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Why some supermarkets have started rationing eggs

Most actual eggs come from chickens that are treated way worse than this
Most actual eggs come from chickens that are treated way worse than this
Emily Thorson

Suddenly this month, news reports are full of tales of an egg crisis, with headlines like "Egg Shortage Impacts New Hampshire Restaurants" and "Egg Shortage Takes Tippin's French Silk Pie" in Kansas, and dire tales of the affliction crimping Austin's supply of breakfast tacos. You can even read about "7 Protein-Packed Breakfasts to Help You Survive the Egg Shortage." What makes this even more distressing than last spring's lime shortage is the link to a deadly outbreak of avian flu, which raises the specter of eventual transmission to humans and true catastrophe.

But even for all the terrified headlines, actual data proving a shortage is really difficult to come by. Supermarket egg prices were on the high side, but not historically high, at the Bureau of Labor Statistics' latest count, and the New York Times reported that wholesale egg prices have been falling since June 9. In part, the conflicting reports simply reflect the inherent uncertainties involved in collection and dissemination of price data. But they also reveal a national — and, to an extent, global — egg industry that is considerably more complicated than you might think. The eggs you see on your supermarket shelf are just a small slice of the overall industry, and the price quoted there has less to do with the laying habits of chickens than with the wily sales tactics of the retail industry.

Where did the egg crisis come from?

The underlying issue is an outbreak of avian influenza, first detected in December 2014, which has pushed up egg prices ever since. Recent detections are actually reasonably well-contained in the Midwest, and in some ways look less alarming this spring than they did over the winter. But the sheer quantity of chickens in Iowa — home to about 30 million of the 47 million total birds afflicted — means the economic implications have become more severe recently.

Why are some restaurants pulling eggs off the menu?

That disruption in the egg supply should lead to higher prices seems reasonable enough, but the complete disappearance of eggs from some restaurant menus is a little more puzzling. One important issue here is that around a third of the eggs in the United States do not reach end users in shell form. Instead, they are cracked, separated, mixed, and pasteurized to create a variety of "egg products," mostly bagged liquid eggs.

These liquid eggs are then passed forward to restaurants and food manufacturers that use them as ingredients in creating packaged food products.

A surge in the price of wholesale breaker egg prices impacts the industrial and restaurant sectors differently.

  • For a food manufacturer, there is no better option than to just keep buying eggs and deal with the consequences by trying to raise prices or accept reduced profit margins. The eggs are only one of several ingredients in the final product, and the investment in the food factory is too high to shut it down.
  • A restaurant is in a different position. Restaurants normally sell lots of things that aren't eggs, so pulling eggs from the menu is viable. Restaurants also normally don't like to rapidly shift the prices on their menus, both for logistical reasons and to avoid annoying customers. Simply pulling eggs from the menu can be appealing in this situation.

Why are some supermarkets limiting egg sales?

This has to do with the complexities of supermarket pricing strategy. Large stores typically regard weakly branded staple foods — things like eggs — more as a way to get people in the door than as a way to make money, per se. They are willing to accept razor-thin and at times negative profit margins on these frequently purchased staples in order to ensure a steady flow of foot traffic to other, potentially more lucrative aisles.

That means that at times of supply crunch, many supermarkets would prefer to avoid massive price increases if they can. Since egg wholesalers have no such compunction, this means that when the market is disrupted, making bulk purchases of eggs at big grocery stores can start to look attractive to small restaurants. This undercuts the supermarket's goal of increasing foot traffic. A policy limiting the number of cartons of eggs a customer can buy at one time makes it all work, but can also create an unreasonable sense of alarm in consumers. It's not exactly that the world is running out of eggs, it's just that supermarkets are trying to offer a bargain to regular households without offering a bargain to business buyers.

Why are some restaurants completely unaffected?

Different restaurants have different suppliers and different contractual arrangements, so the specific impact of the avian flu on any given business can vary widely. Richard Webner of the San Antonio Express News found one breakfast entrepreneur who is reaping a windfall:

Eggs are an ingredient in almost every dish at Magnolia Pancake Haus, co-owner Robert Fleming said. He buys about 22,000 to 25,000 cases a year, containing 15 dozen eggs each. But he’s avoided the turmoil in the egg industry thanks to a contract he has with an egg producer.

Fleming decided in 2013 to start getting his eggs by contract to avoid the ups and downs that have buffeted the industry in recent years. Earlier this year, when prices were lower, he was paying about 12 percent more than market cost. Now, he’s paying about 30 percent to 40 percent below.

An economics textbook might tell you that Fleming should take advantage of his cheap egg situation by simply reselling eggs to other Texas businesses, smoothing prices throughout the region. In the real world, however, transaction costs and uncertainty tend to inhibit this kind of adjustment. Consequently, the practical impact of the bird flu on the price structure of any given business can vary wildly.

What's next for eggs?

USDA

According to the June 15 issue of the US Department of Agriculture's Egg Market Report, the egg situation appears to be stabilizing just as the media frenzy about eggs is heating up. The reason? People have started buying fewer eggs. "Retail demand is mostly light," they report, as supermarkets have gotten less worried about running out of eggs that are a challenge to make money off of. "Breaking stock supplies are moderate to heavy for a usually light demand," as the impact of restaurant de-egging begins to work its way back up the chain.

Meanwhile, the USDA recently approved a Dutch plan to begin exporting egg products to the United States, the first time since 2002 that non-Canadian eggs will be allowed into the United States. With demand tempered by higher prices and new supplies from Europe coming online, it's likely that the June egg crisis will be forgotten as swiftly as it arose.

Should I be worried about bird flu transmission to humans?

So far, that's only a concern if you're a chicken farmer, but things could get worse — and, yes, this is a lot more alarming than a temporary egg shortage.