PhotoThis week Taco Bell became the latest fast food chain to pledge to use only cage-free eggs in its food products, joining the likes of McDonald's, Panera Bread, Starbucks, and many others.

While McDonald's has said the transition would take up to 10 years, Taco Bell said it would be able to make the switch in one year. Panera plans to do it in five years.

The restaurant chains are responding to a persistent campaign by the Humane Society of the United States (HSUS), which says the conditions under which most U.S. eggs are produced do not meet the criteria of being humane.

“This is a watershed moment in a decades-long effort to eliminate the cruelest confinement from our food supply,” HSUS president and CEO Wayne Pacelle said in September, after the McDonald's announcement. “McDonald’s admirable move makes clear that egg production's future is cage-free.”

Economic consequences

If it is true that future egg production will be cage-free, massive changes have to take place, likely having economic consequences for consumers and industry players.

The numbers tell the story.

According to The New York Times, the U.S. produces some 43.56 billion eggs each year. McDonald's purchases about 2 billion of those eggs – roughly 4% of the national supply. Now that it has extended breakfast to all day, it is likely to use even more.

How many of those eggs in the national supply are currently cage-free? Not that many.

United Egg Producers reports that as of September 2015, organic and cage-free shell egg production accounted for just 8.7% of the current table egg layer flock – or 23.6 million hens.

Of this number, 4.2% are organic – about 11.4 million hens – and 4.5% are cage-free, the remaining 12.2 million hens. While organic eggs may also be cage-free, they are already more expensive than regular, cage-free eggs.

So what happens when the nation's fast food chains suddenly push suppliers for cage-free eggs instead of those produced in current, small-cage operations?

Prices could rise a lot

“If the industry has difficulty making this transition, the price of cage-free eggs could rise a lot,” Corrine Alexander, an agriculture economics professor at Purdue University, told ConsumerAffairs. “Right now, because avian influenza has affected the layers, and production is down by 11%, retail egg prices are up 50%. So for Taco Bell, this change is occurring at a time when egg prices are already high.”

And it's likely to go higher, at least for the restaurant chains that will be competing for the small supply of cage-free eggs. Where there is demand, however, supply will follow, and there will be likely be a surge in cage-free producers.

But the real question that will impact consumers – can that supply ramp up quickly enough to meet the demand? If it can't, restaurants will have two choices – become less profitable or pass along the cost of higher priced eggs to consumers.

What about the huge commercial egg operations that currently dot the Midwest? They have millions of hens, confined in tiny cages, producing hundreds of millions of eggs.

If these operations converted all or some of their production to cage-free, it would seem they would either have to reduce the number of hens – reducing egg production – or vastly increase the space required. Many may opt for the status quo.

Bonanza for small producers

However, the sudden demand for cage-free eggs might prove to be a bonanza for rural America, which frankly hasn't had many economic breaks recently. Small landowners may be well-suited to set up cage-free egg operations. Cage-free is not the same as free-range – hens are still kept indoors, in a confined space – just not nearly as confined as a tiny cage.

Instead of selling their eggs at the local farmers' markets, these small, independent producers would need to be tied into a distributor network that could efficiently get their eggs to restaurants. And with the price of cage-free eggs surging during the first years of the transition, these small operations could be profitable indeed.

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