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Jeffrey Thompson, Star Tribune

A worker at Baer Brothers, Inc. removed an egg from a selection being processed at the farm in Lake Park, Minn. Wednesday, Nov. 19, 2008. Egg prices have spiked in the last two years because suppliers have cut back on their hen flocks, increasing pressure on supply.

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Our Hungry Planet: Golden eggs

With prices soaring, eggs exemplify the forces at work in the 21st-century food chain.

Last update: December 8, 2008 - 5:58 AM

Jack Romine picked up the grocery receipt lying on his kitchen table and began studying the numbers.

Milk, bread, a head of lettuce. Prices were up but not out of line. Then came the shocker -- $2.29 for a carton of eggs.

He called the store to double-check. No, the clerk told him, $2.29 was the going rate for a dozen large Grade A's.

"I couldn't believe it," said Romine, 77, a retired advertising director from Brooklyn Center.

In a year of soaring food costs, nothing in American grocery carts has spiked like eggs -- up nearly 60 percent in two years.

What's to blame? A lot, it turns out.

Global pressures, such as increased demand from changing diets in developing countries, and rising feed costs from spikes in commodity prices this year are partly responsible.

So are long-term trends in the egg industry. Rapid consolidation and a move to industrialized production have left fewer players producing the bulk of the nation's eggs. And newer environmental regulations make expanding, or getting into the business, more difficult.

But the most significant influence on pricing may well have been the industry's own doing. Over the past two years, after a several-year slump, egg farmers have cut back on the size of their hen flocks at a pace not seen in more than 20 years. The result: Fewer hens means fewer eggs, which in turn means higher prices. That has generated a profit bonanza for the egg industry, but has also caught the attention of the U.S. Department of Justice, which is investigating whether some of the nation's largest egg producers conspired to fix prices.

Through it all, one thing is clear: Industrialized food production has not insulated consumers from price volatility. In fact, some agricultural experts argue it may have exacerbated the problem.

'Dark clouds'

Amon Baer's northwestern Minnesota egg farm is a far cry from the one his dad had in the 1960s. Back then, hens roamed freely and Amon and his brothers picked eggs by hand.

A generation later, Baer's mechanized facility, which employs 25 people, cranks out 18,000 dozen eggs in a day.

Two henhouses with 150,000 birds each span the length of two football fields and flank a packaging center, where the eggs are inspected, cleaned and boxed.

Hens -- from as few as three to as many as 10 -- live in small, wire-battery cages that are stacked four rows high. Water drips from a nipple at the top of each cage. Feed is delivered by conveyor belt.

Eggs roll slowly across the bottom of the slightly sloped cage onto another conveyor belt, where they wind their way to the packaging center.

"Pricing is good right now," Baer said. "But there are a lot of pretty dark clouds on the horizon that make me question whether it will be so in the future."

Just 20 years ago, 2,500 egg producers handled most of the eggs sold and consumed in the United States. A large henhouse had perhaps 100,000 birds. Today, about 250 businesses produce 95 percent of the nation's eggs from henhouses that are as long as football fields and capable of housing more than 500,000 hens.

"The barriers to entry are getting higher all the time, as are all the investment capital requirements to get into the business," said Allan Rahn, a poultry specialist and former economics professor at Michigan State University. "It's become a very sophisticated industry, and you gotta be big to compete."

But industrialized farming, long viewed as the means to cheap food, couldn't keep prices down this year. Shoppers are paying more for just about everything at the grocery store. White rice was up 55 percent this past year. Potatoes rose 41 percent, and bananas 24 percent.

Meanwhile the specter of deflation, or falling prices, haunts the economy. The consumer price index fell 1 percent in October, the biggest drop in more than 60 years. While prices for energy, cars and personal computers were all rapidly declining, grocery prices are still up 7.5 percent compared to a year ago, a pace not seen in 18 years.

And that generated huge windfalls for the U.S. egg industry, which last year produced 90.6 billion eggs. Cal-Maine Foods, the nation's biggest producer, saw its profits more than quadruple in 2007 to $152 million from $37 million. At Land O'Lakes, an Arden Hills-based farmers' cooperative that owns the nation's third-largest egg producer, MoArk, profits surged 83 percent last year to $162 million.

Eggs have spiked before. But traditionally, when that has happened and producers see money, they race to expand and add more hens, flooding the market with eggs and bringing prices back down again.

"We always joke among ourselves, 'We're able to out-produce any good market overnight,'" said Bob Krouse, president of Midwest Poultry Services L.P. in Mentone, Ind., one of the top 15 egg producers in the nation.

No more. During the past two years, as prices were climbing and egg exports booming, the number of hens laying eggs for food fell by 8 million to 280.3 million through the third quarter of this year. When compared with the same month from the previous year, hen populations have declined for 21 consecutive months.

"I don't know if we've ever seen a period with such an extended decline," said David Harvey, a USDA poultry expert.

By this spring, supplies were so tight that the slightest disruption in the supply chain would send eggs bobbing higher. "We were at the point where if an 18-wheeler went into a ditch with a trailer full of eggs, you had a problem," said Scott Beyer, a poultry specialist at Kansas State University. "It drives prices up."

An uncertain future

In dozens of interviews, poultry experts point to the industry's move in 2002 to give hens more room as an underlying cause of higher prices. The United Egg Producers (UEP), the industry's leading trade group, adopted guidelines for hens to have at least 67 square inches of space. Many producers used cages of just 50 to 60 square inches.

The industry claims the new standards were a result of pressure from animal rights groups as well as scientific studies showing hens produce more if given slightly more room.

Though the UEP's program was voluntary, by 2007 more than 80 percent of the United States egg supply was operating under the new guidelines. Many producers reduced the size of their flocks to comply.

The supply of hens declined so dramatically that the industry now faces allegations of price fixing. The Justice Department is investigating "the possibility of anti-competitive practices," said Gina Talamona, a deputy director. She declined to comment further.

And during the past three months, more than a dozen federal lawsuits have been filed against top egg producers, including MoArk, Michael Foods of Minnetonka and Golden Oval Eggs of Renville, Minn., which declined to comment.

Attorneys who filed the suits contend the egg industry used animal welfare as a pretext to reduce flocks and keep egg prices artificially high. They cite as evidence the UEP's own statements, in which the group repeatedly called on egg producers to keep production in check. For instance, in May of 2004, UEP president Gene Gregory urged members to adopt the new standards.

"If you stay true to the program and manage it to meet the market demand, it can provide the industry with prolonged profits," Gregory wrote in the group's newsletter.

Gregory did not return repeated calls.

But for animal rights groups -- and California voters -- the UEP standards don't go far enough. On Nov. 4, California approved Proposition 2, requiring that birds be able to spread their wings without touching the sides of their cages. Some producers predict that will kill almost all caged egg production in California, which accounts for about 5 percent of the nation's supply. The vote has triggered fears among producers that similar measures would surface in other parts of the country.

Supply and demand

With a future so uncertain, few egg producers are building, ensuring tight supplies.

If "you were going to have to spend $20 million on a new complex, would you have the confidence to make that investment?" asked Alan Andrews, a vice president at Litchfield, Minn.-based Sparboe Companies, the nation's fifth largest egg producer.

Yet even with tight supplies and continued high prices, consumers aren't likely to curtail egg purchases.

Janel McGreevy prefers organic, "cage-free" eggs. "I can't stand the idea of hens cooped up in those tiny pens," said McGreevy, 53, a fifth-grade teacher from Eagan. But they have become so expensive -- $3.39 a dozen on a recent trip to Super Target in Richfield -- that she now mixes them with cheaper store-brand eggs

But going without is not really an option. McGreevy's family eats them for breakfast and she needs them for baking. "You can't make pecan pie without good eggs."

richm@startribune.com • 612-673-4425 cserres@startribune.com • 612-673-4308

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