2120 final report.pdf - Agra CEAS Consulting

APPENDIX 2: THIRD COUNTRIESIt is anticipated that the higher costs that result will be largely, if not entirely passed on to theconsumer. Urner Barry, a leading source of price information for the trade, has indicated theirintention to report separate price quotes for ACC and non-ACC eggs, to the extent the marketdifferentiates between them. Historically, the demand for eggs has been highly unresponsive tochanges in price. The USDA’s Economic Research Service estimates the retail elasticity of demandwith respect to price at only -0.15. It is this highly inelastic demand with respect to price that givesegg prices their volatility. This lack of price responsiveness suggests that additional costs associatedwith ACC are likely to be passed on to consumers with limited impact on demand. Since thedemand for processed eggs is more price-responsive, the impact could be somewhat greater in thatsegment of the market.As reported above, most egg production in the U.S. occurs in large, highly mechanised operations.About 60% of production comes from vertically integrated firms that include hatching and pulletraisingoperations, feed mills, and egg handling and processing facilities. To achieve the economies ofscale that are possible with current technology, operations of 500,000 to 5,000,000 birds arerequired. The individual layer houses within these operations commonly accommodate 105,000 to110,000 birds. Cages are used in nearly all large-scale commercial production. In its 1999 study ofthe table egg industry, USDA reported that less than 1% of commercial-scale (30,000 or more birds)layer houses were non-caged. While the configuration of these systems varies from firm-to-firm andsite-to-site, they are similar in most important aspects.Despite the dominance of large scale egg production systems in the U.S., there are small but growingniche markets for eggs produced through two alternative systems: organic and free-range. Whilethese systems account for a very small share of output, we have included them in the analysis forcomparative purposes.The USDA implemented national standards on organic production for a wide range of products,including eggs, in October 2002. The Department estimates that there were about 1.6 millionorganic layer hens in the national flock in 2001. While this represents a two-fold increase in thenumber estimated only four years earlier, it still represents only about 0.6% of the total table eggflock.Eggs produced by free-range hens are less precisely defined. As commonly perceived by consumers,these eggs come from hens that are able to roam in a less confined space. Some growers describethem as ‘cage free’ eggs. Free-range layers are also estimated to account for less than 1% of thetotal. So, in combination the alternative systems are very small relative to the large, commercialcaged systems.It should be noted that while many producers of organic and free-range eggs operate on a very smallscale, the industry leaders, such as Cal-Maine and Rose Acre Farms, are among the producersdeveloping their own branded organic and free-range products. Thus, they could become a moresignificant part of the market in the future, depending on consumer response.374