Humpty Dumpty Economics
How egg-flation may be the egg-chiles heel of the US economy.
The past few years have seen the rise of populist movements around the globe that have upended incumbent governments, movements largely fueled by surging inflation. That was certainly the case in the US, where the incumbent party lost the presidency and Senate, but it was also true around the globe in places from the U.K. to Panama to Portugal.
The reason inflation is such a potent issue with the ability to cause monumental political disruption is because of its far-reaching impact. Seemingly overnight, every single person is suddenly poorer as their purchasing power diminishes. The pain isn’t evenly spread, of course, with the middle- and lower-classes bearing the brunt much more so than the rich…which effectively makes inflation a regressive tax that is the result of governments borrowing, printing, and spending too much money. Further, the mindless rush to minimize fossil fuel usage only served to make energy more expensive. Everything from the cost of the electricity to produce goods to the cost of the fuel to transport them all went up. There is a recipe – so to speak – that creates inflation, and our government followed it to a T.
Here in the U.S., if there is anything that has become symbolic of the inflation still pinching pocketbooks, it’s a staple that Americans take for granted: Eggs. Egg prices hit an all-time high in January, with the average price of a dozen Grade A eggs reaching $4.95. This is a 53 percent over January 2024, and the U.S. Department of Agriculture predicts that egg prices will increase 41 percent this year. Instead of geese laying golden eggs, it’s chickens.
Even more impactful than strings of numbers are the stories in the news every day. Last month, Waffle House and Denny’s announced surcharges for every egg in an order; some stores are now limiting how many eggs shoppers can buy. A gallows humor has sprung up, and late night comedians have had some fun with the topic.
People are now resorting to desperate measures. Some are trying to bring them in over the border - which is illegal – and egg confiscations were up 29%, according to the U.S. Customs and Border Protection. Someone even stole 100,000 eggs from an organic distributer. Funny, perhaps, but also a felony; the eggs are worth about $40,000. If you want to know what as value, look at what people are willing to risk jail to steal.
Like energy, higher egg prices impact far more than just the dairy aisle. Eggs are a common ingredient in everything from baked goods to mayonnaise to pasta. More expensive eggs can make your entire grocery trip more painful.
So, why are eggs so expensive? To start, eggs are caught up in the same inflationary spiral as everything else, as I discussed above. The price of everything from chicken feed to freight costs to packaging has gone up, and that has driven up the price of eggs.
In addition, supply shocks also pressure prices. Geopolitical developments, trade wars, natural disasters, and – as we saw not long ago – pandemics can also spark inflation. And when it comes to eggs, a raging avian flu pandemic may be the biggest contributor to rising prices.
H5N1 began decimating chicken flocks in February 2022. Since then, 130 million birds have been affected, making it one of largest such outbreaks in U.S. history. When a commercial poultry farm is discovered to have an incidence of the virus, it is placed under quarantine and the transportation of all poultry and egg products is halted. Flocks are culled, and an extensive cleaning, disinfecting, and testing regimen is undertaken before getting USDA and state approvals to re-open.
Given that U.S. commercial poultry outfits are typically large – flocks of 1 million are not uncommon – each outbreak tends to have a large impact on the number of egg-producing hens in the country. After an outbreak is dealt with, it takes more time to repopulate these larger farms and get the flock to egg-laying age. There are just over 300 million egg-laying hens in the U.S., and since last October, 52 million have been lost; that’s 17 percent of the total number of hens in the country. Fewer hens mean fewer eggs, and, as taught in Econ 101, when supply can’t meet demand, prices rise.
The trendy cage-free movement may be a factor as well. In 2018, California – a top egg producer - passed a law mandating that all eggs sold in the state are produced in cage-free environments; eight other states followed suit and now 40 percent of the eggs sold in the U.S. are cage-free, up from just 5 percent in 2010. Cage-free eggs cost more and this, too, has contributed to price increases. But more importantly, there is evidence that the avian flu hits cage-free facilities harder; although cage-free hens make up only a third of the U.S. flock, they account for 60 percent of all bird flu cases. And like college kids on Spring Break, it’s tough to enforce social distancing among free-range hens.
So, what can be done to lower prices? Getting the bird flu under control is the obvious place to start, and the USDA has spent nearly $2 billion trying to do exactly that. It’s proven easier said than done, and now Trump’s Agriculture Secretary Brooke Rollins has proposed spending another billion. She recently released a plan to lower egg prices, which included bio-security measures and exploring vaccines and therapeutics so as to avoid depopulating flocks, and importing eggs to increase supply. She even suggested people should raise their own chickens, something people in my home state of New Hampshire are already doing; it’s not uncommon to see eggs offered for sale on Facebook, and one enterprising couple is even renting out their chickens.
High prices and supply shocks can also spur innovation and cultural shifts; just think about Zoom and “working remote”. Could the same happen with eggs? Lab-grown meat has been making strides and lab-grown milk will soon make its U.S. debut; some companies have already developed lab-grown eggs. Other companies have been working on vegan substitutes made from beans, tofu, and lentils that increasingly mimic the real thing. Supply shocks sometime change tastes; Americans’ famous predilection for coffee was the result of the lack of British tea during the American Revolution; John Adams once declared that drinking tea was unpatriotic. Some of these substitutes might take hold if prices remain high enough, for long enough.
While there are things that can marginally improve or worsen the situation, until the avian flu is brought under control and flocks are built back up, until supply-chains are reconnected and general inflation brought back down, egg prices will likely remain high. These things are going to take time. We may very well find out that Humpty Dumpty is hard to put back together again.
VIKRAM MANSHARAMANI is an entrepreneur, consultant, scholar, neighbor, husband, father, volunteer, and professional generalist who thinks in multiple-dimensions and looks beyond the short-term. Self-taught to think around corners and connect original dots, he spends his time speaking with global leaders in business, government, academia, and journalism. He’s currently the Chairman and CEO of Goodwell Foods, a manufacturer of private label frozen pizza. LinkedIn has twice listed him as its #1 Top Voice in Money & Finance, and Worth profiled him as one of the 100 Most Powerful People in Global Finance. Vikram earned a PhD From MIT, has taught at Yale and Harvard, and is the author of three books, The Making of a Generalist: An Independent Thinker Finds Unconventional Success in an Uncertain World, Think for Yourself: Restoring Common Sense in an Age of Experts and Artificial Intelligence and Boombustology: Spotting Financial Bubbles Before They Burst. Vikram lives in Lincoln, New Hampshire with his wife and two children, where they can usually be found hiking or skiing.