Race to use only cage-free eggs could create supply challenge, predicts exec from the happy egg co.

Most major manufacturers that have committed in the past few years to switch from caged to cage-free eggs have given themselves lead times of at least 10 years, but some companies that have jumped on board more recently have substantially shortened their lead time.

For example, Nestlé announced Dec. 22 that it will make the change in five years and Taco Bell said Nov. 16 it will crack only cage-free eggs by the end of 2016.

Nestlé’s and Taco Bell’s commitments are part of a larger “avalanche of similar announcements concerning cage-free production this year”​ from companies including, McDonald’s, Compass Group, Aramark, Sodexo, Starbucks, Panera Bread and Dunkin’ Donuts, Wayne Pacelle, president and CEO of the Humane Society of the US, said in a Dec. 22 blog post.

In addition, in the past month Flower Foods, Grupo Bimbo, Post Holdings’ Michael Foods, and General Mills also made commitments to shift to cage-free eggs. Kellogg also has vowed to make the change.

The one-upmanship on how quickly companies can make the change is good for animal welfare and could provide some companies a competitive edge, but it also eats into the time producers have to change their practices and raise more cage-free hens, which could lead to supply shortages temporarily, cautioned David Wagstaff, chief operating officer at the happy egg co.

On the bright side for specialty egg farmers and producers that already practice more humane egg production, like happy egg co., the misaligned supply and demand is accelerating their growth and ability to seize market share from big ag commodity producers as first-movers, Wagstaff added.  

Supply shortage threats​

In the past two years, some big ag egg commodity suppliers have started to move away from confining chickens in 8.5 square inch cages indoors and toward “medium scale sustainable type production,”​ such as cage-free, which allows chickens to roam in barns that allot at least 1.2 square feet of space per bird, Wagstaff said.

“But,”​ he added, “they are not changing as quick as their customers, and if that happens you always are going to end up with an industry that is trying to play catch up. “​

The result likely will be a temporary struggle to provide sufficient cage-free eggs in five to 10 years, he said.

“The US egg industry remains very stuck in a commodity, cheap food mindset with practices that can and often do lead to food scares and poor quality production and poor quality product,”​ Wagstaff said.

But he adds, in the next few years big ag commodity egg producers will “wake up and start to invest far more heavily in big scale cage-free production to maximize the benefit.”​ However, he noted, it will take time to change how farms are structured and raise sufficient cage-free eggs.

Specialty egg sales on the rise​

In the meantime, existing specialty egg producers, such as happy egg co., are stealing “first mover status from these guys,”​ and experiencing rapid growth in the US as a result, Wagstaff said.

He explained that the happy egg co.’s animal welfare standards are “head and shoulders above everything else in the market”​ with outdoor access to 21.8 square feet of space per hen and at least eight acers of land per farm.

This vastly exceeds the two square feet of space mandated under the free range and organic standard, and is about the same as the 21.65 square feet of accessible space per bird required by pastured raised hens. The pasture raised standard also requires rotation of pastures.

Wagstaff tipped his hat to “some of the progressive companies,”​ like Handsome Brook Farm​ and Vital Farms, that he said “are doing a great job as well,”​ but he added for the most part “nobody else wants to play in our space.”​ 

Competitors likely shied away from happy egg co.’s farming model when it first came to the US about three years ago because they doubted consumers would pay the higher price necessary to provide the hens so much space, Wagstaff said.

“I remember four years ago, people said we were crazy to try and sell eggs for $5 a dozen, but I guess the rise [in sales] speaks for itself,”​ he said.

According to the company, year over year sales of happy egg co. eggs has increased 166% to more than $17.8 million in the 52 weeks ending Oct. 3. This outpaces the 15% growth to $6.1 billion of the total egg market in the year ending Sept. 6, according Nielsen data sited by the firm.

Consumers are willing to pay the higher price for cage-free and pasture-raised eggs because they perceive the products as having a higher nutritional quality and taste profile, as more environmentally-friendly and safer or less likely to carry salmonella, Wagstaff said.

The rising price of commodity eggs in the past year also has made the price difference less noticeable to consumers, according to the company. It notes that the average price of commodity eggs increased 43% in the year ending Sept. 5, compared to a lower 15% price increase of cage free eggs and a 7% price increase for free range eggs. The price hike is due in part to shortages caused by avian flu.

The happy egg co. also has expanded its distribution to more than 7,000 grocery stores nationwide with partnerships with Kroger, Walmart, Safeway and Costco.

In addition, he said, the company now has 400,000 birds on the ground at 20 Mennonite farms and plans to double production in the next six to eight months to nearly a million birds.

Looking forward for the next two to three years, he said: “We want to expand across the US. We want to get to be a $100 million brand is our financial target. That means being in the mass market nationally … across all major retailers.” ​ The firm also will consider acquisitions and partnerships as part of its growth strategy. 

Ultimately, Wagstaff said, the happy egg co. and other direct competitors in the specialty egg market have caught most players in the category "napping."​ He added they need to "wake up"​ an see how the segment and consumer demands are changing quickly.