Sharmah Seakar is a senior procurement lead at Efficio, a leading global procurement and supply chain consultancy. We asked Sharmah to provide comments regarding the rising cost of eggs and the impact of disease outbreaks (HPAI), rising production costs, and regulatory changes.
This report delves into the reasons behind the crisis, its broader implications, and strategies for mitigating its impact.
Recent data from 2024 and early 2025 indicate that the primary driver of the significant increase in U.S. egg prices is the ongoing outbreak of Highly Pathogenic Avian Influenza (HPAI). This outbreak has led to the culling of over 20 million egg-laying chickens in the last quarter alone, marking the most severe impact on the nation’s egg supply since the outbreak began in 2022.
In contrast, while there was a recall of approximately 10,800 units of Kirkland Signature Organic Pasture Raised 24-Count Eggs sold at 25 Costco stores across five states due to potential Salmonella contamination, this incident was relatively limited in scope. The recall was initiated on November 27, 2024, and later escalated to a Class I recall by the FDA, indicating a high health risk.
Given the scale of the HPAI outbreak and its direct impact on the egg-laying hen population, it is evident that avian influenza is the primary factor contributing to the substantial rise in egg prices during this period.
Factors Driving the Rising Cost of Eggs
1. Avian Influenza Outbreaks: The U.S. has faced significant outbreaks of Highly Pathogenic Avian Influenza (HPAI), leading to the culling of millions of egg-laying hens to prevent the spread of the disease. This reduction in the laying hen population has directly decreased egg production, driving prices upward. The New York Post reported on January 19, 2025, that egg prices are expected to rise by as much as 20% by the end of the year, potentially reaching $5 per dozen. The cost of a dozen eggs rose nearly 38% from fall 2023 to fall 2024, according to data from the Bureau of Labor Statistics.
2. Increased Production Costs: Egg producers are experiencing higher costs due to increased energy prices and the rising cost of bird feed. These expenses are reflected in consumer prices. The Wall Street Journal noted on January 19, 2025, that food prices overall are experiencing significant hikes, with inflation in December 2024 reaching the fastest rate in over a year.
3. Regulatory Changes: Certain states, including Colorado, have implemented laws requiring the production and sale of cage-free eggs, which are generally more expensive to produce. These regulations aim to improve animal welfare by mandating that hens have more space to move freely rather than being confined to small cages. Compliance with these laws often requires producers to invest significantly in new infrastructure, including converting traditional caged facilities into cage-free environments. For example, Colorado’s cage-free egg law, effective January 1, 2025, stipulates that all eggs sold within the state must be sourced from cage-free hens, aligning with broader consumer and legislative trends across the U.S. While these changes meet growing consumer demand for ethical farming practices, they also pose operational challenges and financial burdens on producers, contributing to the rise in egg prices. Additionally, similar laws have been implemented in states like California, Massachusetts, and Washington, further accelerating the transition toward cage-free production nationwide. While these regulations align with animal welfare standards, they also contribute to increased production costs. Colorado’s law, effective January 1, 2025, has added pressure to an industry already grappling with avian influenza impacts.
Supply and Demand Dynamics
2024:
· Production: U.S. egg production totalled 8.92 billion in September 2024, a 2% decrease from the same period in 2023.
· Prices:
· July 2024: The average price for a dozen Grade A, Large eggs was approximately $2.40.
· August 2024: Prices rose to about $3.21 per dozen, reflecting a 33.8% increase from July.
· September 2024: Prices averaged $3.06 per dozen.
· October 2024: Egg prices averaged $3.37 per dozen, a 10.1% increase from September.
· November 2024: Prices further escalated to $3.65 per dozen, an 8.3% rise from October.
· December 2024: The average price peaked at $4.15 per dozen, marking a 13.7% increase from November.
2025 Projections:
· Production: The USDA has adjusted its egg production forecasts downward for 2025, citing a smaller laying flock and lower lay rates.
· Prices: Experts predict egg prices could rise by an additional 20% by the end of 2025, potentially reaching nearly $5 per dozen.
Impact on the U.S. Economy and Stakeholders
The egg price crisis has far-reaching implications:
· Retailers and Wholesalers:
· Limited egg supply has led retailers to impose purchase limits to manage inventory and ensure availability.
· Wholesale egg prices surged, forcing retailers to either absorb costs or pass them to consumers, impacting profit margins.
· Consumers:
· With egg prices increasing by 137% in 2022, household budgets are under strain, especially for low-income families.
· Many consumers are altering their diets, reducing egg consumption, or seeking cheaper alternatives like plant-based substitutes.
· Manufacturers and Producers:
· Producers face rising feed costs, labor expenses, and biosecurity investments.
· Rebuilding flocks after HPAI outbreaks is time-consuming, with recovery often taking 6-12 months.
· Manufacturers reliant on eggs (e.g., bakeries) are experiencing higher production costs, affecting pricing and profitability.
Supply Chain and Procurement Strategies
Businesses can adopt the following measures to mitigate the impact of egg shortages and price volatility:
1. Diversify Suppliers: Establish relationships with multiple suppliers across different regions to reduce dependency on a single source and mitigate localized disruptions. By sourcing eggs from multiple regions, businesses can protect themselves against regional supply chain issues such as disease outbreaks, extreme weather, or local regulatory changes. Diversification also provides opportunities to access competitive pricing from various suppliers, ensuring that businesses are not solely reliant on suppliers impacted by significant cost increases or shortages.
2. Inventory Management: Use advanced inventory systems to monitor egg usage patterns and proactively adjust procurement strategies. Implementing technology-driven inventory tools can provide real-time insights into stock levels, enabling businesses to anticipate shortages or surpluses. Accurate demand forecasting minimizes waste and ensures timely replenishment, especially in periods of volatile supply and pricing. Such systems can also help businesses identify trends and adjust order quantities based on seasonality or market conditions.
3. Explore Alternatives: Introduce egg substitutes or revise recipes to reduce dependency on eggs. Businesses, especially in the food manufacturing and restaurant industries, can explore using plant-based or synthetic egg alternatives, which have gained popularity as cost-effective and sustainable options. For instance, aquafaba (chickpea water) or commercial egg replacement powders can be used in baking. Revising recipes to use fewer eggs without compromising quality can also help businesses manage costs during supply shortages.
(Examples: CSM Ingredients Group: CSM has developed “Egg ‘n Easy,” an egg replacement product designed for cake and muffin batters. Made from wheat flour, wheat protein, vegetable fibers, and sorbitol, it enhances batter viscosity and improves oil retention. By using Egg ‘n Easy, manufacturers can reduce egg-related costs by up to 25%, and up to 50% when combined with CSM’s proprietary enzyme technology.)
4. Long-Term Contracts: Negotiate fixed-price contracts with suppliers to stabilize procurement costs. Locking in prices through long-term agreements with suppliers protects businesses from market volatility and sudden price hikes. These contracts also strengthen relationships with suppliers, providing assurance of consistent supply even during periods of high demand or shortages. Additionally, businesses can explore contracts with clauses that adjust for inflation or include bulk purchasing discounts to maximize cost savings. Business should also focus on the major terms and conditions of the contract to hold the suppliers/distributors liable.
Ensuring that suppliers honor long-term contracts, even in the face of potential disruptions such as force majeure or inflation, requires careful planning, negotiation, and risk mitigation strategies. Here are some measures businesses can take:
1. Craft Robust Contract Terms
· Clearly Define Force Majeure: Specify in the contract what qualifies as a force majeure event. Exclude predictable events like inflation, labour shortages, or minor supply chain disruptions.
· Narrow the Scope: Limit force majeure clauses to major, unforeseeable events (e.g., natural disasters, war, or government-imposed restrictions).
· Notice and Mitigation Requirements: Require suppliers to notify you immediately if a force majeure event occurs and detail the steps they will take to mitigate the impact.
2. Negotiate Inflation Clauses Carefully
· Cap Price Adjustments: Include limits on how much prices can be adjusted for inflation, e.g., tying adjustments to a specific inflation index with a cap.
· Regular Reviews: Schedule periodic reviews of pricing to adjust incrementally, rather than allowing a sudden renegotiation due to extreme inflation.
· Index-Based Adjustments: Use a transparent and mutually agreed-upon inflation index to govern adjustments.
3. Include Penalties for Breach
· Liquidated Damages: Specify financial penalties for unjustified termination or breach of contract to deter suppliers from exiting agreements prematurely.
· Performance Bonds: Require suppliers to secure a performance bond or similar financial instrument to ensure compliance with contract terms.
4. Add Alternative Supply Guarantees
· Back-Up Suppliers: Include provisions that require suppliers to arrange for alternative sources of supply if they cannot meet their obligations.
· Third-Party Arbitration: Include arbitration clauses to resolve disputes fairly and promptly, without immediately resorting to contract termination.
5. Build Strong Relationships
· Collaborative Partnerships: Foster a partnership approach where suppliers feel incentivized to uphold agreements. Share forecasts and collaborate on contingency planning.
· Incentives for Compliance: Offer incentives such as performance bonuses or preferred status for suppliers that adhere to contracts over the long term.
6. Implement Risk Management Strategies
· Diversify Suppliers: Avoid over-reliance on a single supplier by diversifying your supply base.
· Stockpiling Key Inputs: Build inventories of critical inputs to buffer against potential supply disruptions.
· Monitor Market Trends: Stay informed about industry trends and the financial health of your suppliers to anticipate potential issues early.
7. Leverage Legal and Contractual Protections
· Legal Remedies: Ensure the contract includes provisions for dispute resolution mechanisms, such as mediation, arbitration, or litigation.
· Force Majeure Exceptions: Require suppliers to prove that the force majeure event directly caused the failure to perform and that they made reasonable efforts to avoid or mitigate it.
· Termination and Continuity Plans: Include provisions that allow you to terminate the contract or source from alternative suppliers if the terms are violated.
By taking these steps, businesses can minimize the risk of suppliers using force majeure or inflation clauses to exit contracts improperly and ensure continuity and stability in procurement arrangements.
Recommendations for Egg Producers
Egg producers play a critical role in ensuring the availability of an essential food item while balancing challenges such as disease outbreaks, regulatory changes, and evolving consumer expectations. Here’s an in-depth explanation of strategies they can adopt to maintain consumer trust and minimize reputational damage.
1. Communicate Transparently
· Why It Matters: Transparency builds trust with stakeholders, including consumers, retailers, regulators, and investors. A lack of communication during crises, such as Highly Pathogenic Avian Influenza (HPAI) outbreaks, can lead to speculation, panic buying, or loss of consumer confidence.
· Actions:
· Regular Updates: Share timely updates on production challenges, disease containment efforts, and expected impacts on supply or prices.
· Multi-Channel Communication: Use social media, press releases, newsletters, and in-store materials to reach diverse audiences.
· Crisis Communication Plan: Develop a robust communication strategy for emergencies, ensuring stakeholders receive accurate and consistent information.
· Transparency on Pricing: Explain how market factors, like feed costs, labor shortages, or disease outbreaks, affect egg prices. Transparency fosters empathy among consumers and reduces backlash.
2. Enhance Biosecurity
· Why It Matters: Disease outbreaks, such as HPAI, can devastate flocks, disrupt supply chains, and harm the industry’s reputation. Preventing outbreaks through biosecurity is both a moral and economic imperative.
· Actions:
· On-Farm Protocols: Implement strict hygiene measures, such as disinfecting vehicles, equipment, and footwear, restricting visitor access, and ensuring proper disposal of waste.
· Controlled Access: Limit access to poultry houses and enforce rules for personnel and equipment movement to minimize contamination risks.
· Monitoring and Early Detection: Regularly test flocks for diseases and install surveillance systems to detect signs of infection early.
· Training Programs: Educate farmworkers about biosecurity protocols, ensuring they understand their role in preventing outbreaks.
· Collaboration with Experts: Work with veterinarians, animal health experts, and regulatory bodies to stay updated on best practices and emerging risks.
3. Prioritize Animal Welfare
· Why It Matters: Consumers are increasingly prioritizing ethical sourcing and animal welfare. Adopting humane practices not only aligns with consumer expectations but also helps producers stay ahead of regulations mandating welfare improvements.
· Actions:
· Transition to Cage-Free Systems: Gradually move towards cage-free or enriched housing systems in line with market demand and regulatory changes.
· Third-Party Certifications: Obtain certifications like Certified Humane or American Humane Certified to demonstrate commitment to high welfare standards.
· Ensure Proper Living Conditions: Provide adequate space, natural light, ventilation, and opportunities for natural behaviors like perching and dust bathing.
· Workforce Training: Train farm staff on humane handling techniques and the importance of animal welfare.
· Proactive Compliance: Anticipate and prepare for future legislation, such as mandates on cage-free production, to avoid rushed transitions and financial strain.
4. Engage with Communities:
· Why It Matters: Engaging with local communities and consumers fosters goodwill and educates stakeholders about the complexities of egg production. This can counter misinformation and enhance public understanding of challenges faced by producers.
· Actions:
· Educational Outreach: Organize farm tours, school visits, or virtual events to demonstrate egg production processes and biosecurity measures.
· Highlight Sustainability Efforts: Share stories about energy-efficient practices, waste management, or innovations like using renewable energy in operations.
· Partner with Retailers: Collaborate on campaigns to promote transparency and emphasize efforts to stabilize supply chains during crises.
· Social Media Engagement: Use platforms like Instagram, Twitter, and TikTok to showcase behind-the-scenes operations, animal care practices, and contributions to food security.
· Community Support Programs: Provide free or discounted eggs to food banks, schools, or community kitchens during shortages to demonstrate social responsibility.
Benefits of Implementing These Recommendations
1. Increased Consumer Trust: Transparent communication about challenges, such as HPAI outbreaks and pricing, reassures consumers, fostering loyalty and reducing skepticism about price fluctuations or production methods.
2. Improved Market Position: Compliance with animal welfare standards (e.g., cage-free systems) and community engagement boosts reputation, attracting ethically conscious consumers and strengthening competitiveness in the market.
3. Reduced Risk of Outbreaks: Enhanced biosecurity measures, such as strict hygiene protocols and early disease detection, significantly lower the risk of devastating events like HPAI, ensuring operational continuity.
4. Regulatory Compliance: Proactively adopting practices aligned with future regulations, such as cage-free production, ensures uninterrupted operations, prevents legal penalties, and avoids rushed transitions.
By implementing these strategies, egg producers can build resilience, maintain public trust, and secure sustainable growth in a dynamic industry.
Conclusion
The ongoing egg price crisis in the U.S. highlights the interconnected nature of agriculture, economics, and public health. Key factors include the 2022-2023 Highly Pathogenic Avian Influenza (HPAI) outbreak, which led to the culling of over 58 million birds and reduced egg production by 5-7%, creating a supply-demand imbalance. Rising feed costs, driven by global commodity price increases, and labor shortages further escalated production expenses. As a result, U.S. egg prices soared to record highs, exceeding $4.25 per dozen in late 2022 an increase of 137% from the previous year.
To build resilience, stakeholders must focus on strengthening biosecurity, exploring alternatives like egg substitutes, and adopting sustainable practices. Collaborative efforts across the supply chain will be crucial in addressing future challenges and ensuring food security in the U.S.