make up the shortfall, with many locating new facilities in western states near California.

The growth in the out-of-state egg farms over the past year has occurred much faster than Pollard expected. Even so, he said, “I still think California’s going to be 2 or 3 million birds short of the supply that’s needed … That’s one reason why egg prices are going up.”

He predicted the shortfall would be erased by midyear. And while refusing to credit the Humane Society, he said the shakeout of large producers in California “gave life” and provided advantages to smaller egg farms here that chose to invest in new equipment and expand their operations.

“It’s keeping a lot of the small producers in California in business,” he said.

Among the state’s producers, Pollard said, roughly 30 percent are now cage-free and the remainder are using variations on larger “enriched” cage systems that have become the minimum standard in Europe. Such systems allow for at least 116 square inches per bird, compared to 67 square inches with the conventional battery cages.

As a sign of the changes in the U.S. egg industry, Pollard said, Big Dutchman hasn’t sold a battery cage system in two years. It installed its first enriched system about five years ago, but now the cage-free systems comprise roughly half its sales.

The history of Proposition 2 involves serial conflicts - with two key disputes still ongoing.

The first is over the type of housing systems that are allowed under the initiative. Most of the state’s hens now are housed in variations of the enriched cage systems, but the Humane Society has long insisted that those larger cages still don’t meet the law’s requirements.

News reports and industry representatives often suggest that the new minimum requirement is 116 square inches per bird, a number found in state farm regulations.

But state Department of Food and Agriculture spokesman Steve Lyle said last week that those regulations are aimed at reducing salmonella and have nothing to do with Proposition 2. He emphasized that his department has no jurisdiction over the initiative.

Proposition 2 says simply that hens must be capable of “fully spreading both wings without touching the side of an enclosure or other egg-laying hens.” Since 2008, the Humane Society has insisted that only a cage-free system meets that standard.

Moreover, Shapiro said, several European countries already are moving away from the enriched cage systems, and the U.S. eventually will, too.

Will industry go cage-free?

“The egg industry is going to go cage-free,” he predicted.

As a result of the dispute over space standards, it’s difficult to learn exactly what is happening today in Sonoma County’s egg industry, which in 2008 housed about 1 million laying hens.

Longtime Petaluma egg farmer Arnie Riebli, who in 2008 allowed a reporter to visit both caged and cage-free warehouses, declined to say what housing systems he now uses. He also declined to say whether he thinks the enriched systems meet Proposition 2.

“Everything that we have will be compliant,” said Riebli, a partner in Sunrise Farms and president of the Association of California Egg Farmers. “And we are compliant today.”

Another Sunrise partner, Scott Weber, didn’t respond to repeated requests to visit the new enriched cage facilities that his brother Mike Weber and he built this year.

The initiative indirectly has prompted a second dispute that pits California against out-of-state farmers and their elected representatives.

Six states have sued California, calling it unconstitutional for the Legislature here to tell outside farmers what confinement rules they must follow in order to ship in eggs for sale. California officials responded that their law prevents egg farmers here from being put at an unfair economic advantage and is similar to standards set by other states.

In October, a federal judge threw out the lawsuit against California. But the six states later filed a notice of intent to appeal the dismissal.

Daniel Sumner, an agriculture professor at UC Davis, said the various disputes continue to create uncertainty, even as the law is about to take effect.

“There’s a lot of things to shake out yet,” Sumner said.

You can reach Staff ?Writer Robert Digitale at ?521-5285 or robert.digitale@pressdemocrat.com. On ?Twitter @rdigit