Avian flu and US egg prices

The New Zealand Herald reported earlier this month:

A resurgence of avian flu, which first struck the United States in 2022, is hitting chicken farms hard, sending egg prices soaring and rattling consumers accustomed to buying this dietary staple for only a few dollars.

In Washington and its suburbs, supermarket egg shelves are now often empty, or sparsely stocked. Some stores limit the number of cartons each client may buy. And everywhere, consumers are shocked by the high prices.

“They’re getting expensive,” 26-year-old student Samantha Lopez told AFP as she shopped in a supermarket in the US capital. “It’s kind of difficult ... My budget for food is already very tight.”...

More than 21 million egg-laying hens have been euthanised this year because of the disease, according to data published Friday by the US Agriculture Department. Most of them were in the states of Ohio, North Carolina and Missouri... 

The department reported the “depopulation” of a further 13.2 million in December.

Higher prices were the inevitable result, experts say.

“If there’s no birds to lay eggs ... then we have a supply shortage, and that leads to higher prices because of supply and demand dynamics,” said Jada Thompson, a poultry specialist at the University of Arkansas.

Let's consider the market for eggs, and how the shortage arose and why that means higher egg prices. This is all illustrated in the diagram below. Before avian flu, the market for eggs was in equilibrium, with a price of P0 and a quantity of eggs traded of Q0. The culling of chickens due to avian flu means that fewer eggs are produced. This is a decrease in the supply of eggs, shown by the supply curve shifting up and to the left, from S0 to S1. If egg prices were to remain at the original equilibrium price (P0), then the quantity of eggs demanded (Q0) would exceed the quantity of eggs supplied (QS) at that price, because egg producers are only willing to produce QS eggs at the price of P0, after the supply curve shifts. There would be a shortage of eggs, which is one of the things that we observe in the US egg market.

However, when there is a shortage, the market will tend to adjust. In this case, the market will adjust through the price of eggs increasing. How does that happen? Some buyers, who are willing to pay the market price (P0), are missing out on eggs. Some of them will find a willing seller, and offer the seller a little bit more, in order to avoid missing out. In other words, buyers bid up the price. The result is that the price increases, until the price is restored to equilibrium, at the new (higher) equilibrium price of P1. At the new equilibrium price of P1, the quantity of eggs demanded is exactly equal to the quantity of eggs supplied (both are equal to Q1). We can say that the market clears. There is no longer a shortage.

So, this model of supply and demand tells us that, because of avian flu, we should expect to see shortages of eggs (at least initially), and overall higher egg prices. Which is what we are observing.