Egg-celerated Pricing in the Poultry Market Causing Problems for CPG Companies
There was concern among U.S. egg and poultry producers in January as the United States Department of Agriculture (USDA) began to report cases of Highly Pathogenic Avian Influenza (HPAI) in the eastern half of the country. In 2015, an outbreak of H1N5 strain of bird flu ravaged the industry killing about 43 million egg-laying hens and pullet chickens, according to the agency.
The 2015 outbreak cost the US economy an estimated $3.3 billion and doubled the price of wholesale eggs in the process. Although the industry is now better prepared to impede the spread of avian flu, the economic impact on egg pricing is being felt from grocery store consumers to CPG companies who rely on the commodity as an ingredient.
According to the USDA, the average price for a dozen eggs is now around $2.60, compared to closer to $1.00 at the same time last year. This is largely due to the loss of nearly 30 million egg-laying hens to HPAI – representing about 9% of all egg layers in the country.
While the spread of disease is not insignificant, other factors are at play in the current market as well, according to Marc Dresner, director of integrated communications for the American Egg Board, who noted that inflation, supply chain issues, transportation costs and labor have all helped drive up the price of eggs.
Food startups are feeling the pressure
The financial burden of inflated prices has not affected some CPG companies who rely on eggs as a foundational ingredient in their products. At least not yet.
Waterloo, Wisconsin-based Ovation Foods launched Eggsentials before the HPAI outbreak helped throw the egg market into a tailspin.
“We made product off of inventory that we had, which was put in at a very reasonable price before bird flu,” said Chris Salm, CEO for Ab E Discovery and Ovation Foods. “But when we make our next batch of product we are going to have to change our pricing.”
Liquid, dried and frozen eggs used primarily by food companies have not changed dramatically since the beginning of the year, but the lack of supply has, adding upward momentum on prices.
“Companies that are well disciplined and well managed financially understand that as the raw material input costs are up, the price of their product has to go up,” Salm said.
Ovation Foods also sources chicken meat for its Chicken Stick product line. Excluding some slight seasonality in prices, boneless, skinless chicken breasts are triple what they would normally be and hopefully it will abate by the time they need to pad Ovation’s inventory but “it is an unusual year,” said Salm.
Prices aren’t expected to normalize anytime soon
On average, Easter represents the second busiest season for retail shell eggs as dyed eggs are decorated, hid and eventually eaten during springtime celebrations.
As we move further from the holiday, the shell egg wholesale price is undergoing a market correction, freeing up some inventory for breakers (companies that crack, or break, shell eggs to produce egg products) and could provide some relief in pricing for CPG companies who use liquid, dried or frozen eggs.
In the short term though, inflated pricing is still causing a lot of disruption for some small businesses.
Placing orders has become nearly impossible because some suppliers are saying that they cannot give a price for the product until one week before delivery. With pricing tripled or even quadrupled for the specialty dried egg proteins, one CPG company speaking anonymously due to confidentiality agreements with its suppliers was left deciding if they would need to suspend their product line until prices normalized.
The company hedged by stocking up on raw material before the HPAI outbreak and is hoping they can outlive the current prices.
“Prices instantaneously increased,” the company representative told NOSH. “We’re just not in position to turn around and say to our retailers and distributors that we’re going to increase their cost by 70%. It’s a hard pill to swallow.”
