While inflation eases, bird flu drives up the price of eggs

Simone Del Rosario: Inflation may be cooling off, but egg inflation is on the rise again. The price of a dozen eggs is up 19.1% compared to the same period last year. While that's a far cry from the 70% annual increase seen in January of last year, overall food prices rose just 1.1% in July. Yet a pack of this staple costs a full dollar more today than it did last year, but still nearly two dollars below the rate of inflation. Why? Well, it's the same reason prices have skyrocketed at times in recent years. According to the USDA, more than 18 million birds have been affected by bird flu. Millions of chickens have caught colds. Joining us now is host of the Business of Agriculture podcast, Damian Mason. Damien, what do we need to know about the status of bird flu today? I thought this was a problem from years past, but we're still dealing with it this summer.

Damian Mason: That's interesting because normally you will be told that people in the poultry industry [that is]I'm an agricultural expert and I'm not going to play the poultry expert here because there are people who spend their whole working lives in chicken coops, but I work with them. I've worked for them. I've consulted and talked to their audiences and I try to learn as much as I can. The only thing they tell you is that winter is actually good because it kills insects in general. However, it also leads to migration. And then, all of a sudden, when you have waterfowl and migratory birds, they spread this stuff. And you think, wait a minute. How does that get into a closed, modern production facility? Well, generally, that's why they have such amazing biosecurity in these modern poultry operations. But there are still leaks, and that's the difficult part. You give a number of 18 million chickens and people might listen to you and say, OK, so you have a few sick chickens. Why does that increase the price of eggs? Well, the difficult thing is that there is no cure for bird flu, and even if there was, it would be so expensive. So the job of these farms is prevention, Simone. They have to keep bird flu out of the facility. And when you talk about a barn where maybe 1 million chickens live, these things are huge. They are big, they are modern. That is why our eggs are generally so cheap and hygienic etc., because it [a] very modern facility. But if you get bird flu in this building, you have to kill [or] eradicating the entire barn and preventing the spread from spreading to the next barn, the next barn, the next barn. So that's a really difficult situation. There are more than 300 laying hens, so if we lose a million of them, we're still going to make it up. But what 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 store these things for the last year or so and then pull them out when there's a slowdown. That's why you're going to see measures like this [in price].

Simone Del Rosario: Okay, considering what you say about the conditions in which these chickens are kept. We have these bird flu outbreaks. It seems like it never goes out of the news. Is it time to rethink the structures in which these chickens are kept? Are the conditions too cramped when it comes to diseases like this spreading throughout an entire chicken community?

Damian Mason: Yes, you could argue that. I'm sure the Humane Society or PETA would argue that too. That would then mean that cage-free facilities, for example, don't carry the same risk. The truth is that bird flu is more common in smaller birds kept outdoors because they have more contact with wild birds, which can then spread bird flu and avian flu. I understand that sounds tempting, but then we get to the other part. Firstly, from a hygiene perspective, there's not a lot of evidence that that would be the case. And then there's the other part. If you had 1/4 of the birds per pen area, that means the pen is still burdened with an 8% loan, and the worker who goes out there and works still wants to make $18 an hour, and the truck still uses 3.89 cents of diesel, but they're transporting 1/4 of the eggs and producing 1/4 of the eggs per building unit. And then you talk about a dozen eggs costing $3 and it might cost $6. And that's the harsh reality of modern production, that we're enormously efficient and we have quite a lot of money there.

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

Damian Mason: That's what the headlines are screaming, we just hit a price increase of over $3. I'm holding up this wonderful egg here and $3 is the price increase. So, you know, I love my pictures, when I talk to you, we just hit a price increase of $3 a dozen. And they'll say it's because of the bird flu. But still, some of the other reasons we just talked about is that labor is still a little bit tight. If you read the Wall Street Journal, you'll hear that employees are less in demand now than they used to be. But those who work on a chicken farm and want to go out and take care of the chickens and make sure the eggs are collected and washed and crated are still a little hard to find. And as I said, energy is a big cost. Look at what your energy bill has done, even in your home. Now, imagine doing that across the entire supply chain. Eggs need to be refrigerated because they are perishable. This costs energy. Of course, they need to be transported quite quickly. Therefore, a lot of energy is also required to determine the price of an egg.

Simone Del Rosario: We know that eggs are a really cheap source of protein, right? When we talk about people switching to cheaper products when prices are high, eggs are the cheapest ever, great protein at a low price. Given this information, will this price increase of a dozen eggs change consumer behavior in any way? Will people just spend the extra money knowing it's still the cheapest way to get protein?

Damian Mason: The term we use in agricultural economics or in any other economics is inelasticity or elasticity of demand. If the price of sunscreen doubles, you probably just can't use it properly. You can say, “Oh, hey, I'm taking the risk of getting skin cancer. I'm not going to get as nice a tan.” If the price of eggs doubles, you still want to feed your babies. You still want to make sure the family has food, so they're more inelastic, which is you're going to pay for it. You're going to pay for the price of the eggs. And as you said, and this is what I find heartbreaking, we know that this egg that I'm holding here by the hand is the cheapest protein there is. So when you talk about who is being harmed by $3 a dozen eggs, it might not be you or me, it might be the mother with two or three children. It's a very wholesome product. It's very convenient. You can boil an egg in about two minutes and feed it to your kids. There are a lot of downsides to expensive eggs. And I should point out that when we hear things like what's going on in politics right now, there's talk of price gouging or that we need price controls. You hear one of the political candidates saying that. I know poultry producers. I know poultry producers on a large scale. I do business with them. I can tell you that they're still making, you know, a penny per egg, so we're not talking about $3 a dozen. I can tell you that the farms that are producing these eggs are producing tens of thousands a day. There's a large poultry farm that produces eggs just 20 miles from my property here in Indiana. They're not making that much money. So the spread is generally happening somewhere else, especially now considering the disease mitigation measures they're having to take because of the pressure of avian 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, Damian.

Damian Mason: Thanks for having me.