Wednesday, December 17, 2014

What came first: the egg or the California regulation on cage sizes?

A new regulation is set to take effect in California at the beginning of next year that will force hen houses to allocate significantly more room to each egg-laying chicken. 
Birds, long afforded a minimum of only 67 square inches a piece, will now need roughly 116 square inchesa more than 70 percent increase—if eggs are to be sold in the state. That extra space won't come free of charge, a cost that will almost certainly fall on consumers.
Lets say I have a hen house operation with 10,000 hens.  Prior to the passage of this law, I needed a building to house those hens that was at least 670,000 square inches. In square feet that would be 4,653 sqft.

With the new requirement of 116 sq inches, I would need a building that is 8,066 sqft---73% larger.

I could invest in expanding the building or constructing another, but the number of productive chickens I have would stay the same. More cost (however, only a "fixed cost"), same number of eggs.  I would have to receive a higher price for my eggs and/or cut expenses elsewhere to stay where I was before in terms of making a living.

I could make modifications to my existing building to make the cages bigger but I would have to reduce the number of egg-laying chickens I have by 4,224.  Now instead of 10,000 hens I have 5,776 to lay eggs for me. I would have to receive a higher price and/or cut expenses elsewhere to stay where I was before in terms of making a living.

What is chicken farmer (or is it rancher?) to do?

This is a terrific article with LOTS of opportunities to practice supply and demand and analyze the cost structure of a firm in a competitive business.

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