Contract Farming Versus Supply Management

Part of the logic of contract farming, as I understand it, is providing more stability to the industry.

That might be questioned, given a 30 percent drop in egg prices.

Contract farming means the farmer in the hen house doesn't determine how many hens to raise.  She forgoes the possibility of good egg prices and hefty profits for hopefully a more certain profit (assuming disease can be avoided etc.).  The company doing the contracting makes the decision to increase or decrease production. Because the company only has to track what the other companies are doing, a much easier job than reading the minds of thousands of small growers, the company can make better decisions.

What happened to the theory?  Cage-free eggs seems to be the answer.  As producers increase production of cage-free eggs, both because of state regulations and the premium prices for such eggs, they misjudged the effect on demand for eggs from caged hens, and didn't decrease production enough.  The article doesn't say, but I'd guess the contracts the companies had with their growers limited their ability to cut production quickly.  After all the farmers have a capital investment in their hen houses and their cages which they planned to amortize over the lifetime of the buildings and equipment.

I don't know how possible it would be for a cage grower to convert to cage-free operation.  If the change is simply providing more cage space per hen, the conversion might be doable, although the grower would need to add building(s) to maintain the same level of production. Going to entirely cage free would be harder.  And free-range would be even harder.

Canada has a supply management program for poultry and dairy.  I assume that Canadians are as intrested in cage-free egss as Americans, so it will be interesting to see if their plan will work better in handling the changes than our markets do.