An outbreak of bird flu has prompted the untimely demise of 35 million hens, seriously disrupting the supply of eggs in the United States. Now we get to watch the relationship between supply disruption and price changes play out, which is fun (if you’re into that sort of thing). There have already been reports of rationing by retailers and of significant price hikes.
With eggs costing up to 3 times their normal price, a lot of retailers and restaurants are “rationing” eggs. The goal of the rationing is most likely to avoid raising prices. For example, Whataburger chose to stop offering late night breakfast rather than raise prices. And some grocery stores are limiting the number of eggs shoppers can purchase in an effort to keep prices low for regular customers without attracting hordes of commercial users.
High prices are also pushing consumers toward premium egg products. The Guardian reports:
The higher prices have driven some consumers to buy specialty eggs including cage‐free and organic, which typically cost more but haven’t seen a similar increase because specialty‐egg chicken houses haven’t been hit as hard, Urner Barry egg industry analyst Brian Moscogiuri said. He noted that specialty‐egg prices are closer to regular eggs, leading some consumers to justify the purchase.
With a large portion of America’s egg production capacity suddenly wiped out, the only way to get prices back down quickly is to find new sources of supply. Thankfully, the U.S. Department of Agriculture has a way to do that. According to the Associated Press:
The bird flu outbreak has caused the U.S. Department of Agriculture to approve importing egg products from the Netherlands to be used for baking and in processed foods.
The USDA said last week the Netherlands should begin shipping egg products within days.
It’s the first time in more than a decade the U.S. has bought eggs from a European nation.
In recent years, only Canada held certification to sell liquid, dried and frozen egg products to U.S. companies.
Allowing more imports is a great idea. Local supply shocks like the bird flu outbreak have much less impact on prices and availability when there is a diverse array of sources available. There are still costs associated with shifting supply chains, but basic commodity prices are much more stable and less prone to shocks in a global market.
It’s good that the USDA has responded rationally to alleviate this problem by permitting egg imports from the Netherlands, but the move raises an important question: Why was it not okay to import eggs from the Netherlands before? Were Dutch eggs unsafe? Are they safer now?
The USDA is supposed to allow egg imports from countries with equivalent safety standards. It seems pretty clear that the way the system is currently being managed results in an overly protected U.S. egg market. It’s more than a little silly to think that Canada and the United States are the only places with sufficient regulatory oversight to ensure the production of safe egg products.
In 2013, Sallie James and I wrote a paper explaining how regulatory protectionism is often disguised as safety standards. If U.S. authorities are willing to allow certification to prevent price surges, have they been denying certification based on price control considerations? That would be an abuse of sanitary and phytosanitary measures for protectionist purposes in violation of international trade rules.
While it’s great that the USDA is working to find new sources of supply now, the bird flu outbreak wouldn’t have caused as much disruption for consumers if the U.S. market had been more open to begin with.