EIC Report on Egg Processing and Transport

04/26/2019

In mid-April, the Egg Industry Center released a special report entitled Egg Processing, Cartoning and Transportation Costs.  The comprehensive report was compiled by Maro Ibarburu and Lesa Vold of the Egg Industry Center and Dr. Alejandro Plastina of the Department of Economics at Iowa State University.  For the record is noted that the University hosts the Egg Industry Center located on the ISU campus.

 

The 2019 Report follows a previous study conducted by Don Bell at the University of California, Riverside, released in 2000.  The purpose of both reports was to establish the costs of processing, cartoning and transportation. Considerations related to pack size, in-line versus off-line processing and cost of delivery within-USDA regions to a DC or store were included in the 2019 version.

 

With respect to in-line processing, the ‘trimmed mean’ value was determined to be 13.5 cents per dozen compared to 15.3 cents per dozen for eggs sourced off-line.  The ‘trimmed mean’ carton costs were 9.8 cents for a 12-pack, 9.9 cents per dozen for 18-pack plus a 3.9 cent per dozen cost for an outer cardboard container.  Reusable plastic containers generated a ‘trimmed mean’ of 4.3 cents per dozen.  Added cost such as shrink-wrap and insertion of slip-sheets added 0.9 cents per dozen to packaging material.

 

Delivery of eggs to store-door incurred a cost of 8.6 cents per dozen compared to 5.2 cents per dozen to a DC.  Eggs collected by customers from a warehouse resulted in a cost of 1.9 cents per dozen for storage and handling.

 

The study calculated the loss in grade-yield of 7.6 cents per dozen for in-line eggs and 9.5 cents for off-line eggs.  Store returns added 0.1 cent per dozen and the difference between standard and USDA grading was 1.3 cents per dozen.

 

In comparing the results of the 2019 survey with the previous evaluation performed by the late Don Bell 18 years ago, showed a close correlation adjusting for inflation.  In 2000 the combined processing, packaging and transport cost was 25.97 cents per dozen comprising 9.8 cents per dozen for processing, 4.5 cents per dozen for trucking, 1.4 cents per dozen for marketing and 10.2 cents for packaging.

 

In reviewing the report, it is noted that out of 107 one-page surveys sent to egg producers, a total of 23 responses was received, representing a return rate of 21 percent. This is considered to be suboptimal especially when only partial responses were provided to specific questions. There is significant reluctance by producers to participate in any cost or production-related survey given the emergence of litigation alleging collusion among competitors in the egg, broiler and beef industries. The fact that the survey was conducted in effect by a University creates the potential problems of confidentiality given the possibility of discovery through litigation or requests under Freedom of Information or public records legislation.

 

The compilers of the report considered that the 23 responses represented 150 million hens or 67 percent of the national flock maintained to produce shell eggs.  Disparity between respondents and their relative contribution to egg production reflects the oligopoly prevailing in the industry.  In the case of one large company, their single response, if submitted in entirety would have represented 19 percent of the shell-egg population.

 

The overriding question is how supporters of the Egg Industry Center and those reviewing the Report will be able to apply the findings to their own operations.  Many of the respondents and those that declined, probably participate in a commercial benchmarking system that provides greater detail and specifics far beyond the scope of the one-page survey. Participants in the commercial benchmarking system for which they obviously pay, provides companies with data that can be applied directly to intermediate and long-term management and investment decisions. 

 

To ascertain the cost of packaging, it would have been more representative to have approached the limited number of suppliers in the U.S. who would be in a far better position to anonymously provide cost data for their products.  The report did not distinguish among polystyrene, PET or fiber packs or combinations of cardboard and fiber.  There are wide differences in cost among the alternatives and there is obviously a bulk supply factor inherent to any cost determined for a specific type of pack.

 

There are wide differences in configuration of plants, packing rate, regional wages, utilities, environmental restraints, age of facilities and equipment that influence maintenance and daily run-time. A review of the industry benchmarking system would have resolved many of these questions fundamental to an understanding of the composition of cost. Many of these factors should have been incorporated in either the questions or an interpretation of responses.

 

In reviewing the Report there appears to have been an inordinate preoccupation with statistical technique including elimination of outliers hence the calculation of a “trimmed mean”.  This was possibly dictated by the need to analyze a limited number of responses of variable content and consistency depending on how questions were interpreted. The Report actually confirmed what the industry already knows.  Packaging and transport costs are well documented and are so similar that individual companies can do little to change values through management or even investment in mechanization or automation. 

 

It is hoped that in a subsequent edition of this report, more specific aspects of processing, packaging and transport should be evaluated.  Alternative packaging material over and above pack size should be considered.  The influence of robotics and labor costs is relevant to investment in technology.  Transport should not be restricted to intra-region distribution.  The reality facing the industry is hoe to play the differential between Midwest and Southwest feed and labor costs and those prevailing in California and relating the ex-plant costs to moving product westward on I-10 and I-80. 

 

Without detracting from the initiative of the EIC and the value of the Report which is somewhat pedestrian, the industry needs more focused studies in order to discern trends in cost and the influence of equipment, methodology and packaging material with the objective of optimizing return on investment.


















































































































































































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