Fund Insight ODDO BHF Future of food

Good news – although negative inflation surprises continue to dominate the news flow in both Europe and the US, the price of one commodity has dropped sharply since the start of 2022: eggs. The news are less good for European brunch aficionados though – this year-to-date decrease in egg prices is much more significant in the US than in Europe.

In the United States, prices for eggs, at their peak in late December 2022, were more than 140% higher than in March of that same year. In Europe, egg prices rose less significantly over 2022, though prices remain 30% higher than they were a year ago. What explains this disparity? And why has inflation hit eggs, of all things, so much harder to other foodstuffs?

The first factor that explains these dramatic price hikes is the cost of feed. Chicken feed is generally produced with various grains, seeds, soybean protein – and is the single biggest input cost in egg production, accounting for more than 70% of all production costs. When grain prices rise, as they did after Russia’s invasion of Ukraine and the climate-change-induced poor grain harvests of 2022, the cost of feed is disproportionately affected, which is reflected by ballooning egg prices.

Second, and despite not garnering much media attention, a lesser-known epidemic has run rampant since the start of 2022: avian flu. Although bird-human cross-species transmission cases remain thankfully rare, this worldwide outbreak of avian flu has led to record numbers of bird deaths. In the United States alone, more than 58 million hens have been culled after suspected exposure to infected birds. Out of total egglaying hen population of about 400 million birds in the US – that represents a total loss of around 13% of egglaying hens, further reducing supply and driving up price. Although outbreaks of avian flu have been detected in the UK, France, Cambodia, New Zealand and other countries, the US was most affected, with the price for a dozen eggs in Southern California reaching $7.37 where it was $2.30 prior to the outbreak. Given that the average American eats 277 eggs a year, that’s enough to make a serious dent in one’s wallet. Avian flu outbreaks in Europe were marginally less severe, with France losing ‘only’ 8% of its hen population. The issue, though, is that Europe imports its hens from Brazil – the world’s biggest exporter of chickens - which has started locking down its production as outbreaks of avian flu appear in neighboring countries.

Third, a new phenomenon may explain why prices have remained high even after the worst of the supply crisis is over: ‘excuseflation’. Although the term itself may be new, the successive crises of 2022 have ensured we are all familiar with the concept, which describes producers timing price increases with the moment supply disruptions make the news. This allows producers to justify, and occasionally exaggerate their need for price increases without suffering backlash from the consumer.

One Chicago bakery owner explained the practice to Bloomberg last week: “Whether it’s rye flour, or bird flu that impacts eggs, when it makes national news, it’s an opportunity to increase the prices without getting a whole bunch of complaining from the customers.”

In conclusion

Chicken feed prices have been dropping as grain supply increases, which is good news for egg prices. We will hope that the Black Sea grain deal between Russia and Ukraine is renewed on March 18, which would contribute to a further decline in prices. On the avian flu front, the worst of the outbreak in the US seems to be behind us, but the poultry industry remains at risk, particularly as Brazil – the world’s largest exporter of chicken meat – tries to prevent the spread of the virus into the country. As we discussed in last month’s Food Insight, the consequences of the 2022 inflationary shock go beyond those measured by traditional consumer expense indices. ‘Excuseflation’ enters the list of new practices consumers should be cognizant of, and whose influence on household finances should be monitored.

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Gunther De Backer

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Olivier Duquaine

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