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A federal jury in Illinois recently found large egg companies guilty of conspiring to cut back egg production and raise prices between 2004 and 2008. Companies including Kraft and General Mills alleged that egg companies and their trade associations illegally raised prices in four ways: stocking fewer hens per cage, exporting eggs at a loss, culling productive hens earlier than usual, and encouraging “early molting” to decrease egg-laying.

Even though this case challenged practices from 15 years ago and took over a decade to go through the courts, its successful conclusion revived critiques that egg corporations abused their market power to double egg prices last year and reap record profit margins.

Egg companies denied the allegations and said they stocked fewer hens per cage to address animal welfare concerns. When a jury in Pennsylvania reviewed these same allegations in 2018, brought by a larger class of restaurants and companies that buy eggs, it found evidence of a conspiracy but no antitrust violation. These divergent conclusions raise important questions about how antitrust law deals with corporate-led animal welfare programs.

While the egg industry may appear significantly less consolidated than beef or pork, hen farms and companies have consolidated dramatically over the past 50 years. The number of egg producers in the U.S. declined from 2,500 in 1986 to just 700 in 2002. In 1982 half of all egg-laying hens lived on farms with 62,000 hens or less. In 2012, half of all hens lived on farms with over 925,000 hens.

The number of companies with flocks of over 75,000 hens shrunk from around 2,500 in 1987 to just 205 by 2010, and these 205 companies owned 95% of all egg-laying hens. With fewer large producers, this consolidation facilitated coordination, the lawsuit alleged. 

In 2008, a group of egg buyers, including restaurants and processed food companies, filed a class action lawsuit against several egg companies and trade associations. In 2011, Kraft, Kellogg, General Mills, and Nestle spun out of the class to bring a direct suit, creating the case that concluded last week. In the intervening decade, several egg companies settled or got thrown out of Kraft’s case, narrowing the suit to four defendants: Cal-Maine, Rose Acre, the United Egg Producers (UEP), and the United States Egg Marketers (USEM).

Cal-Maine is the largest U.S. egg company. It sells about 20% of all U.S. shell eggs and owns over 8% of the U.S. flock. Rose Acre comes in second with about 7% of the market and 6% of the U.S. egg-laying flock.

UEP and USEM are two cooperatives, of which Cal-Maine and Rose Acre are members. In 2008, the UEP’s 205 members represented over 95% of the U.S. egg-laying flock. Unlike a traditional cooperative, the UEP does not sell eggs for its members, it runs an animal welfare certification, engages in lobbying, and helps farmers comply with food safety standards. USEM coordinates egg exports for its members. Both coops tried to claim immunity from antitrust law under the Capper-Volstead Act, which allows farmers to legally coordinate through cooperatives. However, because their members included non-egg producers and UEP did not provide typical cooperative services, plaintiffs challenged their agriculture cooperative status.

The class action and spinoff case alleged that egg processors conspired through UEP and USEM to decrease egg production and raise prices. One of the main ways they allegedly achieved this was by participating in an animal welfare program called UEP Certified.

United Egg Producers created the UEP Certified program in 2000 to appease animal rights activists and large buyers who demanded more humanely raised eggs. UEP Certified eggs briefly carried the label “Animal Care Certified” before the Federal Trade Commission struck it down as misleading. To become UEP certified, egg facilities had to follow certain ventilation, feed, employee training, and water requirements. Most importantly, they needed to provide each hen at least 67 square inches of space, up from an industry standard of 53 square inches. In practice, this meant stocking fewer birds per cage and led to an overall reduction in hens and egg production.

While more space for hens was an improvement, the UEP Certified guidelines weren’t a major departure from the industry status quo. Most egg producers became UEP Certified, especially after large buyers, including Kroger and Walmart, started telling egg suppliers that they would only buy UEP Certified products. By 2003, 202 companies representing 82% of the U.S. egg-laying flock had agreed to the UEP Certified guidelines.

Subsequent price-fixing allegations raise a valid question: if antitrust focuses narrowly on the harms of decreasing output, what does that mean for coordinated industry efforts to improve animal welfare that result in lower production or higher prices? 

The federal jury in Pennsylvania that reviewed the class action case in 2018 decided that UEP Certified did not violate antitrust law. The group did find evidence of a coordinated effort to decrease the egg supply, but under a legal doctrine called the rule of reason, the jury found that the conspiracy was reasonable and thus didn’t violate antitrust law.

In this latest spinoff case, Kraft, Kellogg, General Mills, and Nestle successfully argued that UEP Certified was a pretense for a larger effort to decrease production and raise prices.

They alleged that the certification program prevented cheating in the conspiracy because participants had to submit monthly compliance reports that included flock sizes. Egg companies also participated in regular audits, which were allegedly strict on cage stocking but lax on other animal welfare concerns, such as killing methods, ammonia concentrations, and failure to remove dead birds daily. One UEP member, Sparboe Farms, even wrote a letter to UEP expressing concerns that UEP Certified had “evolved into a production supply program.”

Further, law professor and former antitrust attorney for the Department of Justice, Peter Carstensen, argues that egg producers could have provided hens more space and maintained production levels if they built more hen houses. “The bigger cages only affect output if there is an understanding that you aren’t going to further expand your hen houses,” he said.

Carstensen also notes that UEP was an industry-led certification (remember, egg companies run UEP). Producers can seek third-party animal welfare certifications that may earn them a premium in the marketplace. But industry-wide changes should be led by public regulation, not private coordination, Carstensen argues. “If animal rights [advocates] think that there’s something that needs to be done and it does not work in the market, then they need to go to a public regulator,” he says. “Giving cover so [companies] can get together and agree on something that will allow them to exploit consumers or producers more, that’s simply not something that can or should be allowed.”

UEP Certified was not the only part of the alleged conspiracy, in fact, the UEP also promoted practices that animal welfare advocates critique, like early molting, which deprives birds of light, water, and even feed so they lose feathers on queue and stop laying eggs. According to the complaint, egg producers agreed to an early molt plan in 2000, 2002, and mid-2004 to slow egg production. UEP also straightforwardly recommended shrinking flocks. Egg producers organized 5% flock reductions in 2000, 2001, 2004, and 2005, according to the complaint.

Finally, the suit alleged that egg producers exported products at a loss to maintain domestic supplies and elevate prices. The DOJ recently accused pork processors of similar conduct. The United States Egg Marketers helped spread the burden of these losses and organized large exports of over 200,000 cases of eggs at a time. The defendants argued that they only exported “surplus” eggs that they couldn’t sell in the U.S. However, the complaint found that one defendant rejected an export proposal because it was “very small and likely would not have [a] positive impact on domestic prices.”

Even though this jury found egg producers guilty of fixing prices 15 years ago, this decision invariably revived critiques that egg companies abused their market power when egg prices doubled last year. In a letter to the Federal Trade Commission, the advocacy group Farm Action argued that the bird flu and increased feed costs could not fully explain skyrocketing egg prices that delivered Cal-Maine a fivefold increase in gross profit margins.