September 22, 2015 / 5:38 PM / 2 years ago

McDonald's cage-free egg pledge pressures farmers, squeezes supply

CHICAGO/WINNIPEG, Sept 22 (Reuters) - This month’s pledge by McDonald’s Corp to phase out eggs laid by caged hens in its North American restaurants will increase competition for limited supplies of cage-free eggs.

The ban, which follows similar moves by Burger King Corp and food services company Sodexo SA, carries higher costs that may, at least initially, sting farmers.

For the egg industry, the transition to “cage-free” production will be slow and expensive. Only six percent of U.S. hens, or about 18 million birds, are currently raised without cages, according to trade group United Egg Producers.

Having more food companies switch to cage-free eggs is “a mixed blessing because it strains supply,” said Deborah Hecker, a vice-president with Sodexo North America.

Sodexo went cage-free for eggs still in the shell last summer in the United States and Canada and aims to do the same for liquid eggs by 2020.

Cage-free eggs are produced by hens free to move around inside a barn, as opposed to conventional eggs that come from hens packed in cages alongside other birds.

Farmers say it can take up to five years to build new cage-free facilities or retrofit barns because they must obtain permits and raise money.

It is normal for U.S. farmers to provide about 80 square inches per bird in caged operations, which is less than the size of a sheet of notebook paper, according to the Coalition for Sustainable Egg Supply, an industry group. Cage-free facilities are often constructed with the equivalent of about 144 square inches per hen, the group said, though the chickens can move over larger areas.

Production costs overall are about 36 percent higher for cage-free eggs because the hens get extra space and still require at least as much human labor for cleaning and care, according to the coalition.

Equipment alone for cage-free facilities costs about $25 to $30 a bird, compared to about $15 for a caged house, said Chad Gregory, chief executive for United Egg Producers. For an egg producer with a million hens, that amounts to $30 million to outfit a new barn.

Cage-free barns usually feature different levels on which chickens can walk and movable perches on which they can sit. Without cages, the hens are more likely to be pecked to death by their fellow birds, researchers say.

GROWING CAGE-FREE DEMAND

A group called Citizens for Farm Animal Protection, which includes the Humane Society of the United States, is pushing for a vote in Massachusetts next year on a measure that would ban small cages for egg-laying hens. California has already prohibited the sale of eggs from hens raised in spaces not large enough to spread their wings.

McDonald‘s, the world’s biggest restaurant chain, on Sept. 9 said it will switch to cage-free eggs by 2025 in the United States and Canada. However, the company does not plan to raise prices on its menu.

Costco Wholesale Corp and Wal-Mart Stores Inc also have said they will move to eggs from cage-free hens, but not announced timelines.

Privately held CKE Restaurants Inc, parent of Carl’s Jr and Hardee‘s, are now likely to face pressure to make the switch too, given its breakfast sales, said Morningstar analyst R.J. Hottovy.

CKE declined to comment.

To meet McDonald’s current demand for about 2 billion eggs a year to make McMuffins and other breakfast items, farmers will need to add about 7 million hens to cage-free facilities, Gregory said.

Farmers are feeling that buyers switching to cage-free eggs “is kind of the new norm now,” he said.

Eggs were widely produced without caging hens until the 1960s, said Margaret Hudson, president of Burnbrae Farms, McDonald’s largest Canadian egg supplier. It’s unlikely conventional systems with cages will disappear immediately, she said.

“When preferences change, the challenge is to transfer those additional costs,” said Oak Bluff, Manitoba egg farmer Harold Froese.

The shift toward more expensive cage-free production comes as U.S. shoppers are already grappling with record high egg prices following the loss of more than 42 million egg-laying hens in the worst outbreak of bird flu in the nation’s history. McDonald’s is expected to further strain supplies by launching all-day breakfast next month.

Hickman’s Family Farms, which sells eggs to a company that supplies McDonald‘s, plans to add about 2 million cage-free birds to its current flock of about 150,000 cage-free and organic chickens, said Billy Hickman, vice president of operations.

“We need to go where the market is going,” Hickman said. (Additional reporting by Lisa Baertlein in Los Angeles; Editing by Sue Horton)

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