McDonald's aims to be cage-free in the U.S. by 2025. / Bloomberg McDonald's aims to be cage-free in the U.S. by 2025. / Bloomberg

McDonald’s Decision to Go Cage-Free Drives Down Egg Prices

McDonald’s Corp.’s mission to use only cage-free eggs is rippling across the market.

The world’s largest restaurant company is about a third of the way to meeting its goal of being entirely cage-free in the U.S. by 2025 –– a target it shares with a broad array of retailers and food producers. The expected surge in demand has sparked barn upgrades across the country over the last several years, with producers building facilities that give hens a bit more space. This increase in supply is reducing cage-free eggs’ market premium over regular eggs.

And the price gap is expected to narrow even further –– a welcome drop for U.S. consumers who are eating the most eggs per capita since 1973. The egg industry’s investment is a response to rising demand for cage-free eggs, which are regarded as more humane and even healthier, while producers are hoping to tap premium prices.

“The supply-and-demand equation will change such that pricing will go down,” said Marion Gross, head of supply chain at McDonald’s in the U.S. “More people will be able to afford cage-free eggs.”

Gross said it wasn’t the company’s intent to alter the egg market, but “if that helps bring access to others, that’s a great add-on benefit.”

The move illustrates how McDonald’s massive size can impact commodity markets. The company says it buys around 2 billion eggs a year in the U.S. –– or close to 2 percent of the nation’s annual production. A dozen cage-free eggs cost 81 cents more than conventional eggs in February, representing a premium of just over 50 percent, according to data from the USDA analyzed by the Egg Industry Center at Iowa State University. Cage-free eggs’ cost was double that of regular eggs as recently as 2017.

The narrowing in prices comes amid an overall egg glut in the U.S. and demand for products from cage-free flocks still lags behind capacity, said Urner Barry analyst Brian Moscogiuri. He predicted the cage-free premium should continue to wane.

“When you have scale, things become cheaper, theoretically,” Moscogiuri said, adding that producers are getting more efficient at cage-free production as it becomes widespread.

Corporate Migration

Another big factor is that big companies, including Walmart Inc. and General Mills Inc., are moving in the same direction as McDonald’s. Kraft Heinz Co. says 60 percent of its supply is cage-free or free-range globally, while General Mills reached 40 percent last year.

Burger King, however, didn’t meet its goal to go cage free by 2017 that it set five years before that. Now, the Restaurant Brands International Inc.-owned chain is hoping to do it by 2025.

“We made a bold commitment in 2012 that we later came to understand was not achievable,” the company said in a statement. “We worked closely with expert third parties and aligned on our new targets that are similar to what most of the industry have also committed to.”

Producers including Cal-Maine Foods Inc. are spending more to meet demand as it ramps up. The Jackson, Mississippi-based company, which is the biggest egg producer in the U.S., said earlier this month that it’s investing $148 million to increase cage-free capacity, adding 3.4 million birds to a facility in Utah.

McDonald’s gets all of its U.S. eggs from Cargill Inc., an agricultural processor, and is paying more for the cage-free kind, although it doesn’t disclose how much more. The company isn’t investing directly to help farmers with the cost of building barns. The chain announced its goal to go cage-free at its 16,000 locations in the U.S. and Canada in 2015.

Eggs from hens that aren’t as constrained appeal to shoppers interested in more-humane treatment of animals. While cage-free birds don’t necessarily have access to run outside, they do get more room to socialize, fly to perches, and may even be healthier due to better-developed muscles.

Cage-free eggs have competition, however. Sales of so-called pastured eggs, which are produced by hens that spend most of their lives outdoors, are climbing. In comparison, most cage-free hens live enclosed in barns and rarely, if ever, venture outdoors.

But for now, the industry is steadily marching towards the cage-free goal. Forsman Farms, a Howard Lake, Minnesota-based farm which produces for McDonald’s and other clients, has built five new cage-free facilities for egg-laying hens. Mirroring McDonald’s, a third of the company’s eggs are now cage-free and it forecasts that eventually all of its production will get there.

“The consumer cares about how their food is being raised now,” co-owner Peter Forsman said. “We, as farmers, produce what people want to buy.”

–With assistance from Shruti Date Singh.

©2019 Bloomberg L.P.

This article was written by Leslie Patton from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to [email protected].

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