Washington Insider -- Tuesday

Egg Qualiy Treadmill and Consumer Demand

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Trump says 'highly unlikely' he will hold off boosting tariffs on Chinese goods

President Donald Trump declared that he considered it "highly unlikely" he would grant any request from China to hold off on increasing tariffs on $200 billion in Chinese goods to 25% on January 1, up from a current level of 10%, and said he would not rule out putting additional tariffs in place in event no deal is reached in his session with Chinese President Xi Jinping in Argentina.

“If we don’t make a deal, then I’m going to put the $267 billion additional on," Trump told the Wall Street Journal in an interview, saying the tariff level on the additional goods would be 10% or 25%. However, late Monday while departing for a campaign-style rally in Mississippi, Trump said a China deal "could happen."

But any deal would have to address key issues, he noted. “The only deal would be, China has to open up their country to competition from the United States,” he stated. “As far as other countries are concerned, that’s up to them.”

He also said that duties could be put on imports of Apple products, with Trump indicating a level of 10% on such items is a mark "people could stand that very easily." Trump's comments strike a less-than-positive tone for the session with China's Xi and would suggest that hopes for an agreement could be dashed.

Reuters: Argentina says two-way beef trade US close

Argentina and the U.S. are close to completing a deal that would result in reopening two-way trade in beef for the first time in nearly 20 years, according to Marisa Bircher, Argentine international trade secretary, with an agreement expected to be signed in coming days.

"We are negotiating the reopening to happen over the days ahead," Bircher told Reuters. "All the technical and administrative questions have been settled."

Under the deal, the report said there would be a limit of 20,000 metric tons on Argentine beef coming to the U.S. while the shipments from America to Argentina would not be limited.

Washington Insider: Egg Quality Treadmill and Consumer Demand

New food trends are frequently cropping up in the media with analysis of what these changes might mean for the industry. This week, Bloomberg focuses on eggs and says that the bar is rising for what’s considered a “happy chicken,” sparking the hottest trend in the market: the pasture-raised eggs.

Pastured eggs come from hens that spend most of their time outdoors, “dining on bugs and taking dust baths while also indulging in their favorite activities, like scratching and perching.” Bloomberg says “that’s a step up from cage-free, a label that consumers are finding is slightly less idyllic than they may imagine.”

It wasn’t that long ago that consumer demands for better animal treatment sparked the rise of the cage-free egg. Hens moved from the confines of 67-square inches to the “wilds” of the barn, with space to walk and stretch their wings – but rarely, if ever, outside. The pasture movement goes further, sending animals outdoors for sunshine and space to spread out. Compared with cage free, pasture is “tantamount to bird paradise.”

“These birds are jammed day in and day out in their own manure, and humans won’t go inside because it hurts their eyes – that’s cage-free eggs,” said Matt O’Hayer, chief executive officer of Austin, Texas-based Vital Farms, a leading U.S. pastured-egg seller. “Give me the mosh pit over the crowded elevator, but it’s still a mosh pit.”

Many consumers seemingly agree, Bloomberg says. Sales of pastured eggs, which didn’t exist as a marketing tool a decade ago, jumped 32% this year through early October. Free-range eggs, similar to pastured eggs except the chickens have less space, increased 8.5%. Cage-free eggs were up 3.9%, and the standard product from caged birds rose 0.3%.

At the same, premiums are coming down. Pasture-raised eggs used to fetch a whopping $12 a dozen at supermarkets. Greater competition among farms and lower costs drove prices down to below $5 recently in some stores, Bloomberg says.

Some of the biggest shifts in the protein industry in the past decade have come from increased consumer demands over animal welfare and sustainability. Eggs are a microcosm of the trend, the report says.

As giants like McDonald’s Corp. and Walmart Inc. pledged to upgrade, the cage-free hen population has exploded to 60 million in the U.S., double what it was in 2016. Cal-Maine Foods Inc., the biggest U.S. egg producer, said in June it had increased its cage-free capacity. Voters in California passed a ballot initiative this month ensuring all eggs in the state are cage-free.

However, “cage-free is going to be a commodity egg,” said John Brunnquell, president of Egg Innovations, the biggest pasture-raised and free-range producer with 1.2 million chickens. Increasingly efficient cage-free farms are driving down costs, and soon those eggs “will dominate the landscape,” said Brunnquell, who supplies Whole Foods Market Inc.’s 365 private-label brand.

As that change takes place, demands for better welfare are likely to keep increasing – that’s where the pastured egg comes in.

To be sure, even at $5 a carton, pastured eggs still fetch a hefty premium that many consumers aren’t willing to pay. Standard grade A large eggs averaged $1.78 a dozen in the most recent 10-month period. Pastured and free-range eggs are also still a small sliver of total production. Out of 330 million hens in the U.S. egg industry, fewer than 10 million go outside, Brunnquell estimates.

Manny giant retailers already sell free-range or pastured eggs, and offerings are increasing, producers say.

There are also incentives for farmers to make the switch. Producers can get higher, more-sustainable incomes and longer contracts by offering pastured eggs, industry executives say. Vital Farms says it has a long waiting list of farmers that want to supply the brand.

Dan Arnsperger, president of Rogers, Arkansas-based free-range producer Happy Egg Co., said the company has 33 small farms in the U.S. and may add 15 to 20 next year. He estimates that 30 percent of shoppers are willing to pay the premium for free-range eggs because of animal-welfare concerns.

In the past, “eggs suffered as a commodity where brands didn’t matter,” said Billy Roberts, a senior food and drink analyst at researcher Mintel. “But in recent years, with more premium offerings, there’s a market in consumers’ mind for egg options.”

It seems that a considerable share of consumers are willing to pay very considerable premiums for branded food products they think enhance animal welfare. At the same time, there likely are ceilings on what those premiums may be before they begin to constrain sales significantly. Experience shows that prices and costs do matter, so growth trends should be watched closely as additional production costs increase, Washington Insider believes.

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