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Wisconsin Recognizes Crisis in Dairy Farms. A Message for Egg Producers?

02/09/2020

In his State of the State Speech, the Governor of Wisconsin Tony Evers stated that he would call a special session of the Legislature to develop programs to prevent bankruptcies and suicides among farmers in the state.  The session is intended to consider bills that would assist farmers and promote agricultural industries.  Evers faces opposition from a Republican-controlled Legislature although Senate Majority Leader Scott Fitzgerald commented “we are all looking for ways to do better when it comes to ag.”  He added “there have been a number of proposals by the Legislature, but I’m all ears on what the government has to offer.”  Governor Evers noted that a proposed bill would create a Wisconsin initiative for dairy exports to increase volume to 20 percent of the Nation’s milk supply by 2024.  The second bill would improve the University of Wisconsin extension services to farmers.  The Governor has proposed a new office of Rural Prosperity to promote agriculture income.

 

With respect to intended actions by the Wisconsin Legislature the future and prosperity of the state dairy industry is governed by simple economics.  The market for raw milk in the U.S. has declined by twenty percent over two decades.  Consolidation and economies of scale have benefitted larger farms and dairies allowing them to capture more of the current declining market placing smaller and hence less efficient family farms at a competitive disadvantage. 

 

We have seen similar trends in the egg industry. Prolonged periods of low prices and negative margins in 2019 suggest that family farms not affiliated to integrators by supplying off-line packing may not survive without solid local and niche markets.  Subsidies and programs that fly in the face of economics provide only temporary relief.  In contrast to the milk industry, egg consumption is increasing although at a glacial rate, despite the strenuous activities of the American Egg Board.  It is more than apparent that there will be a reduction in the number of producers in 2020 and profitability will only be restored with a substantial reduction in the numbers of producing hens.

 

The activities of the American Egg Board and the USA Poultry and Egg Export Council are maintaining export markets for shell eggs and products, principally to our USMCA neighbors. In the case of shell eggs to Hong Kong there are obvious limits given international competition and freight rates.  Notwithstanding the relatively small volume of exports relative to production, this segment of our industry represents 8 to 11 million hens out of a flock of 325-330 birds in production.  Prospects of increasing exports are limited. Accordingly retention of existing markets and export volume are critical to achieving a break-even or profit situation.

 

Unlike the milk industry, egg producers are facing the prospect of considerable capital investment in converting from conventional cages to alternative systems to comply with the demands for enhanced welfare. Commitments to convert to cage-free sourcing by 2025 imposed by members of the Food Marketing Institute , National Restaurant Association, the Food Marketing Institute and the National Council of Chain Restaurants will not be fulfilled. 

 

Progress in transition from cage facilities, at a cost of $30 to $40 per hen, depending on housing and equipment, has attained a proportion of 32 percent of the population of hens producing eggs for the shell market. The rate of conversion and erection of new facilities has probably reached a plateau consistent with market demand, ultimately influencing price and margin. Taking a lesson from the dairy industry and also our history it would be imprudent to replace cages with aviaries or floor systems without reducing or stabilizing the population of hens on new or existing complexes.