The recall of half a billion eggs at risk of being tainted by salmonella has scared the bejesus out of American consumers, who are now showing an increasing willingness to pay premium prices for these most basic of grocery items.
Organic Valley Cooperative and Eggland's Best, two of the largest producers of organic eggs, have been swamped with calls from worried consumers wanting assurances that their eggs are safe. In response, the companies say their eggs undergo far more rigorous safety testing than required by the Food and Drug Administration. Ditto for producers of other premium-priced eggs such as Davidson's Natural Pasteurized Eggs. Even small organic farmers are saying that the public can't seem to get enough of their eggs.
Over the last few years, eggs have increasingly become consumer products as producers began to market their brands for taste and nutritional qualities. Now, as the public sorts through one of the biggest food recalls in recent memory, producers are adding safety to their selling points. The opportunity for growth is huge because, at the moment, organic eggs make up only a tiny portion of the U.S. market. According to the U.S. Department of Agriculture, the number of certified organic layer hens increased from about 0.7% of the U.S. total in 2005 to 1.5% of the total in 2008.
In a single day last week, employees at Eggland's Cedar Knolls, N.J., headquarters were contacted by 3,000 consumers worried about the recall, which has been linked to DeCoster Farms in Iowa, an operation with a long history of violating state and federal laws. Typically, Eggland's fields calls from about 200 to 300 people a day, according to CEO Charles Lanktree, who says he doesn't believe in voice mail.
"We have seen a bump in sales," Lanktree says, adding that he was unable to give more precise sales numbers. "Our consumers are calling in to compliment us."
How Salmonella Can Get Into an Egg
As The New York Times noted Tuesday, the recall has led to increased scrutiny of the safety of the egg industry. The article also quotes Jeffrey D. Armstrong, dean of agriculture and natural resources at Michigan State University, as saying that it's unclear whether cage-free eggs are any safer than those produced by birds in cages. Indeed, even the People for Ethical Treatment of Animals warns consumers to be skeptical of labels such as "organic" and "free-range." Sales of these types of food are soaring, and eggs are no different.
Organic and other premium egg producers are taking pains to tell consumers that their products have not been affected by the recall. Big restaurant chains such as McDonald's (MCD) also say the recall has not had an impact on their operations. These PR moves are understandable: So far, DeCoster's Wright County Egg has recalled 380 million eggs produced since May. Another 170 million eggs were recalled by Hillandale Farms of Iowa, which used DeCoster hens and feed.
"Our standards are like torture," says Eggland's Lanktree. "They are so, so tough. We require that all of our hens to be vaccinated against salmonella."
According to egg industry spokeswoman Jewanna Porter, chickens can ingest salmonella, which then grows inside their organs and gastrointestinal and reproductive tracts.
"The bacteria can get inside the egg yolk, and then is trapped as the egg is formed and laid by the hen," she explained in an email. "This is an extremely rare occurrence, but it can happen. Egg producers for the past ten years have put in place food safety protocols to help reduce [salmonella] on the farm and in the birds."
Price Hikes Could Make Organic Eggs Cost Competitive
Wholesale prices for eggs have soared by as much as 35% in the wake of the recall, says Greg West, the president of National Pasteurized Eggs. His company, which markets its Davidson's Safest Choice Pasteurized Shell Eggs as "salmonella-free," is absorbing the added costs as it ramps up capacity.
Customers have flocked to the company's Web site and new orders have poured in. Last week, National Pasteurized Eggs, which has plants in South Dakota and Illinois, produced 7.5 million eggs. This week, it expects to sell 8.5 million, more than four times its usual sales of about 2 million.
"We ran some overtime," West says, adding that his company is developing a line of organic pasteurized eggs. "If [demand] continues to grow, we will be adding more employees."
With the recall-related shortage of eggs pushing wholesale prices higher, the added cost is likely to be passed on to consumers, making premium eggs more competitive. But many brands have seen soaring sales anyway. For instance, Eggland's sales have risen by double digits for 160 out of the past 161 months. This year, Lanktree expects revenue of about $500 million, up from last year. Some producers, however, are worried about the whole industry being tarnished by the bad publicity surrounding the recall.
"A Recall Like This Is Scary for Everyone"
Louise Hemstead, the chief operating officer at Organic Valley, the country's largest organic farm cooperative, says she worries that the publicity over the recall may cause some consumers to avoid eating eggs entirely. Nonetheless, people may be able to take comfort in knowing that the USDA's organic rules require farmers to give chickens more space, making it less likely that they will transmit diseases such as salmonella, she says. Consumers also may discover they prefer the taste of organic eggs, which marketers say is superior to that of conventional eggs.
"A recall like this is scary for everyone," she says, adding that Organic Valley egg sales are up 8.5% from last year. "This is more of a problem for the conventional egg market. They [consumers] will continue to buy organic eggs and our orders reflect that."
Pennsylvania farmer Susan Bullock has been so busy tending to her family's 130-acre Black Acres farm near the New York border that she missed the news of the massive egg recall. After I told her about it, the growing public interest in the 70 dozen or so brown organic eggs that her 500 hens produce weekly made more sense to her.
"I can only sell what I got," says Bullock, who runs her farm with her two grown sons and was surprised she had time to call me, in an interview.
Introduction to ETFs
The basics of Exchange Traded Funds and why ETFs are hot.View Course »