Legal battles, consumer willingness to pay muddies US transition to cage-free production
An estimated 76% of U.S. eggs came from caged layer systems in 2021, but by 2026, 17% of U.S. egg-laying operations will be required to provide a certain amount of space for hens or be prohibited from using a cage at all. This is an increase from approximately 3% of operations in 2021, according to a new report from USDA’s Economic Research Service. Further, sales bans on eggs produced in noncompliant operations will affect nearly 25% of the U.S. population by 2026.
The transition has been the result of state policies as well as animal welfare policy changes by retailers, food service providers and food manufacturers. In fact, the report pointed out that cage-free production has nearly doubled in the five-year span of 2017 to 2021. The cage-free laying hen inventory increased from an estimated 12.9% of the national flock in 2017 to an estimated 24% at the end of 2021.
According to the report, in 2008, California became the first state to pass a ballot measure that effectively banned battery-caged egg production in the state’s poultry industry. In practice, Proposition 2 outlawed the confinement of hens in cases where they were unable to fully extend their limbs or turn around freely. In 2013, state regulators further defined the rule by setting the minimum amount of space allowed per bird to 116 square inches, a 73% increase over the 67-square-inch industry standard. In 2018, voters in the state went even further bypassing Proposition 12, which contained more specific language outlawing the use of battery cages in egg production and requiring a minimum of 1 square foot of usable floorspace per hen.
Since California’s Prop 2 passed, USDA economist Danielle Ufer said another eight states have enacted similar bans on confined or caged production. In 2010, Ohio imposed a moratorium on new permits for caged layer operations, requiring all new laying operations from 2011 onward to be cage-free with a minimum of 1 square foot of space per bird. While the Ohio law is not an outright ban because it allows already-established operations to continue operating, Ufer pointed out that it did require them to provide a minimum area of 67 square inches per bird for all laying hens.
Unless other states pass additional legislation, however, Ufer said 83% of operations in the U.S. will legally be allowed to produce using battery cage systems with stocking densities of less than 116 square inches per bird after 2026. This amounts to nearly 87% of all egg production in the U.S., with only 13% of total egg production occurring in states with confinement regulation.
Increased costs, complex trade dynamics lead to opposition
When California's Prop 2 passed, it initially contained no provisions for the sale of eggs from confined hens produced in other states. Ufer said estimates of the costs imposed by the ban on producers indicated at least a 20% rise in production costs. Under the original Prop 2 structure, these increased costs would only accrue to California egg producers. As such, California lawmakers amended the ban to include out-of-state shelled egg products. The passage of Prop 12 in 2018 further refined this sales ban to prohibit sales of shelled and liquid eggs from any caged laying system, beginning in 2022.
Ufer noted six of the eight states that have banned battery cage systems have followed this example. Additionally, while the share of egg-producing operations is relatively low in states that have implemented these policies, Ufer said the share of the U.S. population residing in these states is much greater.
“Just under a quarter of the U.S. population lives in states that, by 2026, will prohibit the sale of products produced in confined or caged laying systems, though less than 15% of laying hens will reside in states with compliant legislation.”
While population share is not necessarily equivalent to consumption share, Ufer said the discrepancy still represents a “substantial deficit” in production that would need to be filled by out-of-state imports, thereby exporting the policies to other states.
Ufer noted that several industry and state representatives have pushed back against bans on the sale of eggs from confined layers. In 2014, the attorneys general of Missouri, Nebraska, Oklahoma, Alabama, and Kentucky and the governor of Iowa sought to block California’s law in California district court. Their case was dismissed on the grounds that egg producers could file the complaint themselves, that alleged economic damages from the law were necessarily speculative, and that allegations of discrimination based on state of origin were deemed to be misplaced.
Another lawsuit challenging California was filed with the Supreme Court in 2017 by 13 states. A similar motion to file a complaint against Massachusetts’ law was also made by 13 states that same year. Both motions were denied. State caged egg sales bans also inspired proposed amendments to both the 2014 and 2018 farm bills that would have prevented states from imposing animal welfare standards on other states’ industries through sales restrictions. Neither amendment was passed in the final farm bills.
Without a successful legal challenge, Ufer said the California confined egg sales ban took effect in 2015. The next scheduled bans in Massachusetts (Question 3) and Nevada (AB 399), and in California (Prop 12) for shelled and liquid eggs from cage systems, were scheduled to take effect in 2022. Implementation of both Question 3 and Prop 12 have been delayed until the Supreme Court rules on the case. Producers have until Jan. 1, 2024, to be fully compliant with Nevada’s cage-free law.
Economic impacts
According to the report, shifting production toward less-confined or cage-free production results in increased costs that also reach the retail level. In addition to higher production costs, a study by Mullally and Lusk in 2017 found that 20 months after implementation, both egg production and egg-laying hen numbers in California were 35% lower than expected in the absence of the regulation.
Ufer said several studies have examined the effect of Prop 2 on retail prices both in and outside the state. Prices for eggs in California increased between 48 cents and $1.08 per dozen, or approximately 33-70%, from January 2014 to July 2015. The estimated cost to consumers is between $400 million and $850 million per year.
Outside of California, Ufer relayed that long-run wholesale egg prices increased by approximately 7-10 cents, or 4-6%, from 2016 to 2017.
And while California’s regulations did not force out-of-state egg producers to alter their production, Ufer said the regulations did constrain those producers’ marketing opportunities within the state. As a result, the ban shut smaller producers out of the California market, restricting California’s egg supply and reorganizing overall interstate trade dynamics.
A study by Oh and Vukina in 2021 estimated that Prop 12 would result in the expected annual economic loss to California households of $72 million, with a concurrent industry-level loss amounting to 18% of original quasi-profits.
Consumer buy-in varies
Just as the meaning of animal welfare terminology varies across stakeholders, Ufer said premium product claims may have differing animal welfare implications among consumers. One such phenomenon identified by research is called the “vote-buy gap,” wherein the share of voters who support a policy is greater than those willing to take private action, such as by buying cage-free eggs. As a result, Ufer said policies can create a uniform standard for production and sales but may also exceed the cost consumers are willing to pay for improved animal welfare.
“Separate premium offerings in markets without such policies can allow consumers to buy products with specified animal welfare provisions while still allowing others who prefer conventional standards or prices to buy generally lower-cost products,” she noted.
