By Tom Polansek and Rod Nickel
CHICAGO/WINNIPEG, Sept 22 (Reuters) - This month's pledge by
McDonald's Corp MCD.N 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
BKCBK.UL and food services company Sodexo SA EXHO.PA ,
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. ID:nL4N11F530
Costco Wholesale Corp COST.O and Wal-Mart Stores Inc (NYSE:WMT)
WMT.N also have said they will move to eggs from cage-free
hens, but not announced timelines.
Privately held CKE Restaurants Inc APOLOT.UL , 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.