Part 2 Eggflation : Eggsploring the Reasons of Egg Price Surge and Its Ramifications

Author: Caroline Velenthio Amansyah

Co-writer: Bintang Sebastian Maxi

I. Introduction : Yes, The Rising Egg Price is A Global Trend This Year

Global egg prices have hit historic highs, impacting the egg supply worldwide. We expect these elevated prices to persist till the end of 2023. While some markets may see slight price drops, they won’t return to pre-2021 levels.  Rabobank’s monitor egg prices which reached a new high in Q1 2023. Prices in the US, EU, and Japan have soared, as have those in several other markets (Mulder, 2023). 

In the Indonesian context, Minister of Trade Zulkifli Hasan, also known as Zulhas, acknowledged increases, particularly in broiler chicken and egg prices, have reached staggering levels in several Indonesian regions, including Jakarta, where broiler chicken prices have surpassed Rp50,000 per kilogram, and egg prices fluctuate between Rp32,000 and Rp33,000 per kilogram (Figure 1)

Figure 1. How Much People are Paying for Eggs: Egg Price in The Modern Markets – All Provinces and Jakarta’s per Kilogram (2021-2023) (PIHPS Nasional, 2023)

The root of these escalating prices can be traced back to a domino effect that began towards the end of 2022. Notably, this upward trend in prices is linked to the extended duration during which chicken and egg prices remained well below their target ranges. For instance, despite the intended price range of Rp27,000 to Rp28,000 per kilogram, these prices lingered at or below Rp28,000 for several months, leading to losses for egg producers (CNBC Indonesia, 2023). 

To mitigate these losses, egg producers reduced their egg-laying hens, which subsequently reduced the supply and resulted in elevated prices. A similar pricing discrepancy occurred with chicken meat, where target prices were set between Rp36,000 and Rp38,000 per kilogram, but during key holidays like New Year and Eid, prices dropped to Rp32,000 per kilogram. This disparity created losses for chicken growers, who resorted to measures such as culling and premature maturation of chickens, further depleting the supply and driving prices upwards. In essence, the recent price surges in chicken and egg products can be attributed to pricing imbalances and their associated impacts on supply, creating a cycle where reduced supply leads to heightened demand and, consequently, elevated prices. Minister Zulhas underscores that addressing this situation will necessitate time and supply chain adjustments  (CNBC Indonesia, 2023).

Additionally, egg prices have closely followed the FAO Food Price Index historically, but recent shifts are attributed to rising feed costs. The impact varies across markets, with potential avian influenza outbreaks in Brazil being a significant concern worldwide (Mulder, 2023). In short, the increase of egg prices can be explained by two common factors of inflation, the combination of cost-push and demand-pull. Further breakdown of the potential factors are discussed below.

II. Factors Affecting Egg Prices and The Inverse Perspective

a. Cost-Push Factors

1. Unavailability of Corn

To explore why egg prices are rising, we can look back to the supply and demand dynamic and production chain for this commodity. To produce these eggs, farmers use corn for 50-55% of their farm feed. However, the price for corn nationally has risen by  (Risky, 2023). This phenomenon dates back to early 2021 for which the price hike happened starting August 10th 2020 (Trading Economics, 2023). The reason for corn’s price hike is likely to be due to distribution problems for local farmers (Nasution, 2021) as well as the government not wanting to import corn (Sandi, 2023). 

Image 1. Chicken Feed Wheat Corn Illustration

Source: dreamstime.com

Another notable event is Indonesia’s egg import. Ironically, according to Rachman (2023) the import of eggs rose by 118% in 2023 amidst this inflation. Putra & Aziz (2023) even goes too far to mention that the egg produced nationally being 5,15 million tons is more than enough to to fulfill the national demand of 4,95 million. Theoretically, this should make the prices of eggs fall due to its overabundance of supply. However, the rising price of corn makes the breakeven point for farmers higher. As a result, the price for eggs produced nationally continues to rise in order to compensate for the rising cost as well as to survive in the midst of the competition. Thus, a cost-push inflation happens to the price of eggs 

2. The Pandemic and Inflation

It is no secret that the pandemic struck the global economy hard. For Indonesia, inflation hits the hardest in the year 2022 with inflation reaching almost 6%, the highest in 5 years. As the disease becomes more prevalent, their overabundance of aggregate demand from the consumers causes inflation (Bernanke & Blanchard, 2023). For instance, due to social distancing, the supply chain becomes disrupted as a variety of protocols are needed. This increases its price as stakeholders must prepare for greater contingencies.

3. H5N1 Outbreak

Farmers have always been at war with H5N1 or more commonly called the bird flu outbreak. Recent reports of the outbreak happening goes as far as January where multiple ducks died suddenly with positive results for H5N1 in their body. This outbreak is not something isolated in Indonesia but rather is a worldwide phenomenon (CDC, 2023). Avian flu is so feared by farmers as it is a disease that spreads quickly. Given a farmer does not invest in vaccines, should the flu strike, the disease can take out 80 to 100% of the overall herd.

Image 2. Bird Flu Illustration

Source: DepositImages

With the H5N1 outbreak, there  is a disruption in the supply as farmers’ chickens are dying. The vaccine itself is an extra Rp10,000 per chicken (Pappa, 2021) which can reach into millions spent in bigger farms. Thus, for farmers, they must spend more to keep their kennel safe and this is reflected in the prices of eggs being a product of a chicken other than the chicken itself. Therefore, in order to fund the healthcare the chicken requires, farmers all around Indonesia increased their price to accommodate the rising trend of H5N1 virus and thus causing an inflation of their chicken-based products such as the eggs.

b. Demand-Pull Factors

1. Consumer Behavior

Indonesia is obsessed with eggs, so obsessed that its consumption rises by 2.45% per year (Figure 2). This growth does not even account for the huge hike in consumption for which the average consumption rises from 0,94 kg a day to 1,94 kg per capita per week (Annur, 2023).

Figure 2. How Much People Want Eggs: Average Egg Consumption in Indonesia (2012-2022) (Annur, 2023)

To understand Indonesia’s obsession with eggs, we must understand what Indonesians think about eggs. A study conducted by Abiyani (2022) tries to justify Indonesia’s obsession with eggs. For Indonesians, eggs are a basic necessity. Even if someone is not into egg, they will still buy it as it is part of the Indonesian basic necessity.  Thus, even if the prices of eggs rise there will always be a demand for eggs. 

Because Indonesian households hold eggs in such high importance, one of the factors that creates demand-pull inflation is population. Yearly, the Indonesian population increases by 1% (Figure 3). As a result, the consumption of eggs goes up with the population. With this, we can conclude that at its base the consumption of eggs is already high. In a sense, a demand-pull inflation happens every year as the population rises because eggs have become such a staple in the Indonesian diet.

Figure 3. Indonesia’s Total Population – Mid Yearly (Annur, 2023)

2. Consumer Behavior During Pandemic

One notable quote from the hit Disney movie “Zootopia” is said by Bellweather who said “Fear always works.” This is exactly what happened mid pandemic. Lagaida et al. (2022) have noted that during 2022 the average price of egg rises in 28 provinces. At the same time, rumors of new variants of the Covid-19 virus are brewing. As the danger of new variants looms, the government readvised its citizens to socially distance again (Fitria, 2022). With distasteful memories of the happening during the pandemic, it creates panic buying; a phenomenon for which is defined as a phenomenon of sudden increase in consumption  and quantity of one or more necessary goods which is provoked by an adverse situation” (Cooper & Gordon, 2021). 

Image 3. The Quote of Bellwether

Source: Disney Movie, Zootopia

Due to the hike of quantity at a short amount of time, creates a higher price due to great increase of demand as firms are incentivized to capitalize on this phenomenon. As a result, all commodities have risen in price as the value for money falls thus also increasing the price of all commodities. Because of this, due to the rise of every other commodity, egg’s price must increase in order to “fit” with the other commodities. Furthermore, during the pandemic citizens are not the only ones buying up eggs. As a means to help its citizens, the government holds a variety of social aid to unfortunate people affected by the pandemic the most. Within their social aid is usually eggs as eggs is a common Indonesian food. As the government buys in huge amounts, this also contributes to the demand-pull inflation for eggs.

III. Implication and Action Taken in Regards to the Price Hike

According to industry trends (Mulder, 2023), the egg market often experiences price peaks followed by declines, usually a year or two later, driven by producer responses to increased profit margins. However, the current situation varies due to unique factors. While some countries with ongoing avian influenza (AI) pressures, import restrictions, financial challenges, and regulatory changes may maintain high egg prices in 2023, regions with extreme price peaks like the US, Europe, and Japan are likely to see declines, albeit not as severe as previous crises. Sustained high input costs will prevent prices from returning to pre-2021 levels.

Concerns arise regarding the affordability of eggs for low-income consumers, especially in emerging markets where eggs are a crucial source of protein and nutrients, with potential social and health risks if prices continue to rise. Eggs serve as a vital staple food and source of protein and essential nutrients, such as vitamins B6, B12, and D. These markets position eggs as the most accessible protein source, easily distributed without the need for a cold chain. Should eggs become more expensive and less accessible to these consumers, it could pose substantial social and health risks. 

With that discussed, the Government of Indonesia has taken steps to bring balance back to the prices of eggs. The government is taking concrete steps to maintain egg price stability across the entire supply chain, from farmers to consumers. The National Food Agency (NFA), headed by Arief Prasetyo Adi, is implementing strategic programs that include food assistance for eggs and chicken, monitoring price movements in provinces and municipalities, and facilitating the distribution of corn to livestock farming regions to stabilize feed prices. This effort aims to ensure price equilibrium from production to consumption and support the sustainability of the national egg ecosystem. The government has gradually executed various strategic programs, including the distribution of eggs and chicken to Stunting Risk Family (KRS), effectively absorbing eggs and chicken produced by independent farmers at fair prices for the purpose of reducing stunting rates (NFA, 2023).

In the current scenario, according to the article posted on Indonesia’s NFA official website, the government is consistently facilitating corn distribution from producer centers to regions in need of a stable supply to maintain egg prices. This approach encompasses all aspects, from ensuring feed commodity price stability upstream to managing logistics costs downstream, requiring collaboration and joint efforts. Based on data from the Panel Harga Pangan as of May 14, 2023, the average egg price at the producer level stands at Rp 25,840 per kilogram, while at the consumer level, it’s Rp 29,737 per kilogram.

Image 4. Press Conference by Arief Prasetyo Adi (16/5/2023)

Source: Jurus Bapanas Jaga Keseimbangan Harga Telur dari Hulu hingga Hilir (NFA, 2023)

Rofi Yasifun, the Chairman of the National Smallholder Farmers Association (PPRN) in Blitar, attributes the increase in egg prices to rising demand, with celebrations and life returning to normal after an extended holiday period. He emphasizes that this year’s price peak has passed, and prices are gradually declining. According to Rofi, the current consumer price of Rp 26,000 per kilogram is reasonable, considering the increased production costs. He acknowledges that the government’s efforts to maintain egg prices are effective and applauds the ongoing egg and chicken assistance program as an essential tool in stabilizing prices (NFA, 2023).

Moreover, several egg farmers, including Suwardi in Kendal, have benefited from the egg and chicken assistance program, appreciating its direct impact on small-scale farmers (NFA, 2023). This program has improved demand for eggs and chicken, ensuring that farmers can produce effectively. Suwardi believes that this assistance helps maintain a balance and security for all stakeholders in the industry, ensuring farmers can operate profitably. Regarding consumer-level egg prices, Suwardi explains that these prices are reasonable in light of the current production costs and the effort to establish a new equilibrium price.

IV. Conclusion

The inflation of eggs was caused both by an increase in demand and a decrease in supply. In recent years, the nature of egg farming has been volatile due to external factors and disruption in their value chain whilst the demand for eggs keeps rising as Indonesia adds on their ongoing growth of mouths to feed. As a result of this agreement, the market’s behavior inflates the prices of eggs to satisfy the demand. In numbers, internationally the prices of eggs have risen and so is the price of eggs in Indonesia. This hike in price greatly affects the lives of Indonesians as eggs are a necessity for Indonesians. Therefore, to minimize the effects of this price hike for Indonesian, several actions could be taken includes:

1. The Government should open the trade barrier for corn to increase its supply thus reducing the cost of egg production
2. The Government should continue providing Avian Flu Vaccination as well as making information and vaccination more accessible to more farmers
3. Civilians should start looking for alternate source of protein such as Tempe as a replacement for eggs should its price gets too high

These actions could potentially minimize demand as well as increase supply and put the prices of eggs in a more ideal eggquilibrium.

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