Uncertainty brings risk, opportunity for egg producers

Given the ongoing uncertainty over what type of housing would meet Proposition 2 requirements, there are several options

While dismissing William Cramer’s challenge to California’s Proposition 2 with prejudice, judge John Walter’s decision said, “Proposition 2 provides a person of ordinary intelligence more than a reasonable opportunity to know what is prohibited and provides explicit and objective standards to prevent discriminatory enforcement.” I respectfully disagree with the judge, and given the ongoing uncertainty over what type of housing would meet Proposition 2 requirements, what should egg producers do?

As I see it, there are several options. One is to sit back and hope that either the Association of California Egg Farmers lawsuit or passage of the national hen welfare legislation (H.R. 3798) brings clarity to the requirements. Another option is to build cage-free housing and place birds to service the California market starting in 2015. There is a risk that a long-term lower-cost option for producing “California” eggs other than cage-free is approved, but when or if this happens, markets could be developed in other states for more cage-free eggs. The payback here could come from getting the first crack at a relatively wide-open market if cage-free becomes the predominant, or only, type of egg available for sale in California long term.

The final option would be to pick a housing type other than cage-free that meets Proposition 2 requirements—like enriched cages at a certain space per bird—and then prepare to go to court. If you can prevail in court, you could be the low-cost producer without many competitors, at least until the rest of the industry catches up. If you lose, you market your eggs in other states and try and develop a premium market for eggs from enriched cages.

To see the opportunities you just have to be willing to throw off the commodity mindset.