Author: Caroline Velenthio Amansyah
Co-writer: Bintang Sebastian Maxi
I. Introduction: Noticing the Price Hike
Imagine your mother, on the weekend morning, went to the traditional market to purchase several cooking necessities. She got back and vented her disbelief of how everything is just much more expensive compared to last month’s. This time, instead of ignoring her, you actually became interested in her complaint of the increasing egg prices.
Luckily, you have some idea on how markets work. You believe that the prices of things depend on many factors, but supply and demand dictates the overall price consumers get. If there is a high demand of eggs and there is not sufficient quantity of eggs then of course the price rises! However, something does not align with your assumption. If that is the case, then why does the price increase happen to every item your mother purchases? Does every food’s demand exceed its supply in the market? A greater force is at play, you firmly decided. You quickly check the consensus of egg prices from Bank Indonesia’s PIHPS (Pusat Informasi Harga Pangan Strategis) Nasional
Figure 1. Egg Price from Producers – All Provinces per Kilogram (2021-2023) (PIHPS Nasional, 2023)
Upon close observation, egg price was steadily falling until the end of 2021 then by January 2022, it significantly rose up until August 2023. Now, the egg price is indeed at its highest since the new normal started, that is a year after the COVID-19 pandemic. Quite recently on the news, the Director General of Domestic Trade at the Ministry of Trade, Isy Karim, commented that the surge in chicken egg prices has been a trigger for inflation in May 2023. The national average price of chicken eggs as of May 31, 2023, stands at Rp 32,100 per kilogram (Figure 2). This figure represents a significant increase of 6.64 percent compared to the previous month’s prices (Widyastuti, 2023), hitting its peak in July 2023, just a rupiah away from Rp32,000. These months, the price seems to be, more or less, stagnant up until right now since the average price per kilogram as per October 2023 is Rp29,200 with the highest and lowest price of Rp38,150 and Rp16,150 in the provinces of Maluku and Jambi respectively.
Figure 2. How Much People are Paying for Eggs: Egg Price in The Traditional Markets – All Provinces per Kilogram (2021-2023) (PIHPS Nasional, 2023)
From the two figures (Figure 1 and 2), there is a markup of the egg price, around Rp3,000 to Rp7,000, because before getting into the traditional market, the eggs must ‘transits’ in some distribution stores (Pedagang Besar) from producers. Additionally, the price is even higher on the modern market, ranging from 6 to 11 percent increase of the traditional market’s.
Shortly, after some sleepless nights and help from the internet, you learn the concept of inflation. According to the IMF, “Inflation refers to an increase in the price level that is sustained over a significant period of time.” Inflation in Indonesia is calculated by BPS-Statistics Indonesia. Based on the Classification of Individual Consumption by Purpose (COICOP) 2018, the Consumer Price Index (CPI) is divided into the following eleven categories:
Eggs prices certainly included within the CPI basket of food, beverages, and tobacco as an inflation volatile food. Moreover, within the basket, it abruptly takes a large portion of 0.69
Figure 3. 10 Commodities and Its Weight on Calculating Inflation Rate
The weight of these 10 food commodities is based off the 2012 Cost of Living Survey conducted by the Central Statistics Agency to calculate the national CPI inflation rate. Source: PIHPS Nasional
However, higher prices of one or two goods do not count as inflation unless the increase spreads to (or raises the prices of) other goods. Hence, it is strongly suggested that the high cost of eggs persists due to inflation-driven increases in labor expenses, transportation costs, and the price of chicken feed.
II. The Basics of Inflation: Behind Mere Numbers
Before we explore further on this topic, it is important to understand what inflation is and why everyone should care about it. First, let us talk about money. Physically, money is simply paper. It derives its value from the market players’ perceived value which includes the Household, Firms and the Government (Asmundson & Oner, 2012). Its perceived value could change thanks to the dynamic of supply and demand for which is signified in the current prices in the market. Should the “overall price level rise and the value of money fall”, it is called Inflation (Mankiw, 2021). Inflation plays a big role for everyone as it dictates the nature of the driving factor of our economy: money.
Inflation, in percentage, is measured using Consumer Price Index for which is defined as the average change in price of a set of commodities (BPS, 2023) including eggs. Commodities included in the CPI, formally called the market basket, must be a commodity often used by a household for which it will decide its set and formula on a survey conducted by BPS (Wahyu et al., 2017). As mentioned, common food such as eggs and meat is likely to be part of the market basket as it is a common purchase. As prices in food are a big component of Inflation that plays greatly on the lives of citizens, Food Inflation is usually also measured (BPS, 2023). These data will then be published publicly by the government to assist citizens in their financial decision.
III. The Egg Price Index: Letting The Data Speaks
Thus this is why we can look up the prices of food commodities, one of them being broiler chicken eggs, an essential livestock product in Indonesia. According to Presidential Regulation No. 71 of 2015, broiler chicken eggs, as a staple commodity, have a high level of fulfillment and support the welfare of the community (Putera, 2022). This is why the prices of eggs are relevant. On top of that, as previously mentioned, there exists a notable correlation between egg prices, the Consumer Price Index (CPI), and inflation. To better understand this connection, let’s delve into what the CPI represents.
The CPI, or Consumer Price Index, essentially measures changes in the cost of living over time. It’s calculated by determining the value of a typical “basket” of goods and services in the current year and comparing it to the value of that same basket in the prior year. This comparison is an essential part of the formula used to calculate the inflation rate.
To clarify, the relationship between egg prices and the CPI becomes evident when you consider that any significant change in egg prices can influence the overall annual CPI. The CPI is a key component in the calculation of the inflation rate, which is derived from the formula: (New CPI – Prior CPI) divided by Prior CPI, all multiplied by 100. This formula illustrates the impact that fluctuations in the prices of goods, like eggs, can have on the broader measurement of inflation since one way of measuring inflation is defined as the change in the prices of a basket of goods and services that are typically purchased by specific groups of households (OECD, 2023). After understanding that, now let us take a look at several figures to better map the egg price situation:
Figure 4. Price Change of Egg in Traditional Market from All Province
Figure 5. National CPI against Food, Beverages & Tobacco Baskets Index (2022- 2023)
Figure 6. National Rate of Inflation (2022- 2023)
Source: PIHPS Nasional, BI.GO
Figure 4 depicts a significant trend in the price change of eggs across traditional markets nationwide, showcasing a consistent downward trajectory. Despite the lowering piece trend, it is not translated into a decrease in its CPI baskets, food, beverages, and tobacco commodities. However, these commodities tend to maintain a higher frequency of price fluctuations, consistently remaining above the Consumer Price Index (CPI) line (Figure 5). This correlation is strongly supported by the regression analysis of Figure 7 with an R-squared value of 0.873 that indicates a strong and meaningful relationship between the National CPI and Egg Prices.
This continual ascent in the CPI is a direct result of the commodity price changes, as demonstrated in Figure 5. A clear illustration of this phenomenon is found when we observe Figure 4, where egg prices experience a notable decline since April 2023. The repercussions of this drop become evident in Figure 5, as it coincides with a decline in the past four months, creating an almost synchronous effect on both Price Change and CPI. This alignment generates a ripple effect that is typically realized within a month or two.
Figure 7. Regression Analysis of National CPI (Dependent) and the Prices of Egg (Independent) (PIHPS Nasional, 2023)
Nonetheless, it is crucial to note that egg prices alone cannot singularly dictate the inflation rate. This is exemplified in Figure 6, where an intriguing deviation from the expected pattern occurs. For instance, in September 2022, despite the inflation rate reaching its highest point, egg prices were, in fact, declining sharply. Nowadays, the change of egg price and inflation rate seem to be, hand-in-hand, adjusting back to when they were before 2022, getting back to its initial price/rate.
On top of that, after a the R squared (linear regression) of the national inflation rate (as the dependent variable) and the price change of eggs (as the independent variable) reveals a weak association of 0.028, which indicates that only 2.8% of the variance in the national inflation rate can be explained by changes in the price of eggs. In other words, the relationship is very weak and not practically significant (Figure 8). Thus, this particular case shows the intricate and multifaceted nature of inflation, where various economic factors and commodity price movements collectively contribute to the overall inflation rate, not just one basket of CPI.
Figure 8. Regression Analysis of Changes in Egg Prices (Independent) and the National Rate of Inflation (Dependent) (PIHPS Nasional, 2023)
IV. The Hike of Egg Price is A Global Trend? United States Unprecedented Bird Flu Outbreak
According to PBS News (2023), in the U.S., the price of eggs more than doubled between the start of 2022 and its peak in January 2023, mainly due to a widespread bird flu outbreak. While pandemic and inflation have played a role, bird flu has been the primary driver. This outbreak caused a significant reduction in egg supply while demand remained constant, leading to higher prices. Even if the bird flu were to disappear today, egg prices would remain relatively high due to increased labor, transportation, and chicken feed costs driven by inflation. Although egg prices are decreasing, they have not returned to pre-pandemic levels.
The ongoing bird flu outbreak has resulted in the deaths of millions of egg-laying chickens, creating an egg shortage. Projections suggest a 26.8% decrease in wholesale egg prices for 2023, with a 4% increase in egg production as flocks recover. In August 2023, a dozen large, Grade A eggs were about 2.4% cheaper than the previous month. Compared to a year ago, egg prices have dropped by 34.6%, from $3.12 in August 2022 to $2.04 in August 2023 (Figure 9).
Interestingly, American economist, Paul Solman said that there seems to be an increase in the number of broiler chicken and chicks sales (PBS News, 2023). This distinct customer behavior is assumed due to buyers wanting to raise and produce eggs by themselves. The same behavior cannot be found in Indonesia though.
Worldwide, Rabobank’s global egg price monitor reached an all-time high in Q1 2023, with prices more than 2.5 times higher than in 2007 and a 100% increase from the previous year (Figure 10). Notably, the US and EU experienced price increases of 155% and 62% between Q1 2022 and Q1 2023, while Japan saw the highest prices since 2003 at JPY 235 in March. Historic highs were also observed in various other markets, including Thailand, the Philippines, Israel, New Zealand, Nigeria, Kenya, Brazil, Mexico, and Argentina. These steep price hikes have significant implications for everyone in the egg supply chain, from breeders and producers to retail, foodservice, and food processing customers.
Historically, egg prices have generally followed the FAO Food Price Index, with occasional divergences, like the period from 2007 to 2013 when high and volatile feed prices posed challenges for the industry. In the subsequent years, from 2013 to 2019, egg prices outpaced the index due to robust demand and normalized feed costs (Mulder, 2023).
Figure 10. Global Egg Price (Mulder, 2023)
V. Conclusion
Our research has found that the prices for eggs have nationally inflated. The change of egg price itself is directly correlated to the rise in national CPI. However, it cannot yet be said if the rise in egg price can be linked with rising inflation unless egg-related items. Eggs contributed sizably in the overall F&B price basket and the F&B price basket greatly influences the national CPI. However, the national CPI themselves has little correlation with inflation, as proven with the correlation analysis (Figure 8). Thus, other items affect eggs more than eggs affect other items. Therefore, there is greater work at play to the contribution of egg inflation than the national CPI. This content will be Eggsplored in the part 2 of this article.
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