Decision-making on which charities to establish involves certain complex processes. Part of this analysis is looking at the effectiveness of different approaches. Currently at Charity Entrepreneurship, I am analysing how promising the corporate outreach campaigns are in implementing the most promising asks. Coming from a cluster approach perspective, I analyse multiple groups of evidence, one of which is historical case studies. This post explains an analysis about the counterfactual impact of cage-free corporate campaigns in the US. We use this case as one of thirty-five pieces of evidence we took into account in evaluating how promising the launch of new corporate outreach campaigns would be. This particular piece has limited weight in the decision-making process, so please do not interpret this in separation from the other evidence we are going to present in the following posts, which are:
1. Probability of follow-through once companies pledge a change in policy.
2. Cost-effectiveness of launching new corporate campaigns, specifically improving management of dissolved oxygen level in Vietnam.
3. Full report on corporate outreach including, but not limited to, evidence, execution difficulty, and cost-effectiveness.
In this piece of research, Charity Entrepreneurship identified and modelled crucial factors that could have contributed to the current percentage of cage-free eggs: historical trend, changes in the price gap between cage-free and caged eggs, the effects of consumer willingness to pay for higher welfare, and the price elasticity of demand. In another scenario, the effect of avian flu was also accounted for. We concluded that in 2017-2018, the above factors explained only ~6% of cage-free eggs produced, which leaves 10.4% of cage-free eggs that can be explained by corporate outreach (or other known and unknown factors, e.g. animal advocacy for reducing the consumption of cage eggs). In 2015, when the avian flu outbreak occurred, analysis left only 0.6% of cage-free eggs unexplained, which might suggest that there might have been a significant factor in the increase in cage-free eggs. Below, I elaborate on all factors researched and analyzed by me and CE’s research intern Vicky Cox, who played a crucial role in this research.
All factors taken into account:
The first perspective we took into account is whether the observed 13% change in the percentage of cage-free in the US between 2005 and 2018 matched the percentage of eggs that were reportedly affected by the companies that pledged to switch to cage-free eggs.
Using information from the corporate commitment tracker (unpublished) and EggTrack’s report, we should see ~9% (8.67%) difference in the fraction of cage-free eggs between 2005 and 2018. So we could say that, at best, 9% of the egg market share could be explained by commitments made by companies. There are two problems with those number, however:
- We found two companies in the progress towards cage-free (Campbell’s and Hormel), but no available data on the number of hens, and therefore the number of eggs, that this would affect. Consequently, this data cannot be added to the observed percentage.
- There are a lot of companies on the corporate commitment tracker spreadsheet that are not on EggTrack, meaning that their rate of progress is unknown and therefore can’t be added to the observed percentage.
The above observations mean that the actual number of affected eggs might be higher.
For some of the companies on EggTrack, progress was given in a breakdown of shell egg progress and liquid/ingredient progress. We decided to weight these based on available information. Weighting of shell to liquid eggs in observed percentages:
- Compass Group: Compass uses 300 million liquid eggs and 100 million shell eggs each year (source). So the weighting was worked out as:
0.75(15)+0.25(88) = 33.25
Where 0.75 comes from the fact that three quarters (300 million liquid eggs/400 total eggs) of Compass Group's production are liquid eggs.
The 15 in brackets indicates the percentual progress the company has done towards cage-free eggs in their use of liquid eggs (source).
- Sodexo: Sodexo uses 220 million liquid eggs and 39 million shell eggs each year (source). So the weighting was worked out as:
0.85(16)+0.15(86) = 26.54
- Aramark: Aramark uses 200 million liquid eggs and 30 million shell eggs each year (source). So the weighting was worked out as:
0.13(100) = 13
- Other companies that break their commitments down by shell and liquid eggs are:
However, we do not have statistics for how many shell and liquid eggs each company uses each year. So, ultimately, we don’t have an obvious weighting. Since Centerplate is a foodservice like Compass Group, Sodexo and Aramark, we assumed that their usage of shell and liquid eggs is similar. Therefore, we used the following weighting (taking the average of the above 3 food services): 0.18(100) = 18
Starbucks, Panera Bread and Ruby Tuesday are all restaurants. We assume that they will use more shell eggs than liquid eggs. We arbitrarily weight this as: two-thirds shell, one-third liquid.
As a result, we concluded that at least 9% and maximally 13% of cage-free eggs could have been influenced by the corporations’ behaviour.
Another consideration we took into account is the fact that increases in the relative share of cage-free eggs might just be a matter of a historical trend and that the same increase would have be seen in the absence of corporate outreach campaigns. To estimate what would have been the proportion of cage-free eggs in 2016/17/18, we extrapolated from the historical trend.
In our analysis, we used extrapolation from data up to 2013, because that was the year that the first cage-free campaign started. Between the expected percentage of cage-free eggs that could be attributed to historical trend and the actual percentage of cage-free eggs, there is a 5.7% difference in 2016, 9.3% difference in 2017, and 10.1% difference in 2018. This is an 8.4% difference on average that cannot be explained by historical trends.
Avian Flu (taken into account only for analysis for 2015)
As pointed out by Šimčikas, in the year 2005 avian flu could have potentially pushed consumers into buying cage-free eggs instead of cage eggs by causing the price gap between generic eggs and speciality, cage-free eggs to close down quite dramatically. According to the report from the Economic Research Service, between December 2014 and June 2015, more than 50 million chickens (and turkeys) in the United States died of highly pathogenic avian influenza (HPAI) or were destroyed to stop the spread of the disease. These birds accounted for ~12% of the U.S. layer population - this could explain the initial spike in the percentage of cage-free eggs relative to caged-eggs that was observed in 2015. It is also possible that the decrease in cage-eggs created an illusion of increase in cage-free egg consumption. Layers accounted for a large majority of the lost birds. Over the May-December period in 2015, the benchmark egg price was 61 percent above that from a year earlier, while production declined only about 10 percent. Production was low despite at least 21 million layers being added to the national flock between June 1, 2015, and January 1, 2016, reflecting the relatively low layer productivity that delayed the recovery. However, by March 1, 2016, the flock expanded by another 9 million birds and lay rates improved, resulting in more or less normalised levels of production. After the outbreak, record-high egg prices were the most notable market change, and price increases far surpassed production losses on a relative basis. Here, “normal levels of production” pertains to the production of cage-eggs. This is a point for the greater impact of the corporate campaigns, because a higher observable percentage of cage-free eggs in the following years is not a result of a decrease in cage eggs.
The expanded role of cage-free products may have also altered the supply and demand for eggs, and resulted in additional price volatility. While data on cage-free layers in 2016 was limited, between September 2015 and September 2016 over half of the estimated net increase in the national flock was due to more cage-free layers. Eggs are among the most price inelastic foods - their price elasticity is estimated to be 0.27 where a 95% confidence interval is given by (0.08, 0.45) (source). Assuming that this price elasticity holds, an increase of 61% in the price of eggs would have seen a 16.2% (4.88, 27.45) reduction in the quantity of caged-eggs consumed. If we assume that all of this reduction is made up of purchasing cage-free eggs instead, then cage-free eggs would see a 16.2% increase in demand.
Consumer Willingness to Pay
To simulate consumer behaviour and influence over the percentage of cage-free eggs produced, we used studies on consumer willingness to pay for cage-free eggs. In a study on the market potential for cage free eggs by the Food Marketing Institute, Animal Agriculture Alliance, and the Foundation for Food and Agricultural Research, it was found that when provided no additional information, half of consumers are willing to pay no more than a $0.30/dozen premium for cage free eggs. The mean premium is $1.16/dozen, suggesting a small fraction of consumers are willing to pay sizeable amounts for the cage free label. Almost 60% of consumers have a willingness to pay for cage free less than $0.40/dozen, but 33% have a value greater than $1.00/dozen.
The results suggest there is potential for the market-share for cage free eggs to rise above the current state even at premiums as high as $1.00/dozen. However, even at much more modest price premiums, the potential for cage free eggs to attain the majority market share is unlikely, particularly if conventional egg sellers advertise other desirable attributes. When ranking the importance of factors that influence the purchase of eggs, price came first with 43% relative importance, while animal welfare came fifth behind safety, taste, and nutrition, with 8% relative importance.
The above study seems to be the most reputable as it has the most respondents (>2,000) and it is used as the main source for nearly all other articles and reports on consumer willingness to pay. Some other reports have roughly the same numbers, but possess much less respondents. For example, this report with 327 respondents saw results that 27% of respondents would be willing to pay a premium of $0.98 for cage-free. The respondents for this survey were college students, who would perhaps be more willing than the older generation to pay more for animal welfare, as younger people tend to care more about animal welfare. On the other hand, they might have a less stable financial situation and be averse to spending more.
Based on these studies, we concluded that ~30% of consumers were willing to pay premium on cage-free eggs in 2007 and 32% were willing to do so in 2018. We concluded that this 2% increase in cage-free eggs’ consumption resulted from consumers’ choices that would, overall, be partially independent from corporate campaigning.
Refraining from purchasing eggs
It was observed that between 2014 and 2015, the per capita egg consumption dropped by ~4% (4.04) (source). That brought up another inquiry of interest: how might the complete removal of conventional eggs affect egg buying behavior? To explore this issue, it is now assumed that consumers have a choice between a conventional egg option (priced at $0.99/dozen), cage free eggs (priced at $1.79/dozen), and they also have the option to choose “none” and refrain from buying eggs altogether. As shown in the left panel of figure 9, under these assumptions, 59% are projected to choose conventional, 36% cage free, and 4% “none.” The right-hand panel of figure 9 shows the projections of what would happen were the lower-priced conventional option removed from the market. If this were to occur, the models predict the share of consumers who would refrain from buying eggs would
increase from 4% to 17% (source, page 28). In case of such an increase in prices, 4% of consumers might refrain from purchasing eggs.
Changes in prices of eggs caused by the avian flu outbreak
Price of caged eggs before and after the avian flu
Preliminary research pointed out some inconsistencies, so we analysed multiple sources to estimate the increase in prices. The Report from the Economic Research Service shows a 61% increase in prices. When we look at the estimates, the 61% increase stated in the report is for consumer-grade eggs (fresh eggs on store shelves), but not for processing-grade eggs that are used by restaurants and others. Attempting to read prices off Figure 1, we see that the price of eggs in May 2014 is US$1.05 and the price of eggs in May 2015 is US$1.7. Taking these prices as accurate, this is ~61% (61.9) increase. Making the price of eggs in May 2015 1.69 instead of 1.7 makes the price increase 60.95%, even closer to 61%.
Looking at the benchmark price on all available USDA reports from May - December 2014 and taking an average, and looking at the benchmark price on all available USDA reports from May - December 2015, we have a 63.6% price increase.
The USDA, in a monthly supply and demand report, increased its forecast for the price of Grade A large eggs in New York in 2015 to $1.60 to $1.66 per dozen. That is up from its May estimate of $1.30 to $1.36, and tops last year’s average price of about $1.42, which was a record high, according to USDA data. In the fourth quarter of 2015, eggs will average $1.73 to $1.87 per dozen, up from about $1.63 a year earlier, the USDA said. Last month, the agency predicted a dozen eggs would cost $1.33 to $1.45 in the fourth quarter.
Summarising these three, we have:
- Price spike in June 2015: $2.40 compared to $1.20 in June 2014. In May 2014, the egg price is $1.05 and increases to $1.69-$1.70 in May 2015.
- Considering the benchmark prices from the USDA reports, prices increase from an average of $1.43 to an average of $2.34.
- Taking the average price of eggs in 2014 from USDA’s report as $1.42, a 61% increase would mean that the average price of eggs in 2015 is $2.29.
- Price before: $1.28 (1.1, 1.46)
- Price after: $2.08 (1.77, 2.39)
Which gives us the 95% CI of price increase as: 62.5% (60.9, 63.7)
Absolute price of cage-free eggs during the 2014-15 period
We didn’t manage to find prices of eggs in 2014 and 2015, therefore used two separate methods, both of them have some limitations, so we think this part is especially prone to error. However, It doesn’t affect the main conclusions.
In 2015, it was found that, on average, cage-free eggs were 2.3 times more expensive than caged eggs (source).
Using these values to give us a CI we get:
2014 price: $2.94 (2.53, 3.36)
2015 price: $4.78 (4.07, 5.50)
Wholesale - the term seems to be synonymous with free-range - egg prices were in the $1.25 per dozen range in the fall of 2014, but by August of 2015 they had risen to $2.60 per dozen (source). The wholesale price of a dozen eggs fluctuated between $1 and $1.77 across the US in 2014, according to government statistics. Using Guesstimate, the average of this range is $1.40. The wholesale price of a dozen eggs in 2014 was $1.40 (source). Using the graph in this report, the price of wholesale eggs was ~$1.40 in 2014 and ~$1.80 in 2015.
Using these values to give us a CI we get:
2014 price: $1.36 (1.29, 1.43)
2015 price: $2.20 (1.42, 2.98)
Price of caged and cage-free eggs when avian flu stopped affecting prices
It seems that avian flu stopped affecting the price of eggs in 2016. The largest gap in the prices of caged and cage-free eggs was in 2017. However, evidence suggests that the price gap closed in 2018. Since it seems that avian flu stopped affecting the prices in 2016, and there are no obvious outside factors that could explain the price gap closing in 2018, we assume that this might be the result of corporate campaigns.
In 2016, due to an oversupply, the average selling price for cage eggs was down 64.9% (compared to 2015 where prices increased due to avian flu). Although cage-free egg prices also fell, they were only down by 13.2% (compared to 2015 prices) (source). A fall in cage egg prices of 49.8% can be seen on Statista where the price of a dozen eggs was $2.75 in 2015 and $1.38 in 2016. As of May 6, 2016, the USDA National Retail Report reported that the advertised prices for shell eggs was $1.07 a dozen for white large USDA Grade A eggs while “cage-free” large white eggs sold at $2.49. This is a premium of $1.42.
A dozen conventional eggs in March 2017 cost an average of $1.05. This was reported to be ‘less than half’ as expensive as a dozen cage-free eggs, according to price data from the USDA (reported by CNBC, they weren’t more specific). Using data from Bloomberg below, we can estimate that whilst a dozen caged eggs cost $1.05, a dozen cage-free eggs were at $2.85 (this is a premium of $1.80).
According to USDA-Agricultural Marketing Service data, while the premium in 2018 is lower than it was in 2017, it is still a $1.28 premium. This suggests that perhaps the gap in prices is closing again (“while the premium is lower than last year”). This idea is also backed up in an article from Bloomberg which states that the price differential between cage eggs and cage free eggs is decreasing. Reasons for this gap closing seem as simple as many corporations having made progress on their cage-free commitments, which results in the increase in supply that reduces cage-free eggs’ premium over regular eggs.
Since the biggest price gap was seen in 2017, we will model prices off this year and compare them to the prices in 2018 when the price gap began to close. Using the same study as previously on the market potential for cage free eggs by the Food Marketing Institute, Animal Agriculture Alliance, and the Foundation for Food and Agricultural Research, it was found that ~30% of consumers would be willing to pay the premium of $1.80 (based off the graph on page 24/50). When the price gap started decreasing in 2018, the premium fell to $1.28, and at this price ~32% of consumers were willing to pay the premium. Since it seems as if avian flu had stopped affecting prices by 2017-2018, it seems as if this 2% increase in the number of consumers willing to pay for cage-free eggs is a result of corporate campaigns increasing the supply of cage-free eggs (making the premium smaller).
Analysis of factors between 2017-2018
Based on the research above, we modelled all factors in Guesstimate, concluding that these factors explain only 6% out of 16% of all cage-free eggs, which leaves 10.4% to be explained by other factors, i.a. impact of corporate campaigns. However, we didn’t take into account other factors that might explain the increase, e.g. individual outreach or, more importantly, political change, particularly California’s Proposition 2 that passed in 2008 as a result of HSUS’s work. The Proposition, among other things, prohibits the confinement of hens in a manner that does not allow them to turn around freely, lie down, stand up, or fully extend their limbs, therefore effectively banning the usage of battery cages. Proposition 2 is credited as preparing the ground for the campaigns that followed with dozens of cage-free commitments from most companies in the US. Animal Charity Evaluators claims that Proposition 2 was the main factor that contributed to the success of the campaign against McDonald’s, which pledged policy change in 2015, preceding a series of cage-free commitments from other companies. Given that, ~10% is the upper confidence interval for the counterfactual impact of all of the campaigns in the US. To narrow down the confidence interval we used research by Founders Pledge on i.e. corporate outreach campaigns. They estimated that every cage-free campaign in the US that THL runs speeds up the commitment by 1-1.5 years on average. Using the data from Egg Track we estimated that the average percentage of eggs affected in 2017-18 is ~0.015%. Therefore, the total percentage of eggs affected by THL by speeding up every cage-free campaign is ~0.015% to ~0.023%. According to ChickenWatch, there were 76 commitments taken in 2017 and 35 in 2018, giving us 111 in total. Therefore, the total effect of THL between 2017-18 is ~1.71% to ~2.56%, which we are going to use as a lower band of the confidence interval, giving us ~2.1- ~10% of the counterfactual impact of corporate campaigns.
Analysis of factors during the period affected by the avian flu
Different results can be observed from our similar analysis of the period affected by the avian flu. Here, the percentage of cage-free eggs unexplained by all the factors taken into account in the previous analysis and the impact of the avian flu is only 0.6%. That might provide the argument for the hypothesis that the disease outbreak made the transition easier by closing the price gap between eggs from different housing systems and forcing some producers to partly switch to cage-free systems, which offered greater food safety. Given how surprising the result was for us, we conducted sensitivity analysis and double-checked the factors that were the sources of the greatest uncertainty in the final outcome. We listed potential flaws with those estimates:
- Price elasticity of eggs: the number is taken from a literature review which estimated this number from a sample size of 13 (some other food products have a sample size of ~50). Therefore, the expected percentage decrease in cage-eggs might be wrong;
- Extrapolation of the historical trend could be wrong;
- Rounding errors: for example, observed change is 8.67 but rounded to 9;
- Price of cage-eggs before and after avian flu was difficult to estimate: an average of USDA benchmark prices over the May-December period of 2014 and 2015 was used as one of the three sources to find these prices, the number of reports in this time period varied (there were 9 reports in 2014 and 5 reports in 2015, so there was a larger sample size in 2014);
- Percentage of people who won’t purchase eggs after the price increase of cage-eggs could be too small; maybe more would switch to cage-free instead.
The presence of all analyzed factors, if no other factors play a role, would result in 6% of all eggs in the US being cage-free. However, we can observe that ~16% of eggs produced in the US are cage-free eggs, which means that the effects of other factors result in an additional 10.4% of cage-free eggs. This could be explained by corporate outreach (or other known and unknown factors, e.g. change in legislation that increased the probability of the success of the campaign). Therefore, we attribute the counterfactual impact of corporate campaigns to be between 2.1-10% of eggs being switched to cage-free. We are not going to use this number in the cost-effectiveness analysis separately from other factors. We plan on publishing an analysis of expected success of launching new corporate campaign, and this piece is only a supplementary element to the bigger research on corporate outreach.
Although we will not do this ourselves, we would love to see a similar analysis for a different country, and we suggest the UK given the availability of data. If anyone is interested in doing so, we would love to send you any data we might have to help get you started. We gathered data on the relative share and number of cage free-cage eggs in the UK and it can be found here.
Wholesale is not synonymous with free-range. See https://en.wikipedia.org/wiki/Wholesaling I already pointed it out when you published this article on your website three weeks ago but I thought that I should point it out here as well because your cage-free egg prices (and consequently the results) could be incorrect because of this mistake.
Thanks Saulius for pointing this out. We spent a considerable amount of time trying to find a more relevant number, but that was the closes proxy we've found. If you have any other source we could use, that would increase the accuracy of the estimate.
Could you clarify how I should interpret the ~0.015% to ~0.023% and the ~1.71% to ~2.56% differently? The wording seems very similar.
Also, why use 2.1% (the mean?) as the lower band, and not, say 1.71% or something closer to it to include the uncertainty in this estimate? Is this just for simplicity? I suppose it doesn't really matter that much, either way, though, since the difference is small.
Do you think it would be feasible to use matched controls?
You could match companies that have been targeted to those that have not (at a given point in time?), but as has been discussed elsewhere, there are spillover effects. At least it could give you some kind of lower bound. It might be difficult to find matches this way, though, since I suspect companies are targeted based on common characteristics.
Or you could match countries or geographic regions. Maybe Canada, given shared values and the influence the US has on it? Of course, many of these campaigns were for international companies, and there could be spillover effects from the US to Canada, too. Since Canada is more progressive overall, it could make sense to reweight its provinces. I haven't been able to find very reliable sources for Canadian farm animal statistics, though.
A concern I have about extrapolating from historical trends is the sensitivity to the form of the function used to extrapolate. For example, if a linear function was used here, then a strictly convex function (e.g. quadratic, exponential) might give a higher estimate for the trend without corporate campaigns, and we'd have to adjust the counterfactual impact of these campaigns downward. It seems plausible that the percentage cage-free would increase at an increasing rate, given how relatively flat it was from 2005 to 2010, and the possibility of some kind of network effects (e.g. in concern for or knowledge of animal welfare) that lead to some kind of compounding.
Are there any company characteristics that you'd guess are especially predictive of better progress in going cage-free? Do larger companies make slower progress or are they less likely to make pledges in the first place?
When analyzing 35 Independent Pieces of Evidence for Why New Corporate Campaigns Might (or Might Not) Work, I’ve found some commonalities:
Characteristics that don't correlate with follow-through:
I wouldn't be surprised if those factors were somewhat predictive: