Changes to welfare standards by both welfare regulators and the supermarkets are pointed to by industry as being behind New Zealand’s short supply of eggs.
Last week the United States’ largest egg producer pointed to higher egg prices being behind its 718 percent surge in quarterly profit, adding fuel to existing claims of price gouging.
Cal-Maine Foods controls about a fifth of the US egg market and the price for a dozen of its eggs has doubled within a year.
Like New Zealand (and many other countries around the world), the US is facing a stark egg shortage, which following the basics of supply and demand, is pushing up the price for consumers.
In North America, the shortage is being driven by flock culls to stop the spread of avian flu, though Cal-Maine said it hadn’t had any positive tests in any of its facilities and had been able to supply the pricey market.
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Senators and advocacy groups have been pushing for a review into potential manipulation of egg pricing since the beginning of the year.
Farmer-led anti-monopoly group Farm Action requested a review on the basis that there "appears to be a collusive scheme among industry leaders to turn inflationary conditions and an avian flu outbreak into an opportunity to extract egregious profits".
Farm Action believes sector consolidation is at the heart of that problem.
Consolidation
According to the Open Markets Institute, US egg production is generally less consolidated than other food sectors but still led to greater supply chain instability than open markets.
Consumer NZ isn’t sure if New Zealanders are paying a fair price for eggs, which went from an average price of $5.15 a dozen in February 2022 to $7.84 in February this year.
Consumer said multiple factors were contributing to the price of eggs and it was hard to know what a fair price was.
“Retail price setting is opaque in New Zealand – there could be a number of parties clipping the ticket. Including suppliers and the [supermarket] duopoly.”
Egg Producers Federation executive director Michael Brooks said it was pretty clear there was no gouging going on in the New Zealand egg industry.
Feed is the biggest expense, making up about 65 percent of the cost for an egg farmer, followed by wages at 15 percent, with significant rises in those input costs not being matched by increases to sale prices.
The industry is, however, at a turning point that could result in a different, more consolidated sector such as in the US.
Changes to welfare standards by both welfare regulators and the supermarkets are pointed to by industry as being behind New Zealand’s short supply of eggs.
New battery hen cages were banned in 2012, with the remainder to be phased out over the following decade, officially being outlawed on New Year's Day 2023.
Egg farmers phasing out battery cages were able to invest and move to colony cages, which provided things such as perches and nesting areas with 20 percent more space for each hen.
Investment
Brooks said this cost farmers about $1m each, with those moving to barn or free-range operations spending far more.
The two supermarkets have committed to stop selling colony eggs this decade, which Brooks said meant farmers who had invested in colony would have to spend even more to shift to barn or free-range operations.
Many smaller farmers, who were also hit hard by Covid, are dropping out of the industry instead of investing further, with a previous 160 commercial egg farms dropping to just 120.
“There’s been a lot of compaction,” Brooks said. “What's happened is an industry that was almost totally family-owned farms is rapidly becoming a corporate industry because they’re the only people who have the money.”
Historically New Zealand’s egg producers were, as Brooks said, smaller farmers often of Dutch ancestry that had started operations after moving to New Zealand after World War Two with intensive chicken farming knowledge.
Two of the largest, if not the largest, egg producers in New Zealand are Zeagold/Mainland Poultry and Better Eggs.
Big business
In 2017 Malaysian headquartered private equity firm Navis Capital purchased 72.87 percent of Mainland Poultry for roughly $350m, which it holds through Hong Kong-registered Paul Newman Limited.
A key reason for that sale was to cover the $40m to $80m in capital expenditure needed to meet animal welfare requirements.
Better Eggs was created in 2020 through the merger of the Heyden Farms, Henergy Cage-Free and Rasmusen’s Poultry Farm businesses.
The Commerce Commission reviewed the merger and said it wouldn’t substantially reduce competition and also acknowledged the industry was facing challenges.
Better Eggs is still family owned by the Van der Heydens, but Brooks said it was only really in the past two or three years that big money had really started to get involved.
In his opinion, the industry contraction wouldn’t hit consumers' wallets, “You’ve still got a number of players.”
“Even when we had 160 farms, basically about 18 farms supplied about 85 percent of the eggs.”
Better Eggs chief executive Gareth van der Heyden, responsible for 23 percent of retail egg sales, said many industry players had lost money in the previous two or three financial years because of unsustainably low egg prices and cost inflation.
“The number of egg farms has been reducing in New Zealand over the last decade. I'm not sure you can say consolidation leads to more profit because in the last couple of years where there's been less players, we've had less profit,” van der Heyden said.
“I don't think it's a matter of industry consolidation or big and small players because at the end of the day, we're a commodity. So just because there's less players in the industry, we're still a commodity and subject to those traditional demand and supply forces.”
He doesn’t believe the industry is contracting or consolidating and knows of new farms coming online as others exit.
Ultimately, he believes that, everything else being equal, the industry has reached peak egg prices and a correction was coming within months as more volume comes to market.
