Tuesday, September 8, 2009

Tomorrow's Livestock Agriculture

Recent news reports describe Michigan agricultural leaders meeting with the HSUS to try and avoid a ballot initiative. Receiving attention is the fact that cage-free eggs are more costly and that large-scale changes can cause disruptions to the egg industry. I have three points to make which suggests producers should not be as opposed to such changes as they are, and there may be an alternative motive for opposing cage-free production for some producers.

First, the HSUS is fortunately giving producers 7+ years to convert to cage-free or gestation-stall-free systems. These changes are then long-run changes. I applaud HSUS for this. If they had tried to make these changes within five years I would publicly denounce them as unreasonable.

Second, in the long-run the benefits of a less expensive production system are received almost exclusively by consumers, not producers. Competition ensures that egg producers utilizing cage systems do not benefit from its low cost, because prices are always driven down to costs. In the long-run, then, it is consumers who will bear the burden of higher egg prices, not producers. I believe a smart producers would attempt to be one of the first adopters and gain considerable human capital in cage-free production, and then support laws that force others to adopt this system that she has already mastered.

Third, it may be that some producers are fighting cage-free systems because the systems are new and some producers are receiving benefits of being early-adopters. The premiums charged for cage-free eggs are huge, huge, huge, relative to the costs. Someone is making lots of money, and I am a little bit suspicious when I talk to producers who grow cage-free eggs and publicly denounce efforts to encourage cage-free egg production. During a phone call with an egg producer I tried to ascertain what portion of the high cage-free egg premiums are received by the farmer and the grocery store, but could not get an answer. His evasiveness suggests he may be profiting handsomely, and opposes laws promoting cage-free production because he does not want competition. Maybe not, but the high premiums on cage-free egg production relative to the cost premium suggests my suspicions are not unwarranted.

Note: I know this posting seems anti-egg-industry, but I am only going where the economics lies, I promise :)